Jailed billionaire demands $14 billion from Russian state companies

Despite serving a 19-year jail term, Russian billionaire Ziyavudin Magomedov showed last week that he is willing and able to strike against state companies from a prison cell, lodging a case with London’s High Court demanding $14 billion in compensation for assets seized from him following his arrest in 2018. The claims mainly concern Rosatom and Transneft, the principal defendants in the case. According to Magomedov, the two firms received the bulk of his appropriated assets – the FESCO transport group and a stake in the Novorossiysk Commercial Sea Port. Rosatom and Transneft are among the few remaining Russian companies that still have overseas assets, and thus have something to lose if the court finds against them.

What’s going on?

Magomedov brought a case before the British court back on July 20, but his lawyers only officially announced the details last week. Reuters has reported on the case, and the Financial Times reviewed the materials in some detail.

• Alongside Transneft and Rosatom, U.S. investment fund TPG (which owned 17.4% of FESCO) and Emerati port operator DP World (which planned to purchase a further 35-40% stake in FESCO) are named as defendants in the case. Magomedov claims that all four were part of a conspiracy, encouraged by the Russian government, to steal his assets. Transneft and Rosatom were the main beneficiaries of the scheme, while TPG and DP World actively assisted them, Magomedov’s representatives alleged in the court filings.
• Magomedov’s claim is worth $13.8 billion, based on his valuation of a 32.2% stake in the FESCO transport group ($8.8 billion) and 25% of the Novorossiysk port ($5 billion). The billionaire’s lawyers say it is a record amount for a claim before London’s High Court, outside of class-action lawsuits.
• In a press release, Magomedov’s representatives noted that he may file additional cases in respect of other appropriated assets — in particular, grain terminals which “allegedly fell into the hands of people closely linked to the Russian establishment ... and after Russia’s invasion of Ukraine were repeatedly described as ‘strategic’ to Russia’s war interests.” Magomedov’s biggest grain-related asset was a 49% stake in United Grain Company, which was acquired by state-owned bank VTB.
• Representatives of both TPG and Rosatom have said the claims against them are groundless.

Who is Ziyavudin Magomedov?

Ziyavudin Magomedov was regarded as one of the main beneficiaries of Dmitry Medvedev’s presidency. He was owner of the Summa group, featured on the Forbes List of Russian billionaires and studied with one of Medvedev’s closest advisors, Arkady Dvorkovich. He acquired all his principal assets during Medvedev’s 2008-2012 spell as president.

In March 2018, Magomedov and his brother, former senator Magomed Magomedov, were arrested on embezzlement charges (The Bell was the first to report on the nature of the charges). Later, the pair were charged with creating an organized crime group. In December 2022, Ziyavudin was sentenced to 19 years in a high-security prison, with Magomed handed an 18-year sentence. Between the arrest and sentencing, the brothers lost most of their assets, which were either sold to state-owned companies or directly confiscated by Russian authorities. Throughout, the brothers have been held at Moscow’s notorious Lefortovo pre-trial detention center, where they are still awaiting the outcome of an appeal.

Why the world should care

Magomedov’s claim threatens the potential of genuine losses for two major Russian state companies. Both Rosatom and Transneft hold significant assets abroad. Transneft has oil pipelines that, even after the EU oil embargo, have continued to deliver fuel to the Czech Republic, Slovakia and Hungary. And Rosatom is the only major Russian company against which neither the EU nor the U.S. has imposed sanctions. It continues to build power stations throughout the world (including in Europe with Hungary’s Paks II plant). If Magomedov manages to win his case, foreign courts would have actual assets they could seize.

Just as importantly, thanks to the lawsuit we are likely to discover more about how the relationship between businesses and the Russian state worked in recent years. Like with Boris Berezovsky’s cases against Roman Abramovich that lifted the lid on how prosecutions of businessmen and the appropriation of assets were organized in the 1990s and 2000s, this case could give the world similar details about how the Russian state went about the same task in the 2010s and early 2020s.

We have already learned something about how Transneft boss Nikolai Tokarev operates. According to Magomedov’s filings, before his arrest he held talks about selling a 25% stake in the Novorossiysk port to Transneft for $1.3 billion. But after he was arrested, representatives of the state-owned company told him that Tokarev had promised to ask Putin to release Magomedov, so long as he sold his shares for $750 million. Magomedov agreed, but nevertheless remained behind bars.