No child should be afraid of growing up

It’s sometime easier to think about tragedy and wars in countries far away– much harder to think about the war on the next-door street. But for many Londoners these days, every radio news bulletin brings an ache in the gut and the question: is that my son they are talking about?

A week ago, I got a call early in the morning from my friend David Marriott, co-founder and lead coach of a major club in south London the Lambeth Tigers, at which I help out a bit. He told me the night before, he was coaching kids mostly eight years old, but with siblings as young as three watching the session. This was at a youth club in Brixton, the Marcus Lipton. He described how a young man was chased into the club and stabbed to death, right by where the children were training. David and two parents of the kids got directly involved trying to save the young man’s life – unfortunately unsuccessful.

David Marriott outside the Marcus Lipton centre

The coaches, parents and children were terribly traumatised. It’s been heart-breaking to hear how kids have reacted. To hear how eight-year-old boys are asking their mums: “When I grow old will I get stabbed?”. That should not be the worry  of anyone from any community growing up in London

No-one should be afraid of growing up.

We wondered who to turn to, and after all the stabbings that have occurred in London, we expected a slick response.

We spent all day trying to get a number for some counsellor, some psychologist who the parents and the coaches could speak to. We called it in as an emergency to Lambeth social services. The Tigers did get immediate help from the London Football Association and are grateful for that. But at the end of the day (Friday night) all we could offer parents was numbers for helplines like Victim Support. That isn’t a good enough – they wanted some real person to speak to.

After 5pm on Friday night everyone stopped even answering emails, by Sunday night, David was angered: “Not a single person from any authority has even called just to ask how the kids were doing.”

One of the mums, Sarah, said: “We felt completely abandoned. We feel like living victims.”

(You can hear more from Sarah in this BBC interview:  – go to 1.35.45 and it starts there )

The club, co-founded by David and Jamahl Jarrett, works in some of the toughest places in London and it has been very successful. Two thirds of their 200+ signed players live in neighbourhoods ranked in the top 20% for crime in Britain. The club makes a difference in many people’s lives. We wrote a letter to Sadiq Khan and Lambeth Council. The letter said: “Regardless of where children and young people live, we believe they have a right to a safe place to play and take part in sport.”

As David put it, “Whatever is happening on the street, these things can’t happen in front of my eight year olds”

David has seen a lot. His own brother was murdered in a gun crime in 2008, which motivated him and Jamahl to found the club. In 2012, a 15-year-old Lambeth Tiger player was murdered, the innocent victim of a stabbing, that took place right oppose the same Brixton youth club, the Marcus Lipton

When David returned to the crime scene on Thursday, flowers were still left over from that 2012 tragedy, still attached to the railing right opposite.

After David and Jamahl sent the letter, Lambeth organised some counselling, and Sadiq Khan’s people got in touch. It seems authorities are getting a response together. The club will meet with them next week to work out what next. But parents still don’t think it’s enough.

This is more than a small football club should have to deal with alone – and the teenagers and youth workers who were there too at the Youth Centre need massive support and help.
The Tigers tried not to make too much publicity because they didn’t want to impact on kids at the club. They don’t want anyone to fear sport – to associate sport with danger.

But everyone does feel there are some important things to say, lessons to learn – and these kids still need plenty more help.

Lambeth Tigers also learned who our friends are. Telling people about a stabbing makes most people so shocked, they can’t wait to put down the phone. And they find excuses not to help.

We also  learned we have massive friends at Nike – who showed us that being a ‘partner club’ was not just a slogan.

Going forward, the football club’s going to work hard not only to these support parents and kids but to find and support efforts for safe sports facilities for kids in south London for all.

If you want to help you can get in touch with Lambeth Tigers: – or pledge something to the fundraising page of the club’s registered charity, the Lambeth Tigers Foundation:

B-72: Chaos? Yes. But a fair, consensus Brexit deal is possible.

May’s plan has been defeated; politics is all at sea. But a solution stares us in the face, if both Conservatives and liberals re-think their approach.

The right Brexit plan stares us in the face. The only question is: will the Government and the Labour Leader put the interest of the country above the unity of their parties?

Yesterday, I watched the debate in the British parliament carefully and went also to Westminster and chatted to several MPs. Based on those observations, it seems  obvious to me there is a clear consensus in parliament and the country on the best form of Brexit. If Brexit must go ahead, a clear majority would accept a customs union.

A customs union will allow, just as in Switzerland, some key business regulations to be set in Brussels (without a UK say or vote) but most key areas of national policy to be set at Westminster.

A customs union avoids the need for a hard border in Northern Ireland, thus cancels the ‘backstop’ problem. It trades a loss of sovereignty on a few matters with a wider return of sovereignty over much else.

May has wrongly prioritised Party unity by spending two years preventing parliament from agreeing and ratifying a vision for what relationship Britain wants with the EU. Even now, the so-called ‘agreement’ is still to a large extent a ‘blind Brexit’ where key decisions are – dangerously – delayed until after we have left.

May has also wrongly prioritised Party unity with her ‘red line’ that rejects the European Court of Justice competence over policing the single market. Parliament could live with ECJ competence.

If May and parliament choose the customs union approach, some Tory rebels may quit the whip and she will lose her majority. At this point, she (or her successor) should attempt a government of national unity to exist only to agree the Brexit deal; if that fails, an election will be needed. As I observed, there is a clear Labour + Soft Tory majority for a soft Brexit; but perhaps not a majority within Tory ranks.

Liberals in Labour and Conservative and LibDem ranks meanwhile – hellbent on stopping Brexit — have been wrong to obfuscate and delay the creation of consensus plan for Brexit. (I count myself guilty on that score).

Liberals are right to campaign for a second referendum but their approach has been disingenuous and poorly calculated. Their approach needs to be reframed so that ardent Brexiteers themselves are begging for a second plebiscite. I’ll explain how and explain how it could be timed.

The public expect leaders to do their job and come up with a workable plan. People don’t want some ‘dogs dinner’ failed plan thrown back to them in a cynical ploy to cancel Brexit.

So if there is a second referendum (and there should be), it should put to the people the best possible plan for Brexit that already has consensus in parliament, namely a customs union.

Referenda work in democracies, for example in California and Switzerland, where they present clear fully-formulated propositions. The mistake of the first Brexit referendum was to offer Brexit without defining what it should mean.

The reason a second referendum is justified and necessary is that we simply do not know if a majority exists in the country for any Brexit solution; or if a majority would prefer the status quo (continued EU membership) over any particular Brexit plan.

So that nobody feels cheated, the correct referendum could ask two questions:

  1. Should Britain continue to exit the European Union? YES/NO
  2. If Brexit continues, do you approve of the plan approved by Parliament to leave the EU and remain in a Customs Union? YES / NO

On this basis, hard Brexiteers can campaign for a YES-NO, on the basis that if Parliament’s deal is rejected, Britain will opt for their clean break solution; soft Brexiteers can campaign for a YES-YES; and Remainers can campaign for a NO-YES, confident that even they lose on the existential Brexit question, a soft landing can occur.

Having wasted so much time without building a consensus in Parliament, it will be hard to make a deal before March. However, the Brexit ‘agreement’ is little more than a transition agreement that kicks the can of fundamental issues down the road. And most people can only really judge the merits of Brexit once those fundamentals are agreed.

On the timing, here I’d welcome the advice of technical experts but the correct approach maybe to go ahead with Brexit on the basis of two changes: 1) hardening the political agreement to build a clearer vision on the basis of eliminating the backstop on the basis of customs union; 2) establishing a ‘cooling off’ principle, that could allow Britain to think again on Brexit within the transition period.

The cooling off approach may seem novel, but since Britain will be fully compliant with EU rules during the transition period (and EU countries fully compliant for trading with Britain) a Brexit reversal would not come at a huge cost; most EU countries would also support the notion of the British people being given a chance to think again. Within the cooling off period, it seems to me would then allow a second vote to be put to be put to the people after a new trade deal / customs union had been negotiated, so that people could finally judge on what Brexit means.

One alternative approach – again seeking a vision that does not cheat people — is to delay Brexit in order to negotiate a much more fully-formed agreement, incorporating the customs union and thus removing the need for a Northern Ireland backstop, but, at the same time, shorten the transition so that full exit from the EU, if it goes ahead, is not shortened again.

Either way, there is an approach to go ahead that cheats nobody, slows down nothing, but still gives the people a final say.

B-DAY-80. Democracy is never over

There are fears our country may be rather divided. Many suggest it is time to ‘heal the wounds’, and to reconcile.

That’s piffle.

There is a battle in progress – a legitimate struggle to decide the UK’s future – and until the issue is decided, until Britain leaves the European Union irrevocably or cancels its exit, any priest, doom-monger or heckler that tries to block your participation in that debate is denying your right to have a say in your future.

Democracy is never over. Voters don’t dispatch their decisions to the political elite like ‘fire and forget missiles’ to be interpreted and re-interpreted ad infinitum by its leaders. Legitimacy is subject to constant refresh, directly through regular elections or plebiscites, and indirectly through the judgement of elected representatives.

Only in a dictatorship does one vote settle all.

When the Labour Party scored less than 5% of the vote in the 1906 election, it wasn’t some signal to abandon it struggle – no less than defeat at Dunkirk meant it was time to quit fighting Hitler.

Should a referendum result on an important constitutional question be binding? That’s indeed a debatable question. Don’t believe anyone who thinks there is clear answer, because Britain has no fixed constitution to consult.

But it is fair to say  that in many democracies, making a major decision, such as – to name one minor example — the Brexit plan to strip European citizenship from millions of people without their agreement, would typically involve jumping through several more hoops than just a single vote. An amendment to the US Constitution, for example, requires the support of two-thirds of both houses of Congress and two-thirds of all states before it can proceed.

If anything is divisive, it is to base a really import change to a country on one single narrow vote, and to rip up one key arrangement (EU membership) without securing any agreement (in any forum, whether in the cabinet, parliament, or the country) of what should replace it.

The London reviews of Spymasters

UScoverThumbNail2New Spymasters, my new book, went on sale in 2015 the USA with St Martin’s Press in the USA and Viking Penguin in the UK. It’s had some good reviews. Here are some of the comments and links to the full text:

“For almost 50 years, British and American intelligence officers went toe-to-toe with their counterparts at the Lubyanka, suppressing the threat from communist Russia by recruiting agents inside the Soviet system. Those days are long gone. As Stephen Grey explains in his exceptional new book about spying, the unique political circumstances of the post-9/11 world, combined with rapid developments in weapons and telecommunications technology, have permanently shifted the espionage paradigm…. a blueprint for productive, sophisticated espionage in the age of Islamist terror”

(Charles Cumming; Full review: Daily Telegraph)

“Convincing … a lucid, well-written analysis” (Malcolm Rifkind; Full review: The Spectator)

Grey is a Reuters reporter who has previously written books about the UK-US military campaign in Afghanistan and the CIA’s rendition programme. He has now turned his attention to espionage, and the result — revelatory, deeply informed and subtle — is an antidote to any view of the intelligence agencies as being all-knowing or, conversely, all over the place. Their world…is a dark one, but one in which agents can sometimes discern flashes of colour that offer clues, leads and, sometimes, a licence to kill….Grey’s book reveals above all the relentless uncertainty of spy work, beset with human error and technological over-optimism.

(John Lloyd: Full review: The Financial Times)

“Valuable and thought-provoking .. breaks new ground ..” (Richard Norton-Taylor, Full Review: The Guardian)

Many books on intelligence are a mixture of rehashed secondary sources, salted with speculation. Grey’s is not. He draws on an impressive array of interviews with current and serving intelligence officers, as well as official documents, and provides some notable new insights into the most tangled tales of recent years…..a page-turner for those outside the secret world, and also a thought-provoker for those inside it.” (Edward Lucas, Full review: The Times

“An exposé with real intelligence … Stephen Grey, one of the best investigative journalists in the business, explores the industry’s transformation in a detailed and highly readable book.” (Paul Callan, Daily Express)

NewSpymasters was rated the No 1 Bestseller in Non-Fiction in London by the Evening Standard on July 2nd.


Much of Grey’s book demonstrates that “intelligence” is often blunder, bluff and worse, and that only the “cult of intelligence” prevents these spies from being seen as a waste of taxpayers’ money (Ed Vulliamy, Full review: The Observer)

“Stephen Grey is a good writer with a reputation for doggedness. He goes where a story leads, even if it doesn’t suit his preconceptions.” (Liam Clarke, the Belfast Telegraph.)

Fresh from the Printers


I’m very happy to say copies of my new book, The New Spymasters, have just arrived from the printers, and is on sale in the UK this week (from June 4.) Very much looking forward to hearing your reactions and thoughts. The story is told through the stories UKarrivedCROPof some amazing characters I’ve been privileged to meet and is the story of what happened to the human spy after the end of the Cold War. Of course, when I looked, I discovered that Cold War spying itself was very different from how it was portrayed, so I stepped back too into the fundamentals of spy craft, before moving to the present.

Here are some very kind cover blurbs provided by three people who saw advance copies.


Frederick Forsyth, author “Day of the Jackal”

“A manual of modern espionage. Farewell George Smiley. The targets are new, the methods different, the technology hyper. Only the purpose remains —forewarning.”

Jason Burke, author of “Al Qaeda” and 9/11 Wars.

“The New Spymasters is  fair,  fascinating and full of revelations.

There are many books on spies and spying, but few as sensible, perceptive or rigorous as this. A very welcome work, and a very enjoyable read, which should be on the book shelves of anyone interested, for professional or personal reasons, in the world we live in, the threats we face, and those who are charged with keeping us safe.”

John Macgaffin III, former deputy head of CIA clandestine service

“As an Old(er) Spymaster myself, I urge Spymasters New and Old, but most importantly those of you who want to understand the critical, but changing role of American espionage today to read this remarkably accurate and detailed account of CIA’s transition from Cold War to ISIS War, from nuclear attack to hacker attack. It captures the work in progress – the traditional adversaries still threaten and the new ones require our Clandestine Service to innovate to penetrate and defeat them. Stephen Grey nails the story in this exceptionably readable book.”

How a 29-year-old Ukrainian tycoon made a killing on Russian gas

By Stephen Grey, Tom Bergin, Sevgil Musaieva and Jack Stubbs
FAST RISER: Serhiy Kurchenko, a businessman from east Ukraine, expanded his interests hugely when the former Ukrainian president Viktor Yanukovich was in power. Among other assets, Kurchenko, pictured here in 2013, bought an oil refinery, a football team and stakes in two banks. REUTERS/Stringer
Comrade Capitalism series, part 6: Serhiy Kurchenko, who is suspected of acting on behalf of the former Moscow-backed president of Ukraine, gained $100 million on gas supplied at a preferential rate.

Русский язык (Russian translation)

KIEV – A young businessman accused of being a frontman for former Ukrainian president Viktor Yanukovich made $100 million or more from buying Russian gas at a preferential rate and selling it on at higher prices, according a former senior employee and a Reuters examination of official data.

Serhiy Kurchenko, 29 years old and a self-declared billionaire, made the money by selling cheap gas supplied by companies run by Dmitry Firtash, a prominent Ukrainian oligarch. Firtash has long-standing business connections to Russia and his companies were able to buy gas cheaply from Gazprom, the giant gas company run by allies of Russian President Vladimir Putin.

Some Ukrainian politicians and gas industry experts, briefed on the transactions by Reuters, said they believe the deal was a way for Firtash to reward former president Yanukovich for political favours that had benefitted Firtash’s business empire. Profits from the arrangement were destined for Yanukovich, they allege.

“Everybody in Ukraine knows that he (Kurchenko) is the wallet to pay off Yanukovich,” said Viktor Chumak, a senior Ukrainian lawmaker and the former head of the parliament’s anti-corruption committee. Reuters was unable to confirm the purpose of the favourable deals or whether Kurchenko passed proceeds to Yanukovich.

The details of the gas deals are likely to add to the controversy surrounding Kurchenko. Ukrainian officials have been investigating both him and Yanukovich since earlier this year, though those inquiries have focused on deals involving petroleum products and banking, not the natural gas deals uncovered by Reuters. Both men fled Ukraine after Yanukovich’s overthrow in February and are now living in Russia.

In a series of articles, Reuters has examined how people favoured by the Kremlin have profited from Russia’s state spending and natural resources. This brand of capitalism extended to Ukraine, which Moscow has never really accepted as a fully independent state, and which Putin has tried to influence through gas supplies.

Kurchenko stands accused by the current Ukrainian government of systematically evading millions of dollars in tax with the collusion of officials in Yanukovich’s administration. Vitaly Yarema, general prosecutor of Ukraine, said Kurchenko was under investigation for allegedly failing to pay the state $130 million in tax and allegedly stealing $180 million from bank investors.

Ukrainian officials say Kurchenko was closely connected to Yanukovich, who was toppled over his attempts to align Ukraine with Russia rather than the European Union. The former president is himself accused by the current Ukrainian government of stealing millions of dollars from the state.

The Ukrainian secret service described Kurchenko in October as the “chief financial officer” of what has become known in Ukraine as “the family,” a term for associates of Yanukovich. In an interview this month, Arsen Avakov, Ukraine’s interior minister, told Reuters: “Kurchenko was simply a manager” for the Yanukovich family. “His biography was clean – simply because he was a young man – and that was why they put him as a front for the family.”

On March 24, the general prosecutor’s office of Ukraine announced an investigation into “the establishment of a criminal organisation” by Kurchenko, who it described as “close to the ‘family’ of former President of Ukraine Viktor Yanukovich.”

And on May 19, a statement from the Ministry of Internal Affairs accused Kurchenko of manipulating the fuel market with the support of “patrons,” including former government ministers. Avakov, the interior minister, told Reuters that Kurchenko was suspected of tax offences relating to oil deals. “This scheme is only possible when the president is covering everything (up), and closing his eyes. It is the Tsar’s business.”


Kurchenko did not respond to requests for comment. He has previously denied the allegations of tax-dodging and said he has no corrupt links to Yanukovich; he has said he is the victim of political persecution. “I am an honest Ukrainian businessman,” he said in a statement posted in March on the website of his company, Vetek Group.


Putin’s allies channelled billions to oligarch who backed pro-Russian president of Ukraine

By Stephen Grey, Tom Bergin, Sevgil Musaieva and Roman Anin
RED RIBBON: Then Ukrainian President Viktor Yanukovich (left) and Dmitry Firtash, one of Ukraine’s richest men, in 2012, at the opening ceremony of a new sulphuric acid plant in Crimea. The friendship between the two men benefited both, as well as Moscow. REUTERS/Mykhailo Markiv

Comrade Capitalism series, part 5: Russian bank granted huge loans to Dmitry Firtash, whose business empire boomed under Viktor Yanukovich

Русский язык (Russian translation)

MOSCOW/KIEV – In Russia, powerful friends helped him make a fortune. In the United States, officials want him extradited and put behind bars. In Austria, where he is currently free on bail of $155 million, authorities have yet to decide what to do with him.

He is Dmitry Firtash, a former fireman and soldier. In little more than a decade, the Ukrainian went from obscurity to wealth and renown, largely by buying gas from Russia and selling it in his home country. His success was built on remarkable sweetheart deals brokered by associates of Russian leader Vladimir Putin, at immense cost to Russian taxpayers, a Reuters investigation shows.

Russian government records reviewed for this article reveal for the first time the terms of recent deals between Firtash and Russia’s Gazprom, a giant gas company majority owned by the state.

According to Russian customs documents detailing the trades, Gazprom sold more than 20 billion cubic metres of gas well below market prices to Firtash over the past four years – about four times more than the Russian government has publicly acknowledged. The price Firtash paid was so low, Reuters calculates, that companies he controlled made more than $3 billion on the arrangement.

Over the same time period, other documents show, bankers close to Putin granted Firtash credit lines of up to $11 billion. That credit helped Firtash, who backed pro-Russian Viktor Yanukovich’s successful 2010 bid to become Ukraine’s president, to buy a dominant position in the country’s chemical and fertiliser industry and expand his influence.

The Firtash story is more than one man’s grab for riches. It demonstrates how Putin uses Russian state assets to create streams of cash for political allies, and how he exported this model to Ukraine in an attempt to dominate his neighbour, which he sees as vital to Russia’s strategic interests. With the help of Firtash, Yanukovich won power and went on to rule Ukraine for four years. The relationship had great geopolitical value for Putin: Yanukovich ended up steering the nation of more than 44 million away from the West’s orbit and towards Moscow’s until he was overthrown in February.

“Firtash has always been an intermediary,” said Viktor Chumak, chairman of the anti-corruption committee in the previous Ukrainian parliament. “He is a political person representing Russia’s interests in Ukraine.”

A spokesman for Putin rejected claims that Firtash acted on behalf of Russia. “Firtash is an independent businessman and he pursues his own interests, I don’t believe he represents anyone else’s interests,” said Dmitry Peskov.

The findings are the latest in a Reuters examination of how elites favoured by the Kremlin profit from the state in the Putin era. In the wild years after the fall of the Soviet Union, state assets were seized or bought cheaply by the well connected. Today, resources and cash flows from public enterprises are diverted to private individuals with links to Putin, whether in Russia or abroad.

Putin’s system of comrade capitalism has had huge costs for the ordinary people of Russia: By granting special cheap deals to Firtash, Gazprom missed out on about $2 billion in revenue it could have made by selling that gas at market prices, according to European gas price data collected by Reuters. Four industry analysts said that Gazprom could have sold the gas at substantially higher prices to other customers in Europe.

At the same time, the citizens of both Russia and Ukraine have seen unelected oligarchs wield political influence.


Russian Railways paid billions of dollars to secretive private companies

LEADER: Vladimir Putin in Russia’s first high speed train, December 2009. REUTERS/Ria Novosti/Alexei Druzhinin/Pool

Comrade Capitalism series, part 3: The state-owned rail giant, run by an old friend of President Vladimir Putin, has awarded vast sums to contractors who disguise their ownership, a Reuters investigation finds

Русский язык (Russian translation)

MOSCOW – In the world’s biggest country, railways are still a route to riches. With nearly 1 billion passengers a year and $42 billion in annual sales, the state company Russian Railways is a giant commercial opportunity.

At its head is Vladimir Yakunin, an old friend and long-standing ally of President Vladimir Putin. He oversees a company that strikes international deals, issues bonds to major investors and plans hugely expensive new high-speed lines. By many measures, Russian Railways is a standard corporate colossus.

But a Reuters investigation has uncovered another side to the state-owned company: Under Yakunin, it has paid billions of dollars to private contractors that disguise their ultimate owners and have little or no presence at their registered headquarters.

A Reuters study of tenders held by Russian Railways also identified contracts worth hundreds of millions of dollars granted to companies that ostensibly bid as rivals but appear to be closely related.

In 43 tender competitions worth $340 million from 2010 to 2013, for instance, the same two companies were the only bidders each time. Those two firms, it turns out, were set up on the same day, by the same person acting on behalf of undisclosed owners. The firms opened accounts at the same bank on the same day, and declared an identical number of employees two years in a row. On one occasion, they filed bids for a Russian Railways tender within a minute of each other. And last October, after Reuters first inquired about the nature of the companies, both registered websites on the same day.

Russian investigator Sergei Lesnichiy said Reuters findings appeared to show an attempt to manipulate tenders for state contracts, potentially inflating costs to the detriment of Russian Railways. Lesnichiy, director of the Centre for Financial Investigations, an expert body set up by the Russian state, said such effects, if verified and if insiders at Russian Railways benefited, could amount to fraud under Russian law. But he also said that under Russian law it is not an offence for related companies to bid in state tenders.

A further Reuters analysis of banking transactions between 2007 and 2009 involving one large private contractor to Russian Railways showed patterns of activity that U.S. and Russian financial investigators said were typical warning signs of suspicious banking activity.

The analysis suggests that millions of dollars originating from Russian Railways ended up with companies that had nothing to do with railway work. Some of these companies have been judged by Russian authorities to be bogus companies with no genuine operations.

These transactions passed through a small bank part-owned from 2007 to 2009 by a businessman called Andrei Krapivin. Yakunin, the head of Russian Railways, once described Krapivin as an “old acquaintance” and an “unpaid adviser who understands banking well,” according to the Russian newspaper Vedomosti.

Krapivin and several of his business associates are or have been directors of large contractors working for Russian Railways.

A spokesman for Russian Railways said Krapivin “is not an adviser” to Yakunin, but did not comment on whether he had been in the past.

This investigation is part of a Reuters series examining how Russia does business in the Putin era. Even as the Russian president has denounced corruption, some members of the elite have used secretive companies, straw owners and other means to gain business worth hundreds of millions of dollars from some of his signature undertakings. Earlierstories examined how two of Putin’s associates profited from an ambitious state healthcare project.


When Putin ordered up new hospitals, his associates botched the operation

MEDICAL KIT: A new hospital in Perm, some 1,150 km (720 miles) east of Moscow, pictured in January. The facility, opened in February 2012, was part of Moscow’s push to spend more on areas such as health and education. REUTERS/Maxim Kimerling
Comrade Capitalism series, part 2: The president’s allies won contracts to build new medical centres across Russia. They failed, and the project hit $700 million in cost overruns

Русский язык (Russian translation)

PERM, Russia – At the foot of the Ural Mountains stands a symbol of how even the best intentions in Russia can enable well-connected individuals to bleed money from the state. It’s a modern hospital built in this industrial city of a million people, and intended to be a flagship of a grand project to improve the country’s healthcare.

The hospital’s chain-smoking director, Sergei Sukhanov, loves his new facility, the Federal Centre for Cardiovascular Surgery, which has beds for 167 patients. He also admires Russian President Vladimir Putin, who championed the hospital and whose letter of thanks to the surgeon adorns his office.

“It’s a huge gift to the Perm region,” said Sukhanov in his new white office. “It’s like we’ve moved from a one-bedroom apartment to a five-bedroom apartment.”

But a Reuters investigation shows the hospital, and a $1 billion construction project of which it was part, were also business opportunities for Putin’s allies. While it isn’t clear whether they managed to turn a profit, their involvement cost Russian taxpayers dearly.

A previous article detailed how two associates of Putin profited from selling high-tech medical equipment to the Russian state and sent money to Swiss bank accounts linked to the building of a lavish estate near the Black Sea.

Those two men, Nikolai Shamalov and Dmitry Gorelov, also had stakes in two companies that received contracts to build a series of hospitals around Russia. The undertaking later led to accusations of “unjust enrichment” against one of the companies. That company ended up going bust, owing around 860 million roubles ($26 million) to the state. Hundreds of people lost their jobs.

Corporate records show there was another major investor in the two building companies: Rosinvest, a Russian investment firm owned by offshore entities.

In 2010 Sergei Kolesnikov, a businessman who used to work with the two Putin associates, went public with a claim that Rosinvest was ultimately controlled by the Russian leader himself. The role of Rosinvest in Putin’s $1 billion health project, however, hasn’t been previously reported.

Kolesnikov says that Putin owned an offshore entity called Lirus Investment Holding, which had ultimate control of Rosinvest. He told Reuters that he knew this because he “participated in the creation” of Lirus. Lirus was a Liechtenstein company that, he said, was owned through bearer shares – securities that don’t record the name of the owner.