Chelsea are back in fashion but Roman Abramovich is out in the cold

Special report: Roman Abramovich never hid source of his wealth and was wounded by British governments reluctance to renew visa; transfer ban increases feeling of Chelsea being on hold

In the final minutes of Chelseas crisp win over Crystal Palace in their last home match Frank Lampard put a fatherly arm around 18-year-old Billy Gilmour before sending him scampering on to become the sixth academy graduate to feature in the Premier League derby. At the west London club which first imprinted an oligarchs stamp on English football, Chelseas sparkling, homegrown version this season a club legend appointed as manager promoting young players is the unexpected result of fundamental contradictions running through the club.

The most obvious is that Chelsea have effectively been forced to give these opportunities to teenagers who just months ago were pining for moves or loans to get some playing time. In February Fifa banned the club from making any new signings for two transfer windows after Chelsea were found to have serially breached the registration rules in the ferociously competitive trawl for under-18 players from overseas.

The most striking is that Chelseas owner, Roman Abramovich, the Russian multi-billionaire who has spent 1.125bn in loans on the club since his transformational takeover in 2003, is never at Stamford Bridge these days to see his sparkling team. For 15 years he was welcomed into London and Premier League football, garlanded as his money bought Chelsea stars and trophies, and few questions were asked about him or the source of his billions. Then last year the British government delayed renewing Abramovichs Tier 1 investor visa, as part of its suddenly keen concentration on Russian presence and money in the UK. He appeared to have been caught up in Britains retaliatory action aimed at the Russian president, Vladimir Putin, following the March 2018 outrage, the Novichok poisoning in Salisbury of the former Russian spy Sergei Skripal and his daughter Yulia.

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Chelsea
Chelsea fans unveil a banner at Anfield in August 2003, shortly after Abramovich completed his takeover. Photograph: Tom Jenkins/The Guardian

Abramovich abandoned his UK application after that delay and two months later, in May last year, he took Israeli citizenship for which, being Jewish, he qualifies automatically. At the same time he abruptly cancelled the 60,000-seat new stadium which had been long in expensive development and for now Stamford Bridge is remaining in its somewhat tired state, significantly smaller than the gleaming, expanded homes of Chelseas top-six rivals. In the 18 months since Abramovich is thought not to have been to a Chelsea match in the UK.

The clubs chairman. Bruce Buck, talking to the Guardian in one of the east stand hospitality boxes, said that despite the impression Abramovich deeply resents his public snub and the club seeming to be on hold, the owner is absolutely not considering selling Chelsea. Abramovich is still intensely involved in daily detail, Buck says, particularly the football itself, players contracts and the academy, and has said nothing about selling.

So far as I know, absolutely not; to the contrary, Buck said. I have never heard a word from Mr Abramovich: Lets get this ready for a sale, or something. Roman is Im not lying to you as involved as I said he is and is I believe as in love with the club as he was on 1 July 2003 [when he bought Chelsea]. And thats really all I know about selling the club.

The deepest contradiction about this apparent standoff is the idea, prompted by the governments frostiness, that there was suddenly something mysterious about Abramovichs wealth or his good relationship with Putin. There has never been any mystery about the source of Abramovichs billions, the corrupt means by which he made it in the lawless Russia of the 1990s, or his favoured status with Putin. It was then extraordinarily well documented in a British high court judgment which set it all out in 2012.

The detail has been there all along. But with London opening its arms to Russian money, and Abramovich portrayed as an enigmatic benefactor in his box at Chelsea, few in Britain have been inclined to look at it.

Abramovich
Abramovich on a visit to the Western Wall in Jerusalem old city in February 2006. Photograph: Orel Cohen/AFP via Getty Images

How to make billions

When read in full, the 500-page court judgment by Mrs Justice Gloster is remarkable on three levels. First, that it so straightforwardly chronicles the political corruption, physical protection, rigged auctions and good relations with Putin which enabled Abramovich to access an oligarchs fortune in Russia and maintain it. Second, that Abramovich openly presented his corrupt arrangements with another Russian oligarch of the time, Boris Berezovsky positively, as his actual case in court, because it was how business was done. Third, that the British high court documented it all with a kind of approval, including arrangements to legalise Abramovichs huge payments for protection to Berezovsky and to his partner, a Georgian tough guy Badri Patarkatsishvili, which otherwise risked being considered money-laundering.

Gloster found in favour of Abramovich in his defence to the $5bn lawsuit brought against him in London by Berezovsky, who had fallen perilously out of favour with Putin. Berezovksy claimed Abramovich had intimidated him into accepting only $1.3bn for his half share of the vast oil company Sibneft, which they had formed in 1995 through their association and Berezovskys closeness to Boris Yeltsin. Abramovich argued they never had a formal agreement to share ownership 50-50, that Berezovsky had supplied him with political influence, and Patarkatsishvili with physical protection, and so the $1.3bn had been Berezovskys final payoff.

The judgment sets out clearly the context for Abramovichs rise and that of the other oligarchs: the tragedy of Russia after communisms final collapse in 1992, when there was no orderly transition to western-style democracy and a corporate economy.

Instead, Gloster observed, Russia became Europes Wild East, with immense social upheaval, the partial collapse of old structures of authority, the enfeeblement and the impoverishment of the state and the disappearance of the rule of law.

Abramovich started working life as a mechanic, then completed courses in engineering and law, and he was 28, a moderately successful businessman, mostly in petrol trading, when in December 1994 he first met Berezovsky on a yacht cruise in the Caribbean.

Berezovsky was a former scientist and celebrated mathematician who had become wealthy through car dealerships and banking as Russias old structures disintegrated. In the violent, administrative chaos he had worked his way into Yeltsins inner circle and attained political significance.

Abramovich characterised his relationship with Berezovsky in his evidence to the court as krysha roof in Russian. It meant political influence to secure his business advancement, and Abramovich said that his krysha relationship with Berezovsky also included necessary physical protection provided by Patarkatsishvili.

Gloster found for Abramovich, that his relationship with Berezovsky was founded principally on political krysha or protection, not a 50-50 partnership.

It was also Mr Abramovichs case, she noted, that the lobbying activities of Mr Berezovsky, as a protector providing political krysha for Mr Abramovich, were inherently corrupt; and that, likewise, the deal between the two men, whereby Mr Abramovich agreed to pay Mr Berezovsky for his krysha services, was also corrupt.

[Abramovichs barrister Jonathan Sumption QC] accepted that Mr Abramovich was privy to that corruption but submitted that the reality was that that was how business was done in Russia in those times.

Boris
Boris Berezovsky and Roman Abramovich in the State Duma in Moscow, June 2000. Photograph: SVF2/Universal Images Group via Getty Images

The judgment makes it clear that Sibneft, the oil giant which made Abramovich a billionaire, was created by Yeltsin because Berezovsky promised he would use some of the proceeds to support the president with TV propaganda in Russias 1996 election.

By decree Yeltsin in August 1995 merged the oil producer and refinery, creating the huge Sibneft, immediately one of Russias largest companies, to be 51% owned by the state, 49% sold by auction.

The way Abramovich obtained control is set out in the judgment; initially his route was through one of the notorious loans-for-shares schemes, for the right to manage the governments 51% of Sibneft. In the loans-for-shares auction Abramovich and Berezovsky made a joint bid of $100.3m, a very large amount of money to raise in Russia at a time when western banks and investors were avoiding involvement in the country.

The judgment says of this price, however, that Abramovich, Berezovsky and Patarkatsishvili effectively had persuaded other potential bidders, by various means, either not to bid at all, or to put in bids of lesser amount.

Abramovich next bought that 51% in another auction process in May 1997, after Yeltsins government defaulted on repaying the $100.3m loan. Abramovich and Berezovskys company NFK, which had been managing the stake, held the auction and sold it to a newly formed Abramovich company, FNK, for $110m.

Abramovich bought the overwhelming majority of the remaining 49% in Sibneft via three auctions in 1995 and 1996, in which he exploited that opportunity by using Sibnefts own money. Sibneft was a vast oil company, integrated from producing crude to refining it, although Abramovich and his management did have to significantly improve its operations and transformed Sibneft from a loss-making Soviet-style bundle of assets into a competitive, profitable, modern corporation.

Within just three years Sibneft was making a 315m profit; in 2000 the profit was 675m. Berezovsky wanted money immediately to fund the ORT TV station and support Yeltsin politically, and Abramovich was able to pay him huge sums: approximately $760m between 1995 and 2000.

Oligarchs and the president

The judgment gives a flavour of Putins ruthlessness as he rose through heading Russias security service to senior political positions, then in May 2000 became president. At a meeting he held with oligarchs in July 2000, shortly after he was inaugurated, Putin was reported to have told them he would not review or try to undo the privatisations and auctions which enriched them and outraged many in Russias population if they did not oppose him in politics.

Berezovsky fatefully did criticise and oppose Putin; in August 2000 ORT broadcast criticism of Putins handling of the Kursk submarine disaster, in which 118 men were killed.

Two months later Putin said in an interview in Le Figaro, referring to the oligarchs: The state is holding a big club in its hands, which it will use only once. To deliver a crushing blow on the head.

Just four days after that criminal charges were announced against Berezovsky in relation to alleged fraud at the Aeroflot airline. He fled to France and was ultimately given asylum in Britain.

Abramovich has never criticised Putin and from early on was involved in activities which pleased him, such as becoming the governor of the remote and impoverished Chukotka region in 2000, which he modernised, spending large sums of money on public projects. Abramovich even bought Berezovskys stake in ORT in 2000 to neutralise the criticism of Putin. He explained I would suffer personally and most importantly Sibneft as a company would not be stable if Berezovsky did not stop using the TV station to criticise Putins government.

Gloster noted of Abramovichs relationship with Putin that he was not in the inner circle, nor was he in a position to manipulate or otherwise influence Putin, but that: It was clear from the evidence that Mr Abramovich enjoyed very good relations with President Putin and others in power at the Kremlin It was also clear that Mr Abramovich had privileged access to President Putin.

Vladimir
Vladimir Putin meets with Abramovich at the Kremlin in May 2005. Photograph: Itar-Tass/Reuters

Abramovich agreed to pay Berezovsky the $1.3bn in January 2001; Berezovsky had fled Russia by then and they met at a luxury hotel at Courchevel, in the French Alps.

Abramovich, denying Berezovskys claim of a 50-50 agreement for the ownership of Sibneft, explained the payment as buying myself my freedom from the krysha relationship. It was, he said, an opportunity to close this particular chapter in my life.

In 2003 Abramovich paid Patarkatsishvili $585m, which he said was for krysha protection in aluminium ventures. The court judgment includes a long analysis of how these payments were presented to satisfy western banks anti-money laundering regulations.

In 2005, just eight years after he bought Sibneft, Abramovich sold his stake to Gazprom, a company majority owned by Putins government, for 7.4bn, exponentially more than he paid for it.

The Premier League

Bucks law firm acted for Abramovich in the acquisition of Chelsea in 2003 and in the successful case against Berezovsky; he declined to comment on the case, the way Abramovich made his money, or his current visa issues, due to client confidentiality.

About the Chelsea purchase Buck repeated the frequently told story that Abramovich had recently acquired a love for football after he went to a match, the 2003 Champions League quarter-final at Old Trafford, when Manchester United beat Real Madrid 4-3 but lost 6-5 on aggregate.

After he decided to buy a club they hired Citibank as advisers; they held a review and suggested Abramovich should consider United, Aston Villa, Tottenham Hotspur, or Chelsea.

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I cant quite remember the reason for [him choosing] Chelsea, Buck said, but I assume that is where they saw the best opportunity balanced against the best price. Like when youre looking to buy anything.

The Premier League at the time had no fit and proper person test for owners or directors of Englands historic clubs. But if they had, Abramovichs record, with no convictions for any criminal offence, would not have prevented him taking over, injecting his multi-millions and changing the English game. Richard Scudamore, then the chief executive of the Premier League, valued the investment coming into clubs.

If any questions were asked about Abramovich the league would justifiably point to the general welcome being afforded him in London, the property he was buying and ask on what basis football should make a different judgment.

Buck says Abramovich told him and the other executives that he had three priorities when he bought Chelsea. The first was: Have success very promptly. And that meant a lot of money in the early days invested in players.

It is a stretch now to remember how alien it was to Englands traditional football culture when Chelsea began to splurge on mostly overseas stars, funded by an owner with no previous connection to the club, to capture the games highest prizes. In his second season, after hiring Jos Mourinho and signing for him Didier Drogba, Arjen Robben, Petr Cech and Ricardo Carvalho, Paulo Ferreira and Tiago Mendes, three Portuguese players represented by Jorge Mendes plus several more stars and the wages to attract them, Chelsea were on their way to acquiring titles and recorded a financial loss of 141m.

That was by far a record in football history until Manchester City lost 197m in 2010-11 . The second priority, Buck says, was to invest in the academy to foster success long-term. For years barely a single Chelsea youth player made it regularly into the first team until now, with the talents given their chance by Lampard, sparked by the transfer ban.

Still
Still welcome at Stamford Bridge: A flag in the stands at the Europa League semi-final against Frankfurt. Photograph: Mike Egerton/PA Images

The third was to do something for the community in the broader sense, which Buck says informed the work of the Chelsea Foundation, in which the club spends 3% of its revenues, around 12m-15m, on social projects, including initiatives to counter racism and antisemitism. These are continuing despite Abramovichs absence from the club and his representatives say that in Israel he is also involved in social projects and technology start-up companies.

Abramovichs Israeli passport does entitle him to come to Britain and, although not to work directly for money, he can go to Chelsea and have meetings and watch matches if he wants to. Asked whether he put the stadium on hold in indignation at his treatment by the government, Buck says: He put it on hold a few months after the incident in Salisbury; we can all draw our own conclusions as to whether thats related.

He declined to say how Abramovich feels about being made unwelcome, after the UK accepted him and his money for so long. But the impression of Abramovich feeling unjustly targeted and rarely visiting, and the stadium project postponed, creates a perception that Chelsea is on hold and the young players are being given opportunities in that stasis.

Buck says no and is emphatic that Abramovich is still committed to Chelsea: I understand what youre saying and it is hard to disprove it, except to say: lets see what happens in the next transfer window. The point I am making its a glib one if we go out in the next window and spend a zillion, its pretty hard to argue that things are on hold.

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