Putin re-asserts Russia’s nuclear threat to the West, boasts of new missiles

The Bell

Hello! Putin gave his annual parliamentary address Wednesday and our top story this week is a look at why he chose (again) to focus on Russia’s nuclear arsenal and confrontation with the West. We also have an update on the case of Michael Calvey, the U.S. private equity investor under arrest in Russia, and two stories to whet your appetite ahead of the possible release of special counsel Robert Mueller’s report next week: one on the Russians who featured in leaked correspondence between Felix Sater and Michael Cohen, and another on Trump’s former Miss Universe partner in Moscow, Aras Agalarov, who looks to be in line to receive a huge state contract for building work at a cosmodrome in the Far East.

Putin re-asserts Russia’s nuclear threat to the West, boasts of new missiles

What happened

President Vladimir Putin’s annual speech to Russia’s parliament, was, as usual, delivered with two audiences in mind. He promised a domestic audience state handouts, while threatening the West with new missiles. The main message was that if the U.S. places nuclear weapons in Europe, Russia will aim its own nuclear weapons at U.S. targets. Putin went into even more detail about his nuclear plans at a meeting with top editors later the same day.

  • How does Russia threaten Washington? Putin explained that his primary goal is to have the ability to strike the U.S. faster than American missiles can get to Moscow: “We are talking about similar capacities… above all about time. And maybe, if we have more time, a preemptive strike won’t be necessary.”
  • Putin said Russia’s missiles are faster. From the president’s explanations it follows that Russia’s new sea-based, hypersonic Tsirkon cruise missiles can reach the U.S. in 6 minutes, significantly faster than the 10-12 minutes American missiles would need to reach Russia. He said: “Compare the 10-12 minutes flying time to Moscow with how long it will take us to reach the decision-making centers that are a threat to us… And neither nor Georgie nor Ukraine will give them an advantage.”
  • Ordinary Russians apparently find talk of nuclear weapons calming. Putin explained why he mentioned nuclear weapons so often (in his parliamentary address last year, he spoke for almost an hour about the topic and showed a video in which a Russian missile was shown falling on Florida). He told the editors that: “It was necessary to explain to the country that we have spent a lot, we need to calm people because we announced that we were reducing spending on defense.”
  • The military remains of paramount importance. When one editor asked why Putin talked more about money than missiles, he responded by saying that, in any case, missiles are more important. Putin said: “Economic success it key to solving all questions. This means increasing labor productivity and attracting investment, above all private investment. But, despite this, we have never forgotten — and will never forget — that in order to be confident we have to guarantee our own security.”

Why the world should care

Talk of nuclear confrontation is alarming, but it is worth taking Putin’s numbers with a grain of salt. The specifications of the Tsirkon missiles, for example, keep changing. In 2017, state owned newspaper Rossiiskaya Gazeta reported that the speed of the missiles had increased to Mach 8 from Mach 5. During his speech this week, Putin said they flew at Mach 9.  

The Baring Vostok case grinds on as the Kremlin remains silent

What happened

In his big speech, Putin didn’t mention Baring Vostok despite the recent arrest of the private equity fund’s founder, Michael Calvey. Although we know Putin has been briefed about the case, he limited himself to general phrases about economic crime. Calvey, who has been in prison since last Friday, was charged on Saturday with “large-scale fraud”, which carries a maximum sentence of 10 years in prison and a fine of 1 million rubles ($150,000).

  • U.S. citizen Calvey was arrested late last Thursday on charges of embezzling 2.5 billion rubles ($380 million) from Vostochny Bank and a court subsequently arrested him for two months. U.S. consular representatives have not been given access to Calvey although, under international agreements, this should have been granted within four days.
  • Over the last week, dozens of Russian politicians and businessmen have publicly spoken in defense of Calvey. Business ombudsman Boris Titov wrote (Rus) a column with the headline ‘Why Calvey Shouldn’t Be in Prison.’ The head of Russian Direct Investment Fund, Kirill Dmitriev, made a similar, if less emotional, announcement (Dmitriev has an unofficial connection to Putin’s inner circle via his wife, Natalia Popova, who studied at Moscow State University with Putin’s daughter, Katerina Tikhonova, and now works as her deputy). The founder of Yandex, Arkady Volozh, also spoke in Calvey’s defense (Baring Vostok was an early investor in Yandex), saying Calvey was “the standard of legality for the entire market”, while the head of Sberbank, Russia’s largest bank, said Calvey was “an honest and respectable person”. A petition on Change.org calling for a re-think of the charges has almost 10,000 signatures. Foreign Minister Sergei Lavrov also said Thursday he was aware of the support for Calvey.
  • The Bell has written about who might be behind the criminal charges against Calvey. Since then not much more has come out, except that the BBC has learned that a share valuation given by prosecutors is based on a report by Luxembourg lawyers ordered by Artem Avetisyan (the Vostochny Bank shareholder who filed the charges against Calvey). In the report, they use the nominal value of the shares, instead of their actual value. Calvey himself has said that the charges against him in Russia are Avetisyan’s response to charges Calvey filed in a London court against Avetisyan.

Why the world should care

For anything to change for Calvey, his defense team’s arguments have to be heard by one person — Vladimir Putin. But this one person, it would appear, is for now content to make general statements about the investment climate, and shield Calvey’s accusers. 

The Russian names you haven’t heard before that you may see in Mueller’s report

What happened

Next week, special counsel Robert Mueller could present the results of his investigation into Russian meddling in U.S. elections. Although it is unclear how much of the report will be made public, its seems clear its main points will soon be known. One focus is likely to be the negotiations about Trump Tower in Moscow that involved Trump associates Felix Sater and Michael Cohen. We already know about their talks with Russian developer Andrei Rosov, and the letter of intent that Trump signed. But The Bell has studied correspondence between Sater and Cohen published by Buzzfeed and looked into some of the Russians it mentions.

  • PIK Group, Sergey Gordeev and Platforma. In October 2015, Cohen sent an unknown person draft plans for restoring a factory in downtown Moscow. The project included Platforma and was developed by U.K. architects John Mc Aslan + Partners, who led the redevelopment of Kings Cross in London. Platforma’s deputy director, Boris Golubev, told the Bell that the project was developed by PIK, Russia’s largest and most influential developer. Platforma was brought in as an agent to sell the project. Golubev said that the presentation was “widely shared around the market” and that it’s likely someone simply sent it to Cohen. Both companies deny any contact with Trump’s team, but PIK “can’t exclude” that the presentation made its way to Cohen, the company said in a statement. More than a year ago, it became known that, at the end of 2015, Cohen received an offer for a development project from Sergei Gordeev (owner of PIK) through Georgian businessman Georgy Rtskhaladze. Gordeev himself told The Bell that he doesn’t know Trump or Rtskhaladze, and had never approached The Trump Organization. But his spokesperson contradicted him in a conversation with the Wall Street Journal. She said that a 13-page document about this project was handed over in October 2015 – the draft plans for the factory exactly match this description.
  • Genbank and Yevgeny Dvoskin. Sater got an invitation for his Russian visa from Genbank, and a source has confirmed to The Bell that Genbank was in correspondence with Trump’s team. While Genbank is the 108th biggest Russian bank and 50 percent is owned by the state, it was one of the first banks to begin business in newly annexed Crimea in 2014. It is led by Yevgeny Dvoskin, a Moscow financier with a criminal past and connections (Rus) to the FSB. Dvoskin, who declined to talk to The Bell, became a shareholder in Genbank in April 2015, just half a year before Sater got his invitation. In a conversation with The Bell, police officer Dmitry Tselyakov, who has investigated Dvoskin, said Sater and Dvoskin may be personally acquainted because of their overlapping biographies. Dvoskin was born in Odessa and in 1977 emigrated to the U.S. with his parents, settling in Brooklyn’s Brighton Beach. In the 1990s, Dvoskin served two prison sentences in the U.S. for tax evasion and it’s likely he cooperated with prosecutors because he received minimal sentences, Tselyakov said. Sater was born in Moscow and emigrated to the U.S. in 1974. He also lived in Brighton Beach.
  • MIC Group and Andrei Rybinsky. We already knew that Cohen had held talks with developer and real estate magnate Andrei Rybinsky. But in the correspondence published by Buzzfeed there was a letter received by Cohen on 25 January 2016 from investment and development company MIC Group in which Rybinsky owns a 50 percent stake. The letter invites Cohen to Moscow to “continue talks about the Trump Tower”. Rybinsky’s interests are not limited to just development projects: he is also the president of major promotion company The World of Boxing (Rybinsky and MIC Group’s press service declined to speak to The Bell).
  • Andrei Molchanov. Sater wrote to Cohen about a meeting with Andrei Molchanov, a billionaire and founder of LSR Group, a major developer. LSR did not respond to a request for comment. Molchanov’s main assets are his connections: his stepfather was a university classmate of Yury Kovalchuk, an old friend of Putin (Putin’s daughter had her wedding at Kovalchuk’s resort). Putin’s and Molchanov’s fathers also worked together in the administration of St. Petersburg university.

Trump’s 2013 Miss Universe partner to build space launch pads in Russia’s Far East

What happened

Billionaire Aras Agalarov, who organized the Miss Universe contest in Moscow in 2013 with Trump and is being investigated by special counsel Mueller, will likely win a major construction contract for a new space facility in the Far East. Agalarov’s holding, Crocus, has been offered a contract worth 40 billion rubles ($600 million) to build launch pads for Angara rockets, sources told The Bell this week.

  • Crocus has never built anything of this kind before. Historically, the company has specialized in building luxury shopping malls, but since 2013 it has been bidding for government contracts. The company built two football stadiums for the 2018 World Cup and in 2013 it built the infrastructure for a major summit in Vladivostok. In 2015, the company was awarded a contract to build a 47 billion ruble ring road around Moscow . Agalarov personally reports to Vladimir Putin on these major projects.
  • In 2013, Agalarov hosted the Miss Universe pageant in Moscow under license from The Trump Organization and the future U.S. president attended in person. That same year, Trump starred in a music video made by Agalarov’s son, Emin Agalarov.  
  • In 2016, the Agalarovs helped arrange a meeting between Donald Trump Jr., Jared Kushner and Russian lawyer Natalia Veselnitskaya, which was supposed to have been about compromising information on Hillary Clinton. Now the Agalarovs are being looked into by Mueller’s investigation into Russian meddling in the 2016 election.

Large government contracts are one of the ways of making big money in Russia, but they can also cause problems. The Vostochny Cosmodrome, which Agalarov’s companies will likely work on, has been under construction since 2011. Building deadlines have been extended several times, workers have gone on strike over unpaid wages prosecutors have filed 140 embezzlement cases since 2015 in relation to construction at the site.

Why the world should care

It would be an exaggeration to call Agalarov’s business ties with the government a direct consequence of his association with U.S. election meddling. But Agalarov has seen his businesses grow — and his ties to the government deepen — at the same time as this scandal has unfolded.

Peter Mironenko

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

Support The Bell!

The Bell's Newsletter

An inside look at the Russian economy and politics. Exclusively in your inbox every week.