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How Moscow arrested its latest billionaire, Ziyavudin Magomedov

Source: Meduza

Who is Ziyavudin Magomedov?

Ziyavudin (until 2013: “Ziyaudin”) Magomedov is a Russian entrepreneur worth $1.4 billion, according to Forbes. His holding company “Summa” is widely considered one of the least transparent conglomerates in Russia. Summa owns a wide variety of assets: from the Novorossiysk Commercial Sea Port (the exit point for a significant amount of Russia’s exported oil) to the United Grain Company and the Yakutia Fuel and Energy Company. Magomedov also owns part of the venture fond that’s invested in the Hyperloop One high-speed train project (which Vladimir Putin has publicly promised to support).

Among Summa’s shadiest deals, two stand out above the rest: the purchase of the Novorossiysk Commercial Sea Port (bought jointly with Transneft from Arkady Rotenberg’s business empire at a price well above market value) and the 2007 acquisition of numerous GSM frequencies in the Urals and Far East (when the then little-known company “Summa-Telekom” beat out corporations like VimpelCom).

Correction: An earlier version of this text stated that Summa and Transneft paid “well below market value” for the Novorossiysk Commercial Sea Port. The opposite is true. Meduza apologizes for the mistake.

Magomedov enjoyed wild success during Dmitry Medvedev’s presidency. In 2009, the magazine Finance valued his wealth at $70 million. A year later, Magomedov’s worth had jumped to $800 million. Arkady Dvorkovich, then an advisor to President Medvedev (and currently a deputy prime minister in Medvedev’s cabinet), was one of Magomedov’s old dormitory neighbors in the early 1990s. They studied together in the economics department at Moscow State University.

Akhmed Bilalov, Ziyavudin Magomedov’s cousin, previously served as the vice president of the Russian Olympic Committee and as the board chairman of the North Caucasus Resorts company. He was fired from both these jobs for falling behind schedule on preparations for the Sochi Winter Games. In 2013, he was named as a suspect in a criminal investigation, and he’s lived in Europe ever since.

Ziyavudin’s brother, Magomed, is his business partner. According to Forbes, he currently owns 50 percent of Summa’s shares in NMTP, the telecommunication operator Sumtel, and several other companies.

What are the charges?

The police raids on Summa’s offices were first reported in the evening on Friday, March 30. The Telegram channel Neratka, which carried news about Russia’s transportation industry, confirmed that Ziyavudin Magomedov had been detained, though Summa’s spokespeople would only confirm that he was currently speaking to investigators. According to the newsletter The Bell, Magomedov had plans to fly to the United States on Friday. Overnight, the newspaper Kommersant reported that police formally detained Magomedov and several associates. On Saturday, investigators asked Moscow’s Tver district court to place them under arrest.

An hour before the hearing started, the Interior Ministry’s press office confirmed that police had detained Ziyavudin Magomedov, his brother Magomed Magomedov, and Artur Maxsidov, the head of a company called “Intex” (another Summa asset). The Bell reported that police also detained Summa’s general director, Leyla Mamedzade, and the sports website Championat.com said officers grabbed Zaibrek Yusupov, the president of the “Admiral” ice hockey team, though the team later denied this. In total, according to the news agency Interfax, there are nine suspects in the case.

The Interior Ministry says three suspects are charged with large-scale swindling and organized crime. The maximum penalty for this latter offense is 20 years in prison. The Magomedovs, according to the court’s press service, are also charged with embezzling federal funds, including money allocated to the construction of major infrastructure and the development of Russia’s power supply. Police reportedly carried out raids and investigative work in 25 different regions across the country.

Officials have revealed very little about the case against Magomedov. According to Kommersant and The Bell, the charges are related to the embezzlement of 752 million rubles ($13.1 million) in the construction of the “Baltika Arena” stadium in Kaliningrad. The investigation has been underway for four years already, and the suspects include several top managers at the company “GlobalElectroService,” which belongs to Summa. According to police, GlobalElectroService was hired to lay soil for the new stadium’s foundation. The company collected 767 million rubles ($13.4 million) for the work, despite doing a miserable job.

A source told the magazine RBC that the case against Magomedov is “multifaceted.” Kommersant says part of the investigation concerns Summa’s main asset, the Novorossiysk Commercial Sea Port, which the Federal Tax Service recently accused of underpaying its taxes by 9 billion rubles ($156.9 million). In February, Summa announced that it might sell its stake in the sea port to Transneft. Kommersant’s sources speculate that the sale could be tied to looming changes in Vladimir Putin’s cabinet and events in Dagestan, where Putin recently appointed a new head of the republic and a federal police commission has been carrying out an aggressive anti-corruption campaign.

On April 2, based on unnamed sources, RBC reported that Russia's Federal Security Service and Interior Ministry had been tapping the Magomedovs' phone calls for six months before they were arrested. Investigators filed more than 100 separate requests through Interpol with police offices in various countries, trying to locate the brothers' offshore accounts.

What was said in court?

At Saturday’s hearing, investigators and prosecutors revealed that Ziyavudin Magomedov is suspected of embezzling 2.5 billion rubles ($43.6 million). The charges combine seven separate criminal investigators (the earliest one launched in 2014) into a single case. Prosecutors say the money was stolen through companies owned by Summa.

Investigators say they haven’t been able to locate the embezzled money, which they believe was moved to various offshore accounts. Saturday’s hearing revealed that at least some of the charges are related to the construction of the “Baltika Arena” stadium in Kaliningrad. An investigator mentioned GlobalElectroService general director Eldar Nagaplov, who fled abroad, as well as another suspect now living in the United Arab Emirates.

Demanding Magomedov’s arrest, investigators noted that he owns a private jet, had plans to fly to Miami, and has at his disposal “extensive connections in criminal and official circles” that would allow him to “hide from police and exert influence over investigators.”

Magomedov’s defense attorney told the court that prosecutors have no direct evidence that his client committed any crimes. “Everywhere in the case files, we see claims that [Magomedov] managed and coordinated criminal acts as the head of a commercial organization. But heading a legal entity isn’t in itself a crime,” the lawyer said.

Magomedov told the court that he “categorically” denies the charges against him. He argued that he’s invested billions of rubles in the companies mentioned by prosecutors, and “it would be strange to steal from himself.” Magomedov also confirmed that he planned to fly with his family to the United States, where he said he would undergo a medical operation. He was supposed to return to Russia a week later, he said, adding, “I’m proud of what I do for Russia, and I want to continue this work.”

The defense suggested releasing Magomedov on bail equal to the amount of damage he allegedly caused: 2.5 billion rubles ($43.5 million). The court locked him up, instead.

The judge also sanctioned the arrest of Artur Maxsidov, the director of Intex (another Summa asset), on charges of embezzling 668.9 million rubles ($11.6 million). Maxsidov proclaimed his innocence, saying he “never even had access to any money,” calling Intex a “microscopic” entity.

Around 9 p.m. on Saturday, the court also agreed to place Magomed Magomedov under arrest. Denying the charges, he declared, “I’m not a shareholder at any of these companies where I’m listed as a beneficiary. [...] I’ve studied the case files closely and I didn’t find a single crime committed by the companies to which I have any connection. I’ve never met with the people named in the charges.”