Workaround to Washington: Reuters declassified American banker scams with Putin’s friend

A senior American banker secretly transferred a stake in the influential Moscow investment bank Renaissance Capital to one of Vladimir Putin's closest friends and arranged for that friend to meet with senior US foreign policy officials a decade ago.

Photo: The official site of the Kremlin / kremlin.ru

According to the agency Reuters, American banker Robert Foresman (currently vice chairman of the investment bank UBS in New York) played a number of prominent roles in the financial world of Moscow. He headed Dresdner Bank's investment banking operations in Russia in the early 2000s, served as vice president of Renaissance Capital from 2006 to 2009, and then headed Barclays Capital's operations in Russia until 2016.

Putin’s friend Matthias Warnig is a member of the board of directors of several Russian state-controlled firms.

At one time, Foresman said that he always “wanted to be a peacemaker” between the two nuclear superpowers.

As revealed in saved copies of Renaissance Capital emails from 2007 to 2011, Foresman had a close relationship with Putin's circle for many years, which he used to make deals. The emails, leaked to Reuters, also figured in the long-running legal battle over the Russian state's controversial takeover of Mikhail Khodorkovsky's Yukos oil company in the mid-2000s.

The letters show that Foresman’s relations with the Kremlin were more complex and mercantile than the peacemaker’s. They give an idea of ​​how Foresman and his colleagues sought to help the Kremlin to implement and benefit from the liquidation of Yukos, while Moscow was looking for a way to legitimize the process at the international level. The letters also show how the American banker introduced Warnig into Washington’s foreign policy during the Bush and Obama administrations.

In a statement to Reuters, Foresman said that he considered it inappropriate to comment on issues that may be relevant to the court proceedings in an English court (referring to a UK lawsuit case), and denied any allegations of misconduct. The new leadership of Renaissance Capital declined to comment.

Moscow’s Foreman’s connections have recently attracted new attention: the name of the banker was indicated in the report of special adviser Robert Muller on Russia's intervention in the 2016 election of the year. According to the report, Foresman was among the many influential people who appealed to Donald Trump when the campaign of the future American leader gained momentum.

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In March, 2016, Foresman sent an email to Trump's assistant, inviting the presidential candidate to an international business forum in St. Petersburg. He stated that a “high-ranking Kremlin official” had “addressed” the candidate. Foresman asked for a meeting with Trump, or campaign manager Corey Lewandowski, or "another relevant person," saying that he had questions that were not convenient to discuss via "insecure email."

In the next e-mail, Foresman expressed a desire to meet with one of Trump’s sons, Donald Jr. or Eric, to convey information that must be “handed over to [the candidate] personally or to [someone] whom he absolutely trusts.”

The Muller report says that there is no evidence that the Trump team responded to these suggestions. During the interrogation of Muller about these contacts, Foresman downplayed his ties with the Kremlin. The report of the special adviser says that he simply tried to "approve his authority" with the Trump team. There were no charges against Foresman.

Secret agreement

Back in 2007, Foresman was part of a small group of Renaissance Capital executives that helped craft a secret agreement to transfer an unspecified stake in the private investment bank to a close friend of Putin. The shares were awarded for "zero consideration" or no cash transfer.

Warnig served as an officer in the Stasi secret police in East Germany at the same time that Putin was a KGB officer in Dresden in the late 1980s. Warnig said they first met in the early 1990s in St. Petersburg, when Putin was that city's deputy mayor. Today Warnig is the executive director of the Russian Nord Stream 2 gas pipeline in the European direction. He also sits on the board of directors of several Russian state-owned companies, including oil giant Rosneft. For 12 years, he served on the Board of Directors of the Bank of Russia, which the U.S. Treasury called the “personal bank” for senior Russian officials.

From 2001 to 2006, Foresman worked with Warnig - he was the head of the investment banking division of Dresdner in Moscow, while Warnig was the president of Dresdner Bank for Russia.

In the months preceding and following the receipt of the Renaissance Capital stake, Warnig sought to conclude at least three transactions related to the Kremlin.

In 2007, Warnig helped the broker secure crucial support from Rosneft in creating a consortium that would bid for Yukos's Dutch assets at auction. The consortium won the auction, but the deal was mired in litigation and was blocked. Yukos executives successfully proved in a Dutch court that the Russian state does not have the right to sell a company registered in the Netherlands. The Dutch Supreme Court ruled that the sale was illegal.

The emails were provided as part of a civil fraud lawsuit filed by the former Yukos leadership, which was to be considered on June 10 in the UK. The lawsuit alleges that Foresman, being the vice-chairman of Renaissance Capital, played a key role in preparing the consortium to consciously participate in the falsified auction of the YUKOS subsidiary. It argues that foreign investors who formed the consortium, sought to get a huge personal benefit, they require tens of millions of dollars in compensation. Foresman said he was actively challenging the lawsuit.

Among the foreign bankers who joined the investor consortium with Foresman was Stephen Jennings from New Zealand. Jennings founded Renaissance Capital in 1995, then the bank became a symbol of Russia's transition to a market economy. In an interview with the Financial Times in 2005, Jennings expressed the hope that Russia's economic growth under Putin would one day form a middle class strong enough to withstand any authoritarian turn.

The lawsuit alleges that Foresman and Jennings tried to capitalize on the Kremlin’s abuses of the market system and the rule of law. They acted together with two major Western investors in the consortium: Stephen Lynch, a former US Peace Corps volunteer, and Richard Deutz, founder of VR Capital hedge fund, which has offices in New York, London and Moscow.

The prize fund

The auction of the Dutch branch of Khodorkovsky's oil company was the latest in a series of Kremlin sales of Yukos as part of bankruptcy. The sales were meant to offset more than $33 billion in tax payments imposed on Yukos by Moscow after Khodorkovsky was sent to prison for fraud. The Yukos bankruptcy turned Rosneft into Russia's largest oil company after it acquired most of its assets. The Dutch subsidiary was a prize: $1,5 billion in cash reserves, of which up to $650 million was net of debt. He also had a 49% stake in the strategically important Slovakian pipeline operator Transpetrol, which was later sold in 2009 for $240 million.

The auction took place on August 15, 2007. A consortium of foreign investors, operating through the Russian Promneftstroy tender, won it for less than $310 million, significantly lower than Yukos' total net cash of approximately $890 million. The consortium won with only three bids against the rival company Versar, which, according to Yukos, had never participated in any business other than unsuccessful bids at Yukos auctions. Russian corporate records show that Versar ceased to exist in 2010 when it was merged with another company.

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In an email dated February 21, 2007, Foresman approached three senior executives at Renaissance Capital (he calls it RC and Yukos Y), raising the possibility of holding auctions to manage Yukos assets in the Kremlin.

“We could extract something that would bring us huge profits, please the world's leading investors, significantly reduce Rosneft's litigation risk, and show the Kremlin that the auction of Y assets is not rigged, but rather competitive.”

In a note drawn up by Renaissance Capital the day before the auction, it was announced that the consortium could make a profit up to 340 million dollars. It also indicated that Western bankers believe that the auction will benefit them.

“The opportunity to participate and be the likely winner arose in large part from the very close relationships that some Renaissance men maintain with the Kremlin,” the paper says.

The Kremlin declined to comment.

The US government closely monitored the litigation because of the strategic importance of the pipeline network operated by Transpetrol. Foresman told a US embassy official in Moscow in October that year that the consortium “did not act as an intermediary for Rosneft” in the auction and said there was no pre-agreed deal with Rosneft for Transpetrol’s stake.

On the subject: Putin called Russia a smart monkey

But documents in the email cache and testimony from consortium members indicate that Rosneft was closely involved with the consortium in the deal. In a statement in November 2018, Foresman described how Warnig forwarded the consortium's proposal to participate in the auction to the top of Rosneft.

A few hours before the sale of the Yukos division, the consortium entered into two legal agreements with Rosneft. In the first of these agreements, dated August 15, 2007, Rosneft agreed to waive any legal claims by the Russian oil giant to the Dutch firm's assets.

In the second, on the same day, the state oil leader agreed to defer repayment of a $60 million loan to Promneftstroy until the consortium agreed to sell the Slovak Yukos pipeline to a company nominated by Rosneft. A month later, the consortium agreed to sell the stake to a Cyprus-registered firm for $105 million, more than half the price two years later.

A few hours after the auction, another investor in the consortium, Benjamin Heller, then managing director of the US fund HBK Investments, wrote to his partner: “Rosneft predominantly controlled the auction and decided that it would be held at a certain price.” At the time of the sale, the state oil giant denied any involvement. Heller and Rosneft did not comment on the situation.

A person familiar with the consortium said there were errors in Heller's letter. “Rosneft did not set the price, and there were two participants,” this person said. “The entire assumption that Rosneft controlled the consortium, the price and the auction is incorrect.”

He added that at the time of the auction the consortium did not have access to data valuing Transpetrol's share at more than US$103 million, the sale price discussed a year earlier. He said the consortium had agreed to return outstanding loans to the former owner of Yukos.

Two months later, at the end of 2007, the consortium’s hopes for profit began to fall when the Amsterdam court ruled that the auction violated Dutch law, and therefore the owners of the consortium did not own any assets of Yukos Finance BV.

The former head of Yukos, Mikhail Khodorkovsky, during his political conclusion. Photo: Depositphotos

Phantom stocks

In emails dated October 11, 2007, Foresman and his Renaissance Capital colleagues began discussing developing a secret “phantom share agreement” for an unnamed “potential new shareholder.” Phantom stock deals are a general agreement whereby a company promises the holder a future cash payment that is tied to the value of the notional share. Among the executives discussing the issue was bank founder Jennings, who was the majority owner at the time. He declined to comment on the deal.

The agreement that Warnig would be the recipient of "40 phantom shares" in Renaissance Capital's parent company, Renaissance Holdings Management Limited, was drafted by the investment bank's legal counsel and sent to Foresman via email dated November 034, 27.

An additional consulting agreement, drafted by legal counsel and sent to Foresman on December 17, 2007, provided for a payment of $700 to an unnamed recipient for advice on "certain investment banking transactions and business development opportunities." According to the British lawsuit, Renaissance Capital paid Warnig for consulting services. The amount in the claim is not specified.

The letters say Foresman and other Renaissance Capital executives sought to keep the schemes secret. When an RC employee mistakenly sent a share ownership message to Warnig's official company email address in 2007, Foresman wrote an angry response to three senior Renaissance Capital executives.

“This is clearly unacceptable and I cannot believe this could happen,” he wrote in a message dated December 18, 2007. He said Warnig immediately destroyed the message.

In a subsequent e-mail to the same colleagues from 12 February 2008, Foresman stressed that Warnig insisted on the absolute confidentiality of the agreements: they should be known only to the heads of the RC who made the agreements. The e-mail says: "Our man signed an agreement on fictitious actions on his own behalf, as well as an agreement on consulting services on behalf of a legal entity." He further said: "He emphasized the absolute confidentiality of this."

Warnig's relationships with Foresman and Renaissance Capital founder and chairman Jennings were fueled by dinners and visits to bathhouses in Moscow, the emails show. Foresman helped establish Warnig's contacts with U.S. ambassadors to Russia and U.S. government officials in Washington during the George W. Bush and Barack Obama administrations.

The e-mail cache shows that in 2009, at the beginning of the Obama presidency, Foresman helped organize Warnig meetings with Fiona Hill, a former national intelligence officer for the US and Eurasia governments, and also Mary Warlick, later acting deputy assistant secretary of defense for Russia , Ukraine and Eurasia. He also organized meetings with officials at the Department of Energy and separately in Houston with Ross Perot Jr., an American billionaire. It is not known what happened at these meetings.

After one such visit in March 2009, Foresman indicated that these meetings were intended to be Putin's "detour into Washington." In one email, he wrote: “My friend informed his Big Friend about the meetings,” an apparent reference to Warnig’s conversation with Putin.

“This person was very pleased with the messages they received and was fully committed to improving the situation. He is asking for a repeat performance in the second quarter, for which he will ask my friend to deliver specific messages,” Foresman wrote.

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