1. Taking on Putin’s legal system has made this man a billionaire

Taking on Putin’s legal system has made this man a billionaire

Moscow mobsters were among the first to learn how difficult it can be to take something away from Dmitry Kamenshchik.

By: | Published: July 12, 2017 4:22 PM
putin, dmitry kamenshchik, vladimir putin, billionaire dmitry kamenshchik Dmitry Kamenshchik. (Bloomberg)

Moscow mobsters were among the first to learn how difficult it can be to take something away from Dmitry Kamenshchik. It was 1992, just after the Soviet Union collapsed, and the future billionaire was raking in cash by arranging international cargo flights for a new class of shuttle trader from a rundown airport on the fringes of Moscow. That’s when two thugs stormed Kamenshchik’s office and demanded all of his money. Elena Tarshis, one of his first employees, will never forget what happened next. “They put a gun to my son’s head,” Tarshis said in an interview. Kamenshchik, a black belt in a Burmese martial art, lunged at the attackers and together with a colleague “managed to disarm them,” she said. That survival instinct would serve the amateur stunt pilot well over the next quarter century as he battled the mafia and then Vladimir Putin’s legal system to emerge as the sole owner of Domodedovo Airport, one of Europe’s busiest hubs and the source of his $3 billion fortune, according to the Bloomberg Billionaires Index. His next act is to try to reclaim the title of Russia’s biggest airport from Sheremetyevo, the main base of state-run Aeroflot PJSC, which is being renovated by billionaire Arkady Rotenberg, Putin’s old judo partner.

Lehman Brothers

Kamenshchik, 49, said in an interview that after spending $3.5 billion over the last two decades to increase capacity 16-fold and lure airlines like Lufthansa and British Airways away from Sheremetyevo, he’s embarking on another $1.3 billion expansion to double maximum traffic to 60 million passengers a year, about what Frankfurt Airport currently handles. None of this would be possible without an army of more than 100 in-house lawyers who’ve parried the thousands of legal claims he’s received from state bodies over the years.

“Domodedovo is probably one of the most audited enterprises in the country,” the hyper-focused bachelor said during a two-hour interview in Bloomberg’s Moscow bureau, jotting down notes as three burly bodyguards looked on. “Our only way to survive is to carefully observe the law.”

Kamenshchik said his “aha moment” came courtesy of a U.S. company he’d never heard of called Lehman Brothers. Then-President Boris Yeltsin’s government hired the now-collapsed Wall Street bank to draft a blueprint for resurrecting Moscow’s four main airports, which saw their collective traffic halve from 1990 to 1993. Lehman concluded that Domodedovo, 45 kilometers (28 miles) southeast of the Kremlin, was by far the most promising venue, in part because it was surrounded by fields and not Soviet residential blocks. “This research had an impact on my destiny,” Kamenshchik said of the 188-page report, which he noticed in the office of an airport official he was negotiating with. “I realized that the main factor in the airport business is the prospect for growth, which is exactly what Domodedovo had.”

Chickens, Rockefeller

The only barrier to entry at the time was money because Domodedovo was all but abandoned, according to Boris Rybak, who has worked in Russia’s aviation industry since the Soviet era and now runs Infomost Consulting in Moscow. “All you had to do to start flying cargo charters was to pay,” Rybak said.

But growing — and protecting — a business required connections in those rough and tumble times, said Sergey Kapchuk, a former bureaucrat who helped Kamenshchik, a fellow native of the Sverdlovsk region in the Ural Mountains, solve some issues at Domodedovo. Kapchuk, who said he met with Kamenshchik frequently in the 1990s, gave one small but telling example of how Russian capitalism worked early on — and it involves chickens.

Kapchuk said that while he working as a Sverdlovsk representative under Yeltsin, who was also from the region, he arranged for the head of the Domodedovo district to receive state funds for a badly needed poultry farm. After that, the official, who had already met Kamenshchik, helped the young airport entrepreneur “on all fronts,” Kapchuk said, without elaborating.

“When I think of Dima, I like to paraphrase Rockefeller: I can account for all my millions but my first,” Kapchuk said from London, where’s he’s seeking political asylum. Kapchuk fled Russia in 2005 after a court found him guilty of using money from the Sverdlovsk budget to buy a flat in Moscow. Kamenshchik’s press service declined to comment on Kapchuk’s statements.

Private Army

As demand for everything from Chinese electronics to Turkish clothing surged, Kamenshchik and some colleagues started their own carrier called East Line, leasing what would grow to be more than 50 Il-76 military aircraft. Predatory criminal groups were so interested in all the goods that were coming in that he had to build his own cargo terminal and form his own guard service. At one point, he had about 800 armed men under his command. “Kamenshchik was one of the first Russians to recognize the enormous potential of the individual trader,” said Rybak of Infomost. At its peak in the late 1990s, East Line was probably pulling in $1 billion a year in revenue — and the profit margin was “fat,” he said.

After Putin came to power with a law-and-order mandate in 2000, the KGB veteran introduced stricter customs rules that made shuttle trading less profitable. As oil prices rose, the economy boomed and retail chains emerged that relied on sea shipping, crimping demand for air cargo. With corporate and tourist travel on the rise, Kamenshchik abandoned East Line to focus on cementing his hold over Domodedovo.

Bombing, Arrest

By 2010, Kamenshchik had turned Domodedovo into the busiest and best-managed airport in Eastern Europe, according to U.K.-based Skytrax’s annual rankings — yet few people outside the industry had ever heard of him. That would change in 2011, when a suicide bomber blew himself up at the airport, killing 37 people and wounding almost 200 more.

Then-President Dmitry Medvedev blamed lax security and demanded management be held accountable, but nobody could figure out who actually controlled the airport because its ownership was hidden in an offshore maze. That double embarrassment for the Kremlin triggered a fresh legal odyssey for Kamenshchik after he announced his sole proprietorship later that year.

Law-enforcement officials pursued Domodedovo for security violations for the next four years, but Kamenshchik’s lawyers fended off each attack in court. Those charges were dropped in 2015, only for prosecutors to then accuse Kamenshchik and several of his executives of personally providing “unsafe services.” On Feb. 18, 2016, investigators summoned him for questioning.

Sensing his arrest, he arrived at the powerful Investigative Committee in central Moscow unbowed, carrying a bag with prison essentials. He was right, but only for a night, after which he was placed under house arrest until his legal team finally managed to put an end to the whole ordeal late last year. “Dima can’t be blackmailed,” said Kapchuk, the self-exiled bureaucrat.

‘Illegal Activities’

Critics of the tycoon have called him everything from an opportunistic smuggler allied with organized crime to nothing more than a front for more powerful interests, but Kamenshchik said he’s just a determined entrepreneur with a lifelong passion for managing complex systems.

“We don’t have informal relations with anyone, so we can’t ask the ‘right people’ to solve an issue,” Kamenshchik said.

So far, investors are taking his word for it.

Despite warning in a bond sale organized by ING Groep NV, Societe Generale SA and UBS Group AG last year that any investment could be affected by corruption or claims of “illegal activities,” a disclaimer not uncommon in Russia, Domodedovo’s notes have outperformed a Bloomberg Barclays index of Russian securities this year.

We Don’t Panic

These days, the logistic whiz’s challenges are more operational than legal. He spends much of his time fine-tuning a proprietary, software-driven management system to boost the productivity of the 14,000 employees who keep more than 600 daily flights humming to and from 200 destinations.

The billionaire said prudence demands that he always “be ready for trouble,” but he’s philosophical about all the scrapes he’s had with authorities, calling them byproducts of a bigger problem, which is the time it’s taking post-Soviet Russia to develop a modern political and commercial climate.

“It so happens that we’re participants in the process, so we have to bear the burden associated with this,” Kamenshchik said. “We can bear this with civil dignity, or we can panic. We prefer the first option.”

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