Vladimir Putin's right-hand man Igor Shuvalov is a rising star in Russian politics. He's also made a lot of money since joining the government.
Before his fame as an early investor in Facebook, Groupon and Twitter, the Moscow-based billionaire Alisher Usmanov bought 13% of the European steelmaker Corus Group, a business that employed thousands in the north of England when it was known as British Steel. Media reports of Usmanov's foray took scant notice of filings at the U.S. Securities and Exchange Commission, in which Usmanov told of borrowing much of the $319 million he invested in the storied steelmaker. One of his backers was a "corporate lender based in the Commonwealth of the Bahamas" by the name of Sevenkey Limited, according to the April 2004 filing by Usmanov's investment firm.
The SEC filing didn't mention that Sevenkey's owner at the time was a trust for the benefit of Igor Shuvalov, the top assistant to Russia's then-president Vladimir Putin. Then as now, Shuvalov was Putin's right-hand man and the Russian Federation's economics czar. Now Russia's First Deputy Prime Minister, Shuvalov holds a ministerial portfolio that has included financial reform, privatization of state-owned enterprises, and attraction of foreign investors to Russia, along with his nation's representation at Davos, the G-8 and, most recently, the World Trade Organization. More important, to a billion soccer fans, Shuvalov was behind Russia's successful bid to host the 2018 World Cup.
Bank records viewed by Barron's show that the $49.5 million that Sevenkey loaned for Usmanov's European steel foray had been deposited in Sevenkey's empty bank account weeks earlier. According to a knowledgeable source, these deposits were arranged by Eugene Shvidler, another billionaire who ran the Russian oil company Sibneft before its $13 billion purchase in 2005 by the state-owned Gazprom (OGZPY). Shvidler now sits on the boards of steel maker Evraz Group (EVR.United Kingdom) and Highland Gold Mining (HGM.United Kingdom), a Russian joint venture with Barrick Gold (ABX). The bank records and a pile of private corporate documents, also examined by Barron's, show that both before and after Igor Shuvalov presided over government actions affecting Usmanov and Shvidler, Sevenkey engaged in financial transactions with those same businessmen in which Sevenkey received more than $100 million.
Sevenkey made out exceptionally well in those deals. Its loan agreement to Usmanov's Gallagher Holdings initially mentioned a 5% annual interest rate. By July 2007, bank records show that Usmanov's firm had returned $119 million under the loan–a better than 40% annualized rate of return. That's because Gallagher amended the loan agreement in 2006 to give Sevenkey a piece of the action: to wit, 4.9%, or $50 million, of the $1.02 billion in "investment income" that Usmanov's Cyprus-based holding company earned that year.
Representatives of Shuvalov and Usmanov told Barron's that the deals were commercially proper and duly reported to relevant regulators. "Minister Shuvalov has provided his, and his family's, financial records to Russian authorities, including the Russian Internal Tax Service, in full compliance with Russian law," said a statement from the Russian government's public-relations reps at Ketchum Communications. "All relevant taxes have been paid on a regular basis. All requirements and restrictions of the state civil service have always been followed." Shvidler didn't respond to questions put to his representative.
FREQUENTLY MENTIONED AS A future contender for Russia's presidency, the 44-year-old Shuvalov has deftly positioned himself at the center of the action as Russia transformed its economy. In 1993, he landed a job at ALM Consulting, the Moscow law firm that became a favorite of Russia's first "oligarchs," a clique whose connections to then-President Boris Yeltsin enabled them to grab the juiciest pieces in the privatization of state enterprises. With the political help of the wealthy Boris Berezovsky, for example, Roman Abramovich, Eugene Shvidler's longtime friend and employer, carved out the oil company Sibneft and made Shvidler president.
Like other enterprising young men in mid-'90s Russia, Igor Shuvalov rose quickly in the socioeconomic vacuum. By 1995, he was managing partner of his law firm and joined with its clients on real-estate and trade ventures. He left law practice in 1997 for the government agency controlling state property. When the Ruble Crisis hit in August of the next year and Russia defaulted, the young technocrat sat on the panel that charted the country's recovery....MUCH MORE