Well-connected.

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Trump's Manager Is a Master of Post-Soviet Business

Leonid Bershidsky is a Bloomberg View columnist. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website Slon.ru.
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No one who saw former Ukrainian President Viktor Yanukovych rise from the political dead after trying and failing to rig a presidential election in 2004 will ever write off Paul Manafort. The U.S. consultant, who now runs Donald Trump’s presidential campaign, helped Yanukovych recover. The Yanukovych connection translated into some bizarre and shady dealings for Manafort.

Michael Isikoff of Yahoo! News reported on one of these deals in April. It deserves a closer look, if only to give Americans who want a businessman president some insight into the business CV of  Trump's top aide.According to a Cayman Islands court filing by an investment vehicle of Russian billionaire Oleg Deripaska, in 2007, Manafort and his two partners, Rick Gates and Rick Davis, set up a private equity limited partnership called Pericles Emerging Market Partners. They solicited $200 million from B-Invest, a Cyprus-registered company that handles aluminum tycoon Deripaska's non-core investments, to do deals in eastern and southern European countries, primarily Ukraine. The filing says they expected at least a 30 percent return on invested capital.

Deripaska's representatives agreed to pay a 2 percent annual management fee to Manafort and his partners, initially based on its $200 million commitment, later scaled down to $100 million.

The partners' plan was to buy small-to-medium-sized companies in Ukraine's regions and then merge them into bigger national companies, reaping economies of scale. These national companies would later be sold or taken public.

Rick Gates, who now works for the Trump campaign, offered various potential investments to Deripaska's people in Moscow, but they told Gates and Manafort they didn't like any of them except one, the planned acquisition of a company called Black Sea Cable.

The firm was a cable TV and internet provider in Odessa, the biggest player in the local market. Its management was reportedly close to Yanukovych's Regions Party, powerful in mostly Russian-speaking Odessa at the time. The owners were obscured behind a complex chain of offshore entities that led to a network of hundreds of firms ostensibly controlled -- but in fact only fronted -- by Latvians Erik Vanagels and Stan Gorin. The network is well-known to investigative journalists. Its companies have been involved in some of the recent decades' boldest scams, including several Ukrainian ones. In 2011, for example, one of its vehicles was involved in the purchase of drilling equipment for Ukrainian state-owned Chernomorneftegaz at a price inflated by $150 million. The scheme was later investigated by Latvian and Ukrainian authorities.

Manafort proposed a structure for the Black Sea deal: To avoid Cyprus taxes, Deripaska would loan $19 million to a special purpose vehicle set up by Manafort, and that SPV would buy Black Sea Cable's parent company. Deripaska's investment managers agreed and transfered the money in the spring of 2008; they had also paid $7.3 million in management fees.

In April, 2008, Gates informed the Deripaska people that the acquisition was under way. But by then, the global financial crisis was about to break out, and Deripaska's industrial empire was in trouble. A Putin loyalist, he barely survived with massive state aid. The Moscow investment managers let Manafort and his partners know they wanted the partnership wound down. Gates allegedly promised to sell Black Sea Cable, but in 2011, the Moscow team was notified by email that it couldn't be sold "due to market conditions."

That was the last communication Deripaska's people received from Manafort and Gates, and subsequent attempts to contact them failed to elicit a reaction. "It appears that Paul Manafort and Rick Gates have simply disappeared," the Cayman filing said.

Black Sea Cable's current ownership structure look a lot like its old ownership structure. It doesn't include any Deripaska or Manafort entities. The company is owned by a Ukrainian firm called Nika TV, which, in turn, is controlled by British Virgin Islands-registered CardMan Impex Corp. That firm is recorded in the Panama Papers database, leaked from offshore registrar Mossack Fonseca, as owned by Cascado AG -- part of the same Vanagels-Gorin network to which the trail from Black Sea Cable's original owners led.

Deripaska still hasn't recovered the money. A lawyer for Manafort told Isikoff that his client had already explained everything in a deposition "some months ago" and wouldn't discuss the matter since it was still pending in the Caymans.

Deripaska has a fearsome reputation in Russia. He survived the bloody "aluminum wars" of the 1990s, fighting off some the most ruthless characters of that predatory era. He was reportedly banned from the U.S. because of alleged criminal connections.  

Overall, his relationship with Manafort was beneficial. Manafort’s lobbying firm, for example, arranged for him a meeting with Senator John McCain -- something Deripaska very much wanted. In the former Soviet Union, connections with the right people are the most valuable commodity.

Both Ukraine and Russia are still open for this kind of business (Trump has connections too). Today's Kiev officials, who came to power after Yanukovych was deposed in a popular uprising, are no fans of Manafort, but Yanukovych-era networks are in place in many Ukrainian cities. Wealthy Russians, for their part, are only too happy to serve as proxies for the state, establishing ties where official Russian diplomacy fails.

If Trump wins, Manafort and his colleagues on the team can be relied upon to keep these unofficial communication lines -- and the business opportunities they provide -- open. The Trump campaign has kept off the Republican Party platform any pledge to help Ukraine with its campaign against Russian-backed separatists. I'm sure it's duly noted in Moscow.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Leonid Bershidsky at lbershidsky@bloomberg.net

To contact the editor responsible for this story:
Therese Raphael at traphael4@bloomberg.net