Russian oligarch Roman Abramovich filed a defamation lawsuit against the HarperCollins publishing company and the author of “Putin’s People”, Catherine Belton, in London on March 22, for claiming that he had bought the Chelsea football club on the direct orders of Russian President Vladimir Putin, who wanted to use it as a tool of soft power.

Abramovich claims the story is simply not true and now Belton and her publisher will have to defend themselves and the story in court.

It should be a very interesting case, as not only is “Putin’s People” on trial but the whole genre of Russia narrative reporting as well. Accusations and anonymous one-source allegations regularly make international headlines with little attempt to verify the facts or back up claims with independent information. If the Russian oligarch wins it could open the floodgates to similar lawsuits, as pretty much anyone with a high profile in Russia has been subject to similar reports.

Abramovich is well accustomed to being in the headlines, but he is starting to become more litigious. He is one of Russia’s richest men, had a supermodel wife as well as the biggest luxury yacht in the world. As the owner of Chelsea FC he has been object fixe of the British tabloid press for years.

"Today my legal representatives have issued legal proceedings in England in relation to a book that was published in the UK. The book contains a number of false and defamatory statements about me, including about my purchase, and the activities, of Chelsea Football Club," Abramovich said in a statement posted on the website of Chelsea Football Club.

The case will turn on Belton’s extensive interview with exiled oligarch and one-time Kremlin insider Sergei Pugachev, who first made the accusation to Belton during a September 2017 interview with Belton, but then made the same claim in a statement to the High Court in 2018 during a case brought against him by his former bank International Industrial Bank (IIB, known as MezhPromBank in Russian) that went bust and was nationalised in 2011.

Pugachev was in the UK court as Russia’s state-owned Deposit Insurance Agency (DIA) was trying to recover a $1bn bailout loan it issued to Pugachev’s bank in 2010 that the Russian authorities claim Pugachev simple stole and then fled the country to London.

The DIA is the main agency that has conducted Russia’s highly successful bank sector clean-up over the last few years and has closed on average three banks a week for most of the last five years, and brought criminal charges against hundreds of bankers who similarly looted their bank’s deposits.

In Pugachev’s case, the DIA, through the vehicle of the now state-owned IIB, brought civil recovery cases in London and France to try to recover some of this money. The whole story is very similar to the Ukrainian state’s attempt to recover $5.5bn allegedly whisked out of PrivatBank by its former oligarch owner Ihor Kolomoisky, who is also being sued in London by the now state-owned PrivatBank.

And this is where the problems will start for Belton and Harpers. Pugachev repeated the story that Putin ordered Abramovich to buy Chelsea for political purposes to Belton, who included it in her book, but now she will be asked by the court to prove it.

That is going to be hard, as Pugachev is an extremely unreliable witness. During his High Court appearances the judges hearing the case concluded that his evidence was “totally unreliable” and alternately branded it as “self-serving” and “impossible to believe.”

One of the judges concluded that Pugachev himself was “quite willing to lie and put forward false statements deliberately if it would suit his purpose,” according to the comments by the judges in the court documents. The High Court justices were unanimous in their conclusion that Pugachev was an unreliable witness.

To be fair, Belton expressly says that Pugachev was found to have lied in court and reports that he is an unreliable witness, but this fact is passed over with the briefest of treatment. Despite the big question mark hanging over Pugachev’s testimony and his self-serving motivation, Belton relies on him heavily for the meat of her narrative. Pugachev is heavily quoted and appears in eight of the 15 chapters.

The essence of the case Abramovich has brought against Belton and Harpers Collins will boil down to whether Pugachev can be believed or if Belton was justified in quoting him, even if he can’t be believed, as it is “in the public interest.”

UK libel law is notoriously tough, as the onus of proof is on the publisher. Abramovich has brought and won four cases against British newspapers in just the last few months for running stories in a very similar vein.

The Daily Mail was forced to print a retraction and apology for a January 30 article headed “Roman Abramovich’s £200mn property empire,” which turned out to be false. He also won two cases against the The Times, which on March 25 had to print a retraction and apology for a story printed on February 25 that claimed Abramovich gave a luxury yacht to Putin as a gift. The Independent had to withdraw a story that claimed Abramovich was Putin’s “bag man.” And the MailOnline had to apologise for claiming Abramovich had sold state-owned assets.

“We wrongly claimed that Mr Roman Abramovich had lost his UK citizenship and reported that he had made his money selling state assets after the fall of the Soviet Union. We accept that Mr Abramovich did not lose UK citizenship, as he never held UK citizenship, and the assets sold had first been purchased from the State,” the MailOnline said in its retraction.

“In reporting wider concerns regarding individuals with links to the Kremlin, it was not our intention to suggest that Mr Abramovich himself was connected to corruption, organised crime or human rights abuse in Russia or elsewhere. We are happy to make this clear and apologise to Mr Abramovich for any misunderstanding,” the MailOnline concluded.

Serious book

Whatever the issues with sourcing are, “Putin’s People” is a serious book. It was met with widespread praise on its release, as it is unusually well researched and scrupulously footnoted, giving it a gravitas that raises it above the raft of “Putin’s Russia” exposes that have become a cottage industry in the last two decades.

In a testament to the book's clout and the stir it caused when it came out, in one of anti-corruption activist and opposition politician Alexei Navalny’s last videos talking about Putin’s Palace before he was jailed, Navalny appears holding a copy of Belton’s book while talking about the corruption of the Putin regime it describes.

 

Moreover, Belton is a Moscow veteran, having joined the legendary Moscow Times in its 1990s heyday before moving on to Business Week bureau chief and eventually becoming the Financial Times correspondent in Russia. She knows her Russia onions like few others on the Moscow beat.

The problem is that the Chelsea FC claim – one of the most sensational in the whole book – is based on a single source, Pugachev, who has become a regular fixture for any Putin expose. The BBC also released “Putin: the New Tsar” which goes over much of the same ground last year and also relied heavily on an interview with Pugachev.

Part of the reason why he is sought out is that it is very difficult to get any information on what happens inside the Kremlin, and Pugachev is also unique as he spent almost a decade inside Putin’s Kremlin and now is pretty much the only oligarch from that circle that is in exile and willing to talk. Pugachev is a unique source for any investigative journalist.

Parts of Pugachev’s claims are easy to prove. There is no doubt that Abramovich was also a Kremlin insider and knows Putin very well. Abramovich was a key figure in the so-called Family clique that surrounded Yeltsin together with the president’s daughter Tatiana Yumasheva at the end of the 90s, where he was dubbed “Yeltsin’s cashier” by the local press -- a charge that Abramovich has constitently denied.

Abramovich is widely credited with, together with Yumasheva, personally picking Putin for the job of Prime Minister in 1999 which gave him the platform to become President in 2000 – although there is no concrete evidence for this other than that the Family clique was effectively running the country at the time as Yeltsin became increasingly unwell.

After Putin took over in 2000 Abramovich became governor of Chukotka, and remained in the Kremlin’s orbit. But he also began to scale down his business activities in Russia, most notably selling his oil firm Sibneft (now called Gazpromneft) to the state-owned gas giant Gazprom. Abramovich still has significant investments in Russia in real estate and the steel sector, amongst other things, but today keeps a very low profile and is much less active than in the 1990s.

While Abramovich was often referred to as Yeltsin's cashier, Pugachev was said to have stepped into the role as the "Putin's banker", according to speculation in the press at the time

However, this claim has been controversial from the start. The phrase “Kremlin’s cashier” was coined by Yeltsin’s former bodyguard Alexander Korzhakov in 1998 quoted in an article in Kommersant. Korzhakov himself was controversial character and widely criticised for interfering in government affairs and business. He made the cashier comment after he had been sacked after getting into a power struggle with the Prime Minister. Kommersant said that it had investigated the claim but could find no evidence to support the claim and none has ever been presented.

Likewise no evidence has been produced to show that Pugachev played a similar role, although he is also routinely accused of playing a similar role. Pugachev was also believed to enjoy special favour due to his proclaimed allegiance to the Russian Orthodox church, as he is a devout believer.

Man on the run

Things started to go wrong for Pugachev in the two years following the 2008 crisis. Pugachev’s source of wealth was his International Industrial Bank (aka MezhPrombank), which has extensive holdings in real estate and owned one of Russia’s biggest shipyards, amongst other things.

In 2010 when the bank finally collapsed bne IntelliNews wrote: “Conventional wisdom has it that seven oligarchs carved up Russia under former president Boris Yeltsin – the so-called seven boyars – but actually there were eight, with Sergei Pugachev a late addition to the club… Pugachev wasn't invited to Yeltsin's first oligarch meeting that ended with the now notorious loans-for-shares deal [in 1995-96], which handed over Russia's industrial crown jewels to the seven. But he was present at the very last oligarch meeting Yeltsin held shortly before the 1998 financial crisis that should have propelled him to riches and notoriety had not the economy collapsed a few months later.”

“However, he sort of made up for it since. An old friend of current Prime Minister Vladimir Putin from St Petersburg, Pugachev escaped the anti-oligarch pogrom at the start of the last decade and thrived in the first part of Putin's first term as president,” bne IntelliNews reported at the time.

One of the largest banks in Russia, IIB's star began to wane in Putin's second term when Pugachev looked increasingly out of step with the way Russia was developing. In 2005 when the entire banking sector was re-licensed as part of a clean sweep, then-deputy head of the Central Bank of Russia (CBR) Andrei Kozlov (who was later murdered by another disgruntled banker) tried to block the inclusion of IIB.

During the beginning of the boom years Putin tried to co-opt the oligarchs’ energy and money with the “ZAO Kremlin” system, where oligarchs were called in for one-on-one meetings and ordered to dovetail their investment plans with what the state wanted to do. But this system eventually fell to pieces and in his second term Putin began to distance himself from the oligarchs, turning instead to his stoligarchs, a small intimate circle of childhood friends, now big businessmen, who won the bulk of the biggest state contracts. The stoligarch system grew out of a 1990s group known as the "Ozero dacha collective" that included leading stoligarchs Gennady Tymchenko and Arkady Rotenberg, and took many years to build up but was fully functioning by the start of the last decade.

In the meantime, shorn of its Kremlin “krysha” IIB ran into real trouble and in 2010 the bank defaulted on €200m of eurobonds in July that year, leading to a cross-default on another €200m eurobond issue which matured in 2013. IIB finally declared bankruptcy in November 2010 owing creditors more than $2.6bn, according to the Central Bank of Russia.

As one of the biggest banks in the country CBR stepped in with an $1bn bailout loan that was supervised by its bank and depositor insurance vehicle, the Deposit Insurance Agency (DIA).

Except Pugachev simply took the money and left Russia for London the next year like so many bankers before him, according to the Russian authorities.

He is now wanted in Russia on fraud and embezzlement charges, while the state took over what was left of the bank and its assets.

London court battles

Pugachev fled to London in 2011 after criminal charges were brought against him by the Russian authorities on charges of misappropriating the IIB bailout money – charges Pugachev denies.

The Russian authorities then launched a multi-year campaign to try to recover some of the money they claim Pugachev appropriated. In February 2012 the DIA obtained a French court order to seize a chateau near Nice that belonged to Pugachev.

The DIA also brought civil cases against Pugachev in the High Court in London where he was living with his younger partner Alexandra Tolstoy, a direct descendent of the famous Russian writer.

The London cases didn't go well for Pugachev, who saw his assets frozen – his partner Tolstoy was reduced to surviving on “only” GBP10,000 a month – and eventually causing him to flee again for France in June 2015. France, which does not extradite citizens to other countries, had awarded Pugachev citizenship in 2009, doesn't extradite its citizens.

Pugachev justified his flight to France after he had found “suspicious devices” under his car which he called bombs in a sensational interview with the Mirror. Belton, who met Pugachev the same week, includes the story in her book and refers to the “devices” several times in the relevant chapter.

However, a police investigation quickly found that the devices were nothing more than tracking devices installed by the corporate intelligence firm Diligence and not bombs. This information was provide to the London courts and included in the official court proceedings in 2016, yet Belton did not update the chapter in question, despite the fact it all happened four years before the 2020 publication of the book. However, the epilogue was updated.

Justice Vivienne Rose later found that Pugachev had “seized on the discovery of these devices as a purported justification for his departure from the jurisdiction and has accorded them an importance for the purposes of this committal application far beyond any significance that he or anyone else accorded them at the time.”

Pugachev's flight to France put him in contempt of a court order by the High Court forbidding him to leave the country. Pugachev claims his life was in imminent danger and so he left, although he told the court he has no recollection of how he left, nor which airport he flew from nor which airline he used.

The essence of Pugachev’s defence in the case brought by the DIA is that Kremlin is pursuing him and persecuting him. He claims the charges brought against him in Russia are politically motivated with the aim of expropriating his business empire, and that DIA officials have threatened his life.

Subsequently, real problems with the DIA have surfaced and it has been effectively closed down and replaced with a new body, the Banking Sector Consolidation Fund (FKBS), after it was reported that the DIA was “riddled with corruption.” Nevertheless, for most of the last decade the DIA was the main vehicle for the CBR to deal with collapsing banks and closing those that had been looted by their owners as bne IntelliNews reported in 2017 “Russia’s great daylight bank robbery.” One of the important functions the DIA had was to try to recover the assets of collapsed and closed banks.

Pugachev hit back at the Kremlin as his legal problems got worse in 2015 with a $12bn international law suite against Russia over the alleged seizure of his assets. He also launched an international PR campaign against the Kremlin, playing on his closeness to Putin and spilling the salacious beans in a series of interviews.

"Over the past several years, Russia has been attacking me, my family and my investments on many sides. I refuse to be intimidated by Russia’s methods," Pugachev told Belton following his flight from UK to France.

Conflicting stories

The veracity of anything Pugachev says has to be taken with a large pinch of salt. The High Court in London was not impressed with Pugachev nor his testimony.

“Having heard Mr Pugachev’s evidence, and read a large number of witness statements and affidavits made in the past by him or by his legal advisers on instruction, I have concluded that I cannot safely rely on any evidence he gave during the hearing,” Justice Vivien Rose said in her ruling in February 2016 that went against Pugachev.

“It is clear that his evidence on many topics changes depending on what he perceives to be the most useful version of events at any given time. I have therefore approached the evidence in this case on the basis that where Mr Pugachev’s evidence conflicts with that of another witness, I prefer the evidence of that other witness.”

To back the point up Pugachev has given a multiple versions of the same story on different occasions. Belton quotes Pugachev as saying he was threatened by “stooges” sent by “IIB’s liquidator” (although she doesn’t name the DIA) who were “three members of a Moscow mafia group” that took him out on a yacht off the coast of Nice and demanded $350mn to “guarantee his family’s safety.”

However, in a 2020 interview with the BBC for its “Putin: the New Tsar” investigation Pugachev tells the same story, except he said the meeting was not with three Mafiosi on a yacht but with representatives of the DIA (which the BBC identifies by name), who met him in a restaurant in Nice and demanded partial repayment for the billion dollar CBR bailout loan.

"They invited me to a restaurant. They said: 'OK you have to pay $350m or we will kill you or your family. If you want, we can cut your son's finger off and send it," Pugachev told the BBC, which followed up by contacting the DIA.

"The DIA denies this ever happened, but what's certain is that Pugachev refused to pay back the money,” the BBC reported.

Belton is not blind to Pugachev’s shortcomings, but constantly plays them down. She also quotes part of Justice Rose’s ruling in her book, including Rose’s comment that she could not “safely rely on any evidence he gave,” but throughout the Pugachev sections Belton seems to accept his evidence at face value with little criticism and/or attempts to verify its veracity.

“Everyone has gotten used to spies wearing dark glasses and looking suspicious in films,” said Pugachev as cited by Belton. “But [in London] they are everywhere. They look normal. You can’t tell.”

If you can’t tell, how did Pugachev know they were spies? Belton lets this comment go by and Pugachev’s comments on a “Kremlin envoy” sent to threaten him are also unchallenged. Pugachev admits "the envoy" is also a former friend from Moscow. Of course there was no way for Belton to independently verify many of these statements, but some of them are clearly hyperbole.

Talking about Pugachev’s conviction for contempt of court and the two-year jail sentence for leaving the country, Belton goes out of her way to exonerate him.

“Despite the Kremlin having expropriated his business empire, and having begun to fear for his life, Pugachev was found in contempt of court for fleeing the UK, and sentenced in absentia to two years in jail,” writes Belton, skipping over the $1bn of CBR bailout money the Kremlin accuses him of stealing and the bankruptcy of IIB, which was the reason why Pugachev was in a UK court in the first place.

Indeed, Belton is dismissive about the charge that Pugachev stole a billion dollars of bailout money, which she blithely dismisses as a “Kremlin asset grab” on several occasions. Reports on this stolen money are also dismissed as the result of a Kremlin PR machine, “honed to fill the pages of the UK tabloids with allegations of the Russian oligarch’s stolen wealth.”

Moreover, Belton contends that Pugachev was a “fish out of water” in the UK courts, “totally incapable of operating according to their unfamiliar rules and procedures,” while at the same time holding him up as a leading Putin insider able to navigate the high-powered politics of Kremlin machinations. We are asked to believe that one of the most successful Russian banking oligarchs was tripped by a British court’s procedural rules because he was “too accustomed to the backroom deals of his Kremlin past.”

“For all his flaws, Pugachev insisted he had been caught in a Russian state vendetta pursued through the UK courts,” concludes Belton in explanation of how he got sentenced to jail by a UK court, before moving on to discuss the Kremlin’s motivations for persecuting Pugachev.

Russia reporting and sanctions

This case will be closely watched by Russia-watchers, as it could have important consequences not only for reporting on Russia but also the mooted sanctions on oligarchs close to Putin.

What the case will do in effect is put the “Russia narrative” on trial by demanding allegations need to be reasonably proven to be true, if Abramovich wins.

The constant complaint of serious Russia watchers is that the majority of exposes – such as the Steele report, which has been comprehensively debunked in the meantime – are based on shoddy, one-source anonymous sources that most editors would spike if they were about anywhere else other than Russia. The Sun and The Mail’s expose of “Putin’s UK kill list” last week is a prime example.

Belton’s book is important, as she spent years researching it and did hundreds of interviews, giving it a gravitas that is usually missing from most Russian conspiracy theory reporting.

However, Sergey Radchenko, a professor at Cardiff University, also accused Belton on Twitter of making use of one-source anonymous sources (all scrupulously footnoted) that undermines the authority of the book.

In the welter of claims and counter-claims published by “insiders” it becomes pretty easy to construct any theory you want. The point is illustrated by the Mirror’s splash on the bombs under Pugachev’s car that turned out to be nothing – but a fact that was never acknowledged by the paper.

Another example is The Guardian journalist Luke Harding’s book “Collusion” claiming that US President Donald Trump was colluding with the Kremlin: a claim that was also eventually debunked by the Mueller report.

A third example is the reports of Russia paying “bounties” to Afghans to kill US soldiers that US President Joe Biden included in the brief for an intelligence agency report on Russia he commissioned as soon as he took office that has also since been debunked. No mention of the bounties was made in the declassified version that was recently released.

The bottom line is: Pugachev is a deeply flawed witness. And yet he comes up time and time again in exposes of the inner workings of the Kremlin as one of the few sources in exile that had access to that circle at that time. Getting access to information on what goes on inside that circle is incredibly difficult. But having some idea of what is happening is also clearly in the public interest and that can be used in court to justify what normally could be seen as shoddy reporting.

What will happen now is the truth of his information will be put on trial and presumably some sort of line will be drawn.

The result of the case could also have implications for the mooted sanctions on oligarchs “close to Putin” as part of the US next round of sanctions as well. Not only does Abramovich clearly qualify as close to Putin, but Navalny specifically named Abramovich and Uzbek-born Alisher Usmanov as two oligarchs that should be sanctioned by the West.

The trouble is there is a double standard at work here too. While Abramovich is disputing what he claims are lies about his decision to buy Chelsea and wants to be protected by British libel laws, the oligarchs can point to the Western legal principle of "innocent until proven guilty." Sanctions and their punishments assume guilt for merely being close to Putin – hearsay – without any due process whatsoever. If Abramovich wins his case against Belton and Harpers presumably it will make it more difficult to sanction nominally independent businessmen without actual evidence they are colluding with the Kremlin. And despite spending years researching her book, Belton’s legal problems today show just how hard it is to actually gather that evidence.