Vladimir Putin was on the advisory board of SPAG, suspected by intelligence officials to be linked to the laundering operations of Russian mobsters and Colombian drug dealers
A Stain on Mr. Clean How a money-laundering indictment in Europe could haunt Putin. A NEWSWEEK investigation By Mark Hosenball and Christian Caryl
NEWSWEEK
Sept. 3, 2001 — Say what you want about Vladimir Putin, he’s always been known as Mr. Clean. Even when he was deputy mayor of St. Petersburg, the Russian president cultivated an ascetic image, driving a humble Volga to work. That reputation served him well politically—especially in contrast to his predecessor, Boris Yeltsin, whose bloated frame and entourage of cronies came to symbolize Kremlin corruption. As president, Putin has attacked Boris Berezovsky and other high-living “oligarchs” and is reforming the legal system. Earlier this year he declared that his government must defend its citizens “from the arbitrariness of racketeers, bandits and bribe-takers.”
BUT PUTIN, it turns out, may be a less than perfect pitchman for his anticorruption campaign. New revelations are focusing attention on a murky episode from his past in St. Petersburg, a city known to many Russians as the country’s “criminal capital.” The indictment of a onetime business associate in Western Europe on charges of money laundering and fraud is raising serious questions about Putin’s former role in the affairs of a mysterious Russo-German property-development firm. The company, called the St. Petersburg Real Estate Holding Company (known by its German acronym, SPAG), has not been charged and denies any wrongdoing, but U.S. and European intelligence officials suspect it is linked to the laundering operations of Russian mobsters and Colombian drug dealers. Until he was inaugurated as president, Putin was on SPAG’s advisory board and, according to U.S. and European intelligence officials as well as a SPAG director, he spent more time on its affairs than the Kremlin will now admit. Since then Putin has also maintained a close relationship with the onetime head of SPAG’s Russian operations, Vladimir Smirnov.
The allegations surrounding SPAG and Putin could reverberate to Europe and America. Next week officials of the United States and 28 other governments will meet in Paris to consider whether to impose sanctions on Russia for shirking on money-laundering enforcement. Russia has attempted to stave off the threat by rushing a new anti-laundering law through the Duma. But NEWSWEEK has learned that U.S. officials last year successfully lobbied for Russia to be placed on an international money-laundering blacklist. A key reason, said a former top U.S. official, was a sheaf of intelligence reports linking Putin to SPAG.
FINDING FOREIGN PARTNERSThe story begins in 1992, when an obscure former KGB officer named Vladimir Putin was starting to make his name as St. Petersburg’s deputy mayor in charge of attracting foreign investment. That year Putin was part of a city delegation that traveled to Frankfurt, Germany’s financial center, to drum up interest in their hometown. There Putin got to know fellow delegation member Vladimir Smirnov, a budding St. Petersburg businessman eager to find foreign partners. Smirnov soon persuaded a group of Frankfurt investors to set up a German company that would invest in choice real estate in St. Petersburg via Russian subsidiaries. To those wary of the rough-and-tumble business climate of the former Soviet Union, Smirnov offered a compelling argument. The St. Petersburg city government was giving its wholehearted support to the project, he said. To prove it, four city officials would join the new company, SPAG, as members of an “advisory board,” separate from the board of directors. Among those officials, according to documents from a German commercial registry, was Putin.
The company operated in obscurity until two years ago, when SPAG caught the eye of U.S. and European intelligence agencies. Its name turned up in a probe by Germany’s foreign-intelligence service, the BND, of alleged money launderers in Liechtenstein, a tiny Alpine principality that is a notorious tax haven. The BND accused the company’s cofounder, Rudolf Ritter, who contributed much of SPAG’s seed capital, of laundering funds for both Russian organized crime and Colombian drug traffickers. A German intelligence report also suggested that Russian criminals were using SPAG to buy property inside Russia.
Six weeks ago prosecutors in Liechtenstein and Austria indicted Ritter on money-laundering charges. The indictment, which is still officially sealed but was made available to NEWSWEEK, alleges that Ritter and a handful of associates laundered more than $1 million for the Cali cocaine cartel. Separately, the indictment charges Ritter with using shares in SPAG to scam a group of foreign investors, including Americans. That led to a criminal referral to the FBI. (Through his lawyer, Hermann Bockel, Ritter denied the charges.)
PUTIN’S DENIAL
Company officials have since played down Putin’s involvement in SPAG. Markus Rese, a Frankfurt lawyer who serves as SPAG’s chairman, says that while Putin was a “contact,” his presence on the unpaid advisory board was largely an “honor.” Rese says Putin had nothing to do with SPAG’s alleged current problems. The Kremlin declined to comment on Putin’s involvement with the company. But last year a Putin spokesman denied the president had ever “worked for it as an adviser” or been paid a salary.
A NEWSWEEK investigation, however, suggests that Putin was at least in regular, and sometimes close, contact with some of the company’s key Russian and foreign directors over a period of years, and even signed important St. Petersburg city documents for the company’s benefit. Klaus-Peter Sauer, a German accountant who helped found SPAG and is still a company director, says he met Putin about six times both in Russia and Frankfurt. Sauer says SPAG founder Ritter traveled to St. Petersburg and met Putin at least once, in 1994 or 1995.
But the real key to the mystery surrounding Putin’s role may be the relationship between him and the ambitious entrepreneur Smirnov. According to Sauer, Smirnov used contacts he made during that 1992 Frankfurt trip to become SPAG’s principal Russian co-founder and managing director of its St. Petersburg operations. Sauer says that Smirnov met regularly with Putin, eventually becoming “fairly close” to the future Russian president. (Russian sources told NEWSWEEK that Smirnov and Putin were close enough that they bought, and still own, adjoining weekend dachas on the outskirts of St. Petersburg.) SPAG company records obtained by NEWSWEEK from a German commercial registry show that in December 1994, Putin signed an affidavit on St. Petersburg’s behalf giving Smirnov voting power over the city government’s 200 shares in the company.
THE ULTIMATE COMPLIMENT
Then, in August 1996, Putin did what appears to have been a more important favor for Smirnov. On the city’s behalf, Putin signed a decree granting a Smirnov gasoline company called PTK (Petersburg Fuel Company) a virtual monopoly over retail gasoline sales in the city, including lucrative supply contracts for St. Petersburg’s huge fleet of ambulances, cop cars, buses and taxis. A Russian source says that one of Putin’s relatives, a St. Petersburg lawyer named Viktor Khmarin, is a major shareholder in Smirnov’s gasoline company. Late last year Putin paid Smirnov what may be the ultimate compliment, inviting him to the Kremlin to join the Household Affairs Directorate of the president’s office, where Smirnov is now in charge of the huge communist-era real-estate portfolio. The same Kremlin department is deeply implicated in alleged bribery and kickback scandals that tainted the Yeltsin administration
SPAG and St. Petersburg officials suggest it was through Smirnov that the company acquired a connection to alleged Russian gangsters. According to SPAG cofounder Sauer, one of Smirnov’s partners in his gasoline business was a colorful, one-armed local character named Vladimir Barsukov. A major figure in St. Petersburg’s restaurant and casino industries as well, Barsukov is reputed to head one of Russia’s most powerful organized-crime gangs, known as the Tambov Group. Russian corporate records show that as of November 1999, Barsukov was listed as a director of one of SPAG’s most important subsidiaries, which has been planning for years to develop a shopping mall and business center on St. Petersburg’s main boulevard, Nevsky Prospekt. (Barsukov did not respond to requests for an interview.)
There is no evidence that Putin ever got any money from SPAG. U.S. officials say they believe that Putin may have helped SPAG, expecting future political support from some of the company’s influential Russian backers. Whether the allegations have an impact on Putin’s political fate at home remains to be seen. But Putin has already made plenty of powerful enemies—such as Boris Berezovsky and his fellow exiled oligarch, Vladimir Gusinsky—who will be only too happy to exploit a scandal involving Mr. Clean.
© 2001 Newsweek, Inc.
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