Bodyguards Incorporated: the rise and fall of Putin's presidential guards' construction empire

Bodyguards Incorporated: the rise and fall of Putin's presidential guards' construction empire
Dmitry Mikhalchenko
By Fabrice Deprez in Moscow July 13, 2017

In February 2017, the Kremlin quietly appointed a new head of the Caucasus region branch of Russia’s Federal Protective Service (FSO), the main job of which is to guard President Vladimir Putin, but which until recently ran a secret and highly profitable construction empire.

In April last year this empire collapsed after Russian billionaire Dmitry Mikhalchenko, who had close ties to senior FSO officials and ran the Baltstroy construction company that actually did most of the work, was arrested for trying to smuggle $1mn worth of vintage cognac into the country. The case caused a major scandal. The deputy head of Russia’s Customs Service had to resign and Mikhalchenko was also charged with skimming millions of dollars off the top of renovation work on one of Putin’s country houses.

Dmitry Mikhalchenko

Tasked with providing protection to all of Russia’s political elite, the FSO is one of the lesser-known security services in Russia. And it has a broad mandate including intelligence activities, studying the public mood to prevent unrest and the protection of major state infrastructure. In the Caucasus, one of the key assets protected by the FSO is Bocharov Ruchei, the lavish official residence of the Russian president on the shores of the Black Sea near Sochi.

No decree was published on the Kremlin website announcing the appointment, although signatures on contracts seen by Russian outlet RBC confirmed the change. It seems there has been a cleaning out of the service as the previous head of the Caucasus’s FSO, General Gennady Lopyrev, was arrested on corruption charges in November 2016 as part of Russia’s underreported crackdown on official graft.

Not that the Russian government wants to bring attention to the rot at its core. Media reports about Lopyrev’s arrest were brief. One name, however, came up and keeps coming up: Atecks.

Atecks is nominally a privately owned construction company, that has been, according to RBC, involved in modernisation work around Bocharov Ruchei, and benefited from more than half of the RUB18bn ($286mn) of state contracts agreed between 2003 and 2011. Those contracts were signed by Lopyrev.

While Atecks was not officially linked to Lopyrev’s arrest, when the FSO general was charged with taking bribes from “several commercial structures” in order to secure contracts, the question of who Lopyrev was taking bribes from remained unanswered.

According to the official registry of state firms, Atecks was created in 2003 and is one of three companies directly owned by the FSO. It was also, until recently, by far the most successful.

That the FSO would own a construction firm is not necessarily surprising, says Mark Galeotti, a specialist in Russia’s security services and columnist at bne IntelliNews: “There are companies where you actually have long-term and necessary connections. For example, FSO and construction is a logical one because the FSO is responsible for security of the dachas and buildings of the state.” In other words, what better way of making sure a place is safe than to actually build it yourself?

But this doesn't explain why at the beginning of 2017 Atecks was the only FSO-linked company not to be included in a special list of state firms “significant for state security” that would be exempt from most procurement rules (most importantly, transparency rules).

As bne IntelliNews reported at the time, 20 of the 63 firms on the list were engaged in construction activities, while two of the three companies officially linked to the FSO were included in the list. Atecks, however, was nowhere to be found.

A meteoric rise

By that time, Atecks’ business was flourishing. Between 2011 and 2016, Atecks won a series of major contracts, including a RUB1bn ($15mn) facelift of Russia’s ministry of foreign affairs’ buildings, the restoration of the decaying XIXth century Ciniselli Circus in the centre of St Petersburg for RUB771mn ($20mn), a RUB5.5bn ($80mn) modernisation of a dam in the Moscow region and, according to Vedomosti, major renovation work in the centre of Moscow for an undisclosed price that could reach RUB2.6bn ($30mn). While the facelift of the iconic Stalinist skyscraper on Smolenskaya Polshchad that houses the foreign ministry can be justified on security grounds, the same is not true for church renovations and even the dam construction is a stretch.

These lucrative contracts were worth RUB22bn ($401mn) in revenue in 2015 – more than double what Atecks had made the previous year. That made Atecks the 403rd biggest Russian company by revenue in the country and the 18th fastest growing in 2015, according to RBC.

But behind the scenes, trouble was already brewing. And when the time came to select “elite” state companies that would be free from procurement rules, Atecks may have already been considered too tainted to be included.

According to several Russian media investigations, one of the major reasons behind Atecks’ meteoric rise was the close relationship of its top management with a notorious Russian entrepreneur, Mikhalchenko. The billionaire, often described as the most influential businessman in St Petersburg, was arrested last year amid a major smuggling case that lead to the resignation of the head of Russia’s Federal Customs Services.

Andrey Kaminov, the head of Atecks from 2007, was “a close friend of Mikhalchenko” and had previously led several firms that were part of Forum, Mikhalchenko’s holding, according to RBC.

One of Mikhalchenko’s construction firms, Baltstroy, became a major partner and subcontractor for Atecks, with the company’s closeness to the FSO being instrumental in securing lucrative contracts. “When people from Baltstroy came, everyone understood that they were in fact from the FSO, and vice-versa. It was enough for them to say which contract they wanted,” a source told Kommersant daily in March 2016.

And while Baltstroy took advantage of Atecks’ connection with the security services, Atecks could use Baltstroy’s size to wrap up major deals. That is what happened in 2012 when a RUB3.3bn ($92mn at the time) restoration contract with the Moscow Conservatory was signed. According to Kommersant, Atecks realised it could not handle the workload, and subcontracted it to Baltstroy. The two companies worked this way on a number of restoration jobs for the ministry of culture, bringing in hefty profits.

A brutal fall

But Atecks’ success was closely linked to Mikhalchenko’s. And when the latter saw his luck run out, the former quickly followed suit.

Accused of having set up a massive smuggling operation in the Petersburg region, Mikhalchenko was arrested in March 2016. And by the end of the year, Atecks’ name was popping up in an increasing number of media reports. The same month, Baltstroy became one of the main suspects in a major embezzlement case linked to the ministry of culture that led to the arrest of several officials, including the vice minister of culture. Investigators found that several firms close to Mikhalchenko would artificially compete in bids for restoration contracts, before subcontracting the work to other companies – at a much lower price.

Baltstroy’s director was arrested, while Russian media took notice of Atecks’ connection to Mikhalchenko’s companies.

In July, opposition politician Alexei Navalny’s anti-corruption organisation accused deputy Prime Minister Igor Shuvalov of buying 10 flats in Moscow, allegedly renovated by Atecks. The name of Kaminov, Atecks’ director, even appeared in an investigation by regional outlet Fontanka about the lucrative but opaque business of concert ticket sales in Saint-Petersburg.

When the head of the FSO in the Caucasus was arrested in November 2016, RBC revealed that Atecks had won several contracts for construction work around the Bocharov Ruchei presidential residence. According to a Novaya Gazeta investigation, this work – Atecks’ first major contract, which it secured back in 2011 – was then transferred to firms belonging to Mikhalchenko’s Forum Holding. But this wasn’t the most sensitive job for the company: Atecks had also been doing work at the Novo-Ogaryovo “gosdacha” (state dacha), another presidential residence in the Moscow region that is regularly used by Putin.

This last contract, at the centre of Russian power, would prove to be fatal for Atecks’ top management. In March, almost exactly one year after Mikhalchenko’s arrest, Atecks director Kaminov was arrested and officially charged with attempt to embezzle RUB225mn ($3mn) while doing work on the Novo-Ogaryovo residence. Five other people were also arrested, including Atecks’ deputy director and the former directors of Stroykomplekt, another construction firm close to Mikhalchenko.

Atecks is still active, judging from procurement offers published on the official procurement website. But its relationship with Mikhalchenko, which propelled the company to become, at one point, one of the fastest growing in Russia, ultimately proved too damaging. This prompted one FSO source, speaking to Novaya Gazeta, to describe the story surrounding Atecks as “one of the most shameful pages of the service”.