#20 | October 23 - November 5, 1997  

Boris Jordan: "The actions against me are based only on emotions...on the emotions of my rivals, and not on law." New evidence, however, shows that Jordan's rivals may have had more than emotions to guide them.

When American financier Boris Jordan was denied entry into Russia two weeks ago, the Western business community joined Jordan himself in crying foul. They called the denial of entry to Russia's most visible foreign businessman, a man who had brought hundreds of millions of dollars of investment into the new capitalist state, evidence that the the country has not yet matured beyond the clannish insider dealing that have plagued the economy in recent years. New evidence in a complicated bribery case, however, shows that the Jordan incident may illustrate a somewhat different phenomenon-one in which leading Western business figures can themselves become caught up in the same cutthroat insider tactics they publicly decry.

eXile readers will recall that Uneximbank, Jordan's big commercial ally here, recently came under fire when it was reported that they had paid an apparent bribe to former state privatization chief Alfred Kokh in the form of an inflated book advance. Information obtained by the eXile this week, however, shows that it was a relative of Jordan himself who formed the Swiss shell company through which that book advance was paid.

If true, the story may bear out a commonly-held notion that even the most prominent Western businessmen find it difficult to do business in Russia without resorting to shady insider tactics. It is a notion we usually hear communicated in the form of sanctimonious denunciations of Russian business ethics, which have been volubly printed in Western press articles.

Those sanctimonious detractors have a point: in recent years, particularly in the area of large-scale auctions of state properties, the most successful businessmen in Russia have been those who have been able to maintain connections with government officials in charge of administering the privatization effort. The most notorious example, of course, were the so-called "loans-for-shares" tenders of 1995, in which the winners were often the same banks that were put in charge of organizing the auctions.

Jordan and his company MFK- Renaissance are aligned with one of the big winners in those auctions, the powerful Uneximbank. This past summer, Uneximbank also scored major wins in two massive auctions of state property (Svyazinvest and Norilsk Nickel II), causing its commercial rivals, in particular Boris Berezovsky and Vladimir Gusinsky, to accuse the bank of unfair play.

Uneximbank's rivals were particularly incensed over its winning bid for 25.1% of Svyazinvest, a bid that Jordan helped secure by attracting over $1 billion in financing from American investor George Soros and Deutsche Morgan Grenfell, an investment bank where Jordon's brother-who was instrumental in bringing Morgan Grenfell into the deal-works. After that auction, both the winners and the losers pursued public smear campaigns against one another in what has come in Russia to be known as the "bankers' war."

After Jordan had his multi-entry visa revoked at the border last month, he described the incident as just another sortie in this ongoing "war." "The actions against me are based only on emotions . . . on the emotions of my rivals, and not on law," he said.

Jordan was eventually allowed back into the country and given a three-month, single-entry visa after Deputy Prime Minister Boris Nemtsov intervened. "We cannot build a fair market economy if these kinds of tactics are being used," Nemtsov said.

Although Jordan, Nemtsov and others paint the visa incident as a simple act of vengeful retaliation on the part of sore losers against honest businessmen, there is evidence to suggest that Jordan may in fact be linked to the Kokh scandal which would seem to have rightfully incensed Berezovsky, Gusinsky and all the other Svyazinvest losers.

The case against Kokh revolves around a $100,000 book advance he declared in an official income declaration he turned in this summer. News reports by Novaya Gazeta, and subsequently by the Financial Times, revealed that the Swiss publishing company Servina that paid the advance had been commissioned by Uneximbank's Zurich office to publish the book.

As State Property Chief, Kokh held enormous influence in the Svyazinvest auction, and the Servina link seemed to suggest that the $100,000 might have been a bribe to help secure Uneximbank's victory. The advance was particularly suspicious given its size-there are few authors in the world who could command such a sum-and given the fact that the Kokh book, which has not yet been written, would apparently have been Servina's first in its four years of business.

Russian newspapers have speculated that Kokh helped Potanin secure the bid by meeting with Berezovsky and Gusinsky prior to the auction and misleadingly tipping them off to the size of the Uneximbank bid-faking them out, in essence, by convincing them that Potanin was going to bid lower than he was actually planning to.

This week, we learned that the law firm which incorporated Servina, a partnership called Secretan Troyanos, is headed by a relative of Boris Jordan's. In a phone interview, Tikhon Troyanos confirmed that he is a relative of Jordan's and in "regular contact" with him.

Troyanos declined comment on the potential conflict of interest involved, given Jordan's role in the telecommunications bid, but did say that Servina had not been his firm's client since 1994. He would not comment on the link between Servina and Uneximbank.

A spokesman for Renaissance Capital classified the link between Jordan and Servina as a coincidence.

"Mr. Troyanos has a large firm and has a number of Russian clients," he said. "It is not unreasonable to expect that he and Mr. Jordan would have some overlapping, certainly coincidental interests."

The Renaissance spokesman, however, did not deny the familial relationship between Jordan and Troyanos ("Mr. Troyanos is a first cousin, once removed"), meaning that Uneximbank and MFK-Renaissance are now asking that we swallow the following series of coincidences and incredible assertions if we want to believe that the Svyazinvest auction was not rigged. Those assertions are:

1) Kokh received a $100,000 advance for his book because that reflects the publisher's realistic expectation of its market value.

2) Uneximbank commissioned the publication of the book because it sincerely believed it would be an interesting and profitable project, and not because it had any motives with regard to the Svyazinvest auction.

3) The Kokh book would have been Servina's first in its four years of business because it has simply been very slow to locate promising publishing projects.

4) The fact that Servina was incorporated by a relative of one of the major winners in the Svyazinvest auction was a coincidence. Observers said that the latter link occurring by accident would be unlikely, and in any case may, by its mere existence, poses an ethical problem. Richard Prior of the international commercial investigative firm Kroll Associates, when presented with a hypothetical version of the case with the names left out, said that such a family link might constitute an "ethical problem."

"If that familial link could be borne out, there could be a conflict of interest there," he said.

Another prominent Moscow-based American lawyer, who asked not to be named, said that the link was "interesting" and would warrant further inquiry for an investigator. "In itself, that link doesn't prove anything," he said. "But as another link in an evidentiary chain, it's interesting. And given that a whole lot of other scandalous behavior has apparently gone on there, it would seem to increase your expectation that Jordan's family connection was significant and not incidental."

Tatiana Maslova of the Moscow Prosecutor's Office, which is investigating the Kokh case, would not comment on whether or not the government knew of the connection.

"There is still a preliminary investigation underway," she said. "And we can't comment on the particulars until it is over."

Irrespective of his link to the Kokh case, Jordan has been in the hot seat lately. After the visa incident, Berezovsky held a press conference in which he classified Jordan's ascension to the presidency of MFK as a state security risk. Berezovsky said that having a foreign national at the helm of MFK, a bank which handles accounts for weapons producers like MIG and Rosvoruzheniye, was inappropriate and should be investigated.

Subsequently, a motion was put forward in the Duma calling for a parliamentary inquiry into the potential security risks involved with Jordan's nomination. The Duma has yet to conclude its inquiry.

Further evidence that Jordan may be in trouble from another quarter came out this week when Federal Securities Commission chairman Dmitry Vasiliyev said that MFK would be prohibited from dealing in securities if Jordan is named chairman. The announcement by Vasiliyev strengthens the notion that the Potanin/Chubais axis is now under attack not only from Berezovsky, Gusinsky, and SBS Agro chairman Alexander Smolensky, but also from former Chubais ally Vasiliyev, who had a philosophical split with Chubais this spring over the proposed future shape of the FSC.

The controversy over Jordan's role in Russia is striking, given the fact that Jordan has come over the years to represent the West's best hopes for the economic reform movement. He is probably the most successful Western entrepreneur in Russia: his MFK-Renaissance bank reportedly manages over $1 billion in assets and handles key government accounts, and his influence in securing Soros's participation in the Svyazinvest bid has made him an invaluable commodity to Potanin.

Shortly after he arrived here in 1992 as a trader for Credit Suisse First Boston, Jordan made a name for himself when he helped his firm secure 17 million of the 144 million vouchers issued during the first round of Russian privatization, allowing Credit Suisse to buy up valuable stakes in Russian enterprises at low prices. The New York Times reported that year that Credit Suisse's Russian earnings were $66 million that year, while Jordan himself earned a bonus of over $4 million. Other people estimate Jordan's earnings that year as having been much higher.

Credit Suisse's voucher success was the first major coup for a foreign company in post-communist Russia, and helped establish Russia's reputation as a place where foreigners with a little imagination might make a fortune.

An American of Russian heritage and a graduate of New York University, Jordan's successes here in Russia have, to date, been portrayed in numerous press accounts as an inspirational tale in the spirit of Horatio Alger-a self-made man showing pluck and courage in a hostile, untamed economic climate. He himself has also pointed to his own successes, and the participation in the market by such players as George Soros, as an indication that the Russian market is fast becoming a civilized investment environment.

Conversely, when he was denied entry into the country two weeks ago, he described it as a setback to Russia's economic maturation process.

"When someone . . . has his visa removed for competitive reasons, it still shows that Russia's playing field has not matured to that of the rest of the world," he said.

But Boris Jordan's experiences in Russia may ultimately show that Westerners themselves do their own "maturing" when they come to Moscow to do business. "In the absence of rigid laws, most business deals here are concluded in a sort of ethical shadow zone," said political analyst Andrei Piontkowsky. "And with such a tremendous amount of money at stake, there are many Westerners who are unable to stay out of that shadow zone or negotiate it effectively. The Jordan story may demonstrate that."