Oleg Deripaska: Why I paid crime gangs for protection

It was, in the end, possibly down to a lack of foreign literature. Oleg Deripaska, the chief executive of aluminium giant Rusal and one of the richest men in the world may not have bothered studying economic development at Moscow State University for between 12 and 16 hours a day if there had been something more engaging to read.

“There was a problem in the Soviet Union, we didn’t have access to foreign literature,” he said of the period in the 1980s when he was studying. “But we did have an economic faculty in the library. It seemed very attractive.”

In his first in-depth interview on the subject, Mr Deripaska has disclosed for the first time his role in the infamous “aluminium wars” of the Nineties, when the Russian privatisation of state commodity assets led to a battle for control over plants and production worth billions of pounds of profit to those who succeeded.

Mr Deripaska — who is close to both Lord Mandelson, the former Labour Cabinet minister, and Nat Rothschild, the businessman — is one of Russia’s leading “oligarchs”. It is a term he dislikes because of all its overtones of political contacts and controversial business dealings.

Mr Deripaska says far from being involved in the violence, he was one of the few who worked to clean up Russian industry.

To do so it was necessary, he reveals, to pay protection money to criminal gangs.

Later this year details of the brutal battle for control of the post-Soviet commodity market will be played out in the high court in London. Mr Deripaska is being sued by Michael Cherney, an Uzbek-born billionaire who claims that he signed agreements with Mr Deripaska which gave him a 10pc stake in Rusal, one of Mr Deripaska’s businesses.

Mr Cherney now lives in Israel and is the subject of an international arrest warrant which will prevent him from appearing in Britain in person. The case is being heard in London after Mr Cherney said that he would be the target of an assassination attempt if he returned to Russia.

Mr Deripaska denies that Mr Cherney is due any stake in Rusal and simply made any payments for “protection”. In turn, Mr Cherney describes such claims as a distraction and cynical tactic.

Earlier this year in another battle between Russia’s business leaders which revealed the violent nature of the time, Roman Abramovich, the owner of Chelsea, and Boris Berezovsky fought out a similar case in the London courts.

The Deripaska-Cherney case will once again throw a light on one of murkiest chapters of Russia’s history when organised crime and business came together in a toxic mix. It is estimated that up to 100 people were killed and there were countless more kidnappings, beatings and general terrorism.

To understand the time, Mr Deripaska insists people need to realise how rapid the changes from the Soviet Union to a market economy were. He says that before the reforms no one could own private property. “It was like a thunderstorm,” he says of Decree 601, which allowed private ownership.

Suddenly cheap Russian commodities could be traded and sold abroad at huge profit. Mr Deripaska started his first brokerage and commodity exchange. His initial investment was 3,000 roubles (£63).

“There was a huge difference between local prices,” he said.

“Suddenly they said no state planning. All the food chain stopped — there were no buses. There were no taxes. Russia was literally living on foreign aid. [But] there were a lot of raw materials. They [plant owners] needed to pay workers so they started selling.

“So massive resources came to the exchanges. You could buy a ton of aluminium for $400 and sell it for $1,200. You could make 100pc profit on trades. And if you borrowed in roubles, even though interest rates were high at 30pc, rouble depreciation was even higher. It was 1,000pc a year.

“You borrowed $500,000 and six months later you [only] needed to return $100,000. People went mad with enormous fortunes that just fell on their shoulders.”

The economy was chaotic and Mr Deripaska speaks of travelling to Tajikistan during the civil war there to see if he could make money buying fleets of railway wagons and transporting huge milk cans to Ukraine. “I had no idea how crazy I was to go there,” he said.

With the vast fortunes inevitably came crime, as gangs from different regions and abroad battled to control the resource supply chain.

“You have to understand the environment. It was not just easy money. All the institutions had collapsed. The whole idea of the state, it went in a matter of weeks. No one managed the transition.

“This is why the Chinese story looks more attractive, they are slowly getting the economic benefits and slowly releasing the society into private property opportunities and increasing the level of living standards — slowly releasing political freedom.

“But in Russia police did not function, institutions did not function. Communication was destabilised between various law enforcement agencies.

“The Soviet Union was quite a peaceful country, there was crime but not at a [high] level, but it grew up in the beginning of the Nineties. And this was not just simple street crime it had also become [organised] where so many state resources were released and there was not much control.”

Mr Deripaska said he was not interested in the high-life and was trying to build a business, investing in plants and people.

“One of my employees was kidnapped in 1992. We were not buying luxury cars, we weren’t buying apartments, we tried to stay under the radar as much as possible.

“Of course I was a trained soldier for military purposes and you can use this experience in civil life. I had a lot of friends in low levels in law enforcement. They were all sending me and my people signals that the system was so destroyed it was better to avoid any conflict. Moscow was called the Wild, Wild West because of the violence on the street. We used ex-law enforcement officers and they went and they made a bargain. Then I started to assemble my first security team.”

Using his military contacts – Mr Deripaska was formerly an “upper sergeant” in the Soviet Army – he hired ex-KGB and Red Army veterans to attempt to bring order to the cities in Siberia in which he was operating.

“As soon as we started buying shares from employees [who had been awarded shares in the privatisations by the state] we immediately started receiving pressure from the local crime group,” he said.

“To counterbalance it I went to the local law enforcement, which were out of money, and I said if you help me protect my people I will help you, I will make sure you get proper money.

“They were honest people, they were very brave helping us to buy shares by protecting my people.

“Then in 1993 there was an 'accident’ in Krasnoyarsk [a large city in central Siberia which was the centre of the aluminium wars]. There was a very important director, a very prominent figure was beaten in front of his house.

“That was unthinkable — he was like the king of the town. It showed how weak all the institutions were, law enforcement, the security service. It was clear someone was forcing him to resign.

“This was the start of the aluminium wars — this was the start of the battle.

“We supported this guy. As a punishment – much later – his son who worked for me was killed in a strange accident. He was shot dead.

“In 1993 and 1994 more than 34 people in Krasnoyarsk were shot dead because of this struggle for control.”

After building up shares in formerly state-owned businesses, Mr Deripaska was able to take control and ultimately became chief executive of the huge aluminium business that became part of his global holding company, Basic Element.

“The first time that I was directly threatened, there was a local guy, well known, his nickname was 'Chinese’, who called. I was surprised when I picked up the phone — it was the first threat I received.

“Two weeks later my commercial director was shot two times in the head. He survived.

“This was how finally I decided it was better to pay [gangs] for the moment to stay alive and for my people to stay alive. And then later making sure we can improve security.”

Did he ever consider quitting Russia which had become so violent?

“What are you going to do? You are Russian. Yes, a lot of people left. A lot of people tried to shut the door, to stay out.

“I am from the south of Russia, a Cossack family, and we have a low barrier for self-security. I was well trained in the army, not risk averse and I was very cautious choosing people.

“I decided that I will pay now and I will deal with it later. You can’t bring yourself back 20 years. Maybe now I would stay in the library and study physics.”

He says the cities where he now operates are the safest in Russia, a history he is proud of. In one, Sayanogorsk, he helped the police, including paying for arms.

“We helped the police in terms of ammunition and construction. And everyone knows that whatever happens in the city they couldn’t escape and that is how we would secure one town.

“Then we started doing the same in another project. We had strong security and then when [Vladimir] Putin came there was a lot of optimism and strong state service, around 2000 to 2002. We managed then to quit the relationship [with organised crime].”

Asked directly whether he offered stakes in his business in return for protection, he said: “I tried to stay just paying money but of course you can’t avoid infiltration. But we wanted to prevent them [organised crime] having control in the business. That is why we have been able to cut the ties.

“The simple fact was that you either had to get protection or get out of the industry. I hated having to pay but there was no other safe choice, for me or for my staff.

“But I knew that the system could not go on forever. It was a means to an end. I saw it as a temporary unpleasant necessity while I did everything I could to clean up the industry and put in place the security that was needed to make my businesses and my staff safe.

“It was a lawless time with all the institution of the state – the police, the courts, the government falling apart. It was not the same situation as now at all.

“Far from being ashamed of my actions during that time, I am extremely proud of the role I played in ensuring the safety of my staff, clearing out the criminal gangs from the industry and building up a great company from scratch in the most difficult of circumstances.”