Uh oh. Looks like the CIA has competition.

December 18, 2007

Former Russian Spies Are Now Prominent in Business

MOSCOW — At a venture capital conference in Silicon Valley, Oleg S. Shvartsman mixed easily among the titans of private equity.

“He didn’t stand out from the crowd,” said Evgeny Zaytsev, the organizer of the conference on Nov. 9.

That is, until he acknowledged in a newspaper interview that the $3.6 billion group of equity funds he manages serves investors “close to the top of the F.S.B. and S.V.R.,” the domestic and overseas espionage agencies of the Russian government.

Russians and outsiders have long suspected that the Federal Security Service, or F.S.B. by its Russian initials, successor to the K.G.B., has had a hand in Russian business. But Mr. Shvartsman’s statement, the boldest such assertion yet, has generated debate over the appropriate corporate role for spies and ex-spies.

Highly educated and well connected, former Federal Security Service officers include among their number Russia’s president, Vladimir V. Putin. And Mr. Putin has seeded former colleagues throughout government and appointed them to boards of state-run corporations.

For big Western companies, the prevalence of former Federal Security Service agents in Russian business is raising questions of ethics and due diligence, as a growing number — including Boeing, Exxon Mobil and Renault — have business transactions with Russian companies linked to former spies or members of the political police.

Boeing and Exxon declined to comment on their companies’ due-diligence criteria for deals with former K.G.B. officials. A spokeswoman for Renault said her company was “not concerned” with the matter.

“We look at AvtoVaz as an interesting partner,” the spokeswoman, Olga S. Sergeyeva, said, referring to Russia’s largest carmaker, “so we work with the people who manage the factory. That person is Chemezov.” Sergei V. Chemezov, chairman of the state-run Russian Technology, is a former K.G.B. agent who served with Mr. Putin in the east German city of Dresden in the 1980s.

“Very creepy” was how one European manager of an equity fund invested in Russia described his dealings with the leadership of a company run by former security service officers. He did not want to be identified making the assessment because he wants to do business with the companies.

There is nothing illegal about such dealings, and Russia is an attractive emerging market. The country has drawn $45 billion in Western capital so far this year. And as Mr. Shvartsman’s foray into Silicon Valley, presumably in search of investment opportunities for his funds, showed, Russians are also stepping up their investment abroad of tens of billions of dollars, part of the country’s windfall from high oil prices.

It could also be argued that the role former members of the intelligence services play in business here is similar to the outsize role the Chinese Army plays in businesses there.

Currently serving security service employees are prohibited from working outside the service, according to Gennadi V. Gudkov, a member of parliament and a former K.G.B. agent.

Only, according to an old Russian axiom, no one ever leaves the service. Mr. Putin himself said in his 2000 presidential campaign, using a post-1917 revolution name for K.G.B. precursors, that “there is no such thing as a former Chekist.”

In the interview published in the newspaper Kommersant, Mr. Shvartsman described other fund investors as “not the leadership of the presidential administration, but members of their families.” And he boasted that his ties to the secret police helped his company, the FinansGroup, buy businesses in Russia at knock-down prices because business owners, he said, “know where we come from.”

Mr. Shvartsman suggested that he had F.S.B. backing for corporate raiding, a term that is often more than just a figure of speech in Russia’s bare-knuckle business world.

The assertions sent ripples through business circles here, though the Kremlin spokesman, Dmitri S. Peskov, dismissed Mr. Shvartsman’s statements as “absolutely untrue.”

Still, the European Bank for Reconstruction and Development and a leading Israeli bank, Tamir Fishman, pulled out of a deal with Mr. Shvartsman to create the Tamir Fishman Russia Venture Capital Fund.

Just last week, Renault signed a memorandum of understanding to buy 25 percent of AvtoVaz, and manage it in partnership with Mr. Chemezov’s Russian Technology.

To be sure, intelligence agency officials have become businessmen in other countries, too. The first President Bush was director of central intelligence in the 1970s and, more recently, a senior adviser to the Carlyle Group, a private equity firm, until 2004. And some Western businessmen here say that the K.G.B., with its language training and networking opportunities for the young and ambitious, is a good school for international business.

Aleksandr Y. Lebedev, a Russian airline tycoon whose estimated worth is $3.5 billion, was a K.G.B. agent in London in the late 1980s.

In an interview, Mr. Lebedev said that seeing the great gap in economic development between the West and the Soviet Union in the 1980s made reformers of some in his generation of Soviet spies. Thus, the characterization of the K.G.B. as an inherently reactive force is a misperception, he said, and it should not be surprising that former agents became free-market enthusiasts. Last month, the Russian edition of Smart Money magazine published a cover article proclaiming, “The K.G.B. Is better Than an M.B.A.”

In Russia, there may be some logic to that reasoning. Boeing is buying titanium for its new 787 Dreamliner jet from a company run by Mr. Chemezov. Exxon Mobil is a partner in a Sakhalin Island oil development with Rosneft, a huge Russian energy company whose chairman, Igor I. Sechin, is a former intelligence officer. Mr. Sechin is also Mr. Putin’s deputy chief of staff.

One son of the Federal Security Service director, Nikolai Patrushev, worked at the state foreign trade bank, the VTB Group, and another worked at Rosneft.

Sergei B. Ivanov, a first deputy prime minister and former K.G.B. agent who served in London, is chairman of the state aircraft-making monopoly. His son was vice president of Gazprombank, the banking arm of the Russian natural gas monopoly.

“Due diligence has become something of a headache sorting this all out,” a Western business consultant, who did not want to be further identified criticizing the Kremlin, said.

And Yevgenia M. Albats, author of a 1994 book on the K.G.B., “The State Within a State,” said, “The F.S.B. is no longer just a police organization, it is a business.”

In exchange for loyalty, Mr. Putin has allowed top F.S.B. officials to tap business opportunities in Russia’s oil-boom economy by acquiring stakes in companies in oil, telecommunications, retailing and finance.

“The problem is, this business has the power of violence,” Ms. Albats said. “It has troops and intelligence equipment.”

Whether the security service will retain its power remains to be seen. Last week, Mr. Putin endorsed Dmitri A. Medvedev, the other first deputy prime minister, to be Russia’s next president, a step that most here assume makes Mr. Medvedev’s choice a certainty. Mr. Medvedev has no known background in the security services.

After the publication of his interview, Mr. Shvartsman asserted that the Kommersant journalist, Maksim Kvasha, had used “literary license” in transcribing his statement, though he did not take back any of the specifics. In an interview on Echo of Moscow radio, he said the journalist should “drink poison.”