Russia's oligarchs are different from other billionaires
Posted April 5, 2018 11:14 a.m. EDT
(CNN) — Oligarch. It sounds nefarious, to be sure. CNN reported Wednesday that special counsel Robert Mueller, who is charged with investigating Russian election meddling, had questioned three Russian oligarchs, all of whom were unnamed in the report.
What's Mueller looking at?
From the CNN report: One area under scrutiny, sources say, is investments Russians made in companies or think tanks that have political action committees that donated to the campaign.
Another theory Mueller's office is pursuing, sources said, is whether wealthy Russians used straw donors -- Americans with citizenship -- as a vessel through which they could pump money into the campaign and inauguration fund.
The Trump administration in January named 96 oligarchs to a naughty list of sorts. There are no specific repercussions for the oligarchs other than putting them on notice. Many of these men are usually in the news for buying things in the West -- sports teams and real estate. In fact, as CNN reported at the time, "the oligarchs' names matched exactly a list of 96 Russian billionaires compiled by Forbes magazine last year."
In short, Americans are being introduced to this small universe of Russian oligarchs but a lot of people probably don't understand what exactly an oligarch is.
The Kremlin, for its part, says there are no more oligarchs.
"The phrase 'Russian oligarchs' is considered inappropriate," Kremlin spokesman Dmitry Peskov told reporters recently. "The time when there were oligarchs in Russia passed long ago, there are no oligarchs in Russia."
To clear all of this up, we went in search of an oligarch expert and found Thomas Graham. According to his bio, Graham is co-director of the Russian studies program at Yale, a managing director at Kissinger Associates Inc. -- where he focuses on Russian and Eurasian affairs -- and was special assistant to the president and senior director for Russia on the National Security Council staff during the administration of George W. Bush.
What's an oligarch?
We first asked what, to him, is the definition of "oligarch."
"Oligarchs are rich Russian businessmen who are close to the seat of power in Russia," he said, adding that "almost any rich Russian businessman is an oligarch, because in Russia there is a close relationship between private wealth and public power."
Where did oligarchs come from?
He said the way most rich Russians get rich is by having connections in government and working them. But it wasn't always this way. We are on generation two, at least, of Russian oligarchs.
"The term was first used in the mid-'90s after the breakup of the Soviet Union," Graham said. "A time of great socioeconomic stress and a time when the instruments of state power were breaking down. It was also a period when you were going through the great process of privatization."
Out of this ooze of change from communism to semi-capitalism rose the oligarchs, a small number of individuals who used their political power to gain control over private assets. We're talking about the Russian oil and gas industry, the timber and aluminum industries and industries around other natural resources.
In that period, Graham said, oligarchs were arranged into smaller groups.
"A typical oligarchic group would have some person in a high state position," he said. "It would have media resources. And it would have security resources."
Some of the more notable early oligarchs were people like former former media mogul Vladimir Gusinsky and Mikhail Khodorkovsky, who was at that time one of Russia's richest men because he headed the oil company Yukos.
In that in-between period, the oligarchs got rich and powerful, but Graham said their relationship with the government began to change when President Vladimir Putin came to power.
Who are the new oligarchs?
There's a new crowd of oligarchs who are perhaps smaller in scale than the original bunch but no less dependent on government relationships for their wealth. They don't have the same kind of power over the state, however, because of the power Putin has.
"Now, you can't be a billionaire and not be an oligarch because you have to have some relationship with those who are in political power to maintain control of your assets," said Graham.
Are rich Americans in politics oligarchs?
What's the difference between a Russian oligarch and an American billionaire? There are plenty of billionaires in the US who wield incredible political power. Michael Bloomberg, anyone? Donald Trump? And even those not directly in politics can have political power. The Koch brothers leap to mind.
But it's not the same as in Russia, said Graham.
"The difference in our country is we have institutions," he said. "We have independent court systems. You can try to influence policy, but you don't have to have access to the political power to protect your property."
"You can be a rich businessman in the US and not worry about your contacts in government. It's a little bit different in Russia; each business decision you make, you have to be checking with your contacts in the Kremlin. The government can strip you of your oligarch status."
How do oligarchs fall?
This is what happened to many in that early generation of oligarchs. Khodorkovsky -- who challenged Putin -- had much of his wealth stripped, spent more than 10 years in jail on tax charges and has since fled the country. Gusinsky fell afoul of the Kremlin and left Russia amid intense political pressure.
Being an oligarch can still be perilous, though. Ask Ziyavudin Magomedov, an oligarch recently arrested on corruption charges.
"You can lose your property overnight if you run afoul of the government," said Graham.
Why are oligarchs investing in the West?
And that's why you hear a lot about Russian oligarchs buying things in the West. The Brooklyn Nets in the US. Soccer teams, real estate and other expensive things. Oligarchs like to buy outside of Russia.
Some of this is a conscious decision by these oligarchs to move some of their assets offshore to places where the assets are protected by the rule of law, said Graham: "That's why you buy in Miami and London and Western Europe."
How tied are oligarchs to the Russian government?
He added that the bulk of most oligarchs' assets, however, will remain in Russia, so they're still at the mercy of the government.
He said it's not beyond reason that they'd be asked by the Kremlin to do things in the US related to elections, but whether an oligarch is operating on his or her own behalf or Russia's could be anyone's guess.
"I think it's also true that in many cases, because their fortunes depend on maintaining good relations with those in power," they are "asked by the government to do certain favors," Graham said.
"The problem you have is that a businessman in Russia has to operate in a different way than a businessman in the US because you don't have a reliable legal system," he said. "Your ability to maintain your hold on property is reliant on your ability to maintain relations with the government."