The Polish Institute of International Affairs (PISM) is one of the most influential government affiliated research institutes worldwide. It promotes the flow of ideas that inform and enhance the foreign policy of Poland. PISM provides independent analysis and advice to all branches of government, contributes to KREMLIN KIDS: wider debates on international relations and houses one of the best specialist libraries in Central Europe. THE SECOND GENERATION POLSKI INSTYTUT SPRAW MIĘDZYNARODOWYCH THE POLISH INSTITUTE OF INTERNATIONAL AFFAIRS UL. WARECKA 1A, 00-950 WARSZAWA OF THE RUSSIAN ELITE TEL. (+48) 22 556 80 00 ISBN 978-83-66091-29-0 (PB) [email protected], WWW.PISM.PL ISBN 978-83-66091-30-6 (PDF)

Bartosz Bieliszczuk | Agnieszka Legucka

THE POLISH INSTITUTE OF INTERNATIONAL AFFAIRS

Kremlin Kids: The Second Generation of the Russian Elite

Authors: Bartosz Bieliszczuk Agnieszka Legucka

Warsaw, November 2019 © Polski Instytut Spraw Międzynarodowych, 2019

Copy editor Brien Barnett

Technical editor and cover designer Dorota Dołęgowska

Graphics Jakub Pieńkowski

978-83-66091-29-0 (pb) 978-83-66091-30-6 (e-book)

Polski Instytut Spraw Międzynarodowych ul. Warecka 1a, 00-950 Warszawa phone (+48) 22 556 80 00, fax (+48) 22 556 80 99 [email protected], www.pism.pl CONTENT

Who are the “Kremlin Kids”...... 5 Executive Summary ...... 7 Introduction...... 9 Evolution of the Russian Power Elite...... 11 The Second Generation’s Importance in the Russian Power Structure...... 17 The Foreign Position of the Second-Generation Elite ...... 22 “Easternisation” of the West ...... 24 Conclusions...... 32 Recommendations ...... 33 Index of persons...... 34

Kremlin Kids: The Second Generation of the Russian Elite 5

WHO ARE THE “KREMLIN KIDS”

“Kremlin kids” is a term describing the younger generation of the Russian elite’s close family and other relatives. Owing to their families’ influence, “Kremlin kids” enjoy a privileged position within Russia, running strategic state-owned companies, affording studies, acquiring property across the world and winning lucrative state contracts for their own companies. Not all children of the Russian elite are “Kremlin kids,” yet almost every member of the elite has a “Kremlin kid” in their family. Within Russia, the “Kremlin kids”—the elite’s most trustworthy associates—help their parents and families control strategic Russian companies (in oil, gas, energy, banking, etc.). Those who run their own businesses can count on a substantial flow of money from the state budget (less often, they personally work in the government). Such influence and experience make the “Kremlin kids” the most likely successors of the current ruling Russian elite. By holding such top positions, the “Kremlin kids” help achieve Russia’s foreign-policy goals because state-owned companies are often used by Russia as political tools. Even “Kremlin kids” who do not sit on the boards of state-owned enterprises promote Russian policy abroad, for example, in illegally annexed Crimea. More than that, though, the Russian elite avoid Western sanctions by passing their assets to their trusted family members. Therefore, the importance of the “Kremlin kids” grows also on the international level. The “Kremlin kids” should be perceived as a potential line of Russian penetration of the West. They are in positions to corrupt U.S. and EU officials with their illegally earned money and, therefore, to weaken the West’s ability to respond to Russia’s aggressive actions.

Kremlin Kids: The Second Generation of the Russian Elite 7

EXECUTIVE SUMMARY

1. The second generation of Russia’s power elite, the so-called “Kremlin kids,” plays an important role in the system of politics and business inside and outside the country. Its members petrify that system’s pathological aspects—nepotism, corruption and money laundering—and they are likely to turn themselves into the power elite of the Russian Federation’s future. As for now, they are entrenched in key industries (energy, banking, investments), thus propping up their parents’ position in the Russian state system. 2. The privileged position held by the children and relatives of the Russian elite adds to arguments about the kleptocratic and clannish nature of Russian governance. It also mirrors a picture of social inequality, absence of the rule of law, and disrespect for ownership rights, where rich, well-connected Russians are equally at home with state and private property. 3. While not every relative of Russian top-elite follows a business or political path, almost every member of the top-elite has a descendant placed in a strategic entity. The top family clans include those led by the brothers Arkadiy and Boris Rotenberg, Sergey Chemezov, Yuriy Kovalchuk, Igor Sechin, Nikolay Patrushev, Yuriy Chayka, and Gennadiy Timchenko. Given their weight, it seems unlikely that the Russian power structure could be recast in step with a generational change of guard. Children and relatives act as proxies for their parents to strengthen their position in the system. 4. It’s been a mistake on the part of the U.S. and EU countries to believe that western values and principles (rule of law, transparency, etc.) can be transplanted to Russia just because the West is attractive to the younger elite generation of Russians. Education at western universities and personal business links, the argument ran, would bring about the westernisation of the Russian state system, or at least would predispose young people favourably towards the West. But the second generation of the power elite only very rarely embrace these values and they appear even less interested in transforming the system. Rich, influential Russians send their children to private schools and universities to give them a head start in life and as a hedge against situations in which they would be abruptly forced to stay outside Russia (e.g., if their parents lose power and influence). At the same time, though, members of the power elite are wary of admitting their children’s links to western educational systems because that would not square with their official anti-western line. 5. By ceding their assets to family members, Russian oligarchs have managed to evade some of the western restrictions imposed on Russian companies and properties. They are thus able to keep their possessions in western countries without having to revise the anti-western course of the Russian Federation’s foreign policy. But in a qualitatively new development—which the EU would do well to emulate—recent U.S. sanctions have begun to cover some of the “Kremlin kids” as well. Rich Russians benefit from certain forms of special treatment in European countries, such as the “golden visa” programmes (offering permanent residency and, sometimes, citizenship to foreign investors). This helps them to find a safe place for families and also to ensure that they can keep their income and assets (real property) outside the control of Russian authorities and courts, thus benefitting from the observance of the rule of law in western countries. The money invested abroad provides a safeguard against possible future risks, and children—familiar with foreign languages and social environments—can rest assured that they can cope outside the home country. 8 The Polish Institute of International Affairs

6. Russian investments involving money from questionable sources exert an adverse impact on the democratic systems and rule of law in the West. These investments are big enough to indirectly influence the decision-making processes by western leaders, who have for years been turning a blind eye to the provenance of the Russian capital they wanted to draw to their respective countries. Kremlin Kids: The Second Generation of the Russian Elite 9

INTRODUCTION

One of today’s most affluent and influential Russians, Gennadiy Timchenko, told the Russian news agency TASS that “one should not leave too much to children, who should be brought up, provided with a good education and then asked to go it on their own.”1 In practice, though, none of the Russian oligarchs or key politicians has followed this advice. Following the break-up of the USSR, a new generation has emerged of Russia’s power elite, their children, often in their 30s and 40s. Russian leaders are – in general - reluctant to discuss the professional activity of their relatives because these family connections attest to the many corrupt features of the Russian system of politics and business and reveal social inequality, the unfair distribution of national income, and disrespect for law in Russia.2 The present report is an attempt to size up the “Kremlin kids”—this new generation of influential Russians—and lay out what role they play in Russia and abroad. The “Kremlin kids” appellation denotes the descendants of the present elite, those young people who are active in the country’s economy or politics, who carry weight for their parents’ position in the power system of the Russian Federation (as a result, strengthening its pathologies). They use their parent’s position as an advantage but also they work as a proxy for them in and/ or outside Russia. Their activities have a direct or indirect influence on the internal and external Russian politics. Among “Kremlin kids” are President Vladimir Putin’s daughters (Katerina and Maria) along with their husbands (Kirill Shamalov3 and Jorrit Faasen), the president’s cousin Igor Putin and his son Roman, and Mikhail Shelomov (son of Putin’s cousin Lyubov Shelomova).4 The group also includes the sons of influential state figures, such as Rosneft CEO Igor Sechin (son Ivan), Bank Rossiya CEO Yuriy Kovalchuk (son Boris), the Russian Federation’s Security Council Secretary Nikolay Patrushev (sons Dmitriy and Andrey), Russia’s Prosecutor General Yuriy Chayka (sons Artyom and Igor) and long-serving Russian State Railways CEO Vladimir Yakunin (son Andrey), and the children of Russian oligarchs, namely Arkadiy Rotenberg (son Igor), his brother Boris Rotenberg (son Roman), Gennadiy Timchenko (daughter Kseniya), Nikolay Shamalov (sons Yuriy and Kirill), and Sergey Chemezov (son Stanislav). Also counting among the “Kremlin kids” are the daughter and son-in-law of Minister of Foreign Affairs Sergey Lavrov (Ekaterina and Aleksandr Vinokurov) and daughter of Minister of Defence Sergey Shoygu (Kseniya Shoygu). A number of related questions are not without merit: What role do the “Kremlin kids” have in the Russian power structure? How do members of the elite protect their future at home and abroad? Will the “Kremlin kids” turn into Russia’s political elite in the near future? Having been exposed (in many cases) to western values (democracy, rule of law, free media), will they be willing to change the course of modern Russia in that direction? The present report is divided into two parts, discusses, first, the “Kremlin kids’” position in the state system and, then, their role in Russia’s relations with countries in the West. On the international level, the families of Russian politicians and oligarchs help them with money laundering operations and in circumventing western sanctions. This activity assumed particular importance after 2014, when, following the Russian aggression against Ukraine (illegal

1 R. Sheynov, “Akcii SOGAZa dostalis’ dochke,” Novaya Gazeta, 10 November 2016, www.novayagazeta.ru/ articles/2016/11/10/70486-aktsii-sogaza-dostalis-dochke. 2 And in this they hardly receive any help from children, eager to flaunt their riches on social media, e.g., on Instagram at #RichRussianKids. 3 In January 2018, the media reported Kirill Shamalov’s divorce with Katerina Tikhonova, as a result of which he was forced to unload some of the assets “entrusted to him.” Biznesmen Kirill Shamalov razvelsia s docheryu Vladimira Putina, The Bell, 25 January 2018, https://thebell.io/biznesmen-kirill-shamalov-razvelsya-sdocheryu-vladimira-putina. 4 Putin and the Proxies, OCCRP, www.occrp.org. 10 The Polish Institute of International Affairs

annexation of Crimea and start of the war in the Donbas region), western states imposed individual restrictions on Russians responsible for, or supporting, these developments (e.g., people linked to the energy and armaments industries). And it became even more important after the United States started to impose sanctions in retaliation for Russia’s meddling in the 2016 U.S. presidential election, use of nerve agent on UK’s soil in an assassination attempt and Russia’s hijacking of Ukrainian sailors after Kerch Strait incident. Previously, having ceded assets to their children, the Russian elite could protect their illegally acquired property—held abroad, often in tax havens—from being sequestrated by U.S. and EU law enforcement agencies. The recent U.S. restrictions, which also cover certain members of Russian oligarch families, indicate a policy change in this respect.

Fig. 1. The First and Second (“Kremlin kids”) Generations of Russia’s Elite

The information used in the report was collected from open sources only, i.e., companies’ official websites and documents (e.g., Gazprom, Putin Consulting, Innopraktika), official sanctions lists of the U.S. Department of the Treasury, as well as the European Commission, media interviews with members of the Russian elite, English and Russian-language media publications, investigative journalism pieces (with the notable example of the Organized Crime and Corruption Reporting Project, OCCRP), think-tank reports, books, and others. In selected cases, the findings from the open-source materials were consulted with diplomats and experts. Kremlin Kids: The Second Generation of the Russian Elite 11

EVOLUTION OF THE RUSSIAN POWER ELITE

The elite is defined as a narrow group of society, aware of their separateness.5 And the power elite is understood to be the ruling group in society, comprising decision-makers at the central level.6 Olga Kryshtanovskaya, a sociologist studying the Russian authorities, stratifies the elite into three tiers: super-elite, strategic elite, and political elite.7 The Russian super-elite is a tight- knit, impenetrable group of some 20–30 figures, frequently engaged in personal contacts with the president.8 The strategic elite is larger, and its members—often informally connected—are vested with the responsibility for decision-making and planning of state development. Membership of the third group, the political elite, is determined by one’s political position, e.g., in parliament. Importantly, each major clique and interest group within the strategic and political elites has its representative in the super-elite. The strategic elite initially included the so-called young reformers, fathers of the Russian economic transformation and privatisation, but starting from 1996, the centre of gravity has shifted towards the oligarchs. The meaning of this notion in Russia was changing in step with the evolution of the oligarchs’ position in the power structure.9 They were the people who, having accumulated vast wealth, came to exert a huge influence on politics.10 In the 1990s, the designation of oligarchs was attached to those who got rich quick through privatisation of state-owned enterprises. Independent actors with a say in politics—among them Boris Berezovsky, Vladimir Gusinsky, Mikhail Khodorkovsky, and Oleg Deripaska11—leveraged their control of media in 1996–2000 to help President Boris Yeltsin in burnishing his image, but at the price of increasing concessions and plundering the Russian economy. As a consequence, the 1998–1999 financial crisis made itself felt more painfully among the Russians, accompanied by the pauperisation of society and criminalisation of enterprises.12 In that period, another group marked their presence in Russian political life, namely the directly elected regional governors, who also sat in the higher chamber of

5 M. Stefaniuk, Teoria elit Vilfreda Pareta, Lublin: Wydawnictwo Uniwersytetu Marii Curie-Skłodowskiej, 2001; M. Żyromski, Gaetano Mosca—twórca socjologicznej teorii elity, Poznań: Wydawnictwo Naukowe UAM, 1996; J. Kullberg, J. Higley, J. Pakulski, “Elites, institutions and democratisation in Russia and Eastern Europe,” in: G. Gill (ed.), Elitesand Leadership in Russia Politics, Macmillan Press, St. Martin’s Press: Basingstoke—New York, 1998; C.W. Mills, Elita władzy, Warszawa: Ksiażka i Wiedza, 1961. 6 O. Kryshtanovskaya, S. White, „The Nomenklatura in Post-Communist Russia,” in: G. Gill (ed.), op. cit., p. 82; J. Ćwiek-Karpowicz, Rosyjska elita władzy centralnej w latach 2000–2008, vol. 3, Warszawa: Oficyna Wydawnicza ASPRA-JR, 2011, p. 36. 7 O. Kryshtanovskaya, Anatomiya rossiyskoy elity, Moskva: Zakharov, 2003, pp. 73–92. 8 The contemporary pattern of the Russian power elite resembles those of previous eras. The super elite corresponds to the Communist Party’s Politburo in the Soviet Union, and the Tsar’s close circle of advisers in pre-revolutionary Russia. The strategic elite is the equivalent of the Central Committee in Soviet times and Tsarist Russia’s military and civilian officials ranked in accordance with an official schedule. J. Ćwiek-Karpowicz, Rosyjska elita polityczna o Unii Europejskiej: (tradycja i współczesność), Warszawa: Dom Wydawniczy Elipsa, 2007, p. 59. 9 J. Ćwiek-Karpowicz, Rosyjska elita władzy centralnej…, op. cit.; J. Ćwiek-Karpowicz, “Paradygmaty badań nad elitami i transformacją polityczną w Federacji Rosyjskiej,” in: T. Bodio (ed.), Przywództwo, elity i transformacje w krajach WNP: Problemy metodologii badań, Warszawa: Oficyna Wydawnicza Aspra-JR, 2010, pp. 361–375. 10 Boris Berezowsky (1946–2013), who amassed his fortune from privatisation schemes, was a media tycoon; he controlled the public TV channel ORT, later nicknamed “Pervyi Kanal” [Channel One], and served as deputy secretary of the Security Council of the Russian Federation under President Boris Yeltsin. He argued that “the most profitable investment for a wealthy person in Russia is an investment in politics.” The Rise of Putin and The Fall of The Russian- Jewish Oligarchs, youtube.com. 11 Vladimir Gusinsky, who also invested in media, was the founder of the Media Most holding company, which included NTV television and the weekly Itogi. Mikhail Khodorkovsky bought a controlling stake in the petroleum company Yukos, which he turned into a world leader on the energy market in 2003; but when he revealed political ambitions, he was accused of privatisation irregularities and sentenced to imprisonment in a penal colony. Oleg Deripaska, an oligarch who escaped Putin-era purges, enriched himself by trading in aluminium; he holds a majority interest in the aluminium company Rusal. J. Ćwiek-Karpowicz, Rosyjska elita władzy centralnej…, op. cit., pp. ­131–133; J. Godzimirski, The Political Economy of Russian Aluminium Between the Dual State and Global Markets, in: T.S. Shaw (ed.), Palgrave Macmillan: International Political Economy Series, 2018, pp. 43, 55, 169–176. 12 D. Kostovicova, V. Bojcic-Dzelilovic, Persistent State Weakness in the Global Age, London—New York: Routledge, 2016, p. 104. 12 The Polish Institute of International Affairs

parliament, the Federation Council, with the power to approve presidential decrees13—before Putin withdrew the privilege of direct election to that body.14 The dilemma facing Russia’s first president, Boris Yeltsin, at the beginning of the 1990s was how to ensure control over the influential security services with their massive number of employees inherited from the Soviet period. Initially, he supported the dismantlement of the powerful KGB because of his rivalry with Gorbachev.15 However, after the USSR collapsed, he sought to centralise it, which would mean more control for himself as Russian president.16 After the constitutional court denied this option in January 1992, Yeltsin started to pursue divide et impera instead.17 The special services were reorganised and the budget and staff reduced. The officers were also allowed to work for private businesses, which resulted in security services “privatisation” and establishing ties with business and criminal groups. At the end of Yeltsin’s rule, the ambition of the siloviki (i.e. military, secret services, police), from which Putin himself hailed, was to replace the oligarchs as the ruling elite.18 Significantly, the guarantees of personal security for Yeltsin and his family19—provided in Vladimir Putin’s first decree that he signed as acting president, in 2000—did not extend tothe political and business associates of the Russian Federation’s outgoing head of state. And so, when a TV reporter (ORT channel) criticised Putin for his late reaction to the Kursk submarine tragedy, the channel’s chief, Berezovsky, fell out of favour and had to leave for London.20 That marked the beginning of the new president’s battle with the old-guard oligarchs of the Yeltsin era, including media mogul Vladimir Gusinsky. Having first indicated that they should abandon political aspirations, as demonstrated by the imprisonment of Mikhail Khodorkovsky (who nurtured growing political ambitions), Putin then assumed the role of an umpire, watching the game played among the “liberals” (who called for more leeway for business, and openness to foreign investment), regional chiefs, and his own siloviki community.21 That was also the time when the so-called St. Petersburg oligarchs saw their influence rising. Among these people were Sechin, Timchenko, Chemezov, Kovalchuk, the brothers Rotenberg, and Shamalov linked to Putin, following their work in Dresden and/or St. Petersburg (where Putin was born, then Leningrad). As for the old, Moscow oligarchs, some (e.g., Mikhail Fridman, Deripaska, Wagit Alekperov) have managed to keep their wealth and remain tolerated by the authorities, but without much political clout.22 As the president strengthened his grip on power, people from St. Petersburg began to fill the top positions in the state.23 The difference between the classical oligarchy (where money gives power) and the Russian system under Putin has been explained well by Russia expert Mark Galeotti: “In Russia, you can’t buy power with money. But if you have power you don’t have to worry about money anymore.”24

13 J. Ćwiek-Karpowicz, Rosyjska elita władzy centralnej…, op. cit., p. 133. 14 He did it in 2005, using the pretext of the 2004 terrorist attack in Beslan, where the blame was put on local authorities in the North Caucasus. Later, following a wave of public protests in 2011–2012, the requirement of direct elections for governors was restored, but with the president formally authorized to dismiss them upon “loss of trust.” In 2017, a total of 19 governors were recalled, having been summoned to work on Putin’s presidential campaign. M. Domańska, “Polityka regionalna Kremla—rok dymisji gubernatorów,” Komentarze OSW, no. 257, 15 December 2017, www.osw.waw.pl. 15 J.A. Azrael, A.G. Rahr, The Formation and Development of the Russian KGB, 1991–1994, RAND, 1994, p. 2. 16 Ibidem, p. 6. 17 J. Darczewska, „Rola struktur siłowych w transformacji ustrojowej Rosji,” in: J. Borkowicz, J. Cichocki, K. Pełczyńska-Nałęcz (ed.), Okręt Koszykowa, Warszawa: Wydawnictwo Naukowe PWN, 2007, p. 163. 18 Ibidem, p. 170. 19 C. Bohlen, “Yeltsin Resigns: the Overview; Yeltsin Resigns, Naming Putin as Acting President to Run in March Election,” The New York Times, 1 January 2000, www.nytimes.com. 20 M.V. Zygar, Wszyscy ludzie Kremla: Tajne życie dworu Władimira Putina, Warszawa: Agora, 2017, p. 89. He was found hanged in 2013, and many speculated that he was murdered. 21 Ibidem, pp. 108–111. 22 J. Ćwiek-Karpowicz, S. Secrieru (eds.), Sankcje i Rosja, Warszawa: PISM, 2015, pp. 77–79. 23 I. Kratsev, G. Pavlovsky, The arrival of post-Putin Russia, European Council on Foreign Relations, 1 March 2018, www.ecfr.eu. 24 J. Hans, “The evidence is strong. Interview by Julian Hans,” Suddeutsche Zeitung Panama Papers, http://panamapapers.sueddeutsche.de. Kremlin Kids: The Second Generation of the Russian Elite 13

The close circle of Putin’s friends and associates began to literally intermarry, thus imparting to the system a mafia- and clan-like nature.25 This means that the country is ruled by an organized, hierarchically arranged group in which members’ formal positions do not always correspond to their actual influence. One example is Igor Sechin, who in his capacity as Rosneft CEO was able to have then-Minister of Economic Development Aleksey Ulyukayev26 sent to a penal colony27—a move made possible by informal connections within the power elite and the absence of the rule of law in Russia. Members of the elite obtain illegal gains assets incommensurable with official salaries and conduct criminal activities at home (such as tax fraud, as illustrated by the “Magnitsky affair”28) and abroad e.g., money laundering. For a long time, Vladimir Putin did not talk much about his private life, and the information about his daughters—Katerina and Maria—came only from journalists’ investigations. In 2015, Putin mentioned that they [the daughters] “are taking the first steps in their careers but are making good progress. They are not involved in business or politics. They have never been ‘star’ children, they have never got pleasure from the spotlight being directed on them. They just live their own lives. They live in Russia (...) They have never been educated anywhere except Russia.”29 On another occasion, he said that it was better for them to be out of the public eye.30 Putin, as a former KGB officer, probably was afraid that his children could be viewed as a “weak spot” in his position of power and used against him. Second, his image as a person fully devoted to his country meant he had to keep his family away from politics. Katerina Tikhonova was not a public figure until December 2018, when she gave an interview for Russian state TV (Rossiya 1). She talked about her job in Innopraktika and the new technology aimed at medically controlling electrical impulses in the brain.31 In May 2019, she defended her PhD dissertation on analytical mechanics to develop technology that could help astronauts keep their balance in changing gravity.32 But her career had started earlier. Tikhonova became director of the National Intellectual Development Foundation (NIDF) in May 2013, which works under the Innopraktika fund at Moscow State University (MGU). The roster of donors to the Innopraktika fund includes the most important state companies run—in most cases—by Putin’s cronies: Rosneft (Igor Sechin), Transneft (Nikolay Tokarev), Rostec (Sergey Chemezov), and Gazprombank (Andrey Akimov).33 Some of those names appear on the list of the board of trustees of Innopraktika. One partner company, Sibur, is managed by Tikhonova’s husband Kirill Shamalov, who is president of Ladoga Management and a member of Sibur‘s board of directors. Over the past five years, the Innopraktika has concluded more than 40 government contracts worth about RUB 1.3 billion, almost half of this amount was received in 2017.34 The main customer of the

25 K. Darwisha, Putin’s Kleptocracy. Who owns Russia, New York: Simon & Schuster, 2014, pp. 1–12. 26 Ulyukayev, a critic of Rosneft’s expansion in the Russian energy sector, was arrested by the FSB and sentenced to a term in penal colony for allegedly having taken a bribe from Igor Sechin. 27 I. Wiśniewska, S. Kardaś, “The Ulyukayev case—tension inside the Russian elite,” OSW Commentary, no. 255, 1 December 2017, www.osw.pl. 28 Sergey Magnitsky, a lawyer representing Heritage Capital in Moscow, uncovered and publicised a case of massive corruption by Russian officials, for which he himself was arrested and accused of financial malfeasance. Beaten and tortured, he died in prison in 2009 without having his day in court. In November-December 2012, the U.S. Congress passed the Magnitsky Act, under which 18 individuals were banned from entering the U.S., their bank assets frozen. A. Legucka, “Polityka Baracka Obamy wobec Rosji,” Polski Przegląd Dyplomatyczny, no. 2 (69), 2017, pp. 121–122. 29 In a rare occasion, Putin talks about his daughters, 2015, www.youtube.com/watch?v=DE-Q_Aqn8t4; “I’m Proud of My Daughters, But I Won’t Discuss Them—Putin,” The Moscow Times, 17 December 2015, www.themoscowtimes.com. 30 V hode prjamoy linii Putin rasskazal o rozhdenii vtorogo vnuka, 2017, www.ntv.ru/video/1438342/ ?from=newspage. 31 B. Bostock, “Putin’s mysterious daughter, whom he has never publicly acknowledged, made her debut on Russian TV,” Bussines Insider, 7 December 2018, www.businessinsider.com. 32 T. Parfit, “Space study earns Putin’s daughter a doctorate,” The Times, 27 May 2019. 33 S. Grey, A. Kuzmin, E. Piper, “Putin’s daughter, a young billionaire and the president’s friends,” Reuters, 10 November 2015, www.reuters.com. 34 “Fond docheri Putina poluchil ot «Rosnefti» 28 mln rubley,” MBK, 1 April 2019, https://mbk-news.appspot.com/ news/fond-docheri-putina. 14 The Polish Institute of International Affairs

fund is Rosneft and its subsidiary Arctic Research Centre, which provided the fund with orders of almost RUB 1 billion.35 According to the official documents, “Innopraktika is implementing projects aimed at the growth of national human capital, including through the development of structures and mechanisms of the innovation economy.”36 Another example of “Kremlin kid” is the Roman Putin, the son of Igor a cousin of the sitting president. Roman is a former officer with the Federal Security Service (FSB)37 and head of Putin Consulting. Contrary to Vladimir Putin’s daughters, he makes no secret of his kinship with the Russian president.38 His company’s website reads: “Business in Russia contains many risks (…). Serious problems for businesses include raider attacks, unjust judicial decisions, unsubstantiated claims by law enforcement, tax and administrative authorities, failure of debtors to pay debts (…). Foreign investors are a separate category of businessmen who regularly become targets of fraud and other abuses. Their operations in the Russian Federation require special legal protection. Our experts have the necessary qualifications to protect your interests and preserve your assets.”39 This demonstrates that the “Kremlin kids” are keen to earn a buck or two leveraging their connections with those in power and that money can indeed buy something unavailable to commoners and uninitiated foreigners seeking to establish a presence in Russia—certainty of business operations and insurance against legal and administrative threats. Also, the activities of the Chayka brothers, Artyom and Igor, could be an illustration of the pathologies in Russian business. They both take advantage of the position of their father Yuriy, the Prosecutor General of the Russian Federation. According to him, both brothers succeeded through their own hard work because they are “smart” and “have brains.”40 Artyom owns companies that supply materials for the construction sector and one of them is the biggest provider of crushed stone for Russian Railways. According to the U.S. Department of Treasury, Artyom’s father’s connections help his son’s business activities, for instance, prosecutors initiated an investigation against his competitors who supply materials for road construction.41 Artyom owns the company VSTPK which accounts for about 8% of the salt mined in Russia.42 He is also the president of the International Congress of Industrialists and Entrepreneurs, which, according to the official website, “comprises the national unions of industrialists and entrepreneurs from 28 European and Asian countries.”43 His brother, Igor, was an advisor to the governor of Moscow Oblast for about two years44 and currently controls several rail technology companies.45 One of his company’s won a €500 million contract for waste disposal near Moscow46 and another company co-owned by Chayka, BetElTrans (BET), has won multi-billion rouble bids for the modernisation of railway infrastructure in Moscow, in cooperation with German Vossloh AG.47 On the international level, he also makes business in China and Iran.48

35 Ibidem. 36 Innopraktika, https://innopraktika.ru. 37 Putin and the Proxies, op. cit. 38 Putin Consulting, www.putinconsulting.com. 39 Ibidem. 40 “Yuriy Chayka: kazhdomu vozdastsya,” TASS, 30 January 2017, https://tass.ru/top-officials/3969855. 41 “United States Sanctions Human Rights Abusers and Corrupt Actors Across the Globe,” U.S. Department of the Treasury, 21 December 2017, https://home.treasury.gov. 42 “Yuriy Chayka: kazhdomu vozdastsya…,” op. cit. 43 International Congresss of industrialists and entrepreneurs, http://www.ic-ie.com. 44 “United States Sanctions Human Rights Abusers and Corrupt Actors Across the Globe…,” op. cit. 45 R. Sagdiev, B. Ljauv, E. Vinogradova, „Kak syn genprokurora postroil biznes na kontraktakh s RZhD i Moskvoy,” Vedomosti, 15 October 2015, www.vedomosti.ru/business/articles/2015/10/05/611415-sin-genprokurora-postroil- milliardnii-biznes. 46 M. Bennetts, “Putin’s garbage challenge,” Politico, 24 April 2019, www.politico.eu/article/vladimir-putin- garbage-problem-russia-landfills. 47 S. Titov, “Igor’ Chayka sozdast v Moskve novyj biznes na milliardy rubley,” Forbes.ru, 8 April 2019, www.forbes.ru/biznes/374455-igor-chayka-sozdast-v-moskve-novyy-biznes-na-milliardy-rubley. 48 “Yuriy Chayka: kazhdomu vozdastsya…,” op. cit. Kremlin Kids: The Second Generation of the Russian Elite 15

Fig. 2. Innopraktika Fund

Source: www.innoprakitka.ru. However, a salient feature of Russia’s clannish power structure is more than parents- children relations. It comprises exclusive ruling groups based on bloodlines and also on marriage: e.g., between children of the elite.49 Igor Sechin’s daughter, Inga, married Dmitriy Ustinov, the son of Vladimir Ustinov, the then-Prosecutor General of the Russian Federation.50 Kirill, the son of Nikolay Shamalov, one of Putin’s closest friends51—the two were holidaying together at Davos in the 1990s52—married Putin’s daughter, Katerina. There are also instances of westerners being co- opted into the Russian system through marriage. One of them is Dutch businessman Jorrit Faassen,53 the husband of Putin’s eldest daughter, Maria. He succeeded in joining first Gazprombank54 and then the Alfa Group, owned by Russian tycoon Mikhail Fridman.55

49 Gleb Frank, the husband of Kseniya (daughter of the oligarch Gennadiy Timchenko), is the son of former Transport Minister, Sergey Frank. “Nevospolnimyi ushcherb druzej Putina,” Ruspres, 22 March 2016, www.rospres. org/politics/17845. 50 M.V. Zygar, op. cit., p. 154. 51 S. Shuster, “The Secret French Hideaway Where the Putin Family Spends Its Time and Fortune,” Time, 13 June 2017, http://time.com. 52 D. Crawford, M. Bensmann, “Putin’s early years,” Correctiv, 30 July 2015, https://correctiv.org. 53 Ibidem. 54 S. Grey, A. Kuzmin, E. Piper, op. cit. 55 “New Investigation Sheds Light on Putin’s Eldest Daughter,” OCCRP, 1 February 2016, www.occrp.org. 16 The Polish Institute of International Affairs

The Russian “power pyramid” is not confined to the super-elite and strategic elite but also includes the ever-growing bureaucracy—officials and politicians at various levels, forming the political elite—whose number has exceeded 6 million.56 Additional increases in administrative employment came with the formation of new local authority structures in Crimea (including, after 2014, the Ministry of Crimean Affairs). Officials enjoy higher status compared to the general public.57 Administrative remuneration is higher than the average pay by a factor of 1.5, and in addition to that, officials have the capacity to force businesses to pay bribes. Judging by tax returns, the top 40,000 Russian officials are amongst the most affluent people in the country.58 In these circumstances, the ruling elite has been benefiting from their position by buying real estate, investing in companies, and leading opulent lifestyles. Simultaneously, influential individuals began wondering how to protect the future of their growing children, where to educate them and what jobs to pick—and given their connections and money, they found it no problem to give their kids a head start. That was how the elite began to use services offered in the West. Investments and deposits in western banks became an important way of protecting one’s family. The major motives behind such activities included the following: – Profit-making.Russian capital was drawn by the guarantees of security provided by western countries’ free markets and rule of law. Members of the Russian power elite were able to transfer money out of Russia, invest, for example, in western real estate, and make deposits in bank accounts in tax havens. – Children’s education at prestigious schools and universities. The educational options in western countries enhanced the young people’s career prospects, inside and outside Russia. – Asset hiding. An opportunity to hide income from Russian tax inspectors and courts, such as those offered by tax havens abroad, is highly valued by members of the political elite, who are required to disclose their earnings in Russia. – Yearning for lavish lifestyles. Notwithstanding the declared enmity towards western liberal values, these rich, influential Russians are not averse to having a good time, indulging in yachts, fashion houses, shopping, specialty clinics, and holidaying in Western Europe, the U.S., and Canada. – Guarantees of personal safety. Foreign investments and foreign citizenship have been sought in order to ensure family fortunes in the event of a fall from power in Russia and the consequent need to emigrate. Simultaneously, a process was going on whereby the “Kremlin kids” were included in Russia’s internal system. One of them, Dmitriy Patrushev, the elder son of Security Council Head Nikolay Patrushev, on 18 May 2018, became the first “Kremlin kid” in history appointed as a member of the Russian Federation’s cabinet, going on to become Minister of Agriculture. Like his father, he was trained as a security services officer, but he also worked for many years at a bank. His entry into the world of politics represents a qualitative change in Russia’s power structure and it also demonstrates that the Russian power elite is aware of the long-term challenge of keeping their position and status. This is especially important given that Putin’s term in office is probably his last and also given the worsening relations with western countries (individual sanctions) and the shrinking riches that have been left available to the elite, coupled with internal bickering.59 And an especially important factor here is that “the state’s resources, such as its natural resources or the budget, are treated like booty to be divided among the groups of influence within the ruling elite.”60

56 “Odin k semi. Rossiya pobila istoricheskie rekordy po czislu gossluzhashchikh,” Novyye Izvestia, 22 July 2017, newizv.ru/news/society/22-06-2017/odin-k-semi-rossiya-pobila-istoricheskie-rekordy-po-chislu-gossluzhaschih. 57 “’Strana byurokratov’: Zachem Rossii stolko chinovnikov,” Karjerist.ru, 12 July 2017, https://careerist.ru/news/ strana-byurokratov-zachem-rossii-stolko-chinovnikov.html. 58 Ibidem. 59 A. Legucka, “Putin’s Elections,” PISM Bulletin, no. 46 (1619), 22 March 2018, www.pism.pl. 60 Putin for the fourth time. The state of and prospects for Russia (2018–2024), OSW Report, March 2018, p. 11. Kremlin Kids: The Second Generation of the Russian Elite 17

THE SECOND GENERATION’S IMPORTANCE IN THE RUSSIAN POWER STRUCTURE

Members of the Russian power elite seek to protect their children’s material interests. “Kremlin kids” are on boards of big state-owned companies and banks. To better understand Russia’s power structure and financial flows, one must take a closer look at the powerful corporations whose sway may cover entire branches of the economy. Whatever their ownership pattern—be them state- or privately owned—they are frequently controlled by people linked to the authorities.61 Along with generating revenue for the treasury, these corporations help build patronage networks (e.g., through the allocation of contracts to a select group of cronies 62) and provide an important instrument of the state’s foreign and social policies. On the Forbes Global 2000 list from 2017, Russia is represented by 27 companies whose valuations run into the billions and tens of billions of dollars.63 Some of them are among the world’s largest in their respective sectors, e.g., Rusal (aluminium), Gazprom, Rosneft, Lukoil (petroleum/oil and gas), and Transneft (oilfield services and equipment), and domestically they often enjoy the status of either monopoly or dominant position. Combined employment at the top-20 publicly listed Russian corporations is close to 1.8 million and this group does not include companies in the armaments sectors (employment: 2.5 million64), Russian Railways (830,00065), and Rosatom, controlling the entire nuclear sector (employment: 250,00066). Some of these corporations (e.g., Gazprom, Rosneft, Rosatom, Rostec) help the Russian government in the conduct of its foreign policy and in exercising influence in other countries by leveraging billions’ worth of investments and supplies of commodities and/or technology.67 Holding a senior position in a large company is not only a testimony to the trust held in that person by top state officials, it actually may give more clout and money than a ministerial post.

Energy sector

Russia is one of the world’s major oil and gas producers, with some 20% of the country’s GDP contributed by that sector.68 And it is there that the ruling elite’s children are often placed— in key energy companies and connected entities with monumental cash flows. The goal is not just to get rich quick. As it happens, the “Kremlin kids” sitting on company boards are well positioned to exercise control—on behalf of their parent and clans—over strategic corporations that act as intermediaries in the conduct by the Russian state of its foreign and social policies. Mikhail Putin, the son of the president’s cousin, has for years been on Gazprom’s payroll and in March 2018 was promoted to the position of deputy CEO.69 Also sitting on the company’s

61 B. Bieliszczuk, “Competition under Control: A Perspective on the Application of EU Law to Nord Stream 2,” PISM Bulletin, no. 122 (1564), 6 December 2017, www.pism.pl. 62 “Putin Ally Arkady Rotenberg to Build Crimea’s Kerch Bridge,” The Moscow Times, 30 January 2015, www.themoscowtimes.com. 63 The World’s Biggest Public Companies 2017 Ranking, Forbes, www.forbes.com. 64 R. Conolly, C. Sendstad, Russia’s Role as an Arms Exporter, Chatham House, March 2017, www.chathamhouse.org. 65 “Overview,” Russian Railways, http://eng.rzd.ru. 66 “Rosatom Group,” Rosatom, www.rosatom.ru/en/rosatom-group. 67 B. Bieliszczuk, “Rosatom Goes Green: New Areas of Russia’s Foreign Cooperation,” PISM Bulletin, no. 49 (1622), 28 March 2018, www.pism.pl. 68 H. Simola, L. Solanko, Overview of Russia’s oil and gas sector, Bank of Finland, 19 May 2017, https://helda.helsinki.fi. 69 “Mikhail Putin appointed Deputy Chairman of Gazprom Management Committee,” Gazprom, 23 March 2018, www.gazprom.com; V. Soldatkin, C. Lowe, D. Evans, “Putin relative appointed to management of state gas giant Gazprom,” Reuters, 23 March 2018, www.reuters.com. 18 The Polish Institute of International Affairs

board of directors is Dmitriy Patrushev,70 the older son of the secretary of the Security Council of the Russian Federation and former FSB chief, Nikolay Patrushev. The younger son, Andrey,71 advised Igor Sechin, Rosneft CEO, for three years and in 2015, as the youngest (34-year-old) member, he joined the management committee of Gazprom-Neft, a Gazprom-owned giant player on the Russian petroleum and fuel market72 (he is in charge of offshore drilling, an important line of operations, given the company’s involvement in the Arctic).73 And Sechin’s older son, Ivan, worked as a deputy director at Rosneft.74 Yuriy Kovalchuk’s son, Boris, is the CEO of Inter RAO,75 one of Russia’s top electricity producers/distributors (where Igor Sechin is the chairman of the board of directors). Also working in the energy sector is Stanislav Chemezov, the son of Sergey Chemezov, the CEO of the state-owned technology and armaments company Rostec.76 Employed at Itera, which for years was second only to Gazprom as Russia’s natural gas supplier (and which in 2013 was taken over by Rosneft), Stanislav oversaw a number of ambitious ventures, including the laying of the Eureka fibre-optic cable from Europe to China. That project was never completed, and yet it absorbed some $500 million from the Russian treasury, which was subsequently transferred to tax havens.77 The son of Foreign Intelligence Service (SVR) Director Sergey Naryshkin, Andrey, has been hired in senior positions in energy companies, such as Energoprojekt78 and FGC UES (FSK YeES PAO),79 the latter being Russia’s largest electricity transmission grid operator. The “Kremlin kids” serving in energy companies make it possible for their parent to exert indirect influence on those companies’ future. Kseniya Frank, the daughter of Gennadiy Timchenko (one of Putin’s closest friends and associates), was 26 years old when she sat on the board of directors of Transoil, which controls 26% of the Russian market for the railway transport of oil and petroleum products80 (she has been in charge of the company’s strategy since 2011).81 Yuriy Shamalov, a son of Nikolay Shamalov (Vladimir Putin’s long-time friend), has for years served with Gazprom-linked companies,82 and his responsibilities include sitting on the boards of directors at Gazprom-Media83 and Gazprombank.84 Nikolay Shamalov’s other son, Kirill, and also a son-in-law of Vladimir Putin himself, acquired in 2014 a block of shares in the Sibur petrochemical complex, which he purchased from Gennadiy Timchenko (for money received from Gazprombank).85 And even though the cession of stock to children reflects more the practices of evading western sanctions (more on that below) than the intention to enrich the progeny, its most important aspect is that the positions held in key companies by the children of senior state officials give the latter the opportunity to indirectly influence the management of these companies. Kirill Shamalov, who

70 B. Bieliszczuk, “Competition under Control: A Perspective on the Application of EU Law to Nord Stream 2,” PISM Bulletin, no. 122 (1564), 6 December 2017, www.pism.pl. 71 “Patrushev Nikolay Platonovich,” Zampolit, http://zampolit.com/dossier/patrushev-nikolay-platonovich. 72 “Andrey Patrushev, Gazprom Neft Pjsc: Profile & Biography,” Bloomberg, www.bloomberg.com. 73 A. Staalesen, “Patrushev Junior in charge of Prirazlomnaya,” Barents Observer, 8 April 2015, http://barentsobserver.com. 74 “Putin Honors Igor Sechin’s Son for ‘Longstanding’ State Service,” Radio Free Europe / Radio Liberty, 22 January 2015, www.rferl.org. 75 “Company management,” Inter RAO, www.interrao.ru. 76 C. Bowlby, “Vladimir Putin’s formative German years,” BBC, 27 March 2015, www.bbc.com. 77 “Swiazany odnim kabelem,” Novaya Gazeta. Spetsproekt, 3 April 2017, https://krug.novayagazeta.ru/ 8-odnim-kabelem. 78 D. Travin, “Putinskie sinekury,” Rosbalt, 21 March 2016, www.rosbalt.ru/blogs/2016/03/21/1499796.html. 79 A. Murov, “Syn spikera Gosdumy zajmetsia strategiey Federalnoy setevoy kompanii,” Forbes, 13 September 2012, www.forbes.ru/news/125452-syn-spikera-gosdumy-zanimaet-rukovodyashchie-posty-v-fsk-ees. 80 “Key facts and figures,” Transoil, http://transoil.com. 81 “Sovet Direktorov,” Transoil, http://transoil.com. 82 J. Stubbs, A. Kuzmin, S. Grey, R. Anin, The man who married Putin’s daughter and then made a fortune, Reuters, 17 December 2015, www.reuters.com. 83 “Yuriy Shamalov,” Gazprom Media, www.gazprom-media.com. 84 “Board of Directors,” Gazprombank, www.gazprombank.ru. 85 “Putin and the Proxies,” op. cit. Kremlin Kids: The Second Generation of the Russian Elite 19 has sat on Sibur’s board of directors and, since 2017, its management committee, not only had an opportunity to earn good money but also to shape the company’s policy.86 Boris Rotenberg’s son, Roman, worked for Gazprombank,87 among other entities, and the companies controlled by Arkadiy Rotenberg (Boris’s brother) landed subcontractor contracts with the Nord Stream 188 and now Nord Stream 289 projects. All this demonstrates how—often at the very young age—“Kremlin kids” are being installed at key energy companies by their parents, in-laws, or influential cousins, thus serving as their emissaries and overseers of family interests.

Banking

Elite family members often have stakes in financial institutions or are placed in key positions at banks. Mikhail Shelomov holds shares—via companies he controls—in Bank Rossiya,90 widely regarded as the bank of the Kremlin elite.91 Among other shareholders, present or past, of this important institution are people from the close-knit ruling circle: Yuriy Kovalchuk (Putin’s friend from his time in St. Petersburg), Nikolay Shamalov,92 Sergey Roldugin (the godfather of Putin’s eldest daughter) and Gennadiy Timchenko.93 Another example of a fine banking career is provided by the son of Aleksandr Bortnikov (a long-time FSB employee and its head since 2008),94 Denis, who serves as deputy CEO at one of Russia’s largest banks, VTB.95 Pyotr Fradkov, the son of a former Prime Minister and long-time head of the Foreign Intelligence Service (SVR), is at the helm of Promsvyazbank,96 and Nikolay Patrushev’s son, Dmitriy, was promoted to the top position at the agriculture bank Rosselkhozbank. Despite his bank’s financial losses of RUB 48 billion in 2014, Dmitriy Patrushev was pronounced Banker of the Year 201597 before he moved on to become the Minister of Agriculture. Meanwhile, the son of Valentina Matvienko (the former governor of St. Petersburg and current chair of the Council of the Federation), Sergey, for years held a directorship at one of VTB Bank’s daughter-companies,98 only to switch to lucrative St. Petersburg’s street-cleaning business.99 Kseniya Shoygu, a daughter of the Russian Minister of Defence, is also an interesting case. She organizes a military, athletic games (Hero League) and at the same time she works as an advisor to the Deputy Chairman of the Board of the Bank “Gazprombank.”100 A career in the banking sector, in addition to earning salaries commensurate with one’s position, opens up opportunities related to safeguarding the elite’s accumulated funds, money laundering, and transferring state assets abroad. Sergey Chemezov’s son, Stanislav, manages

86 “Executive Management,” Sibur, www.sibur.ru. 87 S. Grey, E. Piper, Rising stars among children of Russia’s elite, Reuters, 10 November 2015, www.reuters.com. 88 “Corrected: Putin’s judo partner jumps in Russia’s rich list,” Reuters, 15 February 2011, www.reuters.com. 89 J. Kalukov, L. Podobedova, “SGM Rotenberga postroit 300 km podvodov k ‘Severnomu Potoku-2’,” RBK, 20 August 2018, ww.rbc.ru/business/20/08/2018/5b7a986c9a7947d9913283f4. 90 “Putin and the Proxies,” op. cit.; Relative Wealth in Russia, OCCRP, www.occrp.com. 91 S. Bowers, “Bank Rossiya, Kremlin’s favoured bank, to be ‘frozen out of the dollar’,” The Guardian, 20 March 2014, www.theguardian.com. 92 “Aktsyonery,” Bank Rossiya, www.abr.ru. 93 “Putin and the Proxies,” op. cit. 94 “Son of Russia’s FSB heads Belarusian VTB Bank Board of Directors,” Belsat, 12 July 2017, www.belsat.eu. 95 “Denis Bortnikov,” VTB, www.vtb.com. 96 “Fradkov says agrees to become new head of Russia’s Promsvyazbank,” Reuters, 19 January 2018, www.reuters.com. 97 “Patrushev-mladshyi stal bankirom goda, niesmotrya na rekordnyi ubytok vozglavlayemogo im banka,” Rosbalt, 10 January 2016; “Management Board,” Russian Agricultural Bank, www.rshb.ru. 98 “Matviyenko’s Son Quits as VTB Development CEO,” The Moscow Times, 17 June 2013, www.themoscowtimes.com. 99 “The garbage king of St. Petersburg. Matviyenko’s son returns to big business,” Crime Russia, 28 March 2017, www.en.crimerussia.com. 100 “Kseniya Shoygu. Rukovoditel’ «Ligi Geroev»,” https://heroleague.ru/about/ks.php. 20 The Polish Institute of International Affairs

financial assets registered in offshore jurisdictions (mostly in the British Virgin Islands).101 The example, disclosed by Western media, is about Putin family members’ participation in a money- laundering operation, involving banks in Germany and Estonia. Using shell companies registered in London and elsewhere, they engaged in so-called mirror trading, allowing them to convert large amounts of roubles into dollars at western banks, beyond the purview of regulators and tax authorities.102 Implicated in the scheme was Igor Putin, a management committee member at Promsberbank, which had already been used in the past for such financial transfers (some RUB 3 billion “disappeared” from it back in 2016).103 Igor Putin was also on the management committee of RZB bank,104 involved in money-laundering operations via Moldova.105

Business and Politics

In the Russian kleptocratic and clan-like system, the pattern of relations between children often mimics that of their parents. Aleksandr Vinokurov, who began his career at the investment bank Morgan Stanley, saw his fortunes improve after marrying Ekaterina Lavrova (the foreign Minister’s daughter) in 2007. In 2011, at the age of 28, he negotiated a salary of $2 million with the holding company Summa Group, top financial advisor group offering wealth management services.106 Three years later, he became general director of A1, part of the Alfa investment group, and then, in May 2017, he set up his own company, Marathon Group, investing in pharmaceutical, infrastructure, and agricultural assets.107 At that time, he also entered the medicinal drugs market, where a strong position was held by Stanislav Chemezov, son of Sergey Chemezov, the CEO of Rostec (technology, armaments). Stanislav held a 30% stake in MedPharmTechnology,108 which landed a contract to build outside of Moscow by 2020 a cluster of innovative companies producing medicines and medical equipment as part of a project called Pharmapolis.109 The financing was provided by Rostec and Moscow regional authorities. The entry into the pharmaceutical business by Lavrov’s son-in-law could be assessed as aimed to get new international contracts. Nepotism, though, is not just a mechanism to reap material gains from a corrupt system. For the Russian ruling elite, children also provide a kind of “survival vehicle.” When expanding one’s sphere of influence and building family ties and business clans, an equally important goal is to ensure one’s personal security. The rule of law being non-existent in Russia, the members of the elite realise that, in the future, competitive clans or new national leaders may very likely pose threats to their wealth, freedom, and even lives. The assassination of Boris Nemtsov (a liberal critical of Putin, previously serving as deputy Prime Minister and Minister of Fuel and Energy) in downtown Moscow in 2015, or Igor Sechin’s provocation targeting his adversary, Aleksey Ulyukayev, the Minister of Economic Development, who was eventually arrested and sent to a penal colony,110 demonstrate that security is a scarce commodity, even for the state’s top officials. Also threatened are oligarchs nurturing excessive ambitions, as illustrated by the story of Mikhail Khodorkovsky, who was sentenced to imprisonment in a penal colony and released 10 years

101 M. Domańska, “The Russian aspects of the ‘Panama scandal’,” OSW Analyses, 6 April 2016, www.osw.waw.pl. 102 L. Harding, “Russian millions laundered via UK firms, leaked report says,” The Guardian, 26 February 2018, www.theguardian.com. 103 Ibidem. 104 “The Russian Banks and Putin’s Cousin,” OCCRP, 22 August 2014, www.occrp.org. 105 “The Russian Laundromat Exposed,” OCCRP, 20 March 2017, www.occrp.org. 106 E. Zubova, Novyi yappi: kak glava A1 Aleksandr Vinokurov monetiziruyet svoi talanty, 18 May 2015, www.forbes.ru/finansy/igroki/308619-novyi-yappi-kak-glava-a1-aleksandr-vinokurov-monetiziruet-svoi-talanty. 107 “About the company,” Marathon Group, http://en.marathongroup.ru. 108 D. Somov, Lekarstvo od Chemezova ili “Nacimbio” dla “svoikh?,” 10 December 2015, www.moscow-post.com. 109 “Rostekhnologii” kormyat bolszuyu semyu Sergeya Chemezova, Ruspres, 28 February 2011, www.rospres.com/ government/7964. 110 I. Wiśniewska, S. Kardaś, op. cit. Kremlin Kids: The Second Generation of the Russian Elite 21 after, without any assets, position, and political connections in Russia and no longer posing any real challenge to Putin. By using children and family connections to extend their influence in public prosecutor offices and secret services, the ruling elite also seeks to buy an insurance policy on future personal security. The marriage of Sechin’s daughter to the son of Prosecutor-General (between 2000 and 2006) Vladimir Ustinov is one example here; another is Sergey Chemezov’s leveraging his influence to sentence FSB officers who sought to defraud a Rostec subsidiary out of money.111 Children also happen to make a negative impact on their parents’ position, as exemplified by Andrey Yakunin (the son of Russian Railways’ long-term CEO, Vladimir Yakunin), who requested British citizenship in 2015 and who thus brought an end to the position—albeit not to the wealth—of his father.112 That incident was actually perceived by some in the ruling elite as a betrayal of the state, committed “in conditions of a confrontation with the West.”113 Within the Russian system, contrary to western countries, the pattern of subordination and earning is shaped by political authority—which in turn is responsible for generating profits. Hence the close correlation between politics and business. Political alliances provide guarantees of affluence for the leader and his close circle of cronies. Those outside the ruling elite, once they lose the leader’s trust, cannot feel secure. By letting the oligarchs get rich quick, Putin builds a loyalist circle, but only for as long as he can control their assets in Russia.114

111 “Scandal in Moscow’s FSB,” Warsaw Institute, 11 July 2017, www.warsawinstitute.org. 112 I. Wiśniewska, S. Kardaś, op. cit. 113 „Latyshskiy chemodan s 500 tys. dol. i agenty NATO v seme Yakuninykh,” Prokurorska-Pravda, 31 August 2018, http://prokurorska-pravda.today/item/17002-latyshskiy-chemodan-s-500-tys-i-agenty-nato-v-seme-yakuninyh. 114 „Zamglavy britanskogo MVD poobeshhal tyazheluyu zhizn’ dlja inostrannyh vladeltsev aktivov,” TASS, 3 February 2018, https://tass.ru/mezhdunarodnaya-panorama/4927648. 22 The Polish Institute of International Affairs

THE FOREIGN POSITION OF THE SECOND-GENERATION ELITE

“Investing” in their children is a way for Russian politicians and oligarchs to ensure their future. Education abroad, as well as the acquisition of foreign real estate and cession of property to family members, offers guarantees of survival in the event of one losing influence at home (in addition to helping hide wealth from the eyes of domestic tax inspectors). Russians think highly of the rule of law and the free market in the West because this enables them to protect their assets (money in bank accounts, lavish estates) and, if need be, to use the services of the best law firms.

Education Abroad—the Westernization of the Young

Only the most affluent Russians can afford an education at the best foreign schools and universities.115 The average Russian monthly pay of RUB 35,000 (some $650) cannot compare to the annual cost of £30,000 ($38,000) for a boarding school in England. Almost all Russians (99%) who send their children to Britain for education also pay for lodging.116 The cost of private schooling in Switzerland ranges between CHF 15,000 and 30,000 ($15,000–30,000),117 and in the U.S., tuition stands at $8,000 on average at a public university and up to $29,000 at a private institution.118 Little wonder, then, that the prestigious British educational consultancy Bones MacFarlane has an office in Moscow. In exchange for finding a good school or university, negotiating contractual terms, and taking care of the child abroad, it charges a fee of £10,000 ($12,000).119 Russians are the third largest group taking education in private schools in England (after Chinese and Hong Kong residents), and their numbers have been growing by the year, not falling even after the imposition of sanctions against Russia by the European Union (2,150 in 2013; 2,536 in 2014; 2,795 in 2015; 3,266 in 2016; 3,044 in 2017; 2,806 in 2018; 2,563 in 2019).120 The increasing foreign demand for English private schools has actually provoked frustration among UK parents, unhappy that their young people would take lessons with the “children of oligarchs.”121 The Russian oligarchs and influential politicians prefer to have their kids educated at the best and most prestigious schools and universities in the UK, Switzerland, and the U.S., even if this departs from their calls for a “break with the West.”122 A United Russia MP, Sergey Zheleznyak, has often criticised the EU and the U.S. but—as the oppositionist Aleksey Navalny revealed in 2012—Zheleznyak’s daughters attended schools in Switzerland and London.123 The exposé was all the more embarrassing to Zheleznyak because he promoted parliamentary bills requiring certain NGOs in Russia to register as foreign agents and banning the adoption of Russian orphans by foreigners.124 These sorts of image problems also afflicted the Russian ombudsman for children’s

115 The less affluent Russians wishing to study abroad choose, for example, the Czech Republic. A. Al’-Ayash, “Zhelayushchikh postupit’ v inostrannyi vuz stanovitsya bolshe,” Eurasia.net, https://inosmi.ru/social/20180123/ 241254471.html. 116 R. Adams, “Third of students at many British boarding schools come from overseas,” The Guardian, 1 September 2016, www.theguardian.com. 117 J. Topkins-Atkinson, “International & private schools in Switzerland,” Hello Switzerland, 2 September 2014, www.helloswitzerland.ch. 118 Education at a Glance 2017, OECD, 2017, www.oecd-ilibrary.org. 119 R. Adams, op. cit. 120 But started to fall after poisoning of Sergey and Yulia Skripal in 2018. See: ISC Census and Annual Report (editions from 2013 to 2019), Independent Schools Council, www.isc.co.uk. 121 R. Adams, op. cit. 122 W. Rodkiewicz, J. Rogoża, “Potemkin conservatism. An ideological tool of the Kremlin,” Point of View CES, no. 48, January 2015, www.osw.waw.pl. 123 N. Lichaczow, “Docheri Zheleznyaka,” Tjournal, 25 December 2012, https://tjournal.ru/46726-zheleznyak-- daughters; “Zheleznyak otvetil na publikatsiyu Navalnogo o zhizni yego docherey,” RBK, 28 October 2016, www.rbc.ru/ rbcfreenews/58135c3f9a7947340debc6ec. 124 E. Hartog, “Was a Russian Politician’s Daughter Sacked for Political Reasons? The BBC Doesn’t Think So,” The Moscow Times, 7 October 2016, https://themoscowtimes.com. Kremlin Kids: The Second Generation of the Russian Elite 23 rights, Pavel Astakhov, after he gave an extensive interview, with photos, about having baptised his child in France’s Côte d’Azur.125 Given the harsh official anti-western rhetoric, disclosures of cases where their children are educated or otherwise live in the EU countries or the U.S. are indeed embarrassing to members of the Russian elite. Vladimir Putin himself went public to give assurances that his two daughters live in Russia and had never gone to schools abroad (which is not credible).126 Calls for a ban on foreign education by civil servants’ children were voiced in the Russian parliament in 2016,127 though Putin’s spokesperson, Dmitriy Peskov, whose own daughter has lived in Paris for years, fought back against the demands.128 Members of the broader political elite with no access to “additional” sources of income, find it more difficult to place children in universities with tuition. The daughter of Minister of Foreign Affairs Sergey Lavrov, Ekaterina, received most of her education abroad. When Lavrov was Russia’s ambassador to the UN, she attended the prestigious, private Dwight School in New York. As the diplomat could not afford the fee, the school’s headmaster asked him to give lectures to students in exchange. Ekaterina, later to become a businesswoman, argued that she did not get any leg-up as a result of her father’s position, except for a good education. She studied political science at Columbia University (2001–2005) and then earned a master’s degree from the London School of Economics (2006).129 While in England, she met her future husband, Aleksander Vinokurov, and she has said she never wanted to marry a foreigner.130 Mark Galeotti believes that Russians studying at U.S. universities provide the best illustration of U.S. soft power, which helps in capturing young minds of the next Russian generation.131 But with the “Kremlin kids,” the problem is that the Russian elite rarely yields to western cultural influences while eagerly consuming western luxury goods. Neither do the “Kremlin kids” find liberal democracy to be the optimal form of government. They see it as unable to ever pass the test in Russia, and the interdependence built upon their familiarity with the Western set of values is more apparent than real. In actual fact, their western education and frequent visits to the West leave no impact on the Russian government’s foreign policy decisions and fail to mitigate Russia’s anti-western rhetoric and aggressive activities. Thus the westernization of the Russian elite is illusory and superficial. On coming back home from the West, the elite’s children tend to beef up the corrupt system or, at best, do not make any impact on it. Examples include the progeny of both senior state officials and oligarchs. Nikolay Choles, the son of Putin’s spokesman, Peskov grew up in London and then returned to Russia to serve in the army (quite an exception among the “Kremlin kids”) and work for RT—the Russian television propaganda mouthpiece.132 Roman Rotenberg, who spent his childhood in Finland and studied in the UK, returned to Russia to work at Gazprombank.133

125 “Pavel Astakhov: ‘Nas s zhenoy pytalis’ razvesti’,” 7dniej.ru, https://7days.ru/stars/chronic/pavel-astakhov- nas-s-zhenoy-pytalis-razvesti.htm; “Zazvedil i smorshchilsya,” Lenta, 4 July 2016, https://lenta.ru/articles/2016/07/04/ astakhovgohome. 126 J. Newton, “They’re not ‘star children’, they continue to study... and are steering clear of politics: Putin gives rare insight into the lives of his two daughters,” Mail Online, 17 December 2015, www.dailymail.co.uk. 127 M. Zubov, “Detyam chinovnikov zapretyat uchitsya za granitsey, yesli ideyu odobrit Putin,” MK.RU, 15 August 2016, www.mk.ru/politics/2016/08/15/detyam-chinovnikov-zapretyat-uchitsya-za-granicey-esli-ideyu-odobrit-putin.html. 128 “Detyam chinovnikov zapretyat uchitsya za rubezhom,” Radio Ekho Moskvy, 14 November 2016, https://echo.msk.ru/news/1874068-echo.html. 129 “Ekaterina Vinokurova ob ottse Sergeye Lavrove, rabote v Christie’s i svoyom proyekte Smart Art,” Marie Claire, 20 February 2017, www.marieclaire.ru/karera/ekaterina-vinokurova-interview. 130 ”Doch Sergeya Lavrova: Ya khotela svyazat zhizn s russkim,” Star Hit, 25 February 2017, www.starhit.ru/ novosti/doch-sergeya-lavrova-ya-hotela-svyazat-jizn-s-russkim-128218. 131 M. de Haldevang, “The US is ‘greatly reducing’ visas for Russians—and it’s going to hurt both countries,” Quartz, 22 August 2017, www.qz.com. 132 Putin’s Glamorous Allies, Russiangate, 11 August 2017, www.en.russiangate.com. 133 Ibidem. 24 The Polish Institute of International Affairs

“EASTERNISATION” OF THE WEST

“Kremlin kids” generally do not westernise beyond appearances, on the contrary, they often help undermine western democratic institutions and support Russian foreign policy goals instead. Liza Peskova, the daughter of Putin’s spokesman Dmitry Peskov, has been living in France for years and says that she has no plans to leave Paris.134 In November 2018, she started an internship at the European Parliament with right-wing French MEP Aymeric Chauprade. Against the official EU policy of non-recognition of Russia’s annexation of Crimea, Chauprade was an observer at the referendum on the peninsula in 2014.135 He also said he believes that the referendum was justified and that Crimea is historically Russian.136 Chauprade, who at that time was a foreign policy adviser to National Front leader Marine Le Pen, emphasizes that Russia’s role is as a counterweight to American power in Europe, which is why he strongly supports the Russian narrative and interpretation of international relations. He was a member of the EP’s foreign affairs committee and had access to documentation and negotiations in the parliament. What is more, Chauprade was responsible—as a shadow rapporteur—for the negotiations and preparation of the report on the state of EU-Russia political relations, accepted by the EP on 12 March 2019.137 Liza Peskova also visited a shipyard in annexed Crimea, against Ukrainian law, to support the Russian position on the matter of peninsular jurisdiction.138 She also supported Russia’s perspective on the “yellow vest” protests in France in 2018. She compared scenes of the protests in Paris to a “zombie apocalypse.” On her Instagram profile, which has about 90,000 followers, she quoted her father, who said that in payback for “the wounded riot police, you need to smear the livers of the protesters on the asphalt.”139 Through social media, she shares information about her life in EU countries and, at the same time, freely criticizes the western way of living and undermines the official line of European institutions, including even the European Parliament’s.

Sanctions Evasion

Starting in 2012, Russia has been subject to various kinds of sanctions imposed by western countries.140 They applied to companies in certain sectors (most frequently in energy and armaments) or to individuals found to be responsible for Russia’s unacceptable actions and policies. The strongest sanctions—imposed on 91 individuals by the U.S. and on 132 by the EU—were announced in response to the Russian aggression against Ukraine in 2014. These were followed by Russian counter-sanctions, which President Putin slapped on western products.141 The western restrictions made themselves felt in Russian society, with real incomes falling to 2007 levels and the number of people in the lowest income brackets rising from 16 million to 22 million over 2014–2017.142 But the close circle of people in power managed to protect their

134 “Daughter of the Vladimir Putin’s Press Secretary Liza Peskova spoke about life in France,” Frivolette, 11 August 2017, www.frivolette.com. 135 J.-B., J. Vilmer, “Crimée: Les Contradictions Du Discours Russe,” Politique étrangère, no. 1, 2015, p. 165. 136 Daughter of Putin’s spokesman works as intern to French eurosceptic MEP, EurActiv, 26 February 2019, www.euractiv.com. 137 State of EU-Russia political relations European Parliament resolution, 12 March 2019 (2018/2158(INI)), www.europarl.europa.eu. 138 C. Schreck, Putin Spokesman’s Expat Daughter Makes Splash at Crimean Shipyard, Radio Free Europe / Radio Liberty, 3 August 2017, www.rfel.org. 139 Liza Peskova Instagram, www.instagram.com/p/BrQIwCiHQtP/. 140 A. Legucka, “Polityka …,” op. cit., p. 121. 141 S. Secrieru, Russia under Sanctions: Assessing the Damage Scrutinising Adaptation and Evasion, PISM Report, November 2015, www.pism.pl. 142 S. Secrieru, “The real and hidden costs of Russia’s foreign policy,” Brief ISS UE, February 2018, www.iss.europa.eu. Kremlin Kids: The Second Generation of the Russian Elite 25 wealth by methods that included cash transfers abroad and asset cessions to family members. Influential Russians found ceding real property, shares and bank accounts to wives, cousins, and children to be a useful means of retaining their foreign holdings and investments. This path was followed by Gennadiy Timchenko when he sold a 12.5% stake in SOGAZ to his daughter Kseniya in 2014.143 Another deal of his was to sell a 17% stake in the Sibur petrochemical complex to Putin’s son in law, Kirill Shamalov.144 Arkadiy Rotenberg, targeted in 2014 by sanctions from Canada, the U.S., Switzerland, the EU, and Australia, revised the structure of his businesses and sold shares in the drilling company Gazprom Burienie to his son, Igor (who, currently, holds 78.71% of the company’s stock145). Another Rotenberg, Boris, who is a Finnish citizen, ceded to his son, Roman, a block of important assets, including a 50% stake in Arena Events Oy, Langvik hotel, and a 49% stake in the ice hockey club Jokerit).146 The Russian power elite is responsible for the confrontational policy of the state. Anti- western sentiments consolidate the public around Putin, who in turn seeks to compensate oligarchs and politicians for the losses incurred as a result of Russian policy.147 The government has been introducing institutional safeguards, such as a dedicated bank to service the defence sector148 and deflect attention from other similar institutions that might be exposed to western sanctions. Not inconceivably, the bank may be helping oligarchs in the repayment of their debts.149 In addition to that, on 4 April 2017, Vladimir Putin signed a law that amended the tax code to exempt those affected by sanctions from paying taxes in Russia.150 The media nicknamed the measure the “Timchenko Act,” after the oligarch invoked it in requesting a tax refund for the period from 2014. That meant that anyone who “suffered” from the sanctions could take their taxes back for the period in which they were affected.151 A new wave of restrictions came following Russia’s meddling in the U.S. electoral process. Under executive orders by President Barack Obama, 35 Russian diplomats were asked to leave the country in 2016152 and the next year, the extent of U.S. sanctions against Russia was confirmed and broadened in the Countering America’s Adversaries Through Sanctions Act (H. R. 3364),153 passed by an overwhelming majority in the House of Representatives (419 to 3) on 25 July 2017 and, two

143 I. Subbotin, “SShA nanesli tochechnye udary po detyam rossiyskoy elity,” Nezavisimaya, 28 November 2017, www.ng.ru/world/2017-11-28/1_7124_hits.html. 144 Putin and the Proxies, op. cit. 145 The company has two other shareholders, Boris Rotenberg (16.29%) and Aleksandr Zamyanin (5%), and it has announced that, for the first time, it has no foreign shareholders. Back in 2011, the company was ownedby Gazprom, and in 2014, it was passed to other owners, through the intermediation of the Cyprus-based company Milasi Engineering Limited. Towards the end of 2017, following a dozen transactions, the present ownership pattern, involving three persons, was established. See: “Igor Rotenberg made it profitable to get to Gazprom”,R usLetter, 20 August 2019, http://rusletter.com. 146 “Sanctioned Russian billionaires sell Finnish Hockey Team,” The Moscow Times, 10 October 2014, http://themoscowtimes.com. 147 A. Cerkez, Locating the Elusive Putin Money, OCCRP, 24 October 2017, www.occrp.org. 148 A. Dyner, “Russia’s 2018–2027 Rearmament Programme: Significance for Poland and NATO,” PISM Spotlight, no. 7/2018, 29 January 2018, www.pism.pl. 149 Seeking a way to circumvent the sanctions linked to banks and the defence sector, the Russian authorities opted to shift the onus of servicing the “toxic” transactions of sanctioned companies to a single Russian bank, subsidised by the treasury. Thus, Promsvyazbank (which is in the care of the Fund for Banking Sector Consolidation) will handle all transactions involving the defence sector’s purchases, to be taken over from other financial institutions. The intention is to defend the other Russian banks against the consequences of western sanctions. Promsvyazbank is making preparations for the conversion of accounts denominated in foreign currencies into roubles, if such need arises. “Kommersant,” RBK, 20 February 2018, Biuletyn Ekonomiczny, Polish Embassy Moscow, 16–22 February 2018 150 O vnesenii izmemeniy w glavu 23 chasti vtoroy Nalogovo kodeksa Rossiyskoy Federatsyi, Federalnyj Zakon Rossiyskaya Federatsya, 3 April 2017, http://pravo.gov.ru/proxy/ips/?docbody=&link_id=0&nd=102353822. 151 “Putin podpisal ‘zakon Timchenko’ ob osvobozhdenii ot nalogov rossiyan, popavshykh pod sankcyi,” Newsru.com, 6 December 2017, www.newsru.com/russia/04apr2017/zakon.html. 152 A. Legucka, “Polityka…,” op. cit., p. 127. 153 “Countering America’s Adversaries through Sanctions Act (CAATSA 3364),” 2 August 2017, www.treasury.gov. 26 The Polish Institute of International Affairs

days later, by the Senate (98 to 2). Russia is a country listed by name in the document, along with North Korea, and Iran. Ceding to Congress some of the presidential prerogatives on the imposition of new sanctions and removal of old ones, the measure was signed by President Donald Trump on 2 August 2017. What proved most painful to the Russian elite was the announcement of individual restrictions.154 The so-called “Kremlin list” that the U.S. Department of the Treasury published based on the new law in January 2018, included the names of politicians and oligarchs on whom the U.S. might impose personal sanctions in future. Discussions were then held whether to extend the restrictions to cover the family members as well, citing the argument of the huge sums of money being ceded to them155—but the only one to make the list was the husband of Putin’s daughter, Kirill Shamalov. On 4 April 2018, however, the department imposed sanctions on 24 politicians and oligarchs, which included Arkadiy Rotenberg’s son, with the following explanation: “Igor Rotenberg is being designated for operating in the energy sector of the Russian Federation economy. Rotenberg acquired significant assets from his father, Arkadiy Rotenberg.”156 This represents a qualitative change in the perception of the “Kremlin kids” notion and their role in Russia’s power structure. A similar step was taken against Artyom Chayka, the son of the Russian General Prosecutor, whose business contracts, according to the U.S. Treasury Department, were set with his father’s help.157 In December 2016, Congress passed a new law, a global version of the Magnitsky Act, to address human-rights abuses. The Global Magnitsky Act (GLOMAG) allows the U.S. government to sanction corrupt government officials implicated in abuses anywhere in the world. Under that law, Trump signed an executive order on 21 December 2017, noting people who have “reached such scope and gravity that they threaten the stability of international political and economic systems,” and the document mentions Artyom Chayka.158 Under GLOMAG, “all property and interests in property that are in the United States, that hereafter come within the United States, or that are or hereafter come within the possession or control of any United States person of the following persons are blocked and may not be transferred, paid, exported, withdrawn.”159

Hedging Personal Risks

In 2007, Zbigniew Brzezinski argued that the Russian elite­—with their assets placed in the West—was already westernized.160 But such westernization, it turned out, came down to tapping into the opportunities available in West European countries, including a contingency plan for the loss of influence inside Russia. Using the incentives offered to foreign capital in the European Union, the Russians were purchasing real property and investing in company stock. The practice of ceding property to family members (wives, children) was common not only among the oligarchs but also members of the political elite. In addition to acquiring assets, rich Russians were keen to “buy” citizenship status in EU countries, e.g., in Cyprus and Malta, where passports could be obtained in return for investments. These are highly desired documents, according to Global Ranking Passport 2019, offering EU

154 Russian oligarchs looked for ways round them. For example, seeking to sidestep the restrictions under CAATSA 3364 of 2 August 2017, they made pre-emptive dollar-to-euro conversions of their assets. 155 I. Subbotin, op. cit. 156 “Treasury Designates Russian Oligarchs, Officials, and Entities in Response to Worldwide Malign Activity,” U.S. Department of the Treasury, 6 April 2018, https://home.treasury.gov. 157 Ibidem. 158 Executive Order 13818, 21 December 2017, Blocking the Property of Persons Involved in Serious Human Rights Abuse or Corruption, Presidential Documents Federal Register, vol. 82, no. 246, www.treasury.gov. 159 Ibidem. 160 V. Kuznetsevskiy, Putin. Kadrovaya politika. Ne strelayte v pyanista: on predlagayet vam luchsheye iz vozmozhnogo, Moskva: Tsentrpoligraf, 2017, pp. 41–42. Kremlin Kids: The Second Generation of the Russian Elite 27 citizenship and visa-free travel to, respectively for the two issuing states, 162 and 166 countries.161 Holding these passports, the Russians could insure themselves against a loss of money and tax liabilities at home, and so they very eagerly invested in Cyprus, additionally encouraged by a combination of, on the one hand, better legal protection and less corruption (compared to Russia) and, on the other, the weak transparency of the local banking sector.162 Additionally, Russian businesspeople gained a chance to reinvest in their home country, resulting in a situation where an EU Member State with one of the lowest GDP figures in the bloc accounted in 2011 for around a quarter of foreign direct investment in Russia and some 30% of Russia’s outward FDI.163 An indication of the scale of Russian exposure to the Cyprus economy is provided by the Russian government’s harsh reaction to the bailout terms offered to that country in the aftermath of the banking crisis.164 As part of the package agreed by the EU and the IMF, the depositors in Cyprus’s two largest banks—undergoing restructuring programmes—were to lose at least 20% of their holdings above €100,000 ($113,000),165 which would affect Russian politicians and oligarchs. It should be kept in mind that the sum far exceeds the financial potential of most Russians. Prime Minister Dmitriy Medvedev was quoted as speaking about “stealing what has already been stolen.”166 After the financial crisis, the Cyprus government offered citizenship to those investing at least €2 million ($2.5 million) in real property or €2.5 million ($2.8 million) in state bonds or companies.167 As of 2017, an estimated 1,000 passports were issued to Russians.168 According to an Ernst & Young 2017 report, Cyprus granted citizenship to 3,322 investors, of whom Russians accounted for 34.3% (1,139). One of them was very likely Oleg Deripaska, whom the U.S. Department of the Treasury accuses of having links to organised crime and taking part in extortion.169 The citizenship-for-investment option was also offered by Malta. The EU passport is granted after one year’s wait,170 with each family member required to pay €50,000 ($56,000). As established by Maltese media, based on annual government reports, a total of 730 rich Russians were issued EU passports in that country in the period from 2014.171 Among them were Arkadiy Volozh, co- founder of Yandex, which is the Russian equivalent of Google; Pavel Grachev, general manager at Polus, Russia’s largest producer of gold; and, also managers at Kaspersky Lab and Huawei’s Russian representation office. According to Ilya Shumanov, the head of Transparency International in Russia, “they would like to find a quiet haven for their families and relatives, and buying a second passport is a chance to hedge their personal risk.”172 These arrangements, while offering them protection against hypothetical criminal investigations or loss of influence at home, are conducive to

161 “Global Passport Power Rank 2019,” Passport Index, www.passportindex.org. 162 P. Tokarski, A. Turkowski, “The Cyprus Financial Assistance Package and EU–Russia Relations,” Biuletyn PISM, no. 33 (486), 27 March 2013, www.pism.pl. 163 D. Trenin, “Russia Kisses Cyprus Good-Bye,” Carnegie Europe, 5 April 2013, http://carnegieeurope.eu. 164 U. Dadush, “The Botched Rescue in Cyprus,” Carnegie Europe, 21 March 2013, http://carnegieeurope.eu. 165 P. Tokarski, A. Turkowski, “Problem pomocy…,” op. cit. 166 I. Traynor, J. Moulds, M. Elder, H. Amos, “Cyprus bailout deal with EU closes bank and seizes large deposits,” The Guardian, 25 March 2013, www.theguardian.com. 167 Y. Onaran, V. Silver, “New life in Limassol: If you can’t launder Russian money, then launder the Russian,” Independent, 15 May 2017, www.independent.co.uk. 168 Y. Onaran, V. Silver, “EU Passports for Sale in Cyprus Lure Rich Russians,” Bloomberg, 11 May 2017, www.bloomberg.com. 169 Treasury Designates Russian Oligarchs, Officials, and Entities in Response to Worldwide Malign Activity, U.S. Department of the Treasury, 6 April 2018, https://home.treasury.gov. 170 A. Łomanowski, “Rosyjscy miliarderzy dostają obywatelstwo Malty,” Rzeczpospolita, 10 January 2018, www.rp.pl. 171 The Malta Government Gazette, 24 August 2017, www.gov.mt. 172 Ch. Brown, “Rich Russians needing an exit strategy turn to Malta, where citizenship is for sale,” CBC, 13 January 2018, www.cbc.ca. 28 The Polish Institute of International Affairs

non-transparent political dealings (including meddling in Malta’s general elections),173 money laundering and, consequently, an expansion of the EU’s “shadow economy.”174 The European Commission repeatedly called on EU member states to be cautious offering so-called golden visas, because of the possible risks: money laundering, corruption and tax evasion. Bulgaria, Cyprus, and Malta effectively sell EU citizenship with their passport schemes. According to EC’s report about the residency schemes, warns that they “have implications for the European Union as a whole, as every person holding the nationality of a Member State is at the same time a citizen of the Union.”175 Investor citizenship schemes offer more privileges than investor residence schemes (“golden visas”), which aim to attract investment in exchange for residence rights in a country. However, as the EC stresses, “the risks inherent to such schemes are similar to those raised by investor citizenship schemes. Furthermore, these schemes impact other Member States, as a valid residence permit grants certain rights to third-country nationals to travel freely, in particular in the Schengen area.”176

Table. Europe’s Golden Visas. Citizenship/residency requirements in selected countries of the European Union

Year of introduction Minimum investment Processing time Citizenship path Cyprus 2014 €2.5 million immediately Malta 2014 €1.15 million 1 year Residency path France 2013 €10 million 5 years Bulgaria 2009 €500,000 5 years Latvia 2010 €35,000 10 years Hungary 2013 €250,000 8 years Portugal 2012 €500,000 6 years Spain 2013 €500,000 10 years Ireland 2012 €500,000 n.a. 1994 €1 million United Kingdom 6 years from 2014 €2 million Greece 2013 €250,000 7 years Source: Authors’ compilation based on J. Gold, A. El-Ashram, “A Passport of Convenience,” Finance & Development, vol. 52, no. 4, 2015, www.imf.org; Tier 1 (Investor) visa, “GOV.UK,” www.gov.uk/tier-1-investor.

Golden visas from the UK, France, and Spain have been the most popular among Russian oligarchs.177 Initially, the UK government believed its policies to attract foreign capital would have positive results. The country, and especially London, became a place where Russian politicians and businesspeople could invest their money (mostly in real estate) and seek intermediaries (banks)

173 “Russians suspected of sowing confussions in Malta,” InteligenceOnline, 24 May 2017, www.intelligenceonline.com. 174 L. Dobrovolskaya, Y. Pavlovskaya, I. Shumanov, E. Delia, How Wealthy Russians Buy Maltese Citizenship, Transparency International Russia, 8 December 2017, https://transparency.org.ru. 175 Report From the Commission to the European Parliament, The Council, The European Economic and Social Committee and the Committee of the Regions. Investor Citizenship and Residence Schemes in the European Union, Brussels, 23.1.2019 COM(2019) 12 final, https://ec.europa.eu. 176 Ibidem. 177 A. Rettman, “Malta free to sell EU citizenship, commission says,” EU Observer, 14 November 2013, https://euobserver.com. Kremlin Kids: The Second Generation of the Russian Elite 29 to conduct capital transfers out of the home country.178 Under new rules that came into effect on 16 October 2014, in line with recommendations from the Migration Advisory Committee, the minimum investment requirement for investments in UK government bonds or shares/bonds in active and trading UK companies was raised from £1 million to £2 million ($2.5 million).179 The British government has been empowered to refuse applicants if there are reasonable grounds to believe the money to be invested was obtained illegally or if there are concerns about the character of the investors.180 Since 2014, there has been an 84% fall in the number of investor visa applications since the reforms were introduced. Nevertheless, residency status offers privileges to the investors’ offspring, as explained on the website of the UK immigration office: “Your children entering the UK as your dependents are entitled to the same free education as British children. You may choose to send your children to a private school if you wish.”181 Russian and Chinese citizens comprise 60% of the 3,000 foreign investors who have been granted golden visas (Tier 1 Investor visa) in the last 10 years.182 From 2008 to 2013, the number of UK residents increased to include 433 Russian millionaires,183 the next largest national contingent being Chinese (419).184 In 2013, Russians accounted for the highest level of investment (€500 million/$638 million) in what came to be known as “Moscow-on-Thames.” According to money-laundering reports, illegal financial operations (in which Igor Putin was involved, among others) were conducted through companies based in Cyprus and in the UK.185 In 2011–2014, a total of $26.7 billion in Russian capital was repatriated out of Russia (through Moldova and Latvia) via fictitious loans to foreign companies with registered offices in the UK.186 The money came from fraud, sham government contracting, and avoidance of taxes and customs duties. The scheme involved a network of 21 shell companies set up in the UK, Cyprus, and New Zealand, some of which made bogus claims for money owed from Russian companies. In the next stage, a corrupt Moldovan judge ordered the Russian company to transfer repayments to a court- controlled account, from which the funds were withdrawn and distributed across the world.187 The money was moved to 96 countries, flowing—almost without hindrance—to the globe’s largest banks. In the UK, the news alarmed public opinion, then further reports shocked the public in the spring of 2017, leading to an amendment to the Criminal Finance Act (in September 2017) providing the UK authorities with tools to prosecute Russian oligarchs (and others) on the British Isles. In early 2018, Minister of State for Security and Economic Crime Ben Wallace addressed them with these words: “When we get to you, we will come for you, for your assets, and we will make the environment that you live in difficult.”188 The new measure, banning unexplained wealth, authorised the government to seize suspicious assets over £50,000 (some $63,000) until the holders properly account for their acquisition.189 Transparency International has identified 176 items of British real estate, worth a combined £5.4 bln, that have been acquired by people

178 UK Immigration, www.ukimmigration.com. 179 Changes to the UK Tier 1 (Investor) Visa Route, Gowling WLG, 17 October 2014, https://gowlingwlg.com. 180 S. Castle, “U.K. Lawmakers Say Dirty Russian Money Is Still Flowing to London,” The New York Times, 21 May 2018, www.nytimes.com. 181 UK Immigration, op. cit. 182 B. Hapman, “Home Office delays plan to suspend ‚golden visas’ for super-rich foreign nationals,”Independent , 11 December 2018, www.msn.com. 183 V. Groskop, “How the Ukraine crisis is affecting Russians in Moscow-on-Thames,” The Guardian, 6 April 2014, www.theguardian.com. 184 Tier 1 (Investor) Route, Migration Advisory Committee 25 February 2014, p. 22, https://assets.publishing.service.gov.uk. 185 L. Harding, op. cit. 186 “The Russian Laundromat Exposed,” OCCRP, 20 March 2017, www.occrp.org. 187 Ibidem. 188 “Russian Oligarchs in Britain Will Be Asked to Explain Wealth,” Radio Free Europe / Radio Liberty, 3 February 2018, www.rfel.org. 189 B. Kentish, “Oligarchs suspected of corruption face being forced to explain source of their wealth,” Independent, 3 February 2018, www.independent.co.uk. 30 The Polish Institute of International Affairs

suspected of money laundering (with Russians accounting for £1,1 bln). The organisation argues that Britain’s real estate market and banking sector are being eyed by those seeking to hide their wealth. The focus is on financial secrecy in the overseas territories and dependencies of the British Crown where the money can be stashed. In a report on corruption among Russians staying in the UK, released to the House of Commons in May 2018, the following opinion is quoted: “You have to look at the Russian oligarchs as a class. No matter how different they seem to you—one owns a football club, another donated money to Oxford for a school of government, another sat in a Russian jail for six years under communism, another was a civil servant—they all have very particular things in common. They can all be measured with the same yardstick. They are not self- made businessmen in the American sense. Every one of them made money through a relationship with the Russian Government.” What is needed, the authors of the report conclude, is not only legislative measures increasing the transparency of transactions and ownership, and helping to counter money-laundering, but also the implementation of such regulations by the police and courts.190 Oligarchs’ flee from the country represented a public relations defeat for Putin, especially if they lambasted Russia’s corrupt power structure. One firm critic of the president was Boris Berezovsky, whose dead body was found in his London apartment in 2013 (with suicide declared the official cause of death). Putin sought to win over oligarchs to return home, pay taxes, and run their companies in Russia. Following the annexation of Crimea, the Russian government made it harder for officials to enrich themselves and travel abroad. Civil servants are pressured to go on their holidays to the annexed peninsula, and state companies are requested to report on the numbers of employees holidaying in Russia. A registration obligation was imposed on those holding dual citizenship, members of the uniform services had their foreign journeys restricted, and some officials were prohibited from acquiring foreign assets.191 The Russian government’s priority is its ability to control and enforce rich Russians’ loyalty to the strategic elite. Putin has often given them to understand that without his backing they may lose not just money. On 19 October 2017, he told the following anecdote to an international audience at the Valdai club: “An oligarch discovers that he has lost all his money and tells his wife that they will have to sell the fancy cars and houses and move back to the old apartment in Moscow. When the oligarch asks her if she will still love him, she says ‘yes and I will miss you very much’.”192 At the same time, though, this interdependence did not stop the Russian authorities, in 2006, from murdering on British territory a former KGB/FSB colonel who did not bow to Putin, Aleksandr Litvinenko. And it was by no means an isolated incident. On 4 March 2018, Russian military intelligence sought to poison double-agent Sergey Skripal and his daughter Julia, which prompted the British authorities to exhume the bodies of Skripal’s son and wife on suspicion that they had not died of natural causes.193 The British police—previously reticent and mindful of Russians’ financial clout in the UK—took firm actions,194 and the government launched a political campaign targeting Russia. Many countries expelled Russians diplomats as a sign of solidarity the British arguments about a Russian chemical attack on foreign territory, and as a sign of solidarity, they expelled Russian diplomats en masse, topping 150. Some countries additionally imposed sanctions on Russia. Prime Minister Theresa May, speaking in parliament on 6 September 2018, declared that “there is no place for their [i.e., Russians’] money in this country.” But as indicated

190 Moscow’s Gold: Russian Corruption in the UK. Eighth Report of Session 2017–19, House of Commons Foreign Affairs Committee, May 2018, www.parliament.uk. 191 J. Ćwiek-Karpowicz, S. Secrieru (eds.), op. cit., pp. 74–75. 192 “Valdai 2017: Reactions from a newbie,” Russian Military Reform, 30 October 2017, https://russiamil.wordpress.com. 193 “Na kladbishche, gde pokhoronen syn eks-sotrudnika GRU Skripala, eksgumirovali telo,” Dp.ru, 9 March 2018, www.dp.ru. 194 J.R. Schindler, “Poisoned Spy Is a Warning to the West, Courtesy of Putin,” Observer, 7 March 2018, http://observer.com. Kremlin Kids: The Second Generation of the Russian Elite 31 by the House of Commons report on Russian corruption in the UK, curbing their influence will be a tall order indeed.195 It is unlikely that either oligarchs or money will return to the Russian Federation after Brexit. Russian businessmen will probably move to tax havens in the British Overseas Territories instead of returning to the Russian Federation.196 In 2018, the value of investments made in Russia by companies with Russian capital but registered in the British Virgin Islands increased threefold compared to 2017.197 Counteracting the Russian presence in non- transparent banking systems operating in the British Overseas Territories will be a challenge for London. The number of wealthy Russians resident in the UK has decreased, but some now use the passports of other countries (such as Cyprus or Malta) to enable them to live and work outside Russia. This strategy is supported by the non-transparent banking system, especially in British tax havens, which does not take into account losses to the Russian budget. Putin has repeatedly encouraged oligarchs to “de-offshorise” their wealth, but with little success. Despite the high demand for a $3bn Russian Eurobond late 2017, only $200m was bought by oligarchs under special amnesty terms.198 However, it could be expected that these oligarchs will make more non- transparent transactions outside the EU in order to hide their wealth.

195 Moscow’s Gold…, op. cit. 196 A. Legucka, “The Importance of Brexit for Russia,” Bulletin PISM, no. 44 (1290), 15 April 2019, www.pism.pl. 197 “Russian investors move to British Virgin Islands giving up Cyprus,” Acquisition.ru, September 2018, www.acquisition.ru. 198 M. Seddon, “UK has not renewed Roman Abramovich’s visa,” Financial Times, 20 May 2018, www.ft.com. 32 The Polish Institute of International Affairs

CONCLUSIONS

On 7 May 2018, Vladimir Putin, aged 65, began his successive and probably the last term as president of the Russian Federation. Under the authoritarian system, this creates a difficult situation for the elite, fraught with questions about one’s continued position—in terms of wealth and prestige—and also about the future of his or her family. A hypothetical change in the elite’s make-up will impact the “Kremlin kids,” too. It is in their interest to retain influence in the state—and, surely, engaging in Russian politics will not hurt in that game. The career of Dmitriy Patrushev, one of the “Kremlin kids” who was appointed Agriculture Minister in the new cabinet, may signal the beginning of a new trend. Many wonder whether Putin or his successor will let them keep their privileges. The Russian system of interwoven politics and business offers opportunities for enrichment based on personal contacts with those in power, and this means that the formal political designation does not always reflect ones true position within the system (as exemplified by the arrest of Ulyukayev, in which Sechin had a hand). The non-transparent nature of these relationships may provoke internal crises in the future, especially if the leader’s position becomes unstable. Expectations of the westernization of the Russian ruling elite and their children have proved futile. As shown by actual developments, Russia’s interdependence with European countries and the U.S. makes it possible for members of the elite to acquire goods and properties abroad, but it does not translate into an improvement in Russia’s foreign policy decisions. The successive generation of the Russian elite—carving out careers in business but, as yet, not engaging in politics—petrifies the system. As long as they can savour their riches, they remain uninterested in changing the anti-western rhetoric that consolidates the public and generates support for the power elite. Russia’s rulers realize that their country is not governed by law and that the security of assets and personal safety can only be guaranteed by the most trusted people. Children and families of Russian oligarchs have been installed in private and state business, and as a rule, they do not hold public positions. In these circumstances, personal wealth and important areas of state control can be ceded without attracting much publicity to the recipients (which is also connected with the absence of political accountability). The new generation is now being incorporated into the Russian power structure, but this takes place through economic—not political—engagement. One possible explanation of this pattern may be that the “Kremlin kids” have excessive political ambitions, posing a threat to the position of those currently in power, who wouldn’t like to see the loyalty of their close ones being put to the test. Still, as a harbinger of future generational change, some “Kremlin kids” may enter, both, the strategic elite (state-level decision-makers) and the super-elite, gathered around the president of the Russian Federation. Kremlin Kids: The Second Generation of the Russian Elite 33

RECOMMENDATIONS

1. The “Kremlin kids” should be seen as part of Russia’s power structure. Western countries would be mistaken if they expected Putin and his cronies to be followed by an anti-Putin generation, or the system to be changed by the offspring of the current power elite. As a matter of fact, the “Kremlin kids” benefit from the present state of affairs—which they are only willing to prolong—and any reform might adversely affect their holdings. Therefore, those planning the directions of foreign policy towards Russia should not lose sight of the Russian power elite’s second generation, who very likely are the future rulers of the country. This is particularly important now that Putin’s term in office is probably going to be his last. 2. Currently, the potential to bring about a change in Russian policy through a soft-power impact on the “Kremlin kids” is very small indeed. The successive generations of oligarchs studying in western schools and universities have failed to succumb to western values, one reason being the crisis of liberal democracy. The western states, therefore, should consider taking a two-pronged approach to the second-generation elite in Russia. Individual restrictions should provide an effective tool in dealing with the “Kremlin kids,” who are in a process of taking over control of key assets in the country. In a parallel, dialogue-oriented line of western policy, greater emphasis should be placed on support extended to Russia’s civil society. It is common Russians, not the corrupt elites, who remain the most likely drivers of political change in the country. 3. The seepage of Russian capital into western countries has the effect of eroding the European economic, political, and legal system. The anti-corruption authorities should carefully control the financial flows of not only the members of the Russian elite but of their families as well. As the record of the “Kremlin kids” demonstrates, they are not above leveraging their position for the purpose of fraud, money-laundering, etc. The activity of the Russian new-generation elite also has a corruptive effect on western politicians and banks (bribes, dirty money, money-laundering), and—in political terms—it weakens the western countries’ capacity for a political response to Russia’s aggressive behaviour. 4. The responsibility for Russia’s aggressive policies lies squarely with the power elite, and so the sanctions should focus on members of the elite’s families. The personal restrictions that hit directly the politicians and businesspeople in the Russian power structure offer a tangible and painful weapon in disciplining Russia for her unlawful activities in the international arena. While the likelihood of such restrictions being imposed on family members is very small, consideration should be given to such sanction-related arrangements where the cession of ill-gotten money or real property to family members would warrant limiting the influence of the “Kremlin kids.” On the international level (the EU, OECD), steps should be taken to counter the offshore jurisdictions where Russian leaders—both the top elite and oligarchs/politicians at lower levels—and their families can hide illegal income. And it should be kept in mind that they transfer funds not only to tax havens but also to countries in Europe, including, e.g., the UK. 34 The Polish Institute of International Affairs Sanctions against family (F) UE: 2015/1514 (OJ L239), entered on the list 25 July 2014 USA: individual [GLOMAG] 21 December 2017 (F) USA: Individual [Ukraine- EO1361] (F) USA: Kremlin list (29 January 2018) (F) UE: 2015/1514 (OJ L239), entered on the list 12 September 2014 (F) USA: [Ukraine-EO1361] (F) UE: 2015/1514 (OJ L239), entered on the list 25 July 2014 (F) USA Individual [UKRAINE- EO13661] (F) USA Individual [UKRAINE- EO13661] (F) UE: 2015/1514 (OJ L239), entered on the list 30 July 2014 (M) USA: Kremlin list (M) UE: 2016/1661 (OJ L249), entered on the list 21 March 2014 Assets (selected) 90% shares in VSTPK Co-owner of Beteltrans (BET) company Shares in Medfarmatekhnology (pharmaceuticals) Ran Pharmapolis project, financed by Rostec, Ministry of Industry and Science, Moscow Region Acquired 12.5% stake in SOGAZ (2014) Shares in Inter RAO Positions held (selected) INDEX OF PERSONS Deputy CEO, VTB bank President of the International Congress of Industrialists and Entrepreneurs Advisor of the governor Moscow Oblast on sport, culture, tourism and youth affairs Former employee of Itera (gas) CEO, Promsvyazbank Member of Board Directors, Transoil CEO, Inter RAO Many years in a directorial position in a subsidiary of VTB bank Sectors (selected) Banking Construction materials Railway technology, waste disposal business Pharmaceuticals, IT, oil/gas Banking Oil/gas Energy Banking Family members Aleksandr Bortnikov (F) Yuriy Chayka (F), Igor Chayka (Sb) Yuriy Chayka (F), Artyom Chayka (Sb) Sergey Chemezov (F) Mikhail Fradkov (F) Gennadiy Timchenko (F) Yuriy Kovalchuk (F) Valentina Matvienko, (M) birth Year of 1974 1977 1988 1973 1978 1985 1977 1973 first name Family name, Bortnikov, Denis Chayka, Artyom Chayka, Igor Chemezov, Stanislav Fradkov, Pyotr Frank (Timchenko), Kseniya Kovalchuk, Boris Matvienko, Sergey Legend: (N)—nephew; (D)—daughter; (C)—cousin; (M)—mother; (Sp)—spouse; (F)—father; (Sb)—sibling; (S)—son; (I-L)—father-in-law; (U)—uncle. Kremlin Kids: The Second Generation of the Russian Elite 35 Sanctions against family (F) USA: Individual [Ukraine- EO1361] (F) USA: Kremlin list (29 January 2018) (F) UE: 2015/1514 (OJ L239), entered on the list 25 July 2014 (F) USA: Individual [Ukraine- EO1361] (F) USA: Kremlin list (29 January 2018) (F) UE: 2015/1514 (OJ L239), entered on the list 25 July 2014 (F) USA: Kremlin list (29 January 2018) Covered by U.S. sanctions of 6 April 2018 Individual [Ukraine-EO1361] (F) USA: Individual [Ukraine- EO1361] (F) USA: Kremlin list (29 January 2018) (F) (UE: 2017/1374 (OJ L194), entered on the list 14 March 2014 Assets (selected) Shares in Gazprom Burienie drilling company (received from father) Shares in Promsberbank and RZB bank Positions held (selected) Member of Board Directors, Gazprom; CEO, Rosselkhozbank (Russian agriculture bank); Minister of Agriculture Member of Management Board, Gazprom- Neft Former member of the management board, Promsberbank and RZB bank Deputy CEO, Gazprom CEO, Putin Consulting Sectors (selected) Oil/gas, banking Oil/gas Banking Oil/gas Consulting Oil/gas Family members Nikolay Patrushev (F), Andrey Patrushev (Sb) Nikolay Patrushev (F) Dmitriy Patrushev (Sb) Dmitriy Peskov (F) Vladimir Putin (C), Roman Putin (S) Vladimir Putin (U) Igor Putin (F) Vladimir Putin (U) Arkadiy Rotenberg (F), Boris Rotenberg (U), Roman Rotenberg (C) birth Year of 1977 1981 1998 1953 1967 1977 1973 first name Family name, Patrushev, Dmitriy Patrushev Andrey Peskova, Liza Putin, Igor Putin, Mikhail Putin, Roman Rotenberg, Igor 36 The Polish Institute of International Affairs Office Of Foreign Sanctions against family (F) USA: Kremlin list (29 January 2018) (I-L) USA: Kremlin list (29 January 2018) (F) USA: Individual [Ukraine- EO1361] (F) USA: Individual [Ukraine- EO1361] USA: Kremlin list (29 January 2018) Covered by U.S. sanctions of 6 April 2018 [Ukraine-EO13662]. (F) UE: 2015/1514 (OJ L239), entered on the list 30 July 2014 (F) UE: 2015/1514 (OJ L239), entered on the list 30 July 2014 Assets (selected) 50% stake in Arena Events Oy; Langvik Hotel; 49% stake in Jokerit hockey club (all received from father) Holds shares in Bank Rossiya via his companies Shares in Sibur , European Commission, 25 April 2018, https://data.europa.eu; Positions held (selected) Employed at Gazprombank, etc. banking adviser (GazpromBank) Former general director, A1 investment company; CEO Marathon Group investment company Deputy director at Rosneft Deputy CEO, Sibur Member of Boards Directors, Gazprom Media, Gazprombank , 18 April 2018, www.treasury.gov. Sectors (selected) Banking, other Investments Sports entertainment (Hero League) Oil/gas Petrochemicals Banking, media Banking European Union Consolidated Financial Sanctions List Family members Boris Rotenberg (F), Arkadiy Rotenberg (U), Igor Rotenberg (C) Ekaterina Vinokurova (née Lavrova) (Sp) Sergey Lavrov (I-L) Sergey Shoygu (F) Igor Sechin (F) Nikolay Shamalov (F), Katerina Tikhonova (née Putina) (Sp), Yuriy Shamalov (Sb) Nikolay Shamalov (F), Kirill Shamalov (Sb) Vladimir Putin (U) birth Year of 1981 1983 1991 1989 1982 1970 1968 first name Family name, Rotenberg, Roman Vinokurov Aleksandr Shoygu Kseniya Sechin, Ivan Shamalov, Kirill Shamalov, Yuriy Shelomov, Mikhail Source: Authors’ compilation, based on: Assets Control Specially Designated Nationals and Blocked Persons List

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