Category: Russian mafia

Facebook’s Russian (Gangster) Money

Vladimir Putin meets Alisher Usmanov in 2015. Source: Kremlin.ru

Much has been written about how Russia used Facebook to influence U.S. voters in the 2016 election. Few people realize that Facebook was built with the help of Russian money.

Alisher B. Usmanov, an Uzbek-born mining magnate, poured nearly $900 million into Facebook before it went public in 2012. For a time, he was one of the social media giant’s biggest investors.

Usmanov is one of the world’s richest men with a fortune estimated at $18.4 billion. He’s a metals tycoon. He’s also closely connected to the Kremlin. So why did he invest in Facebook?

Henry Foy of The Financial Times put this question to him:

Usmanov is a convivial luncher. But I had been warned that his charm can quickly dissipate and I get a flavour of this when I ask how he shifted from Russian industrial assets into Silicon Valley start-ups. “You are a British journalist, representing a very high-level newspaper,” he snaps. “And you cannot believe that somebody from Tashkent can find these investments? “I knew this company would turn the world on its head,” he says of his early investment in Facebook. He tells me he invested $460m directly into the social media company and another $420m through a fund managed by his partner Yuri Milner, now seen as Russia’s most influential tech investor. At one point Usmanov says he controlled almost 8 per cent of the company’s stock. His return was “more than five-fold,” he says.

Henry Foy, “Alisher Usmanov: ‘I was never what you could call an oligarch,'” Financial Times, 4 January 2020.

So, by Usmanov’s own admission, he invested $880 million in Facebook. Put a pin in that for a moment.

CEO Mark Zuckerberg said at the time that Facebook carried out “extensive due diligence” on this investment. That means the company would have had to have known that that its biggest outside investor was a man viewed in business, diplomatic, and intelligence circles as a gangster.

Such information wasn’t hard to come by. In 2007, two years before Usmanov invested in Facebook, Craig Murray, a controversial former UK ambassador to Uzbekistan, denounced the metals tycoon as a “vicious thug, criminal, racketeer, heroin trafficker and accused rapist.” Murray made these charges in a blog post on his website (see copy here), that was subsequently removed under legal threat from the UK firm Schillings. Similar allegations were made a few days later on the floor of the European Parliament.

Facebook’s crack due diligence team clearly didn’t see Usmanov as a risk. But Megafon, a Russian mobile phone company in which Usmanov had invested, did. Take a look at this disclosure in Megafon’s initial public offering in 2012:

Gafur Rakhimov was sanctioned by the U.S. Treasury in 2012. “Rakhimov is one of the leaders of Uzbek organized crime with a specialty in the organized production of drugs in the countries of Central Asia. He has operated major international drug syndicates involving the trafficking of heroin,” the Treasury Department stated.

Rakhimov, a man Usmanov has known for years, is a heroin kingpin. Sorry, an alleged heroin kingpin.

Usmanov’s ties to Rakhimov were no secret. The Observer of London reported in 1998 that Usmanov “admitted that he had known Rakhimov for 20 years, and had met him regularly in Tashkent and London, but denied that they have a business relationship and that Rakhimov was involved in drugs.” In 2007, Usmanov gave The Guardian another explanation of his Rakhimov ties. “I only knew him since he was a neighbor of my parents,” he said.

Alexander Litvinenko, a former Russian spy who defected and was famously poisoned with radioactive polonium, did some digging into Gafur Rakhimov. This is from a file made public during an official UK inquiry into Litvinenko’s death.

Komsomol was a Soviet Communist youth league. (When the Soviet union fell, former Komsomol bosses like Mikhail Khodorkovsky used their connections to acquire ex-Soviet assets.) The Solntsevo gang is Moscow’s most powerful organized crime group. (Usmanov has long denied any ties to organized crime groups.)

Litnvinenko goes on to note that Usmanov has connections with three former KGB officers, one of whom “saved” Usmanov from a “violent confrontation with Chechnian crime bosses.”

Testimony given in a German criminal case in 2007 identified Usmanov as a representative of the Solnestsevo Mafia.

Even so, Usmanov shrewdly assessed that, in the West, even a reputed gangster can buy respectability. “Putin’s Kremlin had accurately calculated that the way to gain acceptance in British society was through the country’s greatest love, its national sport,” Catherine Belton writes in her excellent book, Putin’s People. In 2007, Usmanov did just that by acquiring a large stake in London’s Arsenal football club.

If buying a football club was a ticket into British society, investing in a Silicon Valley unicorn like Facebook may have been a way for Usmanov to gain respectability in the United States.

Usmanov told Forbes that he got a call in 2009 from his associate, Yuri Milner, who asked him whether he had ever heard of Facebook.

“No,” Usmanov replied. “[But] my nephews know it.”

Milner ran Digital Sky Technologies (DST) Global, an investment firm backed with Usmanov’s money.

Born in Moscow, Milner attended the Wharton School of Business in the 1990s. After a stint at the World Bank, he returned to Russia to work at Bank Menatep, which was founded by former Komsomol boss Mikhail Khodorkovsky. Milner ran Menatep’s investment banking division, Alliance-Menatep, and rose to the position of deputy chairman.

Menatep rang alarm bells at the CIA in the 1990s because the bank was said to be “one of the main conduits for the transfer of Communist Party wealth abroad,” Belton wrote in Putin’s People. A leaked CIA report obtained by The Washington Times in 1994 stated that senior Moscow officials believed that Menatep was “controlled by one of the most powerful crime clans in Moscow.”

The bank collapsed in 1998 and Milner began investing in Russian Internet companies. Milner founded Digital Sky Technologies in 2005.

Usmanov acquired a large stake in DST in 2008 and helped finance investments in major Internet companies in Russia, including VKontakte, Russia’s version of Facebook. “Usmanov is interpreted as a person who, on the Kremlin’s instructions, buys up various Russian [Internet] properties,” a Russian executive told The Atlantic’s Julia Ioffe.

In 2008, Milner came calling in Silicon Valley looking for a place to invest Usmanov’s money. Goldman Sachs introduced him to Mark Zuckerberg and a deal was struck.

“We were not asking for board seats and even assigned our voting rights to Mark, which sent a strong message that we are not seeking any influence over Facebook’s operations,” Milner told Forbes. “We started to invest in Facebook in 2009 and continued through 2011.”

Milner and Zuckerberg in 2009.

It was an offer than would have been hard for Zuckerberg to refuse. Milner’s offer valued Facebook at $10 billion, above what other investors were willing to pay at the time. And Milner demanded little in return, something he has pointed to when reporters started to question Russia’s investment in Facebook. “If this had all been an influence operation,” Milner wrote later, “we would surely have sought some control over the companies.”

Milner sold off all of his firm’s Facebook holdings after the IPO. Usmanov also invested his own money in Facebook, and it remains unclear whether he has completely closed his position. (A 2014 Bloomberg article noted Usmanov made a “gradual reduction” in his Facebook holdings.)

Perhaps Usmanov’s Facebook investment was just a shrewd, well-researched bet. In 2017, however, new information surfaced that suggested there were other factors at play.

The Paradise Papers, a secret trove of documents leaked from an offshore law firm, revealed that Kremlin cash was financing Usmanov’s investments.

The money came from Gazprom Investholding, a subsidiary of the Russian gas giant, Gazprom, which has been sanctioned by the U.S. Treasury Department. Usmanov was CEO of Gazprom Investholding from 2000 until 2014.

In his censored blog post, Craig Murray, the former UK ambassador to Uzbekistan, wrote that Gazprom Investholding was a main conduit to export Russian corruption:

Alisher Usmanov had risen to chair of Gazprom Investholdings because of his close personal friendship with Putin. He had accessed Putin through Putin’s long time secretary and now chef de cabinet, Piotr Jastrzebski. Usmanov and Jastrzebski were roommates at college. Gazprom Investholdings is the group that handles Gazprom’s interests outside Russia. Usmanov’s role is, in effect, to handle Gazprom’s bribery and sleaze on the international arena, and the use of gas supply cuts as a threat to uncooperative satellite states.

Murray claimed in another 2007 blog post that “It was Usmanov who engineered the 2005 diplomatic reversal in which the United States was kicked out of its airbase in Uzbekistan and Gazprom took over the country’s natural gas assets. Usmanov, as chairman of Gazprom Investholdings paid a bribe of $88 million to Gulnara Karimova [the daughter of Uzbekistan’s president] to secure this.”

Russian opposition leader Alexei Navalny also has accused Usmanov of bribing Dmitry Medvedev, a former Russian president and prime minister with an $83 million mansion. (Usmanov succesfully sued Navalny for libel.) Navalny’s representatives recently called for the West to sanction Usmanov.

Remember that $880 million Usmanov said he invested in Facebook?

Well, in 2009, Gazprom Investholdings loaned $920 million to Kanton Services Ltd., Usmanov’s British Virgin Islands-registered firm. A large chunk of that money arrived three months before Facebook announced its deal with Milner. (Usmanov has denied using state funds to invest in Facebook.)

Two years later, Kanton took a majority stake in DST USA II. When Facebook went public in 2012, DST USA II sold 25 million shares of Facebook for more than one billion dollars.

Did Usmanov’s influence over Facebook end there?

We can only hope. But consider what happened to VKontakte, Russia’s version of Facebook. In 2014, Usmanov forced the founder of VKontakte, Pavel Durov, to resign. Durov said he believed he was forced out because he refused to cooperate with the FSB, the successor agency to the KGB. VKontakte is now a tool of Russian government influence operations, according to the Senate Intelligence Committee.

Interestingly, Volume 5 the Senate Intelligence Committee’s report on Russia noted that VKontakte reached out to the Trump campaign in 2016, asking whether Trump wanted to put a campaign page on the site. The ensuing discussion is heavily redacted, although Usmanov’s name lights up a few footnotes.

Facebook is many times more powerful than VKontakte. Alisher Usmanov should never have been allowed anywhere near it.

Time to Put a Lie about Felix Sater to Rest (Updated)

Of all the characters in the Trump/Russia saga, few are more fascinating than Felix Sater.

Felix Sater

Sater is many things: a Russian emigre, the son of a gangster, an ex-con, and the guy who scouted real estate deals in Moscow for Donald Trump.

He was also a very valuable informant to the U.S. government for many years, as you can see from some photos I recently came across regarding Evgeny Shmykov, an ex-spy who was Sater’s long-time contact in Russia:

The guy that Shmykov stands shoulder-to-shoulder with? That’s Ahmad Shah Massoud, the anti-Taliban leader assassinated right before the 9/11 attacks.

These photos got some attention on Twitter, but as always, whenever Sater’s name comes up, people inevitably connect him to a powerful Russian Mafia boss named Semion Mogilevich, known as “the most dangerous mobster in the world.

It’s time to put this to rest.

There is no, I repeat, no credible evidence linking Sater to a Russian Mob boss who was on the FBI’s 10 Most Wanted List.

In writing my book, Trump/Russia, I spent quite a bit of time looking for evidence of the Sater-Mogilevich connection. In the end, I concluded that it just wasn’t there. To paraphrase Robert Mueller, if I had found evidence that Sater was connected to Mogilevich, I would so state.

There’s no doubt Sater did have ties to Russian organized crime. Sater’s father, Michael Sheferfofsky, was a Russian gangster who pleaded guilty in 2000 to two counts of extortion for shaking down businesses in Brooklyn.

Update: In her 2020 book, Putin’s People, Catherine Belton wrote that she spoke to two former Mogilevich associates in 2018 who told her that Sater’s father “become an ‘enforcer’ for some of Mogilevich’s interests” in Brighton Beach, Brooklyn. Another British journalist, Paul Wood, told me in 2019 that he spoke with someone from Mogilevich’s organization who told him that there is a link between Sater himself and Mogilevich.

Even so, proof is still lacking. There’s no mention of Mogilevich in Sherorfksy’s criminal file.

So where does this claim come from?

The Sater-Mogilevich link is found in a Supreme Court petition for a writ of certiorari in Palmer v John Doe. 14-676.

This sounds like credible evidence. It’s convinced many people, including me, as my 2017 blog post shows.

The thing is it’s bullshit. Yes, I know. Mea culpa, mea culpa, mea maxima culpa.

While reporting my book, Trump/Russia, I tried to get to the bottom of this. I asked Richard Lerner, the attorney who wrote the Supreme Court petition, how he learned about the Sater-Mogilevich connection.

He somewhat sheepishly admitted that it comes from a website called Deep Capture.

This is where things get weird.

Deep Capture was written by Mark Mitchell, a former editor at Columbia Journalism Review, to “expose the ‘deep capture’ of American institutions by powerful and corrupt financial interests.”

Patrick Byrne

Bankrolling Deep Capture was Patrick Byrne, the CEO of Overstock.com, a publicly-traded online retailer.

Byrne is famous for, among other things, a 2005 conference call with investors that touched on subjects ranging from:

“Miscreants, an unnamed Sith Lord he hopes the feds will bury under a prison, gay bath houses, whether he is gay, does cocaine, both or neither, and an obligatory, not that there is anything wrong with that, phone taps, phone lines misdirected to Mexico, arrested reporters, payoffs, conspiracies, crooks, egomaniacs, fools, paranoia, which newspapers are shills and for who, payoffs, money laundering, his Irish temper, false identities, threats, intimidation, and private investigators,” wrote Mark Cuban, the basketball team owner, investor, and host of Shark Tank.

That’s just a sampling. You can read the full thing here.

Byrne has also accused reporter Bethany McLean of giving Goldman Sachs traders blowjobs and said on live TV that he knew for a fact of a fax machine in the offices of CNBC where every morning hedge funds send in “instructions” for journalists. Authorities at Salt Lake City’s airport arrested him in 2013 when they found a loaded handgun in his carry-on luggage.

Sater is one of Byrne’s “miscreants” who appears as a recurring character in Deep Capture, where he is described to this day as a “Mafia boss” and “a Russian mobster and a member of the Mogilevich organization (controlled by Semion Mogilevich).”

To give you a taste of Deep Capture, check out this now-deleted post that describes … well, just read it for yourself:

A month or so after that, an offshore businessman who had provided some information to our investigation received in the mail a beautiful, lacquered, Russian matryoshka doll. And inside this doll, there was a slip of paper.

On the paper was the letter “F” — with a cross on it. The businessman knew right away that the letter “F” stood for “Felix” – Felix Sater.

The businessman said he had called Felix Sater to see what the deal was with the doll. And after talking to Felix, the businessman invited Patrick Byrne to a greasy spoon diner in Long Island. It was urgent, aid the businessman — so Patrick made haste.

And when Patrick arrived at the diner (along with two other people, who can testify to this) the offshore businessman, discarding with formalities, said, “This meeting can be very short. I have a message for you from Russia.”

The message, said the businessman, was this: “‘We are about to kill you. We are about to kill you.’ Patrick, they are going to kill you – if you do not stop this crusade [the investigation into destructive market manipulation], they will kill you. Normally they’d have already hurt you as a warning, but you’re so weird, they don’t know how you’d react. So their first step is, they’re just going to kill you.”

According to the businessman, this threat had come straight from the mouth of Felix Sater.

Maybe this did happen. Then again, maybe the moon landing was faked. Maybe the Illuminati controls the world. Maybe 9/11 was an inside job.

I’m pretty sure it didn’t happen.

Editor’s note: I am striking my snarky comments because I was wrong. Patrick Byrne has shown me evidence that this conversation did take place. In a recorded 2007 phone call, a transcript of which is in my possession, Byrne’s associate was told: “And there’s a beautiful box and inside is a matryoshka and I opened up the last matryoshka and inside is an F with a cross on it, which is for Felix.” I was also played the recording of this call. A clear threat was relayed to Mr. Byrne, who did not make this story up. I owe him an apology.

Patrick Byrne emailed me August 4 to say:

“For the record, your email reminded me that Felix wrote me once (while I was very ill) and denied being the source of the Russian death threat against me. He was quite gentlemanly, and I think I said I would post it. However, I think I was in a cardiac unit at the time, come to think of it, and it never got done.”

Byrne didn’t answer my questions about what evidence he has for the Sater-Mogilevich connection, which can still be found on his website.

In 2016, a Canadian judge ordered Byrne and Mitchell to pay $1.2 million (Canadian) over published claims that Altaf Nazerali, a Vancouver businessman, was a gangster, an arms dealer, a drug trafficker, a financier of al-Qaida and member of the Russian and Italian Mafias.

Nazerali is mentioned in the deleted post quoted above about Sater and the matryoshka doll. Nazerali is described as a friend of Sater’s, although I’d wager that they never met.

The judge wrote that Mitchell and Byrne “engaged in a calculated and ruthless campaign to inflict as much damage on Mr. Nazerali’s reputation as they could achieve. It is clear on the evidence that their intention was to conduct a vendetta in which the truth about Mr. Nazerali himself was of no consequence.” Read the decision here.

A month before the ruling was issued, Byrne announced he was taking an indefinite personal leave of absence from Overstock.com to battle stage 4 Hepatitis C. He returned to his duties a few months later.

The Supreme Court of Canada dismissed Mitchell and Byrne’s appeal in August 2018 and affirmed a seven-figure award.

Maybe you think Sater a bad guy. Maybe you think he made amends for his criminal past. Either way, a man whose life is far more fascinating than most of ours will ever be doesn’t need to be embellished with fiction.

Trump/Russia Review in TLS

Andrew Sullivan has written a nice review of Trump/Russia: A Definitive History in the Times Literary Supplement of London, “the world’s leading journal for literature and ideas.”

Unless, that is, you see all of this as some grand plan hatched in the halls of the Kremlin to unsettle the post-Cold War order, break up the EU and NATO, and legitimize the authoritarian pseudo-democracy in Russia. Seth Hettena, an investigative journalist with the Associated Press, lays out the entire labyrinth of ties Trump has long had with the Russian mafia in New York, and with the Russian government itself. His essential insight is that there is no clear distinction between the two. Putin’s Russia is a mafia state; its oligarchs deep in financial crime and close to mobsters. And Trump was ensnared early on, as his Trump Tower and Taj Mahal casino in New Jersey attracted all manner of Russian hoodlums, tycoons and hit men. But it deepened as Trump became bankrupt, saved only by bankers who were acting to protect themselves, and sought new financing when America’s banks refused to loan to this shiftiest of failed businessmen. His son, Eric, blurted out the truth to a friend: “We have all the funding we need out of Russia. We go there all the time”.

Hettena writes that Trump Tower was one of only two buildings in Manhattan to allow buyers to conceal their true identities. Money-launderers flocked to it. Trump’s Taj Mahal casino in Atlantic City was found to have “willfully violated” anti-money laundering rules of the Bank Secrecy Act, was subject to four separate investigations by the Internal Revenue Service for “repeated and significant” deviations from money-laundering laws, and was forced to pay what was then the largest ever money-laundering fine filed against a casino. The Trump World Tower, by the UN head­quarters in New York, had a large number of investors connected to Russia, Ukraine and Kazakhstan. Trump’s consigliere, Michael Cohen, was found by a Congressional Com­mit­tee to have “had a lot of connections to the former Soviet Union and . . . seemed to have associations with Russian organized crime figures in New York and Florida”. His campaign manager for a while – Paul Manafort – made a fortune channelling Kremlin propaganda in Ukraine. Trump’s new towers in Southern Florida were also humming with Russian buyers. Over a third of all the apartments in the seven Trump towers were connected either directly to Russian passports or to companies designed to conceal the owners. Hettena finds a prosecutor who spelled it out: “his towers were built specifically for the Russian middle class criminal”.

Trump’s unique refusal as a modern candidate to release his tax returns suddenly doesn’t seem so strange. And it is no surprise whatsoever that when the Trump campaign was told that the Kremlin had hacked Hillary Clinton’s emails and offered them to the campaign – as “part of Russia and its government’s support for Mr Trump” – they took the bait instantly. “If it’s what you say, I love it”, Donald Trump Jr emailed back to the Russian intermediary, “especially later in the summer”, clear proof of a conspiracy with a foreign power to corrupt the US elections. This led to the infamous Trump Tower meeting between Trump campaign officials and an emissary from Putin. In the autumn, the Clinton emails were duly unleashed, via WikiLeaks, and constantly touted by Trump himself. At one point, he even went on national television and directly asked the Kremlin to release more of them. Trump, in other words, was openly asking a hostile foreign government to help take down his opponent. But by then, his hourly outrages had lost the power to shock. As strong evidence emerged of a Russian campaign to influence the election in the summer and autumn of 2016, Obama proposed that a bipartisan group of senators release the information to warn the public. The Senate Majority leader, the Republican Mitch McConnell, refused. Much of the Republican Party would rather have the election rigged by Russians than see a Democrat win.

The quid pro quo appears to have been a promise to undo sanctions when Trump came to power – something his first National Security Counsel head, Mike Flynn, immediately started work on after the election victory….

A Mobster President?

Former FBI Director James B. Comey Jr. has been making the rounds with the stunning observation that President Donald J. Trump behaved much liked the mob bosses he put on trial in his days as a federal prosecutor in Manhattan.

During his time in the White House, Comey says he felt the president repeatedly trying to make him a member of his corrupted inner circle when he famously asked the FBI director for loyalty.

In his last conversation with Comey on April 11, Trump told him: “I have been very loyal to you, very loyal, we had that thing, you know.” We had that thing. That thing of ours. It’s literally a translation of La Cosa Nostra, which is how  members of the American Mafia describe their organization.

Comey tells us a fundamental truth about the man we have elected to the most powerful office in the world: Donald Trump was a mob-friendly businessman.

Continue reading

Five surprises in Glenn Simpson’s testimony

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Glenn Simpson

Well, it took a couple of days, but I finally managed to read through Fusion GPS co-founder Glenn Simpson’s 312-page testimony to the Senate Judiciary Committee.

Thank you to Sen. Dianne Feinstein for releasing this information last week over the objections of Republicans. Sen. Feinstein said the American public deserve to make up their own minds. Couldn’t agree more. You can find the testimony here.

So I thought I would pick things that jumped out at me from Simpson’s testimony:

1. An internal source in the Trump Organization was providing the FBI with information about Russian collusion.

Simpson learned this from Christopher Steele, the former British spy he had hired to investigate Trump’s links to Russia. Steele’s findings, including the scandalous scene in the Moscow Ritz, were so alarming that he took his findings to the FBI. The FBI told Steele, yes, we’ve heard something similar from our internal Trump source. Simpson refused to answer questions about who this source might have been, but this source was not one of Steele’s source. Huge bombshell. (p. 175)

2. Someone has been killed as a result of Steele’s reports.

Simpson’s lawyer, Josh Levy, drops this on p. 279. “Somebody’s already been killed as a result of the publication of this dossier and no harm should come to anybody related to this honest work,” he says. Curiously, nobody challenges this, which makes it seem an accepted fact. Maybe they were all just tired after 9 hours of questioning. The person is not named, but presumably it’s someone in Russia. Otherwise, it would be a bigger deal, right?

3. Felix Sater is connected to Russian organized crime kingpin Semion Mogilevich  This connection has been alleged in a Supreme Court petition filed in 2012 by lawyers Fred Oberlander and Richard Lerner to unseal Sater’s criminal case. The Website Deep Capture made the same claim, but the sourcing wasn’t very strong, as did two New York attorneys in court filings. (Update: Sources I’ve spoken to led me to doubt this claim.)  (p.69)

4. Chris Steele broke off talks with the FBI in part because of a story in The New York Times. This was the infamous Halloween 2016 story that reported that an FBI investigation of Trump found no ties to Russia. The Times story and FBI Director James Comey’s bizarre decision to reopen the investigation of Hillary Clinton’s email made Steele concerned that the FBI was being manipulated for political ends by Trump’s people. (p. 178).

5. Bill Browder’s comical efforts to hide from Fusion GPS and Glenn Simpson.
This isn’t a single event. It’s more like a pattern. Maybe Simpson is a liar as Browder says or maybe Browder doesn’t like anybody nosing around in his business practices in Russia. Read it for yourself and see what you think pp 40-48.