By Stephanie Baker-Said
March 28, 2007
SourceMarch 29 (Bloomberg) -- Inside a medieval banquet hall in London, where the British have feted royalty down through the centuries, Andrew Lloyd Webber, the maestro behind Cats, sips champagne and contemplates Joseph Stalin.
Across the Gothic chamber, Mohamed al-Fayed, owner of Harrods department store, eyes the former Soviet dictator, too. Al-Fayed bids 6,500 pounds ($12,480) and -- sold! The old communist, rendered in oil on canvas, belongs to him.
The real Stalin must be resting uneasily in Moscow. The rich and famous have come to the ancient Guildhall by the Mercedes-load on this January evening to pay homage to London's new aristocrats: Russian millionaires and billionaires whose fortunes rose after the Soviet Union collapsed. The apparatchik-issue Stalin portrait has been auctioned off for charity, along with a case of Green Mark vodka and tennis lessons with a former coach of Russian pro Elena Dementieva.
A wave of Russian wealth -- and Russian intrigue -- is washing over a metropolis that some call ``Londongrad.'' Newcomers from the East are spending tens of millions of dollars for the grandest homes in the city. One businessman recently inquired whether Hampton Court Palace, the royal abode of Henry VIII, was for sale, real estate agent Alexandra Lovell says.
Harrods, one-time outfitter to the Prince of Wales, is hiring Russian-speaking staff. Diamond billionaire Lev Leviev, who was born in Uzbekistan, is courting the nouveau riche arrivals with million-dollar gems.
Money and Murder
Everyone from art dealers to City bankers, to purveyors of private jets is grabbing at the riches bubbling up from Russia's oil-drenched economy, which has been growing by 6.5 percent a year.
Now, along with this wealth comes a murder with more twists than a John le Carre thriller. The killing in London of Alexander Litvinenko, a former KGB spy and foe of Russian President Vladimir Putin, has riveted the affluent émigrés and prompted talk of a new Cold War between Russia and the West.
Litvinenko's death on Nov. 23, from radiation poisoning, has unleashed a whirlwind of speculation. Who killed him and why? British police are baffled by the weapon: a rare substance called polonium 210 that's dangerous when inhaled or ingested. Russian officials investigating the murder arrived in the U.K. this week. The conspiracy theories keep multiplying.
``It's a dirty thing,'' Alexander Temerko, a former OAO Yukos Oil Co. executive, says of the killing. He and many other Russians living in London don't want to say much about it.
Litvinenko, who died at the age of 43, is part of the mystery.
An Imperfect Spy
His motives were never clear. He grew up near Ukraine and landed in a Russian prison in 1999, after alleging that his bosses at the Federal Security Service (FSB), the post-Soviet KGB, had ordered him to murder Russian billionaire Boris Berezovsky.
Berezovsky fled to London in 2000 after falling out with Putin. That same year, Litvinenko fled to Turkey and then to Britain, where he was granted political asylum. He accused the FSB of all sorts of atrocities and said Putin, former head of the security service, was behind them.
In ``Blowing Up Russia: Terror From Within'' (Liberty Publishing House, 271 pages, $24), Litvinenko and co-author Yuri Felshtinsky, a Russian historian living in the U.S., claimed FSB agents bombed apartment buildings on the outskirts of Moscow in 1999, killing hundreds, to stir up support for a war against Chechnya.
Litvinenko also accused the FSB of orchestrating the 2002 Moscow theater siege by Chechen rebels that left more than 150 dead. Litvinenko never proved his claims. The Russian government denied them all.
Deathbed Accusation
From his deathbed, Litvinenko, gaunt and bald from radiation sickness, apparently hurled a final accusation: He blamed Putin for his poisoning.
``You may succeed in silencing one man, but the howl of protest from around the world, Mr. Putin, will reverberate in your ears for the rest of your life,'' a statement released by Litvinenko's family said. ``May God forgive you for what you have done.''
The Russian government has denied any involvement in the killing. Like so much of his life, Litvinenko's final reproach is shrouded in controversy. Did Litvinenko really write those lines as he lay dying? Why was the statement released only after his death? Alexander Goldfarb, a spokesman for Litvinenko's family, didn't return telephone calls seeking comment.
The cloak-and-dagger aspects of the killing -- Scotland Yard found traces of radiation in a sushi bar in Piccadilly, a hotel in Mayfair and Litvinenko's north London home -- have convinced many people that the ex-agent was killed on orders from someone in Russia, says Greg Hands, a member of Parliament who represents the London district of Hammersmith and Fulham.
`Political Assassination'
``The Litvinenko saga has accentuated the fault line in Anglo-Russian relations,'' says Hands, a member of the opposition Conservative Party. ``It's a very, very serious thing to have a political assassination on the streets of London.''
The killing has also underscored a rift among the wealthy Russians who've flocked to London.
One camp, led by Roman Abramovich, a 40-year-old oil billionaire from Saratov, backs Putin. Supporters say the president has rehabilitated Russia after its slide toward chaos in the 1990s. Most Russians back home agree. Putin has an 81 percent approval rating, according to a February poll by the independent Levada Center.
``Our politicians would give their eyeteeth for that kind of rating,'' says Russia scholar Margot Light, a professor emeritus at the London School of Economics.
Putin's Grip
The other London camp, led by Berezovsky, 61, says Putin is creating an authoritarian system that's only nominally democratic. Since coming to power in 2000, the president has driven prominent businessmen into prison or exile. His government has sent Mikhail Khodorkovsky, founder of Yukos Oil and once the richest man in Russia, to a Siberian labor camp on charges of fraud and tax evasion.
Putin has brought television networks back under state control, tightened his grip on natural gas giant OAO Gazprom and used his nation's energy wealth to reassert Russian might. In 2006, he ordered state-controlled Gazprom to cut off gas supplies to Ukraine because of a price dispute. Russia sits atop more natural gas than any other country in the world, according to the U.S. Energy Information Administration. It's challenging Saudi Arabia's No. 1 position in the oil market.
Berezovksy, who has fended off attempts by Russia to extradite him on charges of fraud, says his friend Litvinenko may have been murdered because the ex-agent had discovered a money- laundering operation involving senior Kremlin officials and a wealthy Russian émigré in London. He offers no evidence to back up his claim.
Orders to Kill
Berezovksy, who has been granted political asylum in the U.K., goes on to say that Litvinenko had warned him that both their lives were in danger. The former spy told him that Russians also were out to assassinate exiled Chechen leader Akhmed Zakayev, who lived next door to Litvinenko in the London suburb of Muswell Hill, Berezovksy says. The use of polonium 210 in the killing points to a state-sanctioned assassination, Berezovsky says.
``It's become more and more obvious that Russia is looking to become an enemy of the West again,'' Berezovksy says. He says he's cooperating with Scotland Yard and has agreed to be questioned by Russian authorities. Deputy Prosecutor General Alexander Zvyagintsev arrived in London this week and plans to question more than 100 people, including Berezovsky, Interfax reported on March 27.
``We don't trust the Russian prosecutor's office at all,'' Berezovsky says. ``But I want to meet them, because I don't want them to play games and create difficulties for Scotland Yard in the investigation.''
Hedge Fund Outcast
Russia can be a dangerous place for people who make waves. Since 2000, 13 journalists have been killed in contract-style hits, according to the New York-based Committee to Protect Journalists.
Andrei Kozlov, a crusading deputy chairman of Russia's central bank, was gunned down in a Moscow street last September.
Even some foreigners have run into trouble in Putin's Russia. The government has barred from Russia the biggest foreign investor in the country, William Browder. In November 2005, officials at Moscow's Sheremetyevo International Airport refused to let Browder enter Russia. He later learned that the government had refused to let him enter under Article 27, Item 1, of Federal Law No. 114FZ. The statute lets Russia exclude people who might threaten ``the security of the state, public order or public health.''
Browder, who runs Hermitage Capital Management Ltd., a $4 billion hedge fund firm specializing in Russian stocks, says he's no threat. From his office near London's Covent Garden, he's still trying to persuade Russian officials to let him return after 16 months in exile.
``I don't know what it will take,'' Browder says.
Barbs Fly
Temerko, the former Yukos executive, fled to London in 2004, just before Khodorkovsky was packed off to Siberia. He hopes a future president will put Russia on a more democratic path.
``It can't get worse than now,'' says Temerko, who now runs a London company that invests in oil and natural gas.
Since arriving in Britain, Berezovsky, who made his fortune in oil and cars during the rush of state asset sales during the '90s, hasn't disguised his distaste for Putin. He staged a London protest against the Kremlin in May 2004. His approach was pure Londongrad: He sent 100 silver limousines to park outside the Russian Embassy. At the time, Berezovsky said he wanted to call attention to what he called a political attack by Putin against Russian executives, among them Khodorkovsky.
The barbs are still flying. Ramzan Kadyrov, Putin's choice to head war-torn Chechnya, has blamed Berezovsky for Litvinenko's death.
``I'm not in a position to comment on bandits, and Kadyrov is a bandit,'' Berezovsky says of the claim.
Putin's Shadow
Putin, 54, will shape the course of Russia for years to come. Under the country's 1993 constitution, he must step down in 2008, after two full terms in office. Putin, however, is likely to anoint his successor, much the way Boris Yeltsin anointed him. So far, the president has yet to throw his weight behind a candidate. Contenders include Sergei Ivanov, 54, a former KGB agent whom Putin promoted to first deputy prime minister in February, and Dmitry Medvedev, 41, who holds the same rank.
With the March 2008 election now less than a year away, some Russians are hedging their bets by setting themselves up in London.
``No one really knows what will happen after Putin,'' says Andrei Tolstoy-Miloslavsky, a British-born descendant of Leo Tolstoy, author of ``War & Peace.'' ``You don't want to have all your eggs in one basket.''
Russian Influx
And so the Russians -- and their money -- are flooding in. London has a long history of welcoming rich foreigners, from the Rothschilds, who arrived from Germany in the 18th century, to steel billionaire Lakshmi Mittal, who grew up in India and now lives in Kensington.
London Mayor Ken Livingstone hailed the new Russian émigrés on Jan. 13 in Trafalgar Square, where 70,000 people had gathered to usher in the Russian New Year.
``Thirty years ago, it would have been inconceivable that we would celebrate the Russian New Year with tens of thousands of people in London,'' Livingstone told the revelers. ``London welcomes Russia.''
The London influx, which began after the Soviet Union collapsed, represents the third great wave of Russian émigrés in the past century. Anti-communist White Russians fled to London and Paris after the Bolshevik revolution of 1917. In the Brezhnev-era '70s, tens of thousands of Russian Jews left for Israel.
Londongrad High Life
Now, the post-Soviet rich have made London their playground. More and more Russians are finding the means to leave home in style. The number of millionaires in Russia rose 17 percent to 103,000 in 2006, according to Cap Gemini SA and Merrill Lynch & Co. About 2,200 Russians became British citizens in 2005, triple the number in 2001, according to the Home Office. More than 250,000 others now call London home, according to the Russian Embassy.
Wealthy Russians enjoy London's shopping, relative safety and proximity to Moscow, says Elena Ragozhina, editor of New Style magazine, a Russian-language monthly from London aimed at the Russian jet set. Moscow is just 3 hours and 50 minutes away by plane. Kurosh Tehranchian, who runs a private-jet service named Ocean Sky, says business is booming on the London-Moscow route. Uberwealthy Russians prefer roomy Challenger 604 jets and in- flight service of sushi from Nobu, the chic Japanese restaurant in Mayfair, he says.
U.K. tax laws are another draw. Many Russians live in Britain as nondomiciled residents. Such ``nondoms'' pay tax only on income they bring into the country, enabling them to shelter assets and foreign-earned income offshore.
Chelsea Football
The energy pent up during decades of Soviet communism has exploded into a display of conspicuous consumption unlike anything London has ever seen. Russians have embraced the pomp and circumstance of British royalty, Tolstoy-Miloslavsky says. He celebrated the city's Russian accent with a ``War & Peace''-themed charity ball in February. The gala, held at the Dorchester Hotel, attracted Lady Raine Spencer, who is the stepmother of the late Princess Diana, and Fulham Football Club midfielder Alexei Smertin, a native of Barnaul in Siberia.
Even English soccer has been turned upside down by the new affluence. Abramovich bought London's Chelsea Football Club in 2003 and spent more than £500 million to build a star-studded squad. The Blues went on to win the English championship for the first time since 1955. Abramovich made headlines this month when he divorced his wife of 16 years.
`Place to Do Russian Business'
Russian executives come to do business in the City of London, the financial capital of Europe. Led by oil giant OAO Rosneft, companies from the former Soviet Union sold a record 13.4 billion pounds of new stock in London in 2006. Jon Edwards, head of Central and Eastern European markets at the London Stock Exchange, says Russian companies are opening London offices to help them tap international investors.
``London is the place to do Russian business,'' Edwards says.
Putin himself gave his blessing to Rosneft stock and a planned initial public offering in London by state-owned VTB Group, one of Russia's largest banks, at a Feb. 1 news conference at the Kremlin. ``All the companies that have carried out IPOs are stable institutions,'' Putin said.
London IPOs, coupled with a Moscow stock surge that drove the benchmark RTS Index up 71 percent in 2006, have sent Russian money surging into the London property market and driven prices to new heights. Leonard Blavatnik, a 49-year-old Ukrainian-born energy billionaire, dropped 41 million pounds for a mansion on Kensington Palace Gardens, aka Billionaires Row, near the palace where Princess Diana lived. Aluminum baron Oleg Deripaska paid 25 million pounds for a Regency-era home in Belgravia, the haunt of former Prime Minister Margaret Thatcher.
Eclipsing Saudi Buyers
Lesser sales abound. One of every five London homes that sells for 6 million pounds or more these days goes to a Russian buyer, according to London-based property agent Knight Frank LLP. Russians have eclipsed petrodollar-rich Saudis as the No. 1 buyers, snatching up 798.8 million pounds of U.K. property last year, up from 92 million pounds in 2000, according to Knight Frank.
``Russians have gone from nowhere to being the biggest single overseas purchaser group in central London in five years,'' says Liam Bailey, Knight Frank's head of residential research.
In this market, the deals are struck quickly and quietly. Real estate agent Lovell, who grew up in Moscow, declines to name her clients, saying her business depends on confidentiality. Sipping Earl Grey tea in the Cadogan Hotel on Sloane Street, Lovell says her Russian clients hunt for homes in the 5 million-50 million pound range. For many of them, a London property is a second or third home. She says she helped broker more than 60 million pounds of sales last year.
Long-Distance Deals
Lovell recalls getting a call from one Russian businessman while she was vacationing in Marrakech, Morocco. He wanted to buy a home -- now. She tried to refer him to a colleague.
``Nyet. Ya ne govaru po anglisky,'' he said. Translation: ``No. I don't speak English.''
So, weaving through the streets of Marrakech, working her mobile phone and jotting notes on scraps of paper scavenged from shopkeepers, Lovell found a 7 million pound flat in Kensington. Sold.
Then there was the Russian who called about Hampton Court, the palace famous for its hedge maze. Lovell explained that the place wasn't for sale. What else did he have in mind?
``Zamok'' -- a castle.
And his budget?
``Eta ne imeet znachenie'' -- it doesn't matter. Lovell says she found him his castle.
199 Knightsbridge
At 199 Knightsbridge, a London apartment building where some flats sell for upwards of 7 million pounds, a black Maybach and silver Mercedes hum by the curb as a top-hatted doorman guards the glass-fronted reception desk. A gaggle of young women chattering in Russian waltzes out and heads up the road toward Harrods.
Russians own about 80 percent of 199 Knightsbridge, reckons Guzel Portnik, a native of Ufa, about 1,000 miles (1,600 kilometers) southeast of Moscow. As a personal shopper at Harrods, Portnik, 54, has designed two apartments at 199 Knightsbridge for Russian clients. Her job entails whisking clients past flat-screen TVs and low-slung sofas into private salons to procure for them everything from Christian Dior gowns to English china. She's just hired an assistant to ease her workload, which recently included outfitting a yacht and two private jets.
Over at Leviev, Lev Leviev's diamond boutique on Old Bond Street, sales director Julia Dimitrova says ultrarich Russians compete to outspend each other.
15 Carats
``It's often, `She has a 10-carat yellow diamond, but I want a 15 carat,''' Dimitrova says amid glass cases filled with blue- diamond cuff links, yellow-diamond necklaces and pink-diamond rings. The boutique has hired a butler from the offices of the Duke of Westminster to serve customers tea in the private showroom upstairs.
Russians are revolutionizing the London art scene, too. Not far from Leviev, collectors cram into the New Bond Street gallery of Sotheby's for the auction house's first sale of contemporary Russian art in London. Sotheby's specialists field bids at a row of white telephones while Russian dealers in the crowd murmur into mobile phones.
Up on the podium, Mark Poltimore, chairman of Sotheby's U.K., scans the crowd as the bidding opens on ``Revolution- Perestroika.'' The 1988 painting is by Erik Bulatov, a nonconformist who, influenced by the pop art of Andy Warhol, parodied Soviet- sanctioned socialist realism.
Bids spiral to 140,000 pounds, then 150,000 pounds and then 165,000 pounds. Poltimore catches the eye of a woman in black in the middle of the room who is rattling off the bids in Russian into her phone. It's Elena Kuprina, director of the E.K. ArtBureaux gallery in Moscow.
New Art World
``Da? Nyet?'' Kuprina asks into her phone. She shakes her head at Poltimore and bows out. The auction goes on.
An anonymous bidder delivers the winning bid by telephone: 198,000 pounds, twice the pre-auction estimate.
``My collectors have already bought these artists for lower prices,'' Kuprina says, juggling three mobile phones. ``This was a very good sale.''
Poltimore agrees. The British capital has become the center of a booming Russian art market, he says. Sotheby's sales of Russian paintings and sculptures ballooned to 82.5 million pounds in 2006 from 4.9 million pounds in 2001, he says. At an impressionist auction in early February, Russians bought 9 percent of the lots. ``We're not called Londongrad for nothing,'' Poltimore says.
The Russian art boom has only just begun, William MacDougall says. He and his Russian wife, Catherine, ditched careers in finance -- he had been chief investment officer of TRW Investment Management Co., and she had been a Russian strategist at BNP Paribas -- to open Russian art auction house MacDougall's in St. James's Square in 2004. They say they're making more money now than they ever did in the City.
Beating Stocks
The demand for Russian art has turned MacDougall's into an overnight success. Last year, the couple raised $8.7 million in two auctions, up from $5.5 million in 2005. In May 2006, they sold a painting by Russian impressionist Konstantin Korovin for 443,000 pounds, a record for the early-20th-century painter. Ten years ago, a Korovin would have fetched 5,000 pounds.
``Russian art has beaten the Russian stock market, which has been one of the best-performing markets in the world,'' MacDougall says.
As the murder investigation drags on, many Russians dismiss the notion that the Kremlin might threaten them here.
Ragozhina, sitting in her office at New Style and wearing black Versace jeans and Gucci heels, says many of her compatriots view the killing as a sordid tale of score settling that doesn't involve them. ``No one is thinking of leaving London because of it,'' she says.
Russian Musical
Back at the Guildhall gala, the waiters are laying out smoked salmon, black bread and pickled herring rolls. Surrounded by portraits of London Lord Mayors of old, Lloyd Webber discusses plans for his next musical as he sips his champagne.
No, the composer says, he's not setting Abramovich's life to music, as some British newspapers have speculated. Instead, Lloyd Webber has decided to score a musical based on ``The Master and Margarita,'' the satiric novel by Mikhail Bulgakov in which the devil visits the Soviet Union. Bulgakov began writing his masterpiece, one of the great Russian novels of the 20th century, in 1928. A complete, uncensored version wasn't published in the Soviet Union until 1973.
``My Russian friends think it's a fabulous idea,'' Lloyd Webber says, as women come and go in taffeta gowns and silver sable.
What would Karl Marx say? The father of communism lived in London for three decades and is buried in Highgate Cemetery. A granite monument, erected by fellow travelers in the '50s, marks the grave. His epitaph, in golden letters, proclaims:
Workers of All Lands Unite
The Philosophers Have Only Interpreted the World
in Various Ways; The Point Is to Change It
In the same cemetery, six pallbearers lowered Alexander Litvinenko into his grave. History has yet to write his epitaph.
To contact the reporter on this story: Stephanie Baker-Said in London
ssaid@bloomberg.netLast Updated: March 28, 2007 22:32 EDT