Mikhail Fridman: Profile and Perception

Jan. 29, 2007

MIKHAIL FRIDMAN: PROFILE AND PERCEPTION

Summary Wal-Mart has asked Stratfor to provide a report detailing public information available on Russian business-owner Mikhail Fridman, the chairman and controlling stakeholder of the Alfa Group. This group includes the TNK-BP oil company, Alfa Bank and the X5 chain of retail food stores. His estimated net worth of approximately $6.5 billion makes him one of Russia's richest people. He also is considered one of the most influential businessmen in Russia, part of an exclusive group known as oligarchs that rose after the fall of the Soviet Union in 1991.

The purpose of the report is to identify any criminal or unethical behavior connected to Fridman that could harm any potential business relationship. All searches were conducted in a noninvasive manner that would not leave a trail leading back to those seeking the information. Stratfor’s searches indicate Fridman, who currently lives in Moscow, is one of the richest men in Russia with connections to a number of influential business ventures around the world. He himself admits his enormous wealth and business influence was gained through a number of unethical practices.

While Fridman’s actions and unethical behavior are well known, such problems are typical of all influential individuals and businesses in the former Soviet Union. Relatively speaking, Fridman is thought to have one of the best reputations among similarly placed Russian businessmen. Traces conducted with U.S. intelligence agencies note that currently there is no adverse intelligence regarding Fridman. Historically, Fridman was tied to organized criminal groups at the time he was establishing his business; these groups are thought to have contributed partially to the success of the ventures.

CONFIDENTIAL – FOR INTERNAL USE ONLY

U.S. intelligence traces note that Fridman has long-standing ties to Russia's KGB, and has ties to at least one confirmed KGB intelligence officer. His original business associates also had connections to the KGB. Records indicate that at one time Fridman was engaged in smuggling goods to Nigerian students. He also has a family member in Kazakhstan described as having extensive ties to organized crime and as being involved in hard-core criminal activity. Records also indicate Fridman was arrested in 2000 or 2001 for selling illegal merchandise, though the charges later vanished. Sources noted that while Fridman’s record has a number of allegations of wrongdoing and other malfeasance, one must always assess what kind of trouble one

is buying when doing business in Russia. The sources say nearly all, if not all, individuals of a similar position in Russia have a similar history.

Personal History Mikhail Maratovich (Misha) Fridman was born in Lviv, Ukraine, as the only child in a middle-class Jewish family. Conflicting reports put his birth date at April 21, 1964, and June 26, 1963. Fridman’s parents belonged to the Communist Party, and worked as engineers in the defense manufacturing industry.

Several Web sites note that Fridman’s parents are devout Jews who did not allow many people to come into their house for fear that they might discover the family’s religious beliefs, jeopardizing their Party membership and careers. To conceal their Judaism, Fridman’s parents did not circumcise him when he was eight days old as dictated by Jewish tradition, instead waiting until he was six years old. According to details Fridman related to the Russian Jewish Congress, a local mohel was brought in to perform the circumcision according to Jewish custom. Following the procedure, Fridman came down with a serious infection that required hospitalization. Though he recovered from the infection, it is said Fridman strongly dislikes Orthodox Jews as a result of the experience. Classmates say Fridman was a good student, though he had few friends when he was young, and was teased constantly for being overweight.

Fridman attended college at the Moscow Institute of Steel and Alloys, where he graduated with high honors. During his time at the school, friends say he associated with a bohemian crowd, and was too shy to participate in theatrical performances. He was also suspected of involvement in the drug trade during his college years, supplying drugs to his bohemian friends. During that time, he reportedly already had developed connections to the KGB. One media report notes he believed there was nothing shameful about reporting his friends’ drug use to law enforcement, saying the KGB was more interested in finding people who used drugs and communicated with foreigners than in locating dissidents.

While studying at the institute, Fridman met his wife, Maria, who also had moved to Moscow to attend school. The couple was married against his parents' wishes when Maria became pregnant while they were still in school. The two are still married, though Maria and their two daughters, Katya and Lora, live in Paris where both daughters attend the American School of Paris. Fridman and his wife reportedly see each other very rarely and barely maintain contact.

According to media reports, Fridman currently lives in a more-than-12,000-square- foot flat in Moscow with a bodyguard. He is known to hire high-quality prostitutes on occasion. He describes himself as lazy and gluttonous. Fridman is known to play golf and collect samurai swords. Personal friends have described Fridman as greedy, resentful, distrustful and prone to depression and suicidal thoughts.

Fridman’s parents have reportedly fled Russia to Cologne, Germany, in the past year due to threats from criminal organizations.

Professional History Following graduation from the Moscow Institute of Steel and Alloys in 1986, Fridman spent two years as an engineer at the Electrostal plant in Moscow. During that time, he has said he was also involved in several private enterprises that were illegal under the laws of the Soviet Union, including running a discotheque and a window washing business. In 1988, Fridman joined two former classmates and formed a cooperative

business eventually known as Alfa Group, selling imported antique rugs, sugar, tea and cigarettes and scalped theater tickets, later selling computers and copiers. The business was Fridman’s attempt to take advantage of new economic reforms put in place by Mikhail Gorbachev.

The company then began a commodities trading firm known as Alfa Eko, earning enough capital to move full force into the financial services industry. Alfa Capital was set up in 1990 and Alfa Bank followed in 1991. For the new ventures, Fridman partnered with former Russian Minister for Foreign Economic Relations Peter Aven.

After the collapse of the Soviet Union in late 1991, Fridman and Alfa Eko began exporting oil and oil products that were in the process of being privatized by former state-owned entities. He later created the Tyumen Oil Co., known as TNK, to centralize the group’s oil business. By the end of 1994, the company was exporting 73.3 million barrels per year of oil.

In 1995, acquaintances say Fridman felt he was losing influence within the Alfa group to Aven. In an attempt to attain greater status within the company and expand into other ventures, Fridman attempted to become president of the Russian Jewish Congress, despite being a questionable candidate because he does not practice Judaism or donate to Jewish charities. Moreover, at one of the group's assemblies, he displayed scars caused by his circumcision and described how he suffered as a child because of the incident. Even so, he eventually became the group's vice president, a position he still holds.

Sources within Israeli's Mossad note that given the enormous pressure Fridman was under at the time, it is likely he sought to lead the organization because of a belief that it would afford a greater degree of protection or security to his risky personal and business ventures. Three high-level sources within the Jewish fundraising community believe Fridman thus sought this position as a cover to help him in the event that authorities took legal action against him or his business.

In 1996, Fridman officially became the chairman of the board of the Alfa Consortium while also holding high-level positions in many of the related business ventures, a position he retains today. The Alfa group of subsidiary companies now spans a number of industries, including oil, telecommunications, retail, banking, securities and trading, paper, media holdings, antiquities dealings, construction materials, and several proprietary businesses that have been identified as dummy firms and intermediaries that own other unrelated operations. Within Russia, the companies are known for their Western style of management and the high number of European managers who have been brought in to manage the companies.

In 2003, Fridman sold 50 percent of Alfa subsidiary TNK to British oil firm BP Amoco PLC in a deal worth $6.15 billion dollars, creating TNK-BP, the 10th-largest private oil company in the world and the third-largest oil company in Russia in terms of production. Fridman now serves as the chairman and a controlling shareholder of the venture.

Reputation and Personal Affiliations Fridman is seen as a respectable businessman by Russian standards. He is viewed as one of the original oligarchs, who built their wealth beginning in the 1990s by taking assets formerly nationalized under the Soviet Union as their own. Many began to make money using Russia’s natural resources, though they later diversified their

businesses to include a number of other industries. There is a strong perception among the public that the oligarchs had strong connections with organized criminal networks and committed a number of crimes that were used to further their businesses. In many cases, this allegedly involved extensive criminal activity, including murder, though it was not typically the oligarchs that actually pulled the trigger. The oligarchs are also sometimes blamed as the primary problem behind Russia’s soaring levels of poverty and income inequality in the 1990s as their enterprises and pyramid schemes claimed a large percentage of the country’s productive business for their own.

The Russian public is well aware of the illegal and unethical activities the oligarchs participated in (the same activities would certainly land a U.S. businessman in jail several times over), but consider it normal business behavior. While it is generally assumed Fridman had strong ties to organized criminal activity and participated in a number of crimes -- perhaps even murder -- such problems do not tarnish his reputation in Russia. While there is currently no public information confirming Fridman’s involvement in organized criminal activity, like all oligarchs, Fridman likely has taken extreme measures to hide such problems.

Several well-placed sources within the Jewish fundraising community have conveyed similar impressions of Fridman. All noted that they have heard of Fridman and are aware that his family heritage is Jewish, though they have never met him, which they consider odd for a prominent Jewish businessman.

Sources tell Stratfor that Fridman and Russian President Vladimir Putin came to a de facto agreement in 2001 under which Fridman would stay out of politics and pay taxes (sometimes a little extra) and the Russian government would allow his operations to continue despite the overall past losses to the government. This type of deal is standard among the oligarchs and the Russian government. As part of the deal, current Russian Prime Minister Mikhail Fradkov, a former employee of Fridman, was inserted into the Putin administration to maintain the balance of power among the oligarchs. It remains to be seen how such agreements will fare when the Putin administration is replaced in 2008.

Fridman is known to have strong connections within the Russian government that he has used on occasion to further the business purposes of the Alfa Group. Putin himself made a number of arrangements that allowed for the TNK merger with BP. He also intervened with the Turkish government to solve a dispute related to Alfa Group’s Vimpelcom telecommunications company. (Nordic telecommunications group TeliaSonera has begun proceedings in court against Alfa Group in connection with this same case.) Fridman is also known to be a close and personal friend of Vyacheslav Surkov, the so-called "grey cardinal" of the Putin administration. Various members of Alfa Group are also closely connected to members of various parties within the Russian Duma and frequently use these political connections to their advantage. Such behavior is considered normal in Russia.

Fridman readily admits that the Russian economic system and the overwhelming control by the oligarchs is unhealthy and unfair. The rules of business for small players are much different than the rules for larger corporations and groups, he says. Fridman does not appear to have any qualms about unethical behavior in business relationships, however. He repeatedly has said business and morals are incompatible. When asked by a reporter what he believes constitutes good business, he responded "everything that makes me money." He has also made numerous

public statements conveying his dislike of other oligarchs. He most frequently speaks ill of Vladimir Potanin, Boris Berezovsky and Vladimir Gusinsky and is known to have very derogatory nicknames for each for use in private company. Earlier in 2006, Berezovsky won a British lawsuit against Fridman alleging slander related to negotiations on the sale of Kommersant publishing house.

Fridman has been accused of turning against business partners in past dealings. In 1994, Fridman’s former business partner Oleg Kiselev alleged Fridman attempted to remove him from Alfa Group by informing his wife of an affair. In that incident, Fridman allegedly paid Kiselev’s favorite prostitute to reveal the affair to his wife. Additionally, the prostitute allegedly was paid by Fridman to inform Kiselev’s wife of the apartment he purchased for extramarital assignations. Kiselev soon left the business.

There are also allegations Fridman continues to involve Alfa Group companies in drug trafficking through the former Soviet Union. A food-poisoning incident in early 1995 brought the allegations to light when an investigation found poisoned sugar provided by Alfa Eko apparently was contaminated with opium from small plastic bags hidden in the sugar bags. The sugar was allegedly transferred by Chechen organized criminal groups working within Alfa from China, with the drugs ultimately destined for Europe. Watchdog groups allege Alfa Group receives profits from the trafficking venture through a blind bank account in Vienna, Austria.

Fridman has also been involved in a number of international disputes. He allegedly masterminded actions that landed Alfa Group in the middle of the U.N. oil-for-food scandal, which involved the government of former Iraqi dictator Saddam Hussein. In that case, individuals allegedly hired by Alfa Group delivered a bribe of several million dollars to the Iraqi Embassy in Moscow in order to purchase oil from the Alfa Eco company under the program.

Fridman also has been accused by oligarch Boris Berezovsky’s International Foundation for Civil Liberties of complicity in the killing of Ukrainian journalist Georgy Gongadze. Gongadze was famous for exposing corruption in the Ukrainian administration and the shady dealings of Ukraine’s oligarchs. He disappeared on Sept. 16, 2000; his headless corpse was found a month and a half later. Gongadze’s death is widely considered the beginning of the political crisis in Ukraine that led to the downfall of former President Leonid Kuchma.

In August 2006, the executive director of the foundation and close Berezovsky associate, Alex Goldfarb, told a press conference in Kiev, Ukraine, that Fridman and Ukrainian Parliamentary Speaker Oleksandr Moroz ordered Gongadze's murder. Goldfarb said he handed testimony of a witness who fingered Moroz and Fridman to Ukraine's prosecutor general. The witness is reportedly in the United States, and has given evidence under oath that at the end of summer of 2000, Moroz repeatedly went to Moscow to ensure Alfa Group’s financial and political support in overthrowing Kuchma in exchange for preferential terms for doing business in Ukraine. Fridman continues to be a key player among Ukrainian oligarchs.

Fridman categorically denied the charges, adding that he has never met Moroz. Fridman promised to petition the prosecutor general to see this evidence. The Prosecutor General’s office, however, has not confirmed or denied the existence of any such evidence.