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  1. Law
November 20, 2008

The Fugitive

By Spear's

Andrei Navrozov meets Michael Cherney, yet another billionaire Russian in self-imposed exile from an increasingly corrupt and creepy Kremlin.

The public humbling of Mikhail Khodorkovsky at the hands of Vladimir Putin five years ago has had a curious effect on Western perceptions of Russia: those analysing the incarceration of Khodorkovsky and the expropriation of Yucos concluded that Russian tycoons must stay out of politics. The lesson that the Russian business community learned, however, was quite different: to keep the head on one’s shoulders, and the equity in one’s company, one must be in politics. On Putin’s side.

If being a Kremlin sycophant is the better part of the new definition of oligarch, then the honest-faced man of 56 seated across from me in a Lebanese restaurant in London is no oligarch. He would have been by the old definition, in that he is Soviet by origin, Jewish by creed, and a billionaire by the third most relevant criterion. Today, Michael Cherney is just another colossally wealthy fugitive from the post-Soviet empire. He is also an immigrant Londoner, with children in a British school and a wife who adores the Royal Albert Hall.

It was the English historian Edward Gibbon who noted that a test of the empire is whether or not a fugitive can escape its displeasure. During the past decade, Boris Berezovsky’s courage and optimism in this regard have been seen by many as a hopeful omen. His faith in Western institutions has been borne out by events; and, like Berezovsky, Cherney believes his own permanence in the West is a foregone conclusion. The Kremlin, however, has taken the imperial view that the opera ain’t over till the fat lady sings.

Cherney, who grew up in Tashkent, is the embodiment of the paradox of the self-made man. Back in the days of Brezhnev, when any private commercial activity was a criminal offence, he set up clandestine sewing factories and underground lotteries in the wilds of central Asia. But the very qualities of character that expedited his rise from provincial obscurity would eventually contribute to his downfall.

In his formative years in business, Cherney had no connections in the old Communist apparatus or in the new KGB. Unlike the great majority of movers and shakers in today’s Russia, he was not handed financial opportunity and the political means to develop it, but stumbled into it. In short, he was a born entrepreneur.

The first million Cherney made in Tashkent served him well when Yeltsin’s reforms began. In the early 1990s he and his brother invested it in privatisation vouchers, acquiring shares in the nearly defunct metals factories, especially the aluminium producers. These would later draw Western investment to the British Trans World Group and eventually conglomerate into the industrial giant Siberian Aluminium, or Sibal, later Rusal. As one of the main shareholders in the new colossus, pretty soon Cherney had to defend his turf from aggressors, from secret police thugs to organised crime figures. By the mid-1990s, he was widely described as ‘the last man standing’ in the struggle to control Russia’s metals industry.

Nor was Cherney alone now worth billions. He had made money, in the immortal words of Mario Puzo’s Hyman Roth, ‘for his partners’. These now included Forbes Richest luminaries such as Vladimir Lisin and Iskander Makhmudov. And there lay his undoing, for another of Cherney’s partners and executives at Sibal was a man called Oleg Deripaska.

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Today, apart from being the country’s richest man (according to Bloomberg), Deripaska is to Russia’s metals industry what Harriman was to America’s railroads. Neither man had got there by staying out of politics, or by being on the wrong side of it. In Deripaska’s case, that meant clinging to the coat-tails of Putin.

Cherney, by contrast, did not stick around to curry favour. He had made his money fair and square, he reasoned, and could now enjoy the fruits of his labours in the wider world he had always longed to see. He left Russia in 1994, taking his billions, notably in the form of equity in Sibal, with him. That meant leaving others, significantly Deripaska, in charge of running the company. A mistake? An underestimation of politics by principle is more accurate. Back in those days, it seemed to many that the Russian free enterprise express would run smoothly on the new rails of civic development. Like Khodorkovsky, Cherney had no reason to believe otherwise.

Settling in Israel with his wife and children, Cherney devoted himself to what he now laughingly describes as ‘California dreaming’. Anna, his Russian Orthodox Christian wife — a woman of intelligence and beauty — unhesitatingly accepted Israel as the family base. The Israeli government was less accommodating. In their eyes, Cherney was Russian mafia, a man with a dark past who had come to use the Jewish state as a launching pad for his nefarious activities.

According to Cherney, for five years he was under surveillance by the Israeli police and secret services. This culminated in two separate criminal proceedings, on charges of money laundering and bribery of a government official, one of which was dropped by the prosecution while the other fell apart in court. Nonetheless, if California dreaming is what the man was after, Israel was something of a rude awakening. Not until October 2008 was Cherney’s Israeli passport restored to him, as a tacit admission that the accusations were rubbish.

Back in the old country, meanwhile, Sibal under Deripaska was going from strength to strength. Now the young Turk of a chief executive, married to the daughter of Yeltsin’s chief of staff and buoyed by the election of Putin, to whose coterie he had attached himself, was making money for Cherney. And for himself, of course.

In March 2001, Deripaska came to London to buy out Cherney. At a meeting at the Lanesborough Hotel, Cherney and Deripaska signed contracts that amounted to Cherney selling to Deripaska 17 per cent of his holding in Sibal for $250 million, and converting the rest of Cherney’s stake into 20 per cent of the newly formed Rusal. Deripaska paid the $250 million in cash and undertook to manage the stock package for five years, whereupon he was obligated to sell it and pay off Cherney.

Five years passed. A dismayed Cherney watched from sundry hotel rooms, and later from his modest family flat in Chelsea, how Putin’s politics was making mincemeat of every Russian business not beholden to the Kremlin. The attacks on political mavericks, mysterious deaths, incarcerations, expropriations, talk of a new Cold War… Still, he had done well out of it before the Iron Curtain went down. Whatever happened, he had somewhere between $4 billion and $6 billion coming to him from Deripaska’s United Company Rusal, of which he now owned about 13 per cent.

It was not to be. When the five-year term elapsed, Deripaska laughed in Cherney’s face. Or more precisely, according to Dow Jones News, ‘Deripaska denies he ever entered the agreement in question.’ According to the FT, Deripaska denies he ‘has ever been Cherney’s partner’. Safe in the knowledge that no Russian judge would dare defy Putin’s favourite businessman, Deripaska (with $30 billion, the world’s ninth richest man) was laughing all the way to the Kremlin.

By 2008, Rusal was set to merge with the world’s largest nickel producer, Norilsk Nickel. Deripaska already held 25 per cent of Norilsk, and the deal would create a conglomerate worth $160 billion. Observers noted that the Tashkent fighter had chosen a good moment to return the blow. I asked Cherney if the precedent set by Berezovsky — who again made public his faith in the British justice system by suing Roman Abramovich over a stake in Sibneft — was an inspiration. It was not. Cherney had filed his $4 billion suit back in 2006, as soon as Deripaska reneged on the agreement.

In any case, unlike the assorted institutions of Russia or Israel, British justice accepted Cherney at face value. In July 2008, the High Court decided that the dispute would be settled in England. According to Bloomberg, ‘Justice Christopher Clarke said in his ruling that the risks of holding a trial in Russia, such as “assassination, arrest on trumped up charges, and lack of a fair trial”, meant that England is the better forum.’ The ruling, commented Reuters, ‘could further strain relations between Moscow and London, which have been at a post-Cold War low’.

To say the least. ‘Capitalism or KGBtalism?’ I ask Cherney. ‘What the West ought to understand,’ he replies, ‘is the choice that our country once faced has long been made. My former associates have all made it. My nomadic life has been a blessing in disguise, in that it has saved me from having to make it. Had I remained in Russia, I know I would have chosen wrong. These days, money is deadlier than polonium.’

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