Putin’s ‘Soros’ Dreams of Empire as Allies Wage Ukraine Revolt

Source: Marshall Capital via Bloomberg

“Ukraine is an artificial creation on the ruins of the Russian Empire,” asserts Russian financier Konstantin Malofeev, who says that he harks back to the time of Czarist Russia and backs Putin because he’s a strong leader. Close

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Source: Marshall Capital via Bloomberg

“Ukraine is an artificial creation on the ruins of the Russian Empire,” asserts Russian financier Konstantin Malofeev, who says that he harks back to the time of Czarist Russia and backs Putin because he’s a strong leader.

When Crimea’s new premier traveled down the Black Sea coast for unscheduled talks with President Vladimir Putin in Sochi this month, he was accompanied by a man described by one Kremlin insider as Russia’s George Soros.

It was a rare glimpse of Konstantin Malofeev, the 39-year-old founder of Marshall Capital in Moscow whose network stretches into the heart of Ukraine’s pro-Russian insurgency. The self-proclaimed head of the unrecognized Donetsk People’s Republic and its rebel army leader have both worked for Malofeev, though the financier denies any role in the unrest.

As Putin acts publicly to ward off further U.S. and European sanctions over Ukraine, a network of pro-Russian operatives continues to guide an uprising that’s already claimed hundreds of lives. With his political connections and wealth, the multimillionaire has the resources to support projects that the Kremlin wants distance from, according to Sergei Markov, a policy consultant to Putin’s staff.

“He’s useful like Soros in that he acts on his own,” Markov said by phone. “He suits Russian authorities because they don’t want to take responsibility for certain things.”

Malofeev said in an interview that his only financial contributions related to the conflict in Ukraine are in support of refugees from the fighting. Still, Malofeev, who describes himself as an “Orthodox patriot,” said he couldn’t be prouder of his former public relations adviser, Alexander Borodai, who now runs the Donetsk separatist administration.

‘Russian Empire’

“Ukraine is an artificial creation on the ruins of the Russian Empire,” Malofeev said in his office near the U.S. embassy in central Moscow last week. “I’m sorry for my lack of political correctness, but Ukraine is part of Russia. I can’t consider the Ukrainian people as non-Russian.”

Malofeev, who sold his largest asset, a 7.5 percent stake in OAO Rostelecom, back to the state-run phone company for more than $700 million last November, said he first met Crimean Prime Minister Sergei Aksyonov in late January. A month later, the pro-Russian leader led an armed takeover of the peninsula that paved the way for Russia’s annexation.

Putin’s spokesman, Dmitry Peskov, said he knows “nothing” about Malofeev’s trip to Sochi or his activities in Ukraine. “The Kremlin encourages any social charity by any businesses, from big to small,” Peskov said by phone.

Putin has repeatedly rejected assertions by U.S., EU and Ukrainian officials of Russian military involvement in southeastern Ukraine, most recently in an interview with French television and radio channels that aired June 4. The Russian president, who met U.S., European and Ukrainian leaders in France this month, called on the authorities in Kiev to declare a cease-fire and hold talks with the rebels.

Ukraine ‘Penetration’

The worst standoff since the Cold War between Russia and the U.S. intensified last week, after pro-Russian militants shot down a transport plane in eastern Ukraine, killing 49 servicemen, and the U.S. accused Russia of sending heavy weapons to the rebels, including old-model tanks and rocket launchers.

“Putin has been adamant about there being no Russian interference,” said Masha Lipman, an analyst from the Carnegie Moscow Center. “However, this is too important an issue to believe that Putin hasn’t endorsed the penetration of Ukraine, the sending of volunteers.”

Malofeev declined to reveal details of his June 3 visit with Aksyonov to Putin’s residence in Sochi. Aksyonov didn’t respond to requests for comment via an assistant, nor did Borodai, the separatist leader in Donetsk. Borodai last month told Moscow-based newspaper RBC Daily that Malofeev wasn’t involved in the Ukraine conflict.

‘Active Coordinators’

Konstantin Zatulin, a former lawmaker in the ruling United Russia party who was an official observer during Crimea’s referendum on joining Russia, said by phone that Malofeev has given “some help” to the rebels in Donetsk, without providing details. Zatulin heads the Moscow-based Institute of the Commonwealth of Independent States, which promotes the rights of native Russians abroad.

Ukraine’s intelligence service considers Malofeev among the “active coordinators” of the pro-Russian insurgency, Marina Ostapenko, a spokeswoman for the agency known as SBU, said by phone from Kiev.

“While Malofeev is officially an independent player in Ukraine, he has the Russian government’s approval in general in the sense that everyone who can should help,” said Markov, the Kremlin-linked political analyst.

Malofeev, not as rich as Soros, who’s donated more than $8 billion to U.S.-friendly causes since 1979, said he didn’t encourage Borodai to join the insurgency and isn’t helping him.

‘Courageous’ Rebels

Malofeev said he met Aksyonov for the first time in Sevastopol, Crimean’s largest city and home to Russia’s Black Sea Fleet since 1783. Malofeev flew to the peninsula to stage a tour of religious relics from Greece that was financed by his St. Great Vasily Charitable Fund.

Malofeev said Aksyonov, whom he described as “decisive,” later hired Borodai as his top aide. After Crimea was annexed in March, Borodai took the “courageous” step of leading the separatist struggle in Donetsk, Malofeev said.

The connection with Borodai leads to another rebel leader in Donetsk, a Russian who goes by the name of Igor Strelkov and commands rebel forces -- a friend of Borodai, according to Malofeev. Strelkov’s real last name is Girkin and he works for Russian military intelligence, according to the European Union, which sanctioned him in April.

Malofeev said Strelkov provided security for the touring religious exhibit when it was in Kiev. Strelkov didn’t respond to a request for comment via a separatist representative.

Russian ‘Spirit’

“Igor is a man of ideals,” Malofeev said. “He’s got the spirit of a Russian officer. As someone who loves the Russian Empire, I can only sympathize with him.”

Strelkov, who loves to re-enact Czarist-era battles, has shown through his exploits in Ukraine that he’s a “real hero,” Malofeev said.

Malofeev’s involvement in Ukraine may be motivated in part by a desire to curry Putin’s favor and further his business interests, which have collided with some of the biggest state-run companies, according to Lipman at Carnegie Moscow.

On Feb. 27, the Moscow-based business daily Vedomosti reported that Malofeev had reached an agreement with VTB Group, Russia’s second-largest lender, over a $225 million loan that a company controlled by Marshall Capital took out in 2007 and failed to repay.

Taking Crimea

While the details of the deal weren’t disclosed, VTB withdrew its request to open a criminal investigation and Marshall Capital pulled a lawsuit against VTB that it had filed in London, Malofeev said. VTB said via its press service that it doesn’t comment on confidential client matters and knows nothing about Malofeev’s activities in Ukraine.

On the same day as Vedomosti published its report, armed men seized the parliament and regional government buildings in the Crimean capital of Simferopol, paving the way for Aksyonov to be declared prime minister during a closed-door session.

Malofeev, who calls himself a “monarchist” who applauds Putin for being a strong leader, said he’s now spending most of his time on civic issues. His charity, St. Great Vasily, has an annual budget of about $40 million and its trustees include Oscar-winning director Nikita Mikhalkov and Igor Shchegolev, a former communications minister who now advises Putin, according to its website.

Last month, Malofeev sponsored a meeting of European and Russian nationalist politicians and academics in Vienna. He’s also helping to organize a “family values” conference in Moscow in September that’s co-sponsored by an Orthodox charity overseen by State-run OAO Russian Railways chief Vladimir Yakunin, a longtime Putin ally.

‘East, Maybe’

As for Ukraine, Malofeev says time is running out for new President Petro Poroshenko to agree to cede more powers to the mainly Russian-speaking regions in the east or risk an escalation of the violence.

“Kiev still has a major chance to create a federative state and resolve everything,” Malofeev said. “But with every new death the chances decrease and may disappear completely. Too many people have been killed.”

Asked if Putin should annex more of Ukrainian territory than just the peninsula of Crimea, Malofeev said: “You can’t incorporate the whole of Ukraine into Russia. The east maybe.”

To contact the reporters on this story: Ilya Arkhipov in Moscow at iarkhipov@bloomberg.net; Irina Reznik in Moscow at ireznik@bloomberg.net; Henry Meyer in Moscow at hmeyer4@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net Brad Cook

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