Between Summa and jail. The fate of billionaire Ziyavudin Magomedov 

Between Summa and jail. The fate of billionaire Ziyavudin Magomedov
The invisible hand of Igor Sechin can be seen in the criminal case against brothers Magomedov Photo: The CrimeRussia

The government has started the promised budget maneuvering using a time-tested way to replenish the treasury – imprisonment of oligarchs. All of them have issues with the law, but the selection of victim is always unpredictable. These time, Magomed and Ziyavudin Magomedov, owners of Summa Group, have been sacrificed. The billionaires, favored by the authorities only yesterday, have surprisingly found themselves in Lefortovo Pretrial Detention Center; according to the investigation, they are facing pretty lengthy prison terms.

Maximum security holidays 

On the Saturday morning of March 30, 2018, the nightmare of each Russian oligarch come true for billionaire Ziyavudin Magomedov: investigators of the General Administration for Economic Security and Combating the Corruption of the Ministry of Internal Affairs (MIA) of the Russian Federation and operatives of the Economic Security Directorate of the Federal Security Service (FSB) of the Russian Federation have arrived to his home, arrested him, and escorted to Lefortovo Pretrial Detention Center. Similar events occurred that morning with his brother Magomed Magomedov as well. For the entire day, the office of Summa Group and suspects’ residences were searched – although without much success. In addition to an unregistered firearm found in the home of Magomed Magomedov, the operatives have only seized $10 thousand from main suspect Ziyavudin Magomedov. Apparently, the billionaire had experienced hard times and prepared for surprising visits by leaving only some ‘pocket money’ at his disposal. 

On March 31, the court has imposed pretrial restrictions on brothers Magomedov for the next two months: they will remain in the pretrial detention center at least until May 30. The court had plenty of reasons to deliver such a decision. According to the investigation, the oligarchs were involved into creation of a criminal community, swindling on an especially large scale, and embezzlements of budget funds. Currently, the case includes seven episodes encompassing virtually all the business spheres of Summa Group. The total damages sustained by the state are estimated at 2.5 billion rubles ($42.5 million).

Зиявудин и Магомед Магомедовы

Ziyavudin and Magomed Magomedov

Ziyavudin Magomedov has immediately demonstrated to the court that freedom is the ultimate value by offering a bail equal to the incriminated damages – 2.5 billion rubles ($42.5 million). The Chairman of the Board of Directors of Summa Group has also offered the same amount for his brother Magomed Magomedov. According to the FSB surveillance materials, brothers Magomedov had planned to depart to Miami by their private business jet on the day of the arrest. Magomedov has explained his failed voyage to the U.S. by medical reasons. 

The art to get sick just in time is a family feature of clan Magomedov. In 2013, Akhmed Bilalov, cousin of Ziyavudin Magomedov, has felt ill a day before the institution of a number of criminal cases against him. He fled to Germany to undergo treatment against poisoning by arsenic, mercury, and other chemical elements. Saved by German doctors, Bilalov decided to stay in Germany.

Ахмед Билалов

Akhmed Bilalov

The lipoma Ziyavudin Magomedov was allegedly going to remove abroad prior to returning to Moscow was diagnosed back in 2016 and never concerned the businessman up until recently. He was much more interested in the redistribution of assets. In the last several years, Magomedov had actively invested funds into extra-fast trains in the framework of Hyperloop One project. In 2017 alone, the total volume of Magomedov’s investments was $140 million. The new business interests of Magomedov are consistent with hobbies of his family that apparently does not intend to stay in Russia any time long. 

Instagram and social network pages of heirs to Ziyavudin Magomedov feature yacht cruises, flights by business jets, and other amusements of the ‘gold youth’. On the other hand, oligarch’s wife Olga Magomedova had always worked hard. The socialite was building strong friendly ties with ‘right’ people – Natalia Dubovitskaya (wife of Vladislav Surkov) and Natalia Timakova (press secretary of Dmitry Medvedev). Amid the forthcoming 2018 FIFA World Cup, friendly ties of clan Magomedov were weakening, and the charming family planned to depart to sunny Miami for treatment.

Ziyavudin and Olga Magomedov Svetlana Bondarchuk, Natalya Dubovitskaya, Olga Magomedova Daniyal Magomedov Daniyal Magomedov
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Thin air and sand money

“The Hypochondriac” play performed by the oligarch hasn’t impressed the court and investigation. “How to steal a billion” detective story starring brothers Magomedov was much more interesting for them. Currently, the case against the owners of Summa Group includes seven episodes. The most notable among those are construction projects of Summa Group in the Kaliningrad region – Khrabrovo Airport and Arena Baltika Stadium – intended for the 2018 FIFA World Cup.

Stroinovatsia company subsidiary to Summa Group has been renovating the airport at a cost of 3.1 billion rubles ($52.7 million). In 2016, Khrabrovo was supposed to be able to receive Boeing 767 and Boeing 777 airplanes that used to be too big for it. Instead, the airport has received furious Igor Shuvalov threatening to change the contractor.

Аэропорт «Храброво»

Khrabrovo Airport

Ziyavudin Magomedov, who has been a friend of Vice Premier Arkady Dvorkovich since the student years, was not embarrassed with this at all. Instead of starting the renovation – for which Stroinovatsia had received an advance payment in the amount of 700 million rubles ($11.9 million) – the company has filed a lawsuit against the Federal Air Transport Agency (Rosaviatsiya) demanding to continue the beneficial collaboration and pay the remaining 600 million rubles ($10.2 million) under the governmental contract. Too bad, but Summa Group failed to snatch such a large amount of money. The contract with Stroinovatsia was terminated – but other structures of Ziyavudin Magomedov continued swallowing in governmental contracts.

A year later, the MIA General Administration for Economic Security and Combating the Corruption has instituted a criminal case for swindling committed during the construction of Arena Baltika. GlobalElektroServis company, another subsidiary of Summa Group, has been charged in that case. In 2013, the contractor has won a tender for engineering preparation of the future stadium site worth 850 million rubles ($14.5 million). In exchange for this sum, GlobalElektroServis had to cover up the area with sand,             anchor the land, and build temporary roads. The implementation time was fantastic – this had raised doubts about the actual contract performance as early as at the signing stage.

«Арена Балтика»

Arena Baltika Stadium

The foreboding had not deceived the skeptics. According to the investigation, Summa Group structures had artificially raised the cost of works and forged acceptance certificates. GlobalElektroServis alone has overcharged the cost of works by 500 million rubles ($8 million). An independent expert assessment carried out later by Transparency International Russia has identified high content of clay loam in the sand. This may cause swamp formation and destruction of the stadium. In total, the companies of Ziyavudin Magomedov have ‘earned’ 1.15 billion rubles ($18.4 million) in the Kaliningrad region.

Another episode of the criminal case is almost identical to the story with Arena Baltika. The same scheme was successfully used on Krestovsky Island in St. Petersburg. Structures controlled by Magomedov failed to carve a piece from the most juicy pie – Zenit Arena Stadium – but snagged a contract to prepare a construction site 16 ha in size for future Novokrestovskaya subway station and other facilities. The contract has been awarded to Inteks company subsidiary to Summa Group. A year later, it was replaced by Leokam company. However, Inteks managed to ‘use’ 1 billion rubles ($16 million), including 668 million rubles ($10.7 million) gained through falsifications and fraud. Furthermore, according to Damir Volodin, Chairman of the Board of the Commission for Environmental Expertise, the parking lot near Zenit Arena has a good chance to slide into the Gulf of Finland due to the poor quality of works performed by Inteks.

«Зенит-Арена»

Zenit Arena Stadium

GlobalElektroServis is mentioned in three more episodes of the criminal case against brothers Magomedov. The company is accused of overcharging the cost of works during the construction of the Neryungri Power Station, Vasileostrovskaya Substation, and Prizeiskaya–Elgaugol Power Line. According to the investigation, the prices have been overcharged by 650 million rubles ($10.4 million) in total. The final episode of the criminal case against Ziyavudin Magomedov pertains to the embezzlement of $20 million from United Grain Company committed in 2012–2013. The investigators believe that Magomedov has signed, on behalf of United Grain Company belonging 50% to the state, contracts with Newbey Investments and embezzled from United Grain Company 613 million rubles ($9.8 million). The majority of the embezzled funds have already been siphoned off to offshore territories.

Best defense is offense 

Magomedov vehemently denies all allegations and considers the above-mentioned actions normal business practices. While commenting the embezzlements from United Grain Company, Magomedov said that he had repeatedly addressed the police and FSB – but all his submissions were ignored. Such statements may add a new charge – knowingly false testimonies – to the indictment against the billionaire. It is well-known that law enforcement structures take special care of all complaints filed by lawyers of Summa group.

As soon as Summa Group became aware that journalist Andrei Krasavin is preparing an inquest into operations of the Novorossiysk Commercial Sea Port, both the police and FSB rushed to protect business interests of Ziyavudin Magomedov. After offering Krasavin and Evgeny Feldman, owner of IDR Format company, $200 thousand for cancellation of the publication, representatives of Summa Group have accused Krasavin and Feldman of extortion. According to their criminal complaint, these people had threatened to publish damaging materials about the company. Despite the obvious artificiality of the accusations and evidence, the investigators had kept Krasavin and Feldman under home arrest for a year. However, shortly before the arrest of Ziyavudin Magomedov, the Prosecutor’s Office of the Presnensky District of Moscow has returned the criminal case against the journalist and publisher for further investigation and released the suspects under a written pledge not to leave the city.

Евгений Фельдман

Evgeny Feldman

In fact, it is hard to defame the Novorossiysk Commercial Sea Port worse that its owners have already done. Summa Group and Transneft, the current owners of the port, have purchased it from Arkady Rotenberg, Aleksander Ponomarenko, and Aleksander Skorobogat’ko in a pretty original way. The Novorossiysk Port has taken out in Sberbank a special-purpose loan in the amount of $1.95 billion to purchase Primorsky Commercial Port owned by Summa Group and Transneft in equal shares. The companies have sold Primorsky Commercial Port for $2.153 billion, added some more money and purchased from Rotenberg and his partners for $2.5 billion Cyprus-based Kadina Limited offshore company owning 50% of shares in the Novorossiysk Port. In other words, Summa Group and Transneft have acquired 50% of shares in the Novorossiysk Commercial Sea Port for less than $400 million, while the port has incurred a huge debt to Sberbank. 

Then the mutually-beneficial friendship between Ziyavudin Magomedov and Nikolay Tokarev, Chairman of the Management Board and President of Transneft, has suddenly ended. The partners were dividing posts in the Novorossiysk Port Management Board for a long time; ultimately Magomedov seized control over the day-to-day port management, while Tokarev accused him of siphoning off funds from their joint business. It must be admitted that the allegations brought by Tokarev are consistent with the charges laid by the investigation. Following his standard scheme, Magomedov has retained third-party companies to maintain the port at artificially high prices.

Николай Токарев

Nikolay Tokarev

The billionaire filing lawsuits against Rosaviatsiya was not embarrassed by the conflict with Tokarev. Quite the opposite, Magomedov was so self-confident that he has trespassed on the territory forbidden for the business – the politics. According to some information, he had tried to push his henchmen to key posts in the Government of the Republic of Dagestan. To demonstrate his growing influence in the republic, Magomedov was building a mosque surpassing the Heart of Chechnya. However, the appointment of Vladimir Vasiliev and subsequent anti-corruption purge of ranks haven’t allowed Magomedov to play the ‘Caucasus card’. 

Seaman, you were away for too long 

Magomedov has made his worst enemy while trying to become a ‘sea emperor’. After the acquisition of the Novorossiysk Commercial Sea Port, the billionaire has switched to the Asian direction. Since 2012, coincidentally with the return of Dmitry Medvedev to the Government, he has been investing into the construction of Far-Eastern ports and ultimately gained significant control over Zarubino and Vostochny ports. In a couple of years, Magomedov has created a true transportation empire – but plenty of possibilities for further development still remained untapped. 

For instance, the other 50% of shares in the Novorossiysk Commercial Sea Port were distributed among the following shareholders: Russian Railways (5.3%), Transneft Service Closed Joint Stock Company (10.5%), and Federal Agency for State Property Management (Rosimushestvo) (20%). In 2017, the Ministry of Transport decided to privatize the Novorossiysk Port. The decision to participate in the privatization of the 20% of port shares was fatal for Magomedov – Igor Sechin, Chief Executive Officer and Chairman of the Management Board of Rosneft, has already put the eye on this portfolio a few years ago.

Игорь Сечин

Igor Sechin

Since that day, a bitter conflict has escalated between Sechin and Magomedov. A few months later, the Federal Antimonopoly Service has fined the Novorossiysk Port 10 billion rubles ($160.3 million) following a complaint filed by Rosneft. The company’s lawyers had been struggling with the antimonopoly authority for a year and finally managed to convince the arbitration court of their rightness. The triumph, however, was marred by claims of the tax authorities accusing the port of non-payment of taxes. The amount claimed by the Federal Tax Service was surprisingly close to the fine earlier imposed by the Federal Antimonopoly Service – 9.6 billion rubles ($153.9 million). 

All these circumstances have forced Summa Group to announce the sale of its share to Transneft. The deal fell through due to the arrest of Magomedov; it is unlikely that Nikolay Tokarev returns to his original plans any time soon. Other partners have also rushed to shrug off Magomedov. For instance, Arsagera Asset Management Company is going to file a bankruptcy claim against the Far East Shipping Company subsidiary to FESCO Transportation Group belonging to Magomedov. The volume of lawsuits against FESCO and Summa Group structures is likely going to grow like a snowball in the nearest future. 

The invisible hand of Igor Sechin can be seen in the criminal case against Ziyavudin Magomedov as well. For several years, the investigation had progressed at snail's pace – but now the case is galloping towards the trial at full speed. The investigation has been drastically expedited with the arrival of a new investigator – Nikolai Budilo – listed in the Magnitsky Act. Budilo treats the new suspect very gently. While the oligarch’s attorneys are trying to appeal his arrest, Ziyavudin Magomedov has been transferred to a new cell featuring a TV set and fridge. No official charges have been laid against him yet, but the billionaire is facing up to 30 years of such comfort behind bars. The once-successful businessman used to describe the elements of his success as follows: “Decision-making speed, quick wits, and ingenuity are very important in the business”. Today the disgraced oligarch has no choice but to rely on his quick wits.

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