Pompey’s Russian Gold

Andy Newman

It is supremely poignant that just a few days after Russian millionaire businessman Alexandre Gaidamak invested £15 million into Portsmouth FC, his father Arkadi Gaidamak was “questioned under warning” by police in Jerusalem in connection with an alleged money laundering scandal.

Now it must be stressed that Arkadi Gaidamak says his financial affairs are completely separate from the finances of his 30 year old son, Alexandre Gaidamak.  At his press conference at Fratten Park on Friday Alexandre also stressed that his business affairs and those of his father are "completely separate issues". Nevertheless the investment into Portsmouth FC is part of a continuing trend of Russian millionaires investing into sporting institutions in the west. Undoubtedly from the purely selfish perspective of Pompey’s fans, any money will be useful. As manager Harry Redknapp says: "If someone's going to come in and we are going to be able to improve the playing squad, which we need to do, it's got to be good for the football club."

Last month I wrote in connection with the elder Gaidamak’s recent purchase of top Israeli club Betar Jeruselem: “In 2000, the French put out an international warrant for his arrest in connection with the Angolan arms-for-oil scandal, for which the son of former French President Francois Mitterrand was briefly jailed on charges of receiving kickbacks from Gaidamak business partner Pierre Falcone. Gaidamak and Falcone allegedly arranged for shipments of Russian arms that were to have been paid for with Angolan oil contracts. There was an international ban on weapon sales to Angola at the time.

 

The Angolan Connection

According to the Israeli news organisation www.Ynetnews.com Guidamak withdrew all his funds just before police planned to freeze all of his accounts in Hapoalim Bank following an undercover investigation against him. The police allegedly made the request to freeze the money due to suspicions that Gaidamak's fortune may not have been made legally. In a press conference Gaidamak senior said that he was the target of improper behavior and did not understand why he was being treated in such a manner.

In a bizarre coincidence, this week also saw Russian billionaire Lev Leviev purchase a 75% stake in rival Jerusalem team, Hapoel Tel Aviv. The blog, http://www.onejerusalem.com/ documents in detail the long relationship between Gaidamak and Leviev. Although they are now rivals, much of Lev Leviev’s vast wealth comes from his Angolan diamond interests, which were allegedly established with the assistance of Arkadi Gaidamak.

The Angolan connection is very strong. Lev Leviev overturned De Beer’s monopoly in Angola, and according to the Economist this connection made Leviev an estimated $850 million per year. Today, Gaidamak seems to be involved with Angola’s Sunland Mining, also one of the official buyers of rough diamonds from Angolan state company Sodiam.

There is no suggestion that either Leviev’s or Gaidamak’s diamond trading in Angola are illegal. However, in a report for BBC’s “Focus on Africa”, Lara Pawson exposed how some of Leviev’s employees freely admitted to buying diamonds from UNITA – Dr Jonas Savimbi’s fascist rebel army.

But the biggest scandal is that these vast fortunes are being extracted from Angola, which remains one of the world’s poorest nations. According to the United Nations: One in three children in Angola dies before age 5. Half the children are underweight. Fewer than half have ever been in school, and the majority of the adult population are illiterate. The vast majority of Angolans face a critical shortage of healthcare. But Leviev has no ethical objection to making money out of human misery, and has recently been awarded a contract to build and run Israel’s first private prison near Be'er Sheva.

Who are these people?

It is understandable, especially given Portsmouth’s dismal performance on the pitch, and desperate fight for premiership survival that any new money would have been welcomed with open arms by chairman Milan Mandaric, and manager Redknapp. What is more the dodgy father, Arkadi Gaidamak says he has played no part in his son's decision to buy 50 per cent of Portsmouth for £15 million. Nevertheless, a diligent search into the background of the Gaidamak dynasty might have made Mandaric question whether Portsmouth’s longer term interests are really served by this association.

It is reasonable to question to what degree clubs do research the backgrounds of their Russian benefactors. Rather complacently the BBC reported over the take over of Hearts by Vladimir Romanov that his “financial legitimacy was thoroughly checked before the likes of Robinson and his rival Leslie Deans sold out to the new regime

Vladimir Romanov has become astonishingly rich, astonishingly fast. He was a former taxi driver in the era of the Soviet Union, who allegedly operated on the edges of the black economy selling Beatles and Rolling Stones records on the side. As the Scotsman reported in March 2005: “By ruthlessly exploiting the lack of laws and business regulations in the early years of Lithuanian independence - which helped to make the country a centre for trade in all manner of materials, from metal to textiles to oil - he realised he could make a fortune.” Today he is valued at around $260 million. http://sport.scotsman.com/topics.cfm?tid=1225&id=248322005

 

All roads lead to Rome

One thing that is known about Heart’s Vladimir Romanov is that he is a friend of Chelsea owner Roman Abramovich. Here is another coincidence, the liberal Israeli newspaper Ha’aretz reports that Lev Leviev bought Hapoel Tel Aviv as “the result of a gentlemanly agreement with Chelsea owner Roman Abramovich

Adrian Levy and Cathy Scott-Clark wrote an excellent article in the Guardian http://www.guardian.co.uk/russia/article/0,2763,1212245,00.html

that peered into the secretive world of Abramovich’s finances. Interestingly they observe, “little of substance is known about Abramovich's wealth other than that he is one of 23 Russian entrepreneurs who took advantage of the privatisation of Russia's state assets in the mid-1990s. This exclusive group now controls 60% of the Russian economy, and their combined wealth amounts to £44.6b … … Russia's per capita gross domestic product is now less than that of Costa Rica. .. …  in a recent poll cited by the World Bank, 80% of respondents said that they believed the oligarchs had made their fortunes dishonestly.”

Levy and Scott-Clark expose how Abramavich consolidated his grip on the Sibneft oil company. The workers had all been issued shares by the governemt in 1992, but when Abramovich took over the company he simply stopped paying them for several months, and the company shops would only accept payment in shares. So alarm bells should ring when we read in the Scotsman that: In Ukraine, [Vladimir Romanov’s] companies have been involved in privatising state companies by transferring shares to the workers and then buying those shares.”  Of course, there is no reason to suspect that Romanov's behaviour was not completely lawful.

This indecent scramble for wealth by a greedy few is far from a victimless crime. Life expectancy for men in Russia fell from 65 in 1987 to 59 in 1993. The number of suicides rose by 53%, as more than one third of the population slipped below the poverty line. According to figures published by the World Bank at the end of 2004, 20% of Russians have a monthly income less than 30 euros, (less than £21.) The minimum wage covers only 27 % of what is needed to sustain an adult of working age; the child benefit covers just 3 % of necessary expenditure for a child; and the minimum pension covers only 46 % of the minimum expenditure of a pensioner. Since 1990 an estimated 8 million Russians have died prematurely due to poverty. Unicef reports that 18 million children are living in extreme poverty. 

 http://news.bbc.co.uk/2/low/europe/1682369.stm

In the Wild-West atmosphere of post-Soviet Russia, get-rich-quick short cuts could be taken that would be unethical or even illegal in the West. But Russia is far from a stable society and there are strong incentives for transferring the wealth to the West.

 

Putin turns the screws

There is even a threat that the Putin government could move against the oligarchs. Russia's richest man, Mikhail Khodorkovsky, made an oil merger deal with Abramovich in 2003, but then Khodorkovsky was jailed by Putin on fraud and tax evasion charges. The audit chamber of the Kremlin announced that it would investigate allegations that 51% of Abramovich’s Sibneft was sold off in an illegal "fake auction" in 1995.

It should be noted that both Lev Leviev and Arkadi Gaidamak had already left the Soviet Union long before the fall of communism. However according to the Economist Leviev’s major breakthrough came in Russia: Mr Leviev has cultivated close ties with Russian politicians, including Vladimir Putin long before he became president. Already well known as a cutter and polisher of diamonds in the 1980s, Mr Leviev was asked to help the Soviet state-owned diamond firm set up local factories 15 years ago…  When the factories were privatised, Mr Leviev somehow emerged as the exclusive owner.” http://www.economist.com/printedition/PrinterFriendly.cfm?Story_ID=2921462

But even Leviev is no under pressure from Putin and diamond industry watchers report that he is no longer enjoying favourable prices from the Russian mines, allegedly Putin is unhappy that Leviev has sought to position himself as an indispensable intermediary between the Kremlin and Israel on both economic and political matters.

 

So why all the sudden interest in Sport?

When Roman Abramovich bought into Chelsea in 2003 he paid out a mere £140 million. Given that Abramovich recently sold his share of Sibneft to Gazprom for $13 billion, his investments in Chelsea are not a significant part of his fortune. Yet through his football investment he has become a household name in Britain, and has been able to draw a line under the controversy of how he made his fortune. All he needed to do was pass the Premiership's fit and proper person test: little more than a self declaration that he has never been convicted of fraud and theft.

Given the enormous status and interest in football, the current obsession with celebrity culture, and the precarious financial position of many cubs, a relatively small investment can purchase a reputation that could later be invaluable in building a business empire in the West with money plundered during the rape of the Soviet Union. What is more the fan base of the individual clubs concerned may prove a valuable asset – as they invariably react favourably to large cash injections whatever the source. Newspaper and TV companies with an eye to their readerships amongst fans are less likely to probe deeply and critically into these businessmen than they would have been if they had attempted to buy a bank or manufacturing company.

Football has become a huge industry – it needs to be careful it doesn’t present itself as a money laundering operation for one of the biggest crimes in history.

 

 

Note on spelling. In the British press Gaydamak is the more common spelling than Gaidamak, but the more common international transliteration is Gaidamak.

 

Picture credits

Unita soldiers: http://www.msu.edu/course/iss/325/stein/protractedwar.htm

Harry Redknapp: http://www.soccernet.com/images/england/20030603/redknapp_mfk.jpg

Vladimir Romanov: http://news.bbc.co.uk/media/images/40959000/jpg/_40959646_romanov203pa.jpg

Child poverty: http://news.bbc.co.uk/2/low/europe/1682369.stm

 

 

 

Jan 2006

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