A new investigation into Wagner, Russia’s private mercenary army

Hello! Our lead story this week is an investigation into Wagner, the Russian mercenary company, including some previously unreported details about its foundation. We also have: highlights from our interview with controversial Belarusian escort Nastya Rybka and her sex coach, Alex Leslie, who have just spent 9 months in jail; the inside story of a lobbying effort to lift U.S. sanctions on Oleg Deripaska’s companies En+ and Rusal; an explainer on an increasingly bitter fight between two of Russia’s most important liberal technocrats; and the details of a dramatic arrest in the Russian parliament.

A new investigation into Wagner, Russia’s private mercenary army

What happened

Much has already been written about Yevgeny Prigozhin, the controversial figure dubbed ‘Putin’s chef’, who allegedly controls Wagner, a mercenary outfit acting in the Kremlin’s interests across the globe. But The Bell has unearthed new details in an investigation into Wagner’s creation and how it became an important lever of Russian foreign policy. Read the highlights below, or check out the article on our site for all the details and background.

• “Everything began when our generals met Eeben Barlow,” one source with good contacts in the Ministry of Defense told The Bell. Barlow was a senior figure in the South African security forces in the 1980s but, when the apartheid regime began to fall apart, he set-up Executive Outcomes, a security company that became the model for U.S. security giants like Blackwater.
• This meeting with Barlow took place at the St. Petersburg Economic Forum, Russia’s showpiece investment conference, in 2010. Contacted by The Bell, Barlow said he remembered attending the forum and telling attendees that “private military companies from the west and the east will overrun Africa.”
• While the Russian military was keen on the idea of a mercenary group, nothing happened immediately. Valery Gerasimov, who took over as head of the Russian army in 2012, pushed forward with the plan and Yevgeny Prigozhin was chosen to create Wagner (hiring began in 2013). Sources close to the Ministry of Defense told The Bell that it was financed by some of the money Prigozhin made from huge state catering contracts. Forbes estimated that, by the end of 2012, the value of contracts directly, or indirectly, related to Prigozhin surpassed 90 billion rubles ($1.4 billion).

Why was Prigozhin, 57, chosen? Aside from his reputation as an ‘action man’, he also has close ties to Putin. Prigozhin said he first met Putin in 2000, during a visit of Japanese Prime Minister Yoshiro Mori to St. Petersburg in which his companies were involved in catering. An intensely secretive person, now under U.S. sanctions, Prigozhin very rarely speaks to the media, but in response to The Bell’s questions, he issued a statement via his spokesman. In it, he denied outright having ties to Wagner, and said he doesn’t work with the Russian military “with the exception of rare events in the context of catering services.”

The world learnt about Wagner for the first time in 2015, when St. Petersburg news outlet Fontanka wrote about them. Since then, the company has grown and grown:

• According to Fontanka, Dmitry Utkin, a former colonel in the Russian army, is their key military commander. After deployment in Syria, Utkin and other Wagner commanders were invited to the Kremlin, and in December 2016 a photo appeared online, apparently showing Putin posing with the group.
• Aside from Syria, Wagner has been used in countries across the world, particularly in Africa. At the end of 2018, Russia was suspected of sending troops to Libya and Prigozhin was spotted in a video with the head of the Libyan army. Last week, Reuters reported that Wagner mercenaries were in Venezuela to protect President Nicolas Maduro amid civil unrest (the Kremlin denied this).

Why the world should care

The story of Wagner’s creation suggests both Prigozhin and Wagner will continue to play a key role in Russian foreign policy. But with estimates putting the number of mercenaries who have worked for Wagner at 10,000, will the company remain in the shadows? Or could Wagner’s founders and sponsors turn it into a commercial security venture like Barlow’s Executive Outcomes?

“You risk your life”: Rybka and Leslie on the Oleg Deripaska affair

What happened

Last year, Belarusian escort Nastya Rybka claimed she had information about Russian meddling in the 2016 U.S. election. Both her and Alex Leslie, her self-proclaimed sex instructor,  were jailed in Thailand and Russia, but are now free. The Bell was able to speak with Rybka and Leslie. They talked about how they got involved with Deripaska, how they make their money and why they think the FBI was behind their detention in Thailand.

According to Leslie and Rybka:

• There was no order to compromise Deripaska;
• Leslie and his team tried to smear opposition leader Aleksei Navalny;
• Their arrest in Thailand was arranged by the FBI, and the Russian consul helped them to return home;
• Rybka offered American journalists dirt on Trump before the scandal with Deripaska, but no-one responded.

You can read the full interview here.

Why the world should care

In several interviews this week, Rybka has refused to talk directly about Deripaska. But on Friday she said she did have information about ties between Russia and Donald Trump’s election campaign — but that she had given this back to Deripaska. The spotlight looks set to remain on Rybka for some time to come.

How U.S. lobbyists got sanctions on Deripaska’s companies lifted for $1 million

What happened

This week began well for companies tied to billionaire Oleg Deripaska: sanctions were lifted from EN+ Group and Rusal. This success is largely down to lobbyist firm, Mercury Public Affairs. The Bell spoke to a source familiar with the talks between En+ and the U.S. Treasury Department and looked at the lobbyist’s reports to see how it happened.

• “To punish a bad guy and preserve jobs,” is how The Bell’s source described Mercury’s strategy. He said Congress sees Deripaska as a “bad guy” and does not plan to remove individual sanctions against him.
• Hiring Mercury was part of a plan of action put together by Lord Gregory Barker, the chairman of En+’s board of directors. This plan included Deripaska giving up control of the sanctioned companies.
• Mercury had earlier lobbied against sanctions and knew En+’s situation was bad. “Because of Trump, it’s hard to do anything related to Russia,” a source told The Bell.

Mercury put forward three arguments against sanctions:

• Preserving jobs: the company asked eight countries to write letters to the U.S. Treasury Department about how their industries were tied to Rusal. Jamaica and “four EU countries” sent such letters, the source told The Bell.
• The Chinese threat: the lobbyists predicted that a refusal to lift sanctions might push En+ to desperate measures, which might include an acquisition by Chinese companies or nationalization in Russia.
• Domestic U.S. problems: keeping sanctions could create problems for the Trump administration because of a negative impact on producers and consumers.

Barker, a former British energy minister, hired Mercury to communicate with U.S. lawmakers in May. His friendship with one of Mercury’s partners was the reason for the decision, a source told The Bell. Since then, Mercury’s services has cost En+ almost $1,000,000: the company’s monthly retainer is $108,500. According to a source, the agreement remains in place.

Mercury’s former clients include Uber, AirBnb, and the governments of Nigeria and Qatar. Mercury also indirectly lobbied on behalf of former Ukrainian president Viktor Yanukovych when political consultant Paul Manafort created the European Center for the Affairs of Modern Ukraine in Brussels in 2012 and hired two firms to work on its behalf in the U.S. — one of these was Mercury. Employees understood perfectly that their real client was Yanukovych.

Why the world should care

The En+ case sets an important precedent because, as until now, no one believed that the Russian companies could reverse sanctions until the tensions between the two countries are eased.

Liberals Gref and Nabiullina clash over the future of fintech

What happened

Two of Russia’s liberal economists are spoiling for a fight. The head of the Central Bank, Elvira Nabiullina, has disagreed publicly with her former boss, German Gref the head of Russia’s largest bank, Sberbank. They are arguing over who will control the financial technology market.

Two years ago, Gref announced he wanted to see Sberbank develop like a tech company, not a bank. As a result, the Soviet Union’s old savings bank is now investing in Russia’s largest e-commerce project, and its subsidiaries include startups working in remote medicine, facial identification, and cloud technologies.

All this means Sberbank is a direct competitor of the Central Bank, which is also trying to develop digital infrastructure for the entire financial market — and Sberbank is moving much faster than the regulator. Nabiullina is unhappy with the possibility that Sberbank will become a monopolist in this area.

• This year, the Central Bank launched a system for quick transfers that allows bank clients to transfer money from card to card using only a person’s phone number. Sberbank, which controls 94% of the transfer market, refused to join the system. In response, the Central Bank suggested using a new law to force banks to participate.
• In summer 2018, the Central Bank began to put together a database of biometric data to identify clients through facial recognition but, in the first three months, only 2,000 people handed over data. In comparison, Sberbank launched its own database in October and gathered data from over a million people in two months.
• Another reason for Nabiullina to be unhappy is Sberbank’s desire to buy Russia’s largest internet company, Yandex. If this happened, small banks will be completely forced out of the market, a source close to the Central Bank explained.

How the dispute between Nabiullina and Gref is resolved determines who will control the future of fintech, a rare sector in Russia that is growing even faster than in the West. For now, it looks like Nabiullina has a better chance of winning, according to officials who spoke with The Bell.

Why the world should care

This is yet another reminder that it is incorrect to categorize the Russian elite into liberals and conservatives. Both Nabiullina and Gref are considered influential liberals. But as technocrats, they also have their own problems and arguments, which have little to do with ideology.

The dramatic arrest of Russian senator during a parliamentary session

What happened

This week’s most discussed news was the arrest of a member of Russia’s upper house of parliament in the middle of a debating session. The 32-year-old senator, Rauf Arashukov, is from an influential clan in the North Caucasus and is accused of murder and embezzlement.

• The arrested senator is accused of ordering two murders in his home region, Karachay-Cherkessia. His father, a top manager at a Gazprom subsidiary, was arrested on the same day, accused of being involved in the embezzlement of 30 billion roubles ($500 million).
• The corruption of which father and son are accused is typical for the Caucasus region. Over many years, the head of the clan, Arashukov senior, used his position in Gazprom to increase the volume of gas ‘needed’ for Karachay-Cherkessia, and then he sold the excess through his own companies.
• General Prosecutor Yury Chaika and the head of the Investigative Committee, Alexander Bastrykin took part in the arrests and made an appearance in parliament to request that Arashukov junior’s immunity from prosecution be removed.

In the North Caucasus region, siphoning money from the federal budget and state companies is big business. In each of the ten republics, this revenue stream is controlled by influential local clans. During searches in the Arashukovs’ house in Karachay-Cherkessia, large sums of cash and gold bars were seized and a large collection of luxury cars discovered.

The North Caucasus has some of the poorest regions in Russia. Karachay-Cherkessia is ranked second to last in Russia in terms of average income ($4,500 per year) and has the second highest unemployment rate (13.2%) among Russia’s 85 regions.

One unusual side effect of this arrest was unpleasantness for several Russian celebrities who were friendly with Arashukov junior and appeared on his Instagram. They all rushed to justify themselves on social media. “Don’t break the law to not be the next one,” television host and head of state-owned sports television channel, Match TV, Tina Kandelaki wrote on her Telegram channel. The star used to go for a daily jog with Arashukov.

Why the world should care

Big corruption cases in Russia are never simply about exposing criminals. As Arashukov senior held a top position at Gazprom, one theory is that this case is an attack on the gas company.

Peter Mironenko

Anastasia Stognei contributed to this newsletter. Translation by Tanja Maier, editing by Howard Amos.

This newsletter is supported by the Investigative Reporting Program at UC Berkeley