Ivanov Sergei Borisovich, Deputy Chairman of RF Government
«Russia's Power Families - 2011» / Ivanov Sergei Borisovich, Deputy Chairman of RF Government
Employed at: RF government
Positions held: 1975 to 2000: served at the USSR State Security Committee (KGB), Russian Foreign Intelligence (SVR) and Federal Security Services (FSB). 1999 to 2001: RF Security Council secretary. 2001 to 2007: Minister of Defense. 2005-2007 and 2008 to present: Deputy Chairman of RF Government.
Business Involvement: Ivanov is on VneshEconomBank (VEB)’s supervisory council; his older son Alexander Ivanov worked for VEB from 2004 to 2006.
In January 2011, Sergei Ivanov was appointed chairman of state-owned Rosavtodor (Russian Highways)’s supervisory council. Rosavtodor is involved, in particular, in building the Moscow-St. Petersburg highway through Khimki forest. In July 2009, Rosavtodor and Northwest Concession Company LLC signed an agreement regarding the construction of Kilometers 15 through 58 of the Moscow - St. Petersburg tollway. The concession is planned for 30 years (through 2039). The project’s total budget is 70 Bln. Rub, with financing provided by, among others, Sberbank, VEB, and around 20 Bln. Rub. in investment funds.
Ivanov was chairman of the board of directors of Obyedinennaya Aviastroitelnaya Korporatziya (United Aircraft Production Corporation – UAC) OJSC. Îver 80% of UAC shares are held by the state, around 10% are held by state-owned VEB Bank, and around 8% by individuals. UAC’s presidents are Alexei Fyodorov and (since 2011) Mikhail Pogosyan; its board of directors is chaired by head of VEB Vladimir Dmitriyev. UAC capitalization is currently $2.87 Bln., yet experts rate company efficiency as low and its corruption high. Observers note that government aid allocated per one UAC aircraft unit exceeds the aircraft’s cost. One example: after preliminary agreements were reached to supply Sukhoi Superjet 100 (SSJ) aircraft, it turned out that the aircraft was 3 tons heavier than initially estimated by its designers, and will thus need 10% more fuel. SSJ aircraft client deliveries were to start in December 2010, but this did not happen, although by then UAC had already spent almost $1.4 Bln. (double the budgeted amount) to create the aircraft.
A 2009 Accounts Chamber report noted that UAC spent 9.3 Bln. Rub. to buy Irkut NPK from individuals, some of whom were registered in Cyprus. To do this, in March 2008, UAC took out a five-year Sberbank loan at 9.2% per annum; the purchase price was 22.28 Rub. per Irkut share. The Sberbank loan was secured by shares of Irkut, Sukhoi Aircraft Holding Company, and Ilyushin Interstate Aircraft Building Company, which represented 25.8% of UAC’s authorized and surplus capital. Accounts Chamber auditors noted that “the corporate organizations’ shortage of funds needed to get SSJ-100 and Tu-334 aircraft ready for mass production is comparable to the noted loan amount.”
Immediately after being set up in 2007, UAC also started taking interest-free five-year loans from its subsidiaries, then loaning the funds to its other subsidiaries at 12.5-14.5% per annum.
Business influence: Sergei Ivanov was involved in property redistribution while head of the Security Council. According to Boris Berezovsky’s partner Badri Patarkatzishvili, Patarkatzisvhili met with Ivanov twice in 2001, and Ivanov offered to release former Aeroflot executive Nikolai Glushkov from jail if Berezovsky agrees to quit politics and sell all his media holdings, including Kommersant publishing house. However, Glushkov was not released, persecutions of Berezovsky and Patarkatzishvili started, and thus final agreement was not reached. Ivanov never confirmed his involvement in the incident.
In 2005, while Sergei Ivanov was defense minister, the government launched a military housing program, contracting residential construction all over Russia. However, the Ministry of Defense (MOD) housing department operations and involvement with unconcsientious developers caused many projects to be unfinished, while thousands of investors were defrauded. Starting in 2006, people who bought MOD apartments held regular protests. In 2005-2007, there were widespread scandals involving the MOD-contracted unfinished housing. Victor Melchekov (member of State Duma affordable housing council) noted that “there is quite a bit of criminal element in MOD construction projects. Everyone at the prosecutor’s office knows this, and they know who is responsible, but they look the other way because the level is too high.”
Among the most notorious was MOD’s involvement with Sotzialnaya Initziativa (Social Initiative) construction company. This company was incorporated in Moscow and has over 60 branches all over Russia; residents of 176 cities had personal experience of dealing with the company. According to the media, Social Initiative (which built homes on MOD-owned land and was contracted by MOD’s housing departments) is staffed by former members of the military. In 2002, Social Initiative is known to have started building 10 high rises totalling 1,212 apartments on Meditzinskaya St. in Nizhny Novgorod, and two five-story houses totalling 232 apartments in the towns of Bor and Pavlovo. Construction was done on federal land administered by RF MOD, which, as the entity commissioning the work, was entitled to 20% of the housing. In September 2005, all work stopped, and Nizhny Novgorod local government undertook to finish the construction if MOD transfers the land to the city.
Social Initiative investors often said the unconscientious contractors were affiliated with heads of Sergei Ivanov’s department, and that generals were moving into some of the apartments paid for by investors. Exactly one year after Sergei Ivanov resigned as defense minister, Victor Vlasov (head of the ministry’s housing department) committed suicide.
In 2009, Social Initiative head Nikolai Karasev was convicted and sentenced to 10 years in a high-security prison. His wife Natalya Karaseva received eight years in a low-security prison; their daughter Larisa Moshkina received seven years in a low-security prison; and chief accountant Sergei Litovchenko received seven years in a high-security prison. All four defendants were convicted under RF Criminal Code Art. 159(4) (fraud in an especially large amount) and Art. 174.1 (money laundering in an especially large amount). The court held that the defendants: deliberately intended to eschew their obligations to investors; had no building permits for some of the developments; and deliberately misled victims regarding the construction progress. According to journalist Olga Romanova, in the summer of 2011 the Supreme Court subsequently overturned all Social Initiative convictions, and the defendants were released.
According to the media, while Sergei Ivanov was Defense Minister, Russia’s military expenditures grew, reaching almost $18 Bln. in 2006, with government contracts at $8 Bln. According to Expert magazine, a considerable amount of the funds was stolen: “Almost everybody with any familiarity with the issue knows not only that 3/4ths of defense contract funds were stolen, but also how they were stolen.” For example, by 2005, $12 Bln. in defense funds was spent to purchase: 20 Topol-M intercontinental ballistic missiles (which should have cost no more than $1 Bln.); around 50 T-90C tanks; several helicopters and aircraft (which could not have cost more than $3 Bln.). Where the rest of the money went is unknown. Expert describes two main methods of embezzlement: The first embezzlement method used MOD repair facilities, which received sizeable MOD procurement funds but did repairs on paper only. The second embezzlement method involved funding for a federal target program regarding R&D for final prototypes of weapons. According to Expert, these R&D projects received billions in government funding annually, yet deadlines for delivering the new technology kept getting extended due to insufficient funding. When extra funds were allocated to target programs, they went not toward closing the funding gap, but toward new R&D projects.
A large government project overseen by Sergei Ivanov is the Global Orbiting Navigation Satellite System (GLONASS), intended to develop, commercialize and implement a Russian satellite navigation system. The GLONASS federal target program was adopted in August 2001, and the plan was to fully cover Russia by early 2008, with the entire planet being covered by early 2010.
Despite enormous government funds invested in GLONASS, it brings no business income and still has problems with reliability, quality, quantity and cost.
In May 2011, the RF Accounts Chamber published the results of its audit of the use of government funds for the GLONASS target program. Audit materials note that program expenditure is constantly growing, and, with three program modifications (in 2006, 2008 and 2010), total planned funding increased almost six-fold (5.9). The audit showed that despite full and timely allocation of federal funds, by 2011 just 18 of 28 specifications required were reached. The auditors believe that, as it pertains to the government air transport segment, just 22.6%, and not the planned 75%, of corporate user air transport infrastructure was equipped with satellite navigation systems. The Accounts Chamber also believes GLONASS commercial applications have been insufficiently addressed.
According to his tax return, Ivanov’s 2010 income was around 4.5 Mln. Rub.; he owns a 2.1 ha. land lot, a 47.3 m2 apartment, and ½ of a 257 m2 apartment. He owns no automobiles.
Wife Irina Sergeyevna Ivanova is an economist, employed at Central Bank since 2004. According to her tax return, her 2009 income was around 7 Mln. Rub. In 2010, it was 4.797852 Mln. and she purchased a 2,905 m2 land lot. She owns ½ of a 257 m2 apartment and an Audi Q7 (average price around 3 Mln. Rub.), which she bought in 2010 after selling her Audi A4.
According to Novaya Gazeta, in 1999 (when Sergei Ivanov was FSB deputy director), his wife Irina Ivanova was registered as employed by Alcatel International Company Group’s Russian operations. For just the period of January-August 1999, her income was 1.124393 Mln. Rub. (around $43,245). Alcatel is one of the Western companies that entered the Russian market in St. Petersburg in the early 1990s. Alcatel’s business in Russia has been successful: it took over several companies it had set up with Russian partners.
According to Novaya Gazeta, from 1999 to 2003, Irina Ivanova worked at Moscow’s Solvay Pharma, which represented Solvay international chemical and pharmaceutical holding company’s Solvay Pharmaceuticals subsidiary [sold to Abbott in 2010 – transl.]). Ivanova was responsible for corporate finance and accounting.
Older son Alexander Sergeyevich Ivanov, banker, school of economics graduate. From 2004 to 2006, he worked at VTB and was on the board of its Ukrainian subsidiary Vneshtorgbank (Ukraine). In 2004, per arrangement with MOD (then headed by Sergei Ivanov), VTB opened its first office in the Chechen Republic. In 2006, chairman of VTB board Andrei Kostin joined UAC’s board of directors, and Sergei Ivanov became chairman of the UAC board.
In 2007, Alexander Ivanov became director of VEB’s structured and debt financing department. His father Sergei Ivanov is on VEB’s supervisory council chaired by Prime Minister Vladimir Putin.
On May 20, 2005, Alexander Ivanov, while operating a Volkswagen Bora, ran over and killed 68-year old Svetlana Beridze on a pedestrian crossing of Moscow’s Lobachevskogo Street. Criminal charges against Ivanov Jr. were initiated but later dropped, and Alexander Ivanov was exonerated, which means he is formally considered to have no criminal record. When this news was published in the media, Sergei Ivanov said in an interview that he congratulated his son on the termination of the case, and added that he in no way helped end the investigation.
Younger son Sergei Sergeyevich Ivanov, banker, graduate (2002) of the Moscow State Institute of International Relations (MGIMO) with a major in finance and credit.
According to Novaya Gazeta, in 2000, Sergei Ivanov Jr. was involved with BNP-Dresdner Bank, closely linked with former East German Stasi intelligence agent Matthias Warnig. In 2005, Warnig was unsuccessfully nominated to the Gazprom board of directors, but six months later became head of a Gazprom-controlled company implementing one of Russia’s largest projects – the construction of the Nord Stream gas pipeline. In 2007, Warnig joined VneshTorgBank’s (VTB) supervisory council, and in 2008, he joined Rossiya (Russia) Bank’s board of directors. Warnig was also considered for the Rosneft board of directors to replace Yuri Alexandrovich Petrov (head of RosImuschestvo (Federal Property Management Agency)). According to Transneft head Nikolai Tokarev, Matthias Warnig may replace Energy Minister Sergei Shmatko on Transneft’s board.
Immediately after graduation, Sergei Ivanov Jr. became chief specialist at Gosincor (Government Investment Company)’s department responsible for attracting investment. At the time, Gosincor’s board was chaired by Vladimir Chernov (Ivanov Sr.’s intelligence colleague). Chernov has been head of Sergei Ivanov’s secretariat since 2005 and is Ivanov’s closest associate.
Gosincor was set up in 1993 for Yuri Vladimirovich Petrov (former head of President Boris Yeltsin’s executive office). By Presidential decree, Gosincor received $1 Bln. in property and $50 Bln. plus 200 Bln. Rub. [in funds]. In 1997, the President’s Main Monitoring Directorate, then headed by Vladimir Putin, launched an investigation of Gosincor, and found unjustified Gosincor’s decision to use a large part of investment funds to buy bills of exchange of Guta-Bank and Incorbank (Incorbank was founded by Gosincor). In 2000, when Putin came to power, authorities started seizing Gosincor and Guta-Bank documents. In February 2003, Gosincor, a federal unitary enterprise, was liquidated by RF Presidential decree. Also in 2003, RF General Prosecutor’s Office initiated criminal proceedings related to Gosincor operations, believing that, in 1996, Gosincor illegally sold 300 tons of silver to Central Bank at a discount of at least 15%, with intermediary Guta-Bank receiving 2.5 Bln. Rub. in commission. Another point of view was that Gosincor did nothing illegal. Thanks to Gosincor, Guta-Bank’s authorized capital grew five-fold. Yuri Petrov’s son Alexander became Guta-Bank’s president, while Artem Kuznetsov (son-in-law of Guta-Bank founder Yuri Guschin) became both Gosincor first deputy chairman and Guta-Bank’s chairman of the board. In July 2004, Guta-Bank board of directors had to admit that the Bank was no longer able to meet its current payables or cover depositor withdrawals. At Central Bank’s insistence, in 2004, Artem Kuznetzov sold Guta-Bank to VTB (Sergei Ivanov’s older son Alexander was at that time already working at VTB). Some experts said the purchase was overpriced, while others said it was underpriced.
Since 2003, Sergei Ivanov Jr.’s career has been closely linked to Gazprom’s asset transfer to companies affiliated with Yuri Kovalchuk (main shareholder of Rossiya Bank). The process started when Gazprom sold its SOGAZ insurance company in 2004 to a consortium consisting of Evrofinans Mosnarbank, Rossiya Bank and Severstal Group (Severstal is owned by Alexei Mordashov, Kovalchuk’s partner in Rossiya Bank). In early 2005, 51% of SOGAZ was sold to Abros – another Rossiya Bank company.
In August 2006, Rossiya-Bank-owned SOGAZ bought 75% plus one share of Leader – Gazprom’s pension fund (Gazfond) manager. Yuri Shamalov (son of Rossiya Bank shareholder Nikolai Shamalov) was appointed president of the pension fund. With help from Gazfond and Leader, Rossiya Bank obtained control over another Gazprom asset, Gazprombank. Previously, Gazprom held 87.5% of Gazprombank shares, but by April 2007, Gazfond consolidated control of the bank (50% + 1 share). Although now controlled by Kovalchuk’s companies, Gazprombank continues to take part in Gazprom programs. Today, Gazprombank is one of Russia’s largest banks: according to its International Accounting Standards reporting, as of December 31, 2010, Gazprombank’s capital was 221.9 Bln. Rub., and net profit at yearend 2010 was 66.3 Bln. Rub.
In a similar fashion, companies held by Sergei Kovalchuk and his partners obtained control of Sibur, the petrochemical holding company previously owned by Gazprom.
Sergei Ivanov Jr., whose career started at Gazprom and Gazprombank, became head of SOGAZ and joined Gazprombank’s board of directors in 2011. Prior to that, in 2003, Ivanov Jr. was chief expert at Gazprom’s international projects department, while at the same time serving as assistant to chairman the Gazprombank management board. In January 2005, 24-year old Sergei Ivanov was appointed deputy chairman of the Gazprombank management board and oversaw corporate client relations. In February 2008, Ivanov Jr. joined Gazprombank’s management board. That year, he held a 0.113% share of Gazprombank. In 2010, Ivanov profitably sold part of his shares to NovFinTech (Gazprombank’s wholly-owned subsidiary), thus reducing his share to 0.0057%. In late June 2011, Sergei Ivanov Jr. joined Gazprombank’s board of directors, replacing head of Sibur Dmitry Konov. At the same time, Sergei Ivanov Jr. used the bank’s option program to increase his share of the bank from 0.0282% to 0.0348%.
In April 2011, Sergei Ivanov Jr. was appointed chairman of SOGAZ insurance company’s board, replacing Vadim Yanov (Yanov is believed to be an associate of Gennady Timchenko. Timchenko is an oil trader and a personal friend of RF Prime Minister Vladimir Putin).
Ivanov is also a board member of Carbon Trade & Finance SIGAR S.A. (“Carbon Trade”), owned by Gazprombank and Commerzbank (Germany)). Carbon Trade sells greenhouse gas emission quotas pursuant to the Kyoto Accord. Commerzbank was named in a case involving alleged money laundering during privatization of Russian state-owned telecommunications and the formation of Telekom-Invest Holding Company, with the press naming Communications Minister Leonid Reiman as having the greatest business interest in the privatization.
Shortly after joining SOGAZ, Ivanov Jr. signed a strategic partnership memorandum between SOGAZ Insurance Group and state-owned Russian Highways (where his father Sergei Ivanov Sr. chairs the supervisory council). Under the agreement, SOGAZ will insure Rosavtodor’s investment projects.
In May 2011, some media said that Sergei Ivanov Jr. may become head of the supervisory council of Rosselkhozbank (Russian Agricultural Bank, whose board chairman is Dmitry Patrushev (the son of Security Council secretary Nikolai Patrushev)), and that Ivanov Jr.’s candidacy was approved by Prime Minister Vladimir Putin. However, Vedomosti noted there had been objections to the candidacy: a Presidential executive office representative said that “two sons of high-ranking officials at the same bank is too much.”
Vladimir Alexndrovich Chernov, former intelligence officer, worked with Ivanov at a KGB station in Finland. From 1987 to 1992, Chernov was deputy managing director of the Finnish-Soviet Chamber of Commerce in Helsinki. From 1996 to 2001, Chernov was listed as staff member at Natzionalny Rezervny Bank (National Reserve Bank) owned by another former KGB officer Alexander Lebedev. From 2001 to 2003, Chernov chaired Gosincor. In 2003, he was appointed advisor to the RF minister of defense. Since 2005, he has been head of Sergei Ivanov’s secretariat.
According to his tax return, Chernov’s 2010 income was 6.7 Mln. Rub.; he owns three land lots (3,161 m2, 1,501 m2 and 1,494 m2), three houses (170.5 m2, 107.8 m2, and 389.2 m2), and a 125 m2 apartment. Chernov also owns a Land Rover Discovery 3 automobile and a Yamaha quadricycle. In 2010, Chernov bought a 1,494 m2 land lot and a 389 m2 house, and sold his Mitsubishi Pajero Sport. Chernov’s wife’s 2009 income was over 26 Mln. Rub., while in 2010 it was only 2 Mln. Rub.
Andrei Sergeyevich Chobotov started his career in USSR KGB’s 3rd Department (military counterintelligence), and was later transferred to KGB headquarters. Starting in the mid-1990s, he worked at FSB’s analysis, forecasting and strategic planning department (Sergei Ivanov headed that department starting in August 1998). In late 1999, Chobotov followed his supervisor Ivanov to the Security Council, where Ivanov became Security Council secretary and Chobotov became deputy head of the Security Council’s staff. Soon after Sergei Ivanov was appointed defense minister in March 2001, Chobotov was appointed his assistant, overseeing, in particular, staffing and media relations. Since October 2004, Chobotov is head of the Defense Minister’s staff with the rank of Deputy Minister. Chobotov is a member of RF government’s Military Industrial Commission.