“When money speaks, the truth keeps quiet.” This Russian proverb refers to the connection between wealth and corruption, and when it comes to Russian President Vladimir Putin’s wealth, the truth does indeed keep quiet. Current estimates by various economists put Putin’s wealth anywhere from $60 billion to $200 billion. However, official figures fall far short of even the lower end of that spectrum.
This begs the question: How has Putin amassed so much money with an official yearly salary of only $150,000? Putin’s wealth can be traced to the dissolution of the Soviet Union and the ensuing “shock therapy” reforms, during which he rigged the system for personal advantage. While Putin’s power as president is only enhanced by his wealth and vice-versa, continuing sentiments regarding the evil of wealth among the populace mean Putin must hide his wealth in order to be seen as a man of the people.
Russia’s Transition to Capitalism
The story of Putin’s wealth begins in Soviet Russia, when the country’s communist government imposed a command economy. The Soviet administration controlled investments, and all major industrial assets were publicly owned. Another feature of the Soviet economy was the five-year plan. Beginning in 1928, the Soviet government instituted a series of five-year plans meant to transform the country from an agrarian society to an industrial one, but these plans were largely unsuccessful. Although the Soviet Union enjoyed an initial period of economic growth under this system, the economy began to slow down because the country exhausted the resources and technology it previously used to catch up to the West economically.
As the economy was stagnating, Soviet Premier Mikhail Gorbachev implemented a series of economic reforms known as perestroika, or “restructuring”. While these reforms aimed to decentralize the economy and open the country up to foreign trade, they ultimately failed to revive the Soviet economy. After the Soviet Union collapsed, in another attempt to prop up the economy, the new Russian government suddenly released price controls and quickly privatized previously state-owned enterprises in a set of reforms known as shock therapy. As a whole, these reforms led to hyperinflation, skyrocketing unemployment, and near economic collapse.
However, as Marshall Goldman states in The Piratization of Russia: Russian Reform Goes Awry, these reforms resulted in “one of the world’s greatest transfers of wealth” to date. With the shock-therapy reforms, petroleum, natural gas, and metal deposit industries became privately owned. The Russian government transferred ownership of these enterprises through voucher privatization, a method where the state handed out vouchers, which represented shares in previously state-owned industries, to everyday citizens. This program took place from 1992 to 1994, and 98 percent of the Soviet population participated. However, since most people were not well-informed about the value of their vouchers, the political elite grabbed the best vouchers, and thus the most shares in the now- privately owned enterprises. A new oligarchy had emerged.
Putin, the Oligarch
After Vladimir Putin came to power in the 2000 Russian presidential election, he cracked down on the original oligarchy, seizing control of their industries and driving some into exile. But what emerged after this crackdown is less clear. The Guardian journalist Luke Harding, who has written extensively about Putin’s wealth, said in an interview with the HPR that Putin simply “reshuffled” the oligarchy and made himself one of the oligarchs. Harding added that Putin also owns shares of major Russian companies, allowing him to acquire vast amounts of wealth in addition to the wealth he gains by siphoning money from these same industries.
Others, such as Princeton University history professor Stephen Kotkin, disagree. He argued in an interview with the HPR that just because “Putin’s cronies siphon money” does not mean Putin himself does. Further, Kotkin added that Putin’s money “would have to be banked somewhere,” and given the increased transparency in the international banking system, it would not make any sense for Putin to open himself up to that kind of “vulnerability.”
But what Kotkin’s argument is missing is that Putin may not necessarily siphon money; he may acquire it through perfectly legitimate means, like owning shares in major companies and working with his friends. In addition, Putin hides his wealth through intermediaries in offshore accounts, where there is still little transparency.
As Harding noted, Putin is the head of a “syndicate” of Russian billionaires, former KGB associates, and friends from Putin’s time in the Ozero Dacha cooperative, a housing community. This “syndicate” of billionaires emerged through opaque mechanisms during Putin’s crackdown on the original oligarchs. In 2010, U.S. diplomatic cables suggested that Putin “held his wealth via proxies,” allowing him to “formally own nothing” and “draw on the wealth of his friends,” enabling him to easily conceal both his wealth and its sources.
A Labyrinth of Intermediaries
The story of Rossiya Bank is the best example of how Putin and his friends operate. At first glance, this bank seems perfectly ordinary and unconnected to Putin. Upon closer inspection, however, Putin’s links to the bank begin to emerge. Putin’s close personal friends control the bank, and it quickly gained access to Russian state assets after Putin took power.
Yury Kovalchuk, who owns the largest share of Rossiya Bank, has close ties to Putin. Both lived in the Ozero Dacha cooperative, and Kovalchuk is known as Putin’s personal banker, meaning he has extensive knowledge of Putin’s fortune. Two of Putin’s other friends from his stint at Ozero, Nikolai Shamalov and Dmitry Gorelov, own 10.5 percent each of Rossiya Bank — as does Putin. These links cannot be coincidental, and it is highly likely that Putin himself controls a large portion of Rossiya Bank’s assets. In addition, after Putin became president, Rossiya Bank acquired billions of dollars in assets from Gazprom, Russia’s largest natural gas company. So, while Putin enriches himself via his wealthy friends, he rewards them with state assets obtained through his position as president.
The Panama Papers, a trove of documents from a Panamanian law firm, Mossack Fonseca, shed further light on the underbelly of off-shore banking and Putin’s wealth more specifically. “What the Panama Papers gave us,” Harding told the HPR, “were details [and] transactions” that showed how the syndicate works. The revelations spurred by the Panama Papers show how Putin hides his money through intermediaries, specifically one proxy: Sergei Roldugin.
Roldugin, a professional cellist, told the New York Times in 2014 that he was not wealthy, but documents made public through the Panama Papers revelations showed that Roldugin was making the equivalent of approximately $8.1 million a year, and even had another 19 million pounds in Chase Bank due to his share of Video International, a lucrative marketing agency.
As Harding put it, “That is very weird.” How could a cellist make that kind of money? Well, one explanation is that it is not really his money; he is just the person holding it. And given Roldugin’s associations with Putin, the most likely explanation is that Roldugin hides the money for Putin in off-shore accounts, thus giving Putin plausible deniability.
Wealth and Power
Above all, Putin “blurred the interests of the state with the interests” of his billionaires’ syndicate, as Harding put it, to gain the cover needed to acquire his wealth. However, the relationship between money and power also operates the other way around. Since wealth is “liquid power” in Russia, it enabled him to further control the state. As the Swedish economist Anders Aslund wrote in the Washington Post, “Money is power in Russia. Only the richest can rule, so Putin needs to be the richest.”
But despite this intrinsic connection between wealth and power, the Soviet populace believed that “wealth was bad,” said University of Pennsylvania professor Mitchell Orenstein in an interview with the HPR. This sentiment has carried over into Russia today. As a result, Putin “tries to hide [his wealth]” and act as a “man of the people,” as Orenstein put it.
Putin may try to do so, but his taste for luxury items reveals the truth. Even a cursory glance at photos of Putin shows Rolex watches that cost more than his official salary and designer tracksuits with prices in the thousands. So Putin may try to hide his wealth, but his appetite for expensive items contradicts his image as a “man of the people.”
Putin has good reason to conceal his wealth: In a country where the richest 10 percent control 87 percent of the country’s wealth, it would seem tasteless for the president to flaunt his riches. Most Russians fault Putin for the high income inequality, and Putin’s opponents have started calling him a “tsar.” Behind the scenes, Putin needs his wealth in order to maintain his political influence. But in public, that wealth becomes a liability. Putin’s power feeds on his wealth, except when it does not.
All in all, Putin may try to project modesty towards the Russian people, but the truth is more complicated. The fall of the Soviet Union did not just shift the global balance of power; it may have indirectly led to Putin’s supposed wealth. The fact that Putin is not just a political leader, but an economic one as well, means that the relationship between power and wealth in Russia is symbiotic. However, the enduring legacy of the Soviet Union’s anti-wealth propaganda means that Putin must hide his wealth in order to be seen as a man of the people.
The economic chaos triggered by the dissolution of the Soviet Union and the ensuing shock therapy reforms allowed a small number of Russian individuals to accumulate vast amounts of wealth. These new billionaires, some connected to Putin through shared living arrangements, became Putin’s proxies. They enrich him, and in return, he gives them state contracts. Putin is directly using his power to accumulate more wealth.
As a result of his economic dealings, Putin may quietly be one of the richest men on Earth. However, given the lack of evidence directly connecting Putin to vast sums of money, any argument about Putin’s wealth has to rely on a bit of speculation. The truth about Putin’s wealth may never be known. In the case of Putin’s wealth, the truth is not just keeping quiet — its mouth has been sewn shut.
Image Credit: Unsplash/Michael Parulava