Married to the Ukrainian Mob
Meet Dmytro Firtash, the shady billionaire at the heart of Russia’s energy stranglehold over Kiev.
Buried in the news of Russia's invasion, and now annexation, of the Black Sea peninsula of Crimea was the second most important event to affect the new Ukrainian government last week -- and it happened in Austria. On the evening of March 12, one of the most notorious Ukrainian oligarchs, Dmytro Firtash, whose fortune has been estimated at anywhere from $673 million to the tens of billions, was arrested in Vienna, right outside of one of his offices in the Margareten district. Neither he nor his bodyguards put up a struggle, according to press reports, although Group DF, the massive international holding company Firtash owns, has said in a statement that the whole thing was a "misunderstanding" which would be "resolved in the very near term."
But the misunderstanding involved agents from Austria's organized crime division and its elite counterterrorism special ops unit, which doesn't bear the hallmarks of a short-term mix-up, even by European standards. Austrian authorities have said that Firtash was detained on suspicions of bribery and forming a criminal organization related to overseas business deals. On March 18, the oligarch himself claimed that his arrest was "without foundation" and that he believes "strongly that the motivation was purely political." Bail has been set at a record-breaking $174 million, which the Vienna criminal court expects Firtash to post shortly, though he won't be able to leave Austria.
Relations between Washington and Moscow have deteriorated precipitously since November, when then-Ukrainian President Viktor Yanukovych backed out of an E.U. association agreement that he'd spent years lobbying for and opted for a $15 billion bribe from President Vladimir Putin instead. Now, almost a month after Yanukovych's night-flight from Kiev and his formal ouster from power by the Ukrainian Rada, and three weeks after Russian forces invaded and occupied Crimea, the West has groped to find ways to punish politically keyed-in moneymen, from Moscow to Kiev. For the better part of a decade, Firtash wasn't just one of Ukraine's richest oligarchs, he was the principal conduit for the astonishingly profitable and legendarily crooked gas trade between Russia and Ukraine.
Buried in the news of Russia’s invasion, and now annexation, of the Black Sea peninsula of Crimea was the second most important event to affect the new Ukrainian government last week — and it happened in Austria. On the evening of March 12, one of the most notorious Ukrainian oligarchs, Dmytro Firtash, whose fortune has been estimated at anywhere from $673 million to the tens of billions, was arrested in Vienna, right outside of one of his offices in the Margareten district. Neither he nor his bodyguards put up a struggle, according to press reports, although Group DF, the massive international holding company Firtash owns, has said in a statement that the whole thing was a "misunderstanding" which would be "resolved in the very near term."
But the misunderstanding involved agents from Austria’s organized crime division and its elite counterterrorism special ops unit, which doesn’t bear the hallmarks of a short-term mix-up, even by European standards. Austrian authorities have said that Firtash was detained on suspicions of bribery and forming a criminal organization related to overseas business deals. On March 18, the oligarch himself claimed that his arrest was "without foundation" and that he believes "strongly that the motivation was purely political." Bail has been set at a record-breaking $174 million, which the Vienna criminal court expects Firtash to post shortly, though he won’t be able to leave Austria.
Relations between Washington and Moscow have deteriorated precipitously since November, when then-Ukrainian President Viktor Yanukovych backed out of an E.U. association agreement that he’d spent years lobbying for and opted for a $15 billion bribe from President Vladimir Putin instead. Now, almost a month after Yanukovych’s night-flight from Kiev and his formal ouster from power by the Ukrainian Rada, and three weeks after Russian forces invaded and occupied Crimea, the West has groped to find ways to punish politically keyed-in moneymen, from Moscow to Kiev. For the better part of a decade, Firtash wasn’t just one of Ukraine’s richest oligarchs, he was the principal conduit for the astonishingly profitable and legendarily crooked gas trade between Russia and Ukraine.
According to the New York Times, Firtash, who has stakes in the energy, media, real estate, banking, and chemical industries, was detained on bribery and other as-yet-unspecified charges at the request of the FBI, which had been investigating the Ukrainian business mogul since 2006. Eight years is certainly a long time to wait. And while it is true that Firtash had so far avoided landing himself on the European Union’s list of 18 sanctioned Ukrainians — most of them former officials in the Yanukovych government, as well as their relatives — few who are familiar with his background or are now closely monitoring an increasingly assertive U.S.-EU effort to counter Russian aggression believe that this high-profile collaring simply occurred out of the blue.
Firtash is simply too good of a political target and the timing, too suspicious. According to Standard Bank analyst Timothy Ash, Firtash "has close ties to Russia via the energy sector, and perhaps even to [President Vladimir] Putin." One of the oligarch’s chemical companies, Ash notes, got large discounts from Gazprom, Russia’s state-controlled gas giant, at a time when Naftohaz, Ukraine’s state gas company, was paying premium prices for imports. The ownership of the Swiss-registered gas trading company RosUkrEnergo is also almost evenly divided between Firtash and Gazprom, indicating that the Ukrainian oligarch was a close partner of the Kremlin.
"The arrest is not a coincidence," former U.S. Ambassador to Ukraine William Taylor, told Foreign Policy. "I suspect there are many Ukrainian businesspeople who are very nervous at this point. The United States has put sanctions and visa bans on a few individuals, and Firtash would be a leading candidate. He clearly supported President Yanukovych." The timing of the arrest might have been opportunistic, but the investigations of criminal activity were very real — and U.S. law enforcement agencies had been closing in for some time. Indeed, Taylor said he suspected that the Austrian operation had something to do with longstanding allegations that Firtash is tied to organized crime in the United States and Europe.
One degree of separation from the FBI’s "10 Most Wanted"
As it happens, Firtash has admitted to his mob connections — to Taylor, in fact. In December 2008, the Ukrainian personally requested a meeting with the ambassador to make "his case to the [U.S. government]." A State Department cable, subsequently published by WikiLeaks, stated: "Firtash’s bottom line was that he did not deny having links to those associated with organized crime. Instead, he argued that he was forced into dealing with organized crime members including [Semion] Mogilevich or he would never have been able to build a business."
The Ukrainian-born Mogilevich, thought to be more powerful than John Gotti or Whitey Bulger ever were, is currently on the FBI’s "10 Most Wanted" list. He was indicted by the U.S. Justice Department in 2003 on 45 counts of mail fraud, wire fraud, securities fraud, money-laundering, and racketeering related to a multinational, publicly traded front company called YBM Magnex, Inc, which at its height was valued at $150 million. It claimed to manufacture magnets — except that it didn’t. Instead, YBM Magnex drove its share prices up on the Toronto Stock Exchange by convincing shareholders that the money Mogilevech and his conspirators were moving around banks globally was for the purchases of raw materials. But the end product never existed. In 2009, FBI agent Peter Kowenhoven told CNN that Mogilevich "has access to so much, including funding, including other criminal organizations, that he can, with a telephone call and order, affect the global economy."
The Mogilevich Organization, as the FBI refers to his criminal empire, keeps an especially diverse portfolio: In addition to murder, prostitution, money-laundering, and precious gems dealing, it also traffics in both weapons and nuclear materials. Based in Budapest, the syndicate has branches in Prague, Vienna, Moscow, Israel, France, and Slovakia. In fact, Mogilevich was himself briefly arrested in Moscow in 2008 on tax fraud charges, but was soon released on bail. Ignoring numerous U.S. extradition requests, the Kremlin now allows Mogilevich to reside comfortably on Russian soil, which may be still another reason that Firtash was grabbed while in Austria, which, unlike Russia, has an extradition treaty with the United States. (The FBI has said it hopes Mogilevich travels abroad so that it can have him arrested, too.)
There are plenty of third parties linked to both Mogilevich and Firtash, and even one company where both men were directors at the same time. They also shared the same Israeli attorney, Zeev Gordon. In 2006, Gordon admitted to the London-based corruption watchdog Global Witness that he had acted as a trustee in 2002, when Firtash set up Eural Trans Gas (ETG), a powerful gas trading company and joint venture between Naftohaz and Gazprom. A day after ETG was born, on Dec. 5, 2002, it won a contract to transport gas from Turkmenistan to Ukraine in exchange for gas worth as much as $1 billion on European markets. Not bad for a company founded in a Hungarian village with $12,000 in startup capital.
ETG has extraordinarily opaque origins. Gordon, for instance, was one of four original shareholders in the company. The other three were, as the watchdog Global Witness put it, "three hard-up Romanians with no connection to the gas industry, one of whom was an out-of-work actress who says she took part in order to pay her phone bill." The Israeli lawyer further claimed that Firtash’s role in ETG was as a strictly private investor, not as an agent of either Gazprom or the Ukrainian government, then headed by President Leonid Kuchma. Yet a decade ago, Firtash was a relatively unknown and smalltime businessman. Even in 2006, Global Witness could not account for why someone whose photograph was not yet publicly available was authorized to control such a lucrative enterprise with the blessings of both Kiev and Moscow, especially when the creation of a state-owned gas transport vehicle would have been the more logical joint venture between the two governments. To this day, no one can say with complete certainty how Firtash landed himself in such an elite position, or on whose behalf he was actually acting.
Dmytro Firtash’s own history is bathed in as much opacity as his many professional transactions. Much of what is known about him comes from what he himself has told interlocutors over the years, including Taylor, the former U.S. ambassador, who remains skeptical of many of the oligarch’s claims. Other sources include the Ukrainian newspaper Ukrainska Pravda, which reported that Firtash, although not terribly well-educated, was highly decorated as a soldier in the Ukrainian Army and, like many future oligarchs from the former Soviet Union, parlayed his Communist connections into capitalist riches.
Following Ukraine’s independence in 1991, Firtash started a business in Chernivtsi, western Ukraine, which delivered canned goods and dry milk to Uzbekistan. His first company, KMIL, which he co-owned with his first wife, Martiya Kalinvoska, is said to have incurred heavy losses toward the end of the 1990s. KMIL then involved itself in more profitable food-for-gas barter schemes with Turkmenistan, benefitting from Ukraine’s inability to buy gas imports with its diminished foreign exchange reserves. KMIL was eventually rolled into a preexisting Cyprus-registered entity called Highrock Holding, of which Firtash became the director in 2001. According to Ukrainian press reports, also cited in Taylor’s 2008 cable to Washington, Highrock’s financial director in the late 1990s was a man named Igor Fisherman — none other than the future president of YBM Magnex, Inc., the fake magnets manufacturer that defrauded U.S. and Canadian investors and made Mogilevich one of America’s top fugitives. (Fisherman was indicted by the Justice Department in that case, too.)
According to the FBI’s 1996 file on the Mogilevich Organization, Fisherman worked out of the Newtown, Pennsylvania, headquarters of YBM Magnex and acted as the coordinator of the kingpin’s "contacts and criminal activities in the Ukraine, Russia, the United States, the United Kingdom, the Czech Republic, and Hungary."
Highrock’s connection to the Mogilevich Organization was clearly more than just tangential. In yet another U.S. State Department cable from Kiev, this one dated November 2008, William Klein, the acting economic counselor in the U.S. embassy, noted that "34 percent of Highrock was owned by a firm called Agatheas Trading Ltd," which Galina Telesh, Mogilevich’s ex-wife, reportedly directed from 2001 to 2003. The cable also noted that Firtash and his wife owned 33 percent of Highrock, and that the Ukrainian oligarch became the director of Agatheas Trading in 2003.
Firtash himself confirmed this ownership breakdown of Highrock to the Financial Times in 2006, although he denied that he had ever met or dealt with Telesh directly, insisting that another man — his alleged partner in the Cypriot company — was Telesh’s point-person. That man was Igor Makarov, the founder and president of Itera, the company that preceded ETG as the preferred intermediary in the Russian-Ukrainian gas trade.
By 2000, Makarov had grown Itera into the fourth-largest gas company in the world, thanks to its enormous reserves. In conversation with Taylor, the former U.S. ambassador to Ukraine, Firtash claimed he used Highrock to transfer food commodities to Itera, which were then used to purchase gas in kind from Turkmenistan — until they fell out in 2001 over Makarov’s alleged failure to pay Firtash the $50 million he was owed in gas proceeds. It was then, according to Taylor, that Firtash decided to embark on his own independent career and unseat Makarov as Ukraine’s top gas importer. He even told the U.S. ambassador about a Sopranos-style sit-down dinner he attended with Makarov in 2002. Mogilevich, he said, was present as Makarov’s bodyguard — and Firtash wasn’t sure he’d get through the meal alive.
To ensure his position as Ukraine’s most powerful gas titan, Firtash appointed former Hungarian Culture Minister Andreas Knopp as managing director of ETG. Knopp was a man he believed could facilitate deals with Kazakhstan, Turkmenistan, and Uzbekistan — and it was Knopp who ended up signing all the contracts between Naftohaz and Gazprom. But it was also Knopp who brought the budding oligarch once more into the orbit of the mob boss Firtash says he could never have avoided. Knopp is mentioned in a 2005 Austrian Federal Criminal Investigation Agency report on the Mogilevich Organization, which Foreign Policy has obtained. The report states that Knopp was suspected by the FBI of being "a long-standing member of the [organization] and has been frequently involved in [its] operations."
The monopoly man
Firtash’s biggest break came on July 22, 2004, with the birth of RosUkrEnergo (RUE) in Zug, Switzerland. The registration of this company seems hardly a coincidence, as it occurred exactly four days before a meeting in Yalta between Vladimir Putin, then just finishing his first term as president, and Leonid Kuchma, who was just months away from the Orange Revolution that would prevent his chosen successor and then-prime minister, Viktor Yanukovych, from stealing a national election. The purpose of the meeting was to broker a new agreement between Naftohaz and Gazprom, and its principal yield was the establishment of a joint venture between Russia and Ukraine that would control the flow of gas from the former into the latter, and then into the rest of the European Union. RUE, as it would be known, was therefore put in charge of ensuring that approximately 50 million people on the continent had access to energy. Yet there was something odd about the ownership structure of this bilateral proposal.
While the Russian half of the joint venture was clearly owned by the Kremlin, no one quite seemed to know who the ultimate legal beneficiaries on the Ukrainian side were, other than that they were an obscure consortium of Ukrainian businessmen. The interests of the Ukrainian shareholders were managed by CentraGas Holding, a wholly owned subsidiary of Raisffeisen Zentralbank, the third-largest bank in Austria. But who were these lucky private investors? "I don’t know any more than you do and Gazprom does not know either," Putin told a Spanish journalist in 2006. "It was they [the Ukrainians] who proposed that RosUkrEnergo supply gas to Ukraine instead of Gazprom. We agreed."
It is, of course, highly unlikely that the Russian president was unaware of the identity of half of the shareholders of a gas transport monopoly which, at its height, made close to $800 million a year. But it was not until 2006 that Firtash disclosed his co-ownership of RUE alongside Gazprom. This may have been at least partly the result of a criminal investigation into both RUE and ETG, opened in June 2005 by the Ukrainian Security Service (SBU), then headed by Oleksandr Turchynov, a loyalist of Prime Minister Yulia Tymoshenko. Recently released from prison following the Euromaidan protests and Yanukovych’s ouster last month, Tymoshenko has been repeatedly blamed by Firtash for not only sabotaging his commercial interests in Ukraine but for caving to Moscow. As the Ukrainian oligarch told Taylor in 2008, Tymoshenko was planning to "offer up the country to Russia on a silver platter."
Tymoshenko, who has not escaped corruption allegations herself, once referred to RUE as a "wart on the body of the Naftohaz company" on Ukrainian television. In 2005, SBU head Turchynov told the Financial Times that he suspected the real person behind RUE was not an oligarch, but Ukraine’s most notorious mob boss: "The surname Mogilevich isn’t in the [gas trade] agreements or in the ownership documents," he said, "but there are many indications that a group of people under his control could be involved."
There were other eyebrow-raising aspects to RUE’s governance. Its two co-directors were Konstantin Chuychenko and Oleg Palchykov. Chuychenko was an ex-KGB agent who ran Gazprom’s legal department and maintained close ties to Dmitry Medvedev, who was co-chairman of the board of Gazprom and later tapped by Putin to be a placeholder president of Russia. Palchykov, meanwhile, was the former head of ETG’s Moscow office and yet another link in the chain between Firtash and Mogilevich. As the late Jamestown Foundation scholar Roman Kupchinsky wrote in 2009, the address given for the ETG’s Moscow office was the same building where the mobster’s alleged right-hand man and former Highrock Holding financial director, Igor Fisherman, worked.
In September 2005, Tymoshenko was sacked, along with the rest of her cabinet, by President Viktor Yushchenko — her Orange Revolution ally turned political rival. As a result, Turchynov resigned from the SBU and was replaced by a former assistant who later denied that any investigation into Firtash’s ventures had ever taken place. Turchynov later told Global Witness that he had informed Yushchenko — a man whom Firtash called a friend and confidant — that RUE posed a serious danger to Ukraine’s energy security. These warnings went unheeded at the time, but when Tymoshenko was again appointed prime minister in 2007, Firtash seems to think she resumed her effort to dismantle his energy empire.
Firtash may have been right about that. From 2005 to 2006, Russia waged its first so-called "gas war" with Ukraine — a war seemingly settled on Jan. 4, 2006, when it was decided that Turkmenistan would sell RUE gas for an undisclosed but incredibly cheap price, while Gazprom would sell RUE Russian gas at $230 per 1,000 cubic meters. Ukraine would then pay $95 per 1,000 cubic meters for its imports, while also receiving a 47 percent boost in profits for transporting Russian gas to the European market. One investment analyst told the BBC at the time that the deal was "designed so that both sides can say they’re paying — and being paid — the price they wanted."
Firtash falls out
In order to undercut critics of the Russian side, who (rightly) alleged that this compromise was no less transparent than previous Russian-Ukrainian gas deals, Firtash’s ownership of RUE was outed — itself in the shadiest manner. A journalist named Vladimir Berezhnoi, writing in the then-Gazprom-owned Russian newspaper Izvestia, said that Firtash controlled 45 percent of RUE through CentraGas Holding. The article also claimed that Mogilevich was the owner of Highrock Holding, the company of which Firtash was then a director. The only problem? Inquiries made by the St. Petersburg Times revealed that "Vladimir Berezhnoi" was a concoction — the actual article had been written under a pseudonym by an Izvestia staff writer after a Gazprom representative had turned over an audit proving Firtash’s ownership.
In any event, the new Moscow-Kiev arrangement didn’t last long. In 2009, RUE lost its role as the exclusive importer of Gazprom gas as part of an agreement which Putin and Yushchenko struck to resolve yet another Russian-Ukrainian gas war. Firtash blamed Tymoshenko for eliminating RUE’s import monopoly, and there was evidence that Putin had cast his lot with the blonde-tressed Orange Revolutionary. "From our side, RosUkrEnergo is 50 percent-owned directly by Gazprom, but from the Ukrainian side, there are some individuals," Putin said in January 2009. "We don’t know them. But they again are showing us this Mr Firtash, with whom I have never met, never seen with my own eyes." As for whom Firtash worked, Putin demurred: "Don’t ask us." It was a sign that the Ukrainian oligarch had lost his patron in the Kremlin.
But by this point, Firtash had already begun expanding beyond the energy sector and into other enterprises. He announced plans to acquire Ukraine’s Nadra Bank in 2008-2009, around the time that it was headed into default, and closed the deal in 2011. In 2013, he purchased 100 percent of Inter Media Group back from former co-owner Valery Khoroshkovsky, who had bought out Firtash’s stake in the conglomerate in 2007. Through Inter Media Group, Firtash now owns seven television channels including K1, K2, and Megasport, plus the influential Kiev-based Ukrainian News Agency, outlets that were accused by Euromaidan activists of either censoring material or nakedly siding with Yanukovych’s crackdown.
In 2012, Interfax reported that Firtash planned to team up with another powerful and politically influential billionaire, Arkady Rotenberg, Putin’s childhood friend and judo partner. The two were said to be looking to build one of Russia’s largest chemical plants in Russia’s far east. But the Ukrainian was also looking to the West. In particular, he cultivated a special fondness for Britain.
The British connection
One man in particular has played a key role in endearing him to the London establishment: Robert Shetler-Jones, a British businessman who was one of three members of the coordination committee charged with making major decisions during the first year of RUE’s existence. (The other two members were Yuri Boiko, then the controversial chairman of Naftohaz, and Ilhor Voronin, Boiko’s deputy.)
Shetler-Jones has been indirectly tied to two Cypriot-registered companies, Dema Nominees and Dema Trustees, which by 2004 had assumed the controlling stake in ETG. One of these companies’ subsidiaries, Denby Holdings, also registered in Cyprus, listed Shetler-Jones as a director and operated out of the same office in central London as a company called Belgravia Business Services, an address at which Shetler-Jones also worked. In February 2004 — around six months before the Putin-Kuchma summit that established RUE’s monopoly on Russian gas imports — Shetler-Jones’s Hamburg-based company, RSJ Erste, purchased 89 percent of the shares in Kyrmsoda, Ukraine’s largest industrial soda manufacturer. The year 2004 was quite the annus mirabilis for the Briton, whose ties to Firtash seemed inexhaustible.
Take ACI Trading Ltd, a chemical trading company, owned by Dema Nominees and Dema Trustees, the parent companies of ETG. One of ACI Trading’s clients was Kyrmsoda. In 2004, Kuchma, the Ukrainian president, also enlisted RSJ Erste as a partner in a Ukrainian state property fund that included Crimean Titan, "one of Europe’s largest titanium dioxide producers that has distributors throughout the world, including Iran, Russia, Belarus, Kazakhstan, and the U.S.," to quote William Klein’s State Department cable, which also established that Crimean Titan was nearly half-owned by a subsidiary of Firtash’s Group DF.
In 2005, Shetler-Jones coyly explained to the Kyiv Post, "I have met Mr. Firtash on several occasions and we are acquainted," although he denied that Firtash held any stake in RSJ Erste. As to where, exactly, Shetler-Jones found the requisite startup capital to invest in so many profit-making and politically-connected continental enterprises, the Briton was cagey, telling the Kyiv Post that his funding came from "various European sources." Acquaintanceship only blossomed into direct financial kinship after Shetler-Jones went on to serve as the inaugural CEO of Group DF, from 2007 to 2012, and is now a member of the company’s supervisory council. Shetler-Jones has given tens of thousands of pounds via his own company Scythian Ltd. to the British Conservative Party, as the Independent newspaper reported last week, following Firtash’s arrest. Scythian Ltd. is described on the Group DF website as "a consultancy advising businesses on structuring of corporate acquisitions in the Former Soviet Union."
Shetler-Jones is quite clearly Firtash’s man in London. He’s currently the director of the British Ukrainian Society (BUS), which, according to its own website, "seeks to raise the profile of Ukraine in Great Britain and strengthen relations at all levels between the United Kingdom and Ukraine." The BUS has "received secretarial support from Group DF," according to the Independent, which certainly makes sense given that both the not-for-profit and the for-profit share the same office bloc in the tony Knightsbridge area of central London.
The chairman of BUS, meanwhile, is a British peer, Lord Risby; another director of the organization is Tory MP John Whittingdale, formerly also the "honorary vice president" of Conservative Friends of Russia, which was shuttered in disgrace in 2012 owing to its close ties to the Russian embassy in London and its transparently pro-Putin leanings. (It has since been reconstituted as the Westminster Russia Forum.) Whittingdale has apparently taken several trips to Ukraine in the past few years, all paid for by BUS. He claims to have met both with Yanukovych’s people and the opposition, and to have never received "any instruction" from Firtash as to what politics to espouse, though this probably was not necessary as Whittingdale is an open admirer of former Chilean strongman Gen. Augusto Pinochet.
Like many post-Soviet industrialists, Firtash owns property in London, including a mansion near the department store Harrods, complete with an underground swimming pool. He’s also gotten into charity and cultural works. His second wife Lada helps to run the Firtash Foundation, a registered British charity, which in 2012 gave $400,000 to the Ukrainian Catholic University to cover costs for a $12 million campus renovation project, and about $166,000 to the Cambridge Foundation, the fundraising arm of Cambridge University. The money, according to the Firtash Foundation’s Charity Commission filings, went to "the development of academic ideas in order to bring products to market" — whatever that means.
The Firtash Foundation is located in the same Knightsbridge office block as BUS and Group DF. In October, both it and Group DF funded "Days of Ukraine," a lavish cultural event in London launched in the House of Commons, attended by both Speaker of the House John Bercow and now former Ukrainian Vice Prime Minister Kostyantyn Gryshchenko. According to its own press materials, Days of Ukraine "received support at the highest level, including the patronage of President Viktor Yanukovych." For helping to organize this festival, Firtash was given the privilege of opening the London Stock Exchange.
The Magnitsky link
Since Putin invaded Crimea, and since Washington and Brussels have mulled ways to hit back at Moscow using "banks, not tanks," the ways in which state-indulged, if not state-sponsored, oligarchs from the East found their way into Western capitals and financial markets have come under more intense scrutiny. Non-transparency and plausible deniability are the principal rules of their economic activity, which is why these oligarchs almost never register their holdings in the West (they just spend their money there), but rather in few-questions-asked offshore jurisdictions. An excellent and in-depth investigation was published in April 2013 by the International Consortium of Investigative Journalists (ICIJ), showing how a firm called Commonwealth Trust Limited, based in the British Virgin Islands — a jurisdiction known for its respect for corporate privacy and high tolerance for money-laundering — "served as a middleman for an extensive list of shady operators — setting up offshore companies for securities swindlers, Ponzi schemers and individuals linked to political corruption, arms trafficking and organized crime."
One of Commonwealth Trust’s clients was Dmytro Firtash, who registered Group DF in the British Virgin Islands in 2006. Other clients included a handful of shadowy intermediaries for men and women employed by both the Russian government and a major Russian organized crime syndicate known as the Klyuev Group. These intermediaries, ICIJ learned, set up at least 23 offshore companies that were used to transfer money and obscure the origin of a $230 million tax fraud perpetrated by the Klyuev Group on Christmas Eve, 2007.
That theft was uncovered and outlined in painstaking detail in 2008 by Sergei Magnitsky, a Moscow-based tax attorney, who was subsequently arrested for the crime himself by the very Interior Ministry policemen he had identified as conspirators. Magnitsky was tortured and killed in prison in 2009, and his corpse was put on trial in Russia last year, not so much to prove his guilt (which not even the prosecutors or judge in the case really believed) but to exonerate the Klyuev Group, several government agents of which were awarded promotions or state honors following what became known in Russia as the "Magnitsky affair."
A U.S. law was passed in 2012, named for Magnitsky and designed as a handy way to freeze the American assets of Russian officials credibly accused of gross human rights abuses. The European Parliament’s Foreign Affairs Committee has on March 18 suggested that 32 names — most of them members or affiliates of the Klyuev Group — be sanctioned by the European Union. Washington and Brussels have finally awakened to the fact that money pouring into the West from the East isn’t just dirty. More often than not, it’s blood-soaked.
In 2010, Spanish magistrate Jose Grinda Gonzalez, an expert on organized crime, labeled Russia a "virtual mafia state," adding that Belarus, Chechnya, and Ukraine qualified for this dubious distinction as well.
And herein lies the significance of Dmytro Firtash’s arrest — the rush of anxiety and trepidation it has no doubt precipitated across those countries Putin wants to enlist in his protectionist Eurasian Union. Another revolution, one waged in protest of that neo-Soviet project, has just toppled a government in Kiev, of which Firtash was a major beneficiary. Now the oligarch is in the clink in Vienna and may soon be placed aboard a plane to the United States, where prosecutors and judges aren’t so easily bought and where tolerance for billionaires with dodgy dealings with the Putin and Yanukovych regimes are at all-time lows. Firtash lost his patrons in Moscow in 2009 and his patrons in Kiev three weeks ago. No wonder the law finally caught up with him.
More from Foreign Policy
Why Do People Hate Realism So Much?
The school of thought doesn’t explain everything—but its proponents foresaw the potential for conflict over Ukraine long before it erupted.
China’s Crisis of Confidence
What if, instead of being a competitor, China can no longer afford to compete at all?
Why This Global Economic Crisis Is Different
This is the first time since World War II that there may be no cooperative way out.
China Is Hardening Itself for Economic War
Beijing is trying to close economic vulnerabilities out of fear of U.S. containment.