‘The bell has started to ring. If someone isn’t able to buy a Bentley, or if some government bureaucrat has to sell his Gulfstream jet for $50 million of his hardworking money…that’s a good thing’
- ALEXANDER LEBEDEV, November 20081
IN JUNE 2007 Tatler, the 300-year-old in-house journal for Britain’s upper classes, published a splenetic attack on the arrival of the new foreign super-rich in London. ‘The rise of London as the financial capital of the world has brought a huge influx of clever, competitive foreigners who want our schools and houses,’ ran the article. ‘They are over-here, over-paid, and making many people feel displaced and distressed, particularly hard-working middle-class professionals, many of whom can no longer afford to pay school fees or buy nice houses in the places they were brought up in and which they consider home. They have become exiles in their own country.’2
The critique of the way untold foreign wealth was ‘squeezing out the Brits’ was written by the magazine’s well-connected and long-serving editor, Geordie Greig. He mixed freely in London’s super-rich circles and used his extensive contacts book to ease the entry of several Russian émigrés into British high society, among them Alexander Lebedev, the former KGB spy turned banker.
Despite these connections, the Russians did not escape criticism. ‘Take the Russian oligarch who recently wanted a new yacht and went to see one being made. “I like it and I wannit,” he said. He was told it would take two years. “You don’t understand - I like it and I wannit,” he continued. The yacht broker blustered that the original owner had spent £95 million and was taking charge of it the following week. “Offer him £145 million,” said the Russian. And so the original owner walked away with a £50 million profit.’
The article also expressed an apparently growing concern among parents about access to the best schools: ‘Private schools are becoming notoriously difficult to get into…The fight for places for one’s children has turned ugly and the sense of desperation is palpable’. And on London’s best homes: ‘In one street in W8, 80 per cent of properties were owned by non-Brits who were not paying full taxes.’
An elegant siren warning also came from Peter York, the co-author of The Official Sloane Ranger Handbook, first published in the 1980s: ‘All these Sloane grannies are defenestrated. They are being forced out of their former territories and they are starting to resent it. Local elites are supplanted by a global elite.’3 Equally outraged cries of anguish came from newspapers not normally associated with hostility to affluent tycoons. In April 2007 London’s Evening Standard carried a front-page article under the headline, ‘Blair’s Real Legacy Is a Tax Bolt Hole for the World’s Fat Cats.’4 The following month, ‘Why I Deplore the Billionaires who Contribute so Little to Britain’ was the headline in the Daily Mail.5
What the astute editors had sensed was a developing bitterness at the heart of middle- and upper-class Britain. At dinner parties they had picked up a roll call of complaints, from the difficulties facing their adult children in joining the housing market to the way the tax system appeared to be rigged in favour of wealthy foreign nationals. Access to independent schools was also raising temperatures. Growing foreign competition, it was claimed, was contributing to school fees that rose by more than twice the rate of inflation between 2002 and 2007.
Similar views echoed around London’s oligarch belts. In November 2005 Councillor Daniel Moylan, deputy leader of Kensington & Chelsea Council, claimed that local families were being priced out by fabulously wealthy invaders. He called for new rules to give preference to locals in what was already a packed borough: ‘Families in Kensington & Chelsea are leaving because they can’t afford to stay here. New property is being snapped up by people looking to make a quick buck or a fat investment, which is helping to drive prices up to levels which locals cannot afford. It does not help if flats go to foreign investors buying pieds-à-terre for their wives to go on shopping trips to Knightsbridge.’6
But the arrival of the Russian super-rich has been welcomed by some members of the political and business establishment. The former mayor of London, Ken Livingstone, went out of his way to applaud the Russian influx. At one time the former radical left-wing leader of the GLC might have had qualms about the questionable way Russian wealth had been used to help fuel the London boom, but now Livingstone expressed no such reservations. In 2006 he addressed 1,200 Russian government and business guests at the annual Russian Economic Forum held in the Queen Elizabeth Hall opposite the Palace of Westminster. The Mayor talked of the ‘warmth and sympathy’ Britons felt for an old ally against Hitler and was full of praise for the wave of business moneyed Russians were bringing to the capital. ‘I would like Russian companies to regard London as their natural base in Europe,’ he declared. The Mayor’s Office at City Hall even established a small department devoted to attracting Russian investment into London.
Support for Russian investors was shared in Whitehall and the City and among the myriad retailers, luxury goods boutiques, and ‘bag-carriers’ whose livelihoods were transformed by the untaxed rouble invasion. Many British-born multi-millionaires owed their own march up the rich lists to the arrival of foreign, and especially Russian, money. Among those cashing in were the upmarket property agents and developers. While the multi-millionaire Candy brothers were the most high-profile winners, in 2007 top executives at London’s elite property agents were rewarded with City-style million-pound bonuses after making record profits. As one of the new property search agents that sprang to life during the early twenty-first century observed, ‘If foreign money dried up, so would we.’
Then there was the legal profession. Russians love litigation. One oligarch once shouted across the table during a tense business meeting, ‘What you need to know about me is that I love litigation more than I like sex!’ Not only was Bruce Buck, the American head of the European arm of the law firm Skadden, Arps, Slate, Meagher & Flom, handling Abramovich’s growing list of legal challenges, he was also chairman of Chelsea FC. During her divorce negotiations, Irina Abramovich hired Raymond Tooth, the aptly named divorce lawyer, and inevitably nicknamed ‘Jaws’. Tooth had famously represented Karen Parlour, wife of former Arsenal footballer Ray Parlour, and was responsible for acquiring for his client a substantial chunk of her husband’s future earnings after the divorce. As soon as Alisher Usmanov, the Uzbekistan-born billionaire, invested in Arsenal, he hired one of London’s most aggressive libel law firms, Schillings, to warn media outlets against ‘any defamatory statements or invasions of his privacy’.
Russian oligarchs loved their trophy assets and so another winner was the private aviation industry. The number of private flights into and out of the UK doubled in the decade up to the end of 2007, twice the rate of increase of ordinary passenger travel. Private airports serving the private jet set, such as Northolt and Farnborough, expanded more quickly than Gatwick and Heathrow. Niki Rokni, marketing director of the British charter private jet company Ocean Sky, revealed that the company grew from a staff of four and one plane on launch in December 2003 to 126 staff managing twenty aircraft by mid-2008. ‘Sixty per cent of our clients are Russians and we fly them all over the world in luxury private planes,’ she said.’These are a mix - most live in Russia itself but a significant number also live in London. Our charter clients are mainly entrepreneurs and businessmen, the new millionaires who are not rich enough to buy their own jet. They have created a massive boom in private air travel.’
Premiair became one of the largest private client helicopter operators in the UK. Based in Camberley, Surrey, it grew at 10 per cent a year post-millennium. According to one of its directors, David Langton, ‘The Russians are significant players in the helicopter market in the UK. When the Russians buy a country home, for example, they look to the helicopter as their main form of transport. It’s ideal for moving them from their country retreat to get to country sporting activities such as shooting parties or the yacht.’
At the height of the economic boom in the summer of 2007 the demand from foreign cash was creating lucrative ‘grey markets’ in areas such as private jets and specialist cars. With order books for private jets full for years to come, buyers were paying premiums of up to £5 million to jump the queue for the top-of-the-range £22 million Gulfstream G550 (Deripaska’s jet). With a similar wait of three years for the Aston Martin AMV8, places on the waiting list were changing hands for tens of thousands of pounds.
Other winners included the Mayfair and Kensington art auction houses. Prices for contemporary art quadrupled in the decade up to 2007. The Russian interest in older mansions also rubbed off on the antique furniture trade. English country furniture, porcelain, silver, and books were especially popular. According to Mark Poltimore, UK Chairman of Sotheby’s, Russians turned up ‘at a 2006 sale of contents at Shrubland Park in Suffolk, a 40-bedroom stately home that used to belong to the de Saumarez family. Although the guide price was £2-3 million, the auction made £4-5 million, mainly due to Russian buying power. If the Russians turn up you can add a nought to the price of things.’7
Former prominent industrialists and politicians found themselves in great demand as non-executive directors of Russian companies. In 2005 the banker Gagik Zakaryan bumped into the former Chancellor of the Exchequer Lord Lamont at a party at Cliveden House. The two hit it off so well that the Russian entrepreneur immediately invited him on to the board of his bank, Unistream. To the bank, about to seek a listing on the London Stock Exchange, hiring a former Chancellor brought extra clout and respectability. Along with Lord Owen - who was chairman of Yukos International until Khodorkovsky’s arrest in late 2003 - other peers recruited to Russian firms included Lord Robertson of Port Ellen, the former Defence Secretary and Head of NATO, Lord Powell, former adviser to Mrs Thatcher, and Lord Hurd, former Foreign Secretary.
On their arrival in London wealthy Russians soon signed up with new concierge agencies such as Quintessentially. Catering for every whim of the rich - from renovating their new multi-million-pound homes to obtaining tickets for sold-out sporting and cultural events - this ‘lifestyle management’ company has a £24,000 membership fee and a long waiting list. A lucrative business that offered ‘dream-fulfilment’, they kept reservations at all London’s top restaurants, and, for a price, guaranteed a ticket for any opening night, the Wimbledon finals, and the most exclusive parties.
In 2008 an extraordinary 50 per cent of their elite membership was foreign - a mixture of Russian, Middle Eastern, and Asian clients. When they started in 2000, Quintessentially had eight staff. By 2008, they employed ninety-six at their London headquarters and thirty-four offices across the world, including Moscow. Their Russian clients were never shy of making unusual requests. The wife of one wanted to buy the new £700 Roland Mouret ‘Galaxy’ dress, but it had sold out across London. So Quintessentially found one for her in the right colour and size in a department store in Canada. The client’s personal manager had it flown over to London in three days, just in time for the party. On another occasion a Russian asked the company to book nineteen rooms in a hotel in Mauritius that only had five available. The hotel agreed - for a fee - to displace fourteen existing reservations to another part of the island.
Always concerned about personal safety, the Russians brought boom times to the private security industry. One of the capital’s biggest security operators, Crown Protection Services, provided private guard-dog patrols for forty streets in Kensington alone. Russians also started to hire London-based private business investigators to provide litigation support and probe other oligarchs and commercial competitors. ‘Traditionally our industry has been used by Western companies wanting information on Russian business people and companies,’ said Patrick Grayson, head of GPW Ltd, based in Mayfair, whose business has grown rapidly in recent years. ‘More recently, this has been turned on its head with a significant increase in demand from Russians wanting to check out British companies and businessmen for potential opportunities.’8
The oligarchs also breathed new life into one of Britain’s oldest craft-based industries - yacht building. Following his design for the refit of Abramovich’s Pelorus, Terence Disdale was inundated with inquiries and even had to turn down new clients. According to Jonathan Beckett, Managing Director of Burgess, the British yacht-chartering company, the Russians ‘took the yachting business by storm. Between 10 and 20 per cent of our customers are Russian.’ He reported in early 2008 that the Russians might not be the dominant players in the world market but ‘they are the biggest spenders. They want the best design and the best materials. In the charter market too they are chartering the biggest and best for the longest. We are chartering more boats to the Americans but the Russians charter a boat that costs $100,000 a day while the Americans hire one costing $40,000 a day.’
Ten years ago there were 200 boats afloat of over 40 metres in length. At the end of 2007 there were over 260 of this size in construction and 600 afloat, greatly increasing the demand for berths across the world. ‘Ten to fifteen years ago we were selling berths in the South of France for between $1.5 and three million for a twenty-five-year lease,’ said Beckett. ‘Now they cost $10 million; that’s just for a stretch of concrete to tie your boat to.’
In the late 1970s London looked more like a bombsite than one of the world’s leading capital cities. Thirty years later its restaurants, shops - its entire atmosphere - had been transformed, partly though not wholly because of super-charged foreign spending power. In 2005 Newsweek said London was ‘leaving other European cities behind’. Two years later New Yorker Audrey Saunders, owner of the celebrated Pegu Club in downtown Manhattan, told the New York Times, ‘I hate to admit it, but London is the best cocktail city in the world.’9 And Spear’s Wealth Management Survey concluded: ‘If Paris was the capital of the nineteenth century and New York of the twentieth, London is shaping up to be the capital of the twenty-first.’10
By bringing new wealth, the giant geyser of foreign cash helped to promote new industries and boost profits, making London a great club for those who could afford its membership fee. New jobs were created in retail, the City, and restaurants. Chauffeurs, bodyguards, and gardeners were in great demand. There were more butlers in London than in Victorian times.11 Abramovich kept twenty-eight staff at Fyning Hill alone, and even though he only stayed there relatively infrequently, Oleg Deripaska’s mansion in Belgrave Square was fully staffed all year round.
Most Britons could not afford to shop at the new luxury stores, dine at celebrity-chef restaurants, or buy penthouse suites overlooking Hyde Park. Much of the financial gain has been gobbled up in soaring salaries, dividends, and bonuses by those already at the top of the earnings and wealth ladders. Much of the spin-off work from the boom has gone not to British residents but to non-British workers - from highly paid American and European professionals in the City to low-paid employees in restaurants.
Some Britons also became worse off as a result of the arrival of foreign wealth. This extended well beyond the ranks of the upper middle class forced to pay premium prices for nannies, being shunted out of their child’s preferred private school, and no longer able to afford the Mayfair town house.
Among the casualties were those trying to join the housing ladder. While the runaway house prices of the mid-decade were not just down to exploding foreign demand, the price boom would have been weaker without the multi-billion-pound overseas cash injection. Experts claimed that soaring prices in London’s hotspots led to a ripple effect across and outside London, contributing to the squeezing out of thousands of first-time buyers. According to Professor Chris Hamnett of King’s College London, the extra cash descending on the prime locations eventually drove up prices at the bottom. ‘What you’re getting is geographically displaced demand which ripples out all the way down.’12 As one agent operating in Berkshire explained, ‘We were London-driven. As soon as Kensington and Chelsea started to twitch, we felt it within three months.’
The extraordinary price boom also fuelled a wave of ultimately unsustainable property speculation. Buyers bought desirable properties at the top end of the market, kept them empty while waiting for markets to rise, and then sold them on for huge profits. This was all free of capital gains tax and stamp duty for non-domiciled residents, provided they were bought through an offshore company, the favourite means of purchase. Property agents invented a new term - ‘buy-to-sit’ - to describe the process. In one of many examples, in March 2006, an apartment in Hertford Street, Mayfair, just round the corner from Park Lane’s Hilton Hotel, sold for £6 million. Eight months later, it was back on the market with Beauchamp Estates for £14 million.
Experts also claimed that the influx of foreign wealth was turning London into a more divided city, a place where only the affluent could live comfortably.13 In a survey published in July 2007 four out of ten Londoners thought that the capital had become ‘just a city for the rich’.14 In Kensington and Chelsea new arrivals created what one active local resident called the ‘fortress flat’ effect. Most of the large new luxury developments in prime central London - from 199 The Knightsbridge to One Hyde Park - were fortified, gated communities with full security and twenty-four-hour concierge services.
Certain areas of wealthy London were turned into near ghost towns. For example, only a minority of apartments in the new luxury wharfs and marinas colonizing the Thames between Wandsworth and Chelsea bridges were occupied at any one time. Some of London’s proudest squares barely had a light burning in the evenings. Many of the grand mansions in The Bishops Avenue, the street first dubbed ‘Millionaires’ Row’ in the 1930s, were often deserted.
For many of the foreign invaders, their luxury properties were not just a second, but a third, fourth, or even fifth home. At 20 per cent the Royal Borough of Kensington & Chelsea - the true oligarch belt - had the second highest number of second homes in the country, many of them left unoccupied for months, sometimes years, at a time.
The Russians were also a significant part of a new worldwide phenomenon - the emergence of the nomadic super-rich. Many of them flitted between Moscow, London, and Switzerland, while shifting their money around at will. Unlike previous generations of the wealthy, they mostly had little or no loyalty to the places they chose to park their money. London won the intensified international competition to bag the rising volumes of footloose capital, in the process making Britain’s economy increasingly dependent on financial services. This turned the capital into what Prospect magazine called ‘a hyper-capitalist, deregulated, very unequal, financial services-driven, mass-immigration-driven city state’.15 This may have helped to create the conditions for the post-millennium boom, but it also made the economy much more vulnerable to the whims of global wealth, contributing to the debt-driven speculative bubble that finally burst in the autumn of 2007.
By then, Britain had come to resemble what Ajay Kapur, head of global strategy at Citigroup in New York, called a ‘plutonomy’ - a society in which wealth and economic decision-making was heavily concentrated in the hands of a tiny minority while growth was powered by and largely consumed by an affluent elite.16 The only other countries that conformed to this pattern were the United States and Russia itself. This was what Britain was in Victorian times, before the development of full democratic institutions and the emergence of a powerful middle class.
The tidal wave of Russian money into London helped inject new life into the luxury goods industries, fuelled a domestic wealth boom, and contributed, along with other foreign money, to the creation of Britain’s plutonomy. But it also helped to distort the local and national property market, opened up new wealth gaps, and made the economy dangerously dependent on the vagaries of huge swathes of fugitive wealth.
Eventually, the government was forced to respond to the growing public unease about the tax advantages enjoyed by super-rich foreigners. When, in April 2008, the Chancellor, Alistair Darling, introduced a single annual payment of £30,000 on non-domiciles, there was a flurry of warnings from the City that it would frighten away foreign money and expertise. Yet a levy at this level - small change for billionaires and multi-millionaires - was unlikely to encourage the super-rich to pack their bags. There were too many advantages to living in Britain. By the end of 2008, despite the deepening recession, there was little sign of the exodus predicted in some quarters. Those who had bought to invest appeared to be holding on.
In fact, far from selling up, some of the oligarchs showed every sign of strengthening their Londongrad roots. Abramovich’s children continued to be educated in west London and in July 2008 they began taking lessons at riding stables, accompanied not merely by instructors but by bodyguards on bicycles. In the same month Abramovich was finally granted his request to stand down as governor of Chukotka. In September Kensington & Chelsea Council gave the go-ahead for the multi-million-pound makeover of the two adjacent four-storey town houses he owned in Lowndes Square. The 2005 transfer of the registered ownership of all his UK properties from offshore companies in obscure locations to his own name was also a sign of his intention of securing a more permanent base in the UK.
In May 2008 Oleg Deripaska cemented his links with the UK by buying two racehorses and enlisting the help of one of Britain’s most prominent bloodstock agents, James Wigan. Deripaska already owned a number of racehorses in stables closer to home, near the Black Sea. He had met Wigan, an Old Etonian employed by Lord Rothschild, through his friendship with Nat Rothschild.
Boris Berezovsky showed no sign of moving on from his bitter campaign against his country of birth. He continued to play the role of the slighted James Bond villain Ernst Stavro Blofeld from his fortified Mayfair offices. But, despite devoting the lion’s share of his fortune to this defiant campaign, he was still no nearer to his dream of unseating Putin and his chosen successor, Medvedev.
Meanwhile, Russian prosecutors were continuing to investigate Yukos. Eighteen months earlier Mikhail Khodorkovsky and Platon Lebedev had been served with new charges accusing them of yet more money laundering and embezzlement, between 1998 and 2003, amounting to $25 billion. In the same year the assets of Khodorkovsky’s foundation were frozen by the Russian authorities, a move that was heavily criticized by its beneficiaries in the US.
In July 2008 Khodorkovsky, still languishing in jail, applied for parole. If his lawyers hoped that the new President would be more flexible than his predecessor, they had misjudged Medvedev. ‘Prisoner Khodorkovsky does not deserve the conditional early release,’ said Judge Igor Falileyev at a court hearing in the Siberian city of Chita. According to the court, this was because of the former Yukos owner’s refusal to take part in professional training and in sewing and for another alleged misdemeanour. Khodorkovsky was set to spend many more years in his Siberian cell.
Nevertheless, the wider spending boom that had raged during the middle of the first decade of the new millennium could not last forever. The first signs of the impact of the impending financial crisis came in the dying days of summer 2007, when the continuing surge in house prices nationwide first shuddered, came to a halt, and then went into reverse. There was one significant exception to this trend - the prime London market.
Even as the credit crunch began to take its toll on the domestic demand for housing, foreign wealth continued to come into the country. At least until the autumn of 2008, house prices at the top end of the market carried on ‘defying the laws of gravity’, as one agent put it. In the months straddling the Russian presidential election in March 2008, leading property agents reported a new surge of interest from Russians uncertain about the future of the country after Putin. At least for a while Russian and former Soviet citizens kept pouring money in, especially at the very top.
In February 2008, while average house prices were heading downwards, Viktor Pinchuk, a Ukrainian businessman, bought a ten-bedroom house in Upper Phillimore Gardens, Kensington, for £80 million, at the time making it the most expensive property sold in the UK. In May that year Alisher Usmanov spent £48 million buying Beechwood, a Regency-style estate set in 11 acres of woods and parkland in Hampstead, previously owned by the Emir of Qatar.
In July 2008 Yelena Baturina, Russia’s richest woman, splashed out £50 million on Witanhurst in Highgate, the largest private house in London after Buckingham Palace. A ninetyroom Grade II-listed Queen Anne mansion - with spectacular views over Hampstead Heath, it was once owned by leading members of the Assad family from Syria. With 40,000 square feet across three floors and twenty-five bedrooms, there was ample space for Baturina’s extensive art and shoe collection. The mayor of Moscow’s wife, who had accumulated a £1.3 billion fortune based on construction contracts, also bought a home in Holland Park.
For a while some Russians already well rooted in London even contemplated building larger property empires. Before the credit crunch started to seriously bite in the late summer of 2008, the residential division at Knight Frank received a number of inquiries from Russian clients wanting to do just that. ‘For a while, some Russians were inquiring about buying a number of apartments, possibly several in a single block, for investment’, according to an agent then working on the Russian desk at Knight Frank. ‘This was a small group, still cash-rich, who had already put down roots in London; they felt comfortable here, their children had finished their education, and this was a natural next step for them. The arrival of the credit crunch put a stop to such ambitions.’
Meanwhile, there was new intrigue within the Londongrad community. In June 2008 the FBI launched an investigation into the disappearance and possible murder of London-based media tycoon Leonid Rozhetskin. The Russian-born multi-millionaire was a renowned socialite and was deeply embroiled in the cut-throat world of Moscow business. An American citizen, he made his fortune in Russia, and became a founding investor of the London business newspaper City AM and an outspoken critic of Putin. He vanished from his holiday home in Latvia on 16 March 2008, leaving behind a pool of blood. To this day no body has been found. One theory circulating among Kremlinologists was that he was murdered over a business dispute with a senior figure in Putin’s administration. Others speculated that he was about to make public details of fortunes acquired by top Kremlin officials.
The mystery deepened further when, in October, his wife, the model Natalya Belova, and their three-year-old son also vanished. The pair was being protected by five bodyguards at their £3 million apartment in Mayfair. The unsolved disappearances had all the hallmarks of the way the sinister side of Russian big business had been exported overseas.
Meanwhile, despite the high-profile death of Alexander Litvinenko and the diplomatic chill still affecting relationships with the Kremlin, Downing Street continued to sanction an opendoor policy to Russian exiles. Some of the steady, if slowing, stream of business émigrés and political dissidents joined the Berezovsky cabal.
One of the new arrivals was Elena Tregubova, a thirty-three-year-old journalist who had been sacked from the influential Kommersant newspaper, once one of the last media outlets regularly critical of Putin. She wrote a bestselling and unflattering portrait of the Kremlin, Tales of a Kremlin Dagger, which contained accounts of alleged embarrassing indiscretions by Putin. These included the claim that he once made a pass at the willowy six-foot blonde at a New Year’s Eve gathering. Tregubova allegedly suffered an attempt on her life in 2004 and Berezovsky offered to provide her with security in Russia. After a smear campaign against her, she arrived in Britain in 2007 and went into hiding at an anonymous address. When Berezovsky, who supported her relocation, was interviewed by Russian investigators looking into the Litvinenko murder, he was asked repeatedly for her address. He refused to disclose it. Tregubova was eventually granted asylum in April 2008.
A few months earlier, in December 2007, 32-year-old Andrei Sidelnikov fled to Britain after slipping out of Russia via Belarus and Ukraine. He headed a small opposition movement, Pora (It Is Time), which advocated an Orange Revolution-style insurrection to overthrow the government and claimed that the Russian security forces tried to stop him leaving the country. He also met Litvinenko, two days before he was poisoned, in a café near Oxford Street, where they discussed the murder of Anna Politkovskaya. In something of a diplomatic slap in the face to the Kremlin, the Home Office granted him political asylum in June 2008, just before Gordon Brown held one-to-one talks with the new Russian President Dmitri Medvedev at the G8 summit in Japan.
Even those oligarchs who towed the Putin line were not necessarily secure. Mikhail Gutseriyev was a largely compliant billionaire. Then suddenly, on 31 July 2007, he slipped past the usually watchful eye of the authorities, took a flight to Minsk, the capital of Belarus, and then on to Antalya in Turkey. From there he flew to London and joined the queue of those requesting asylum at the Home Office.
By 2007, the 47-year-old owner of Russneft - with two oil refineries and a chain of 300 petrol stations - had risen to become Russia’s thirty-first richest citizen. Then he was ordered to hand Russneft over to the authorities in exchange for ‘compensation’. In an echo of the Soviet era he was told to show willingness by ‘thanking the party and government’. Originally from Caucasia and known for his forthright and hot-headed manner, he refused to comply. He soon learnt that it did not pay to say no to the Kremlin.
It is likely that the authorities turned against Gutseriyev because he angered Kremlin insiders by attempting to purchase some remaining Yukos assets that had been earmarked for another recipient. Some saw it as part of the renewed struggle for control of assets being waged between different factions inside the Kremlin, powerful groups that had been steadily and covertly enriching themselves during the Putin era.
In early 2007 Gutseriyev’s company offices were raided and senior staff were pulled in for questioning. Gutseriyev was then charged with ‘illegal business activity’ while Russneft was saddled with a tax bill for $800 million. In May he was released on bail. In a remarkable act of defiance Gutseriyev then published a damning letter in Russneft’s newsletter accusing the Russian authorities of using the tax demand as a pretext to grab his oil assets.’They made me an offer to leave the oil business, to leave on “good terms”,’ he wrote. ‘I refused. Then, to make me more amenable, they tightened the screws on the company with unprecedented persecution.’ The letter was the first serious public challenge to Putin from a prominent businessman since Khodorkovsky. Although Gutseriyev had never meddled directly in Kremlin politics, and had never challenged Putin, there were striking parallels with the actions of the two men. Russian newspapers soon dubbed him the ‘second Mikhail’ and predicted that Russneft would suffer the same fate as Yukos - dismantled, sold off, and absorbed into an existing state-run firm. A few days later Gutseriyev fled and the security services embarked on yet another international manhunt of a superrich fugitive.
Within months of Gutseriyev’s arrival in the UK, he entered the Sunday Times Rich List at number thirty with a fortune estimated at £2 billion. His membership of the swelling Londongrad community hostile to their homeland added to the increased tension in the already embittered British-Russian relationship. ‘Why do you allow the territory of GB to be used as a launching pad to fight Russia?’ Vladimir Putin, by now Prime Minister, asked British journalists in September 2008. ‘That’s why it is not possible to build normal relations with Britain.’A St Petersburg taxi driver put it more robustly when he told a British tourist, ‘You Brits have turned London into a brothel full of tarts like Berezovsky and Abramovich, so who do you think you are lecturing to?’
Back in Russia, Putin passed the presidential baton to his successor, Dmitri Medvedev, up to that point perceived as one of the more pliable of the contenders for succession. The oligarchs were only too aware of the transient nature of political favour in Russia. Those who had stayed onside within Russia not only had to woo the 43-year-old Medvedev and former Chairman of the all-powerful Gazprom, they also had to continue to keep a close eye on his predecessor. Few doubted that Putin was the man really in control.
Meanwhile, the economic storm clouds kept on gathering. In early October 2008 the global economy came close to meltdown. In the United States the giant investment bank Lehman Brothers went bankrupt, while AIG, one of the world’s biggest insurance companies, had to be bailed out by the state. Recession started to sweep through one leading economy after another. Among those caught in the financial crosswinds were the oligarchs.
Earlier in April, the Russian business magazine Finans reported that the number of Russian dollar billionaires had soared to 101, double the 2007 figure. Russia then sat in second place in the world’s billionaire league table - well behind the US with 415 but ahead of Germany with sixty. Oleg Deripaska topped the list with $40 billion, while Abramovich was in second place with $23 billion.
Six months later it was a different story. In September Forbes estimated that ten oligarchs had lost one-third of their wealth. A few weeks on, in October, the financial news service Bloomberg reported that Russia’s richest twenty-five men had lost $230 billion (£146 billion) between them as world stock markets and commodity prices plunged. While such figures were at best rough estimates, and changeable by the day, one by one the super-rich Russians found their paper fortunes shrinking as the global slowdown saw plummeting oil, steel, gas, and aluminium prices. Between May and October, the Russian stock market lost a remarkable 71 per cent of its value from an alltime peak. On a number of occasions it was forced to close for business for several days at a time.
Many of the billionaires continued to hold large stakes in Russia’s mining, petroleum, and industrial behemoths. Some had invested heavily in hedge funds, some of which, after years of staggering returns, were now close to collapse. Many had borrowed heavily from Western banks to expand their empires. It was high-wire financing with no safety net. According to Bloomberg, on paper Abramovich - who owned 40 per cent of Evraz, the leading Russian steel producer - lost millions as Evraz’s share price fell over 80 per cent. Alisher Usmanov was also said to have lost heavily. In mid-October the Russian Central Bank reported that collectively Russian companies were being asked to repay $47.5 billion to jittery foreign creditors by the end of 2008 and a further $160 billion by the end of 2009.
One of the biggest losers was Oleg Deripaska, caught in a lethal whirlwind of collapsing commodity prices, falling share values, and over-reaching ambition. To finance his international corporate spending spree, he had borrowed heavily from Western banks, using his assets as collateral. Now the beleaguered banks - under pressure to rebuild their badly depleted balance sheets - wanted their money back. In mid-October 2008 he sold his 9.9 per cent stake in Hochtief, the German infrastructure company, losing substantially as a result. He handed over to the creditors who financed the deal his $1.5 billion stake in Magna, the Canadian auto parts company he had acquired little over a year earlier. He also suffered a large loss with the fall in value of Norilsk Nickel, the giant mining group, in which he acquired a 25 per cent stake in April 2008.
Most of the oligarchs claimed Bloomberg’s figures were based on exaggerated paper losses. Abramovich, through his indomitable press spokesman John Mann, dismissed the figures. But although his fortune was seriously depleted, by the end of 2008 his international property empire remained intact, along with his art, his jets, and his yachts. Alisher Usmanov denied speculation that he would be forced to sell his stake in Arsenal, despite its falling value, and compared his love for the club to that of ‘a man for a woman’.17
At the end of October 2008 the Kremlin handed out cash to Russian businessmen struggling to repay loans to foreign lenders. During the years of feasting and soaring oil and metal prices, the state had built a substantial ‘rainy day fund’ and was now putting it to use to help the country’s giant but struggling companies. There was much speculation that the state bail-outs would come with new strings attached, bringing even tighter control over the oligarch’s empires or a new round of renation-alization of strategic industries once dubbed the ‘national champions’ by Putin.
But not all the oligarchs were wringing their hands in despair. Despite, on paper, losing close to one-third of his $3 billion fortune, Alexander Lebedev, who owned 30 per cent of Aeroflot, seemed unperturbed. Long critical of the excesses of his fellow billionaires, he told The Times,’The bell has started to ring. If someone isn’t able to buy a Bentley, or if some government bureaucrat has to sell his Gulfstream jet for $50 million of his hardworking money…that’s a good thing.’18
Three months later, in January 2006, Lebedev announced that, after a year of tough negotiations with Lord Rothermere, the owner of the London Evening Standard, he had bought three-quarters of the loss-making newspaper. In a remarkable cut-price bail-out, Lebedev paid a nominal sum for the 150-year-old paper. Football clubs, mansions, and rare art collections had already fallen into Russian hands, but this was in many ways a more significant moment in the story of Londongrad. A British newspaper had not merely been taken over by a Russian - an event that would have elicited a splenetic reaction from the British media and political establishment even a few years earlier - but by a former KGB spy to boot. A week after buying the paper, Lebedev announced that his close confidant Geordie Greig, editor of Tatler since 1999, had been appointed its new editor. He took over from Veronica Wadley, who left to pursue new interests in journalism.
During the years of super-charged spending by the new Russians - the billionaires and the multi-millionaires alike - Moscow became known as the ‘new Rome’, such was its reputation for excess and hedonism. For a while the shining new shopping temples and millionaire fairs, financed by oil cash and besieged by the world’s luxury brands, from Louis Vuitton and Prada to Ferrari and Maserati, glittered with indulgence like a Gulf state. By the end of 2008, a more sombre mood had descended over Moscow’s small army of luxury and bling (or pafos in Russian) retailers and the once-buoyant private jet and Rolls-Royce dealerships. There were fewer takers, too, for those former status symbols of the explosive consumer age, from diamond-studded mobile phones to designer dresses made of dollar bills. Moscow’s top restaurants reportedly stopped accepting credit cards, and, in a sure sign of the times, elite nightclubs such as The Most - where the lavatory fittings are made of gold - were forced to relax their formerly tight entry rules.
Not that the partying came to a complete halt. On 15 October 2008 Spear’s Wealth Management Survey launched a Russian edition of the exclusive magazine for the super-rich at Zolotoi, one of Moscow’s top restaurants. The packed event was attended by plenty of Russia’s business elite, and even by a sprinkling of oligarchs. The Russians, it appeared, were avid readers of such publications. In September the Russian edition of Tatler was launched at a star-studded party, while a few weeks later there appeared yet another magazine, the upmarket Snob, the brainchild of playboy oligarch Mikhail Prokhorov.
In London luxury goods retailers were also facing up to the falling spending power of their best customers. Once Hermès had had no difficulty selling £13,000 alligator-skin bags and £395 Mors de Filet cufflinks in London’s designer malls, but in November 2008 the Paris-based fashion company, known for its resilience in tough economic times, was just one brand leader to report slowing sales. Among those issuing profit warnings were Bulgari, the jewellery and leather goods maker, and Theo Fennell, jeweller to celebrities and oligarch wives. In a sure sign of the new mood, in early December 2008, four Russian art auctions at Christie’s and Sotheby’s missed the dealers’ own low overall estimates.
At the height of the consumer boom customers would pay huge premiums to jump the queue for a Gulfstream jet or a Bugatti Veyron. By the winter of 2008, prices had already gone into reverse. One specialist car dealer reported that a Rolls-Royce Phantom Drophead convertible that could fetch a premium of £100,000 (and sell for a total of £400,000) at the end of 2007 was selling at £274,000 a year later. It was the same story with Bentleys, Lamborghinis, and Aston Martins. On Bloomberg’s internal portal, on which the business community posts items for sale, almost-new Bentleys were being offered well below their retail prices.
Asset prices - which had soared to record levels - also started to plummet. Following years of almost continuous growth, the Live-ex index of the world’s most sought after fine wines turned down - sharply. Bingeing on Château Petrus could be done at more affordable prices than a year earlier. In both London and New York the once-booming art market began to contract - for the first time since 1990. Roman Abramovich, it would appear, had got his timing badly wrong: choosing the peak of the market to decide to become a serious art collector.
For a while top-end, multi-million-pound homes seemed to buck the wider trend of tumbling values. Through the first half of 2008 house prices above £5 million in prime central London locations stayed firm, and only started showing signs of falling from the late summer. Even then properties at the higher ‘super-prime’ end of the market - those above £10 million - continued to change hands. According to Liam Bailey, head of research at Knight Frank, ‘The super-prime sector maintained its strong run for the first half of 2008 but then peaked by late summer. Despite this, prices were still up 12 per cent over a year earlier.’
By October, it was a different story. One property agent specializing in the top end of the market said ‘the Russians are in hiding’. Another commented that there was still some Russian cash around. Some were looking for bargains in London, while others were turning their sights elsewhere - New York, Italy, or the South of France. A spokesman for Savills in Surrey said the speculative element had gone, but he still had several new Russian clients wanting to put down roots and looking for the right property at the right price. The frenzy of the past, the ‘we can afford it, we must have it’ attitude had been replaced with a new caution. Russian money had become more circumspect and savvy. None of this would have dented morale at London’s top property agents. In December Knight Frank announced that bonuses to its fifty-six partners would average £780,000 for the year ending April 2008, only a little down on the £1.1 million paid the previous year.
Despite the retrenchment, London continued to play host to the world’s super-rich. Airports catering for private jet owners continued to report thriving business. There was no lack of demand from global wealth for places at Britain’s top schools. Even for Russians facing hard times, the last thing they would do is remove their children from British public schools.
In November, with the recession biting deeply in the retail trade, one French menswear shop, Zilli in New Bond Street, had its best month since it opened in 1983, all courtesy of well-heeled Russians. According to the store’s spokesman, Arnaud Corbin, 60-65 per cent of their customers were from Russia or Kazakhstan. He counted several oligarchs among the shop’s regular clients. ‘Despite the credit crunch, the Russians are still buying. Our customers are a mix of London-based Russians and businessmen travelling through London on the way to the US or the continent,’ he said in December. ‘Only a few weeks ago a Russian came in and bought a crocodile casual jacket with a fur collar for £65,000. It was his first visit and he was only in the store for twenty minutes. Without the Russians, we would be in serious crisis.’
The concierge company Quintessentially agreed that the Russians remained important clients, although they were throwing less money around. ‘Gone are the days of flash spending; it’s not seen as right to be seen to spend huge sums in an ostentatious way, but people are still spending, just in a more subtle way. It’s getting the tone right. There’s still lots of requests for gorgeous parties, but you won’t arrive to a champagne fountain any more.’
The fountains may have gone but the champagne was still flowing at some venues. On 24 November 2008 Partridge Fine Arts of New Bond Street hosted a special event to launch a collection of some sixty pieces of jewellery designed by a Russian husband and wife team based in New York. Partridge sells vintage jewellery from leading designers such as Cartier, and Russians, known for their love of high-end signature jewellery, have been their main clients.
The new items - selling at between £5,000 and £250,000 under the brand name ARK - were being modelled by Princess Michael of Kent, President of the gallery. Of the 150 British and international guests at the launch, about one-quarter were Russian, a mix of British- and Moscow-based. Although no oligarchs or their wives were present, there was no shortage of wealth on display in the main picture gallery. One well-heeled guest explained that he had just given a diamond necklace to a business associate. ‘It was to repay a debt,’ he confided to another guest.
Many in Russia and across the world rubbed their hands in glee at the apparent setbacks facing the Russian plutocrats, one Guardian headline calling it: ‘The Twilight of the Oligarchs.’19 Experts predicted that in the 2009 rich lists the number of Russian billionaires would have fallen by a half. The New York Times declared: ‘Perhaps no community of the super-affluent has fallen as hard, or as fast, as the brash Kremlin-connected insiders whose wealth was tied up in the overlapping bubbles of the Russian stock market, commodity prices, and easy credit.’20
But although the new Russian billionaires and multi-million-aires have been far from immune to the global forces at play, such epitaphs are likely to prove premature. Although they may have been nursing a heavy hangover from the wanton partying of the fat years, they are far from a spent force. Sooner or later most of the Russian super-rich are likely to bounce back as the nation’s stock market eventually recovers and commodity prices resume their upward rise. ‘The Russians may be losing money, but they still have huge financial empires. They are still sitting on fortunes most people can only dream about,’ said one property agent who worked only with Russians. ‘Many of them measure their wealth in billions; how many billions do you have in your back pocket? If they lose half a billion in a day, O.K., ouch, but it’s not affecting their lifestyle. They’ll hang onto their grand mansions in London and the Home Counties, they’ll still bomb round in their jets and yachts, they will still holiday in the South of France, and just ride the financial turbulence out.’
At the beginning of 2009 London may have been counting the cost of becoming the leading playground of the world’s super-rich, but few predicted that the heady days of the mid-2000s were gone forever. There may have been fewer glamorous trophy assets and less cash splashing about, but the property empire building, extravagant parties, giddy international lifestyles, and globe-trotting were far from over. The London boom may have passed, at least for a while, but there was no sign of an exodus of middle-class, professional, or rich Russian settlers.
Russian plutocrats continued to flit around the globe in search of the best financial deals, albeit with slightly shallower pockets. Londongrad continued to fizz with stories of intrigue and new arrivals. The Russian oligarchs and multi-millionaires may have been down but they were far from out.