Tycoons and Monopolies III: Dan Gertler.22.04.13

Tycoons and Monopolies III: Dan Gertler 22.04.13


Howard Adelman

Dan Gertler is a 40 year old Israeli billionaire president of the DGI (Dan Gertler International) group of companies who became involved in Africa and, in particular, the resources in the Democratic Government of the Congo (DRC formerly Zaire). Steeped for his whole life in the family diamond business, he was only 23 years old when he founded DGI after completing his IDF service in Israel. He had learned the diamond trade from his father and famous grandfather, Moshe Schnitzer, who initiated and was the first President of the Tel Aviv Diamond Exchange. He set up his own firm because he believed the big profits were not to be found in the labour intensive part of the business, cutting and polishing raw diamonds, but acquiring and selling the raw diamonds themselves.

Though I never met him, our paths crossed in 1997. At the end of 1994, I and a Norwegian colleague, Astri Suhrke, had been commissioned by an international consortium of governments, humanitarian and devlopment agencies to research and write a report on the international community’s role in the 1994 Rwandan genocide in which 800,000 Rwandan Tutsis and moderate Hutus were slaughtered in ten weeks by Hutu Rwandans led by an extremist group, the Akasu, who won control over the Rwandan government on 6 April 1994 in a coup d´état.

We finished our report a year later and it was very widely lauded except by the President of Uganda, Yoweri Museveni, the Belgians, and the French. Yoweri Museveni criticized us for saying that the evidence overwhelmingly suggested that Museveni must have known about the desertion of the Rwandans from his army and the invasion of Rwanda on 1 October 1990 when Museveni kept insisting he had no knowledge. The Belgian complaint was rather mild; they had a harsh judgement of the Canadian General Romeo Dallaire’s role as the head of the United Nations Peacekeeping Force and were especially critical of his role when the Belgian peacekeepers were murdred by the military extremists in Rwanda. We, on the other hand, regarded Romeo Dallaire as somewhat of a hero.

The French criticisms were much more serious and of a much higher order and very much stronger that the other two. They were apoplectic about our claim that France continued to supply arms to the extremist regime in Rwanda even after the genocide had commenced on 6 April 1994. The disagreement led the French government to cancel a high level trip to Paris from Sweden, withdraw its financial support for the commission (which Finland volunteered to make up) and to denounce us in the most vociferous way. We offered to reconsider and offered to travel to Paris to see the French evidence; we agreed to rewrite if the evidence contradicted our findings, including findings we had from French government sources in our previous trips to Paris. The Canadian ambassador at that meeting in Copenhagen came up to me after the brouhaha and told me, “Howard, stick to your guns. I was on the tarmack of Kigali airport after the genocide started and saw French arms being unloaded by a private carrier onto the tarmac.

We went to Paris but the French government was not co-operative and provided no new information. We let the report stand as we had written it. As it turns out, we were incorrect about the claim that the French government continued to ship arms to Rwanda after the genocide started. At the end of 1996, as a result of Paul Kagame’s Rwandan army overrunning the refugee camps controlled by the Hutu extremists then based in Zaire, documents were found by an Italian jouirnalist and sent to us which showed that the arms with French markings were supplied by a British firm based in the Isle of Wight and the arms had come, not from France, but from Eastern Europe supplied via a middleman, an Israeli-Hungarian.

Our involvement in Zaire, still led by Sese Seku Mobutu, began as we followed the plight of the more than a million ex-FAR (old Rwandan army), their families, militias involved in the genocide in Rwanda as well as other civilian refugees inrto Zaire. After failing in their efforts to launch military raids against ther new government, they began a genocide againt Tutsis in Zaire. Paul Kagame, then President of Rwanda, warned the international community that if the invasions and depridations of the ex-FAR and militias in Zaire were not stopped, he would take action. The international community stood by. Kagame in alliance with Museveni of Uganda invaded Zaire. They involved a small number of Congolese and appointed Laurent-Désiré Kabila as the spokeman for the supposedly indigenous uprising against the crimes being committed in eastern Zaire. (This narrative is filled out in our book on the DRC.)

In the process of the invasion, Laurent Kabila, an old Lumumba supprter who for the last twenty years had made a lliving as a smuggler, promoted himself step by step to the military and political leadership of the invading force. Further, not satisfied with overcoming the control of the refugee camps by the ex-FAR and winning military victories over Mobutu’s forces that had been in league with the ex-FAR forces, and against the wishes of his Rwandan and Ugandan patrons, Kabila decided not to stop but to go onto Kisangani, which he overran, and then head for Kinsasha and the complete overthrow of the Mobutu regime.

One set of masters, controllers and expoiters of Zaire’s – now renamed the Democratic Repiublic of the Congo (DRC) – resources, were replaced by a new group – Kabila in competition with Uganda and Rwanda for control. What ensued was Africa’s first continental war in which DRC’s immense mineral resources became the prize. In 1997, Dan Gertler flew to Kinshasha and was introduced to Laurent Kabila through the Lubavitcher rebbe, Rabbi Chlomo Bentolila, based in that city. Without his Rwandan and Ugandan patrons, Kabila was strapped for funds to pay his soldiers. Gertler offered to loan Kabila US$20 million in return for a monopoly control of the diamond production in the DRC. Kabila agreed. Within weeks, Gertler raised the funds that became the foundation of his personal fortune.

Tycoons and Monopolies V: East Europeans – Arcade Gaydamak.23.04.13

Tycoons and Monopolies V: East Europeans – Arcade Gaydamak 23.04.13


Howard Adelman

Five East European Israeli billionaires stand out. I begin with sixty-one year old Arcadi Gaydamak (Arie Bar Lev) who owns residences in Russia, Israel and Canada and has citizenship, not only in Israel and Canada, but in Angola and France as well. Though born in Berdichev, Ukraine, though also reported as Moscow, he had to surrender his Soviet citizenship when he migrated to Israel in 1982 when he was twenty years old. Four years ago, he applied to “regain” his Russian citizenship.

The outline of his life is anything but simple, but I will first offer a potted history. Gaydamak became a kibutznik at first (Beit HaShita), but Israel appeared to be initially only a pit stop to escape Russia. He studied Hebrew in an ulpan but in six months was unable to master the language before he moved to France after six months. Initially, he worked as a labourer and gardener. In 1976, he started a translation service, Gaydamak Translations. He used that business to “migrate” to Canada as a business investor and opened a translation business there. His initial real wealth stake did not come from this business but from the connections he had established through that business with Russian officials to engage in import and export transactions, especially when the Berlin Wall fell and the Soviet Union was imploding.

My path crossed with Gaydamak, though again I never met him, from my work in Africa after 1994. My personal connection was through our study of President Mitterand’s son, Jean-Christophe Mitterand, of the arms supplied to the Rwandan Habyarimana regime mentioned in a previous blog. Mitterand worked out of a separate section located in the Ministry of Cooperation in Paris to supply arms to President Habyarimana of Rwanda, even though we were incorrect that this arms supply continued after the genocide started. Mitterand was involved in shipping arms in other parts of Africa, including Angola where he became intertwined with the Gaydamak/Falcone arms for Angola deal. Pierre Falcone through his British companies linked to Brenco International gave £1.3m in alleged bribes to Jean-Christophe Mitterrand, but Arcadi Gaydamak claimed the money paid in 1998 had nothing to do with the arms deals. Jean-Christophe was found guilty by the French court of tax evasion in relation to the Angolagate scandal and given a 30-month suspended sentence.

Gaydamak became involved in what became known as the Angolgate Scandal, the arms for oil and forgiveness of debt deal between Russia and Angola in 1995 and which I will explore later on in this profile. But let me jump to the end and a sports story that appeared in the Canadian Jewish News at the end of February written by Yair Lootsteen about why he would not let his son, Natan, attend the games of the Beitar Yerushalyim football (soccer) team though he was an ardent fan. At the games, many fans, especially those led by an ardent group called La Familia, booed Arabs on other Israeli teams and would call out, “Death to the Arabs!” and “Muhammad is dead.” Hundreds of police were required to control the “enthusiasm” of these hooligans.

In 2005, Arcadi Gaydamak bought the football club. This year he bought two Muslim players from Chechnya to join the club, Zaur Sadaev and Gabriel Kadiev, as much to combat Beitar’s racist image as to add skills to its roster. Beitar had Muslim players before, namely Viktor Pacha of Albania, but since Nigerian defender Ibrahim Nadala had been harassed by anti-Muslim (and anti-Black) fans and left the team, Beitar had not had any Muslim players in contrast to most Israeli teams.

At the next game, in response to the two new Muslim players on the team, La Familia led the hooligans in chants of “Beitar is Pure Forever” and torched the team’s clubhouse, including its trophy room with the team’s historic relics. At the next game, fans with La Familia sweaters were banned from entry and Gaydamak organized fans to hold up welcome signs to the two new players. When some fans tried to boo Kadiev when he came onto the field, the majority of fans rose to give him a standing ovation and drowned out the boos. Lootsteen offered to take his son to the next Beitar game for the first time.

Gaydamak has taken other bold humanitarian gestures in the past – the two most notable in Israel involved setting up a huge tent city on the beaches of Nitzanim at his own cost for the evacuees who had fled the north to escape the rockets during the Lebanon War in 2006, Gaydamak also offered holidays in Eilat for residents of Sderot who lived under a barrage of rocket attacks from Gaza before the last Gaza War. My own conviction is that these were genuine gestures though clearly also serving to polish his public image in Israel.

In the previous decade, Gaydamak had been awarded the Chevalier de l’Ordre National du Mérite and the Ordre du Mérite agricole ostensibly for contributions to agriculture but for allegedly secretly rescuing two captured French pilots in the 1990s Balkan War and two French intelligence officers captured by rebels in the Caucasus. In 1997, he was also involved in freeing four French aid workers being held in Dagestan. Former French interior minister Charles Pasqua, his co-conspirator charged before the French court (see next section), insisted that the awards had been personally approved by Jacques Chirac. In March 2006, he tried to buy the newwspaper, France Soir.

In February 2007, Gaydamak established Social Justice and converted it into a political party in July in Israel ready for the elections and won three seats. He was also an unsuccessful contender as Mayor of Jerusalem in the November 2008 elections and only won 3.6% of the vote and no seats on the municipal council. In Russia, he gave money to Jewish charities and funded and was president of the Congress of Jewish Religious Communities and Organizations of Russia (KEROOR). In 2004, he also bought the independent Moskoviskie Novosti and converted into a strongy pro-Putin advocacy sheet under his insistence that newspapers should be loyal to the powers in charge of the state. “Newspapers which are responsible for public opinion should not direct the public against the powers that be…If the political and administrative structures in Russia are organised by people elected in free, democratic elections, it is not right to turn public opinion against them.”

Do we have to ask, “Why the enormous effort to polish his public image?”

When Arcadi Gaydamak applied for Russian citizenship in 2009, it was just days before the French court was to hand down its verdict in the “Angolagate” arms-dealing affair to add to his troubles over very recent steep financial losses, largely as a result of former associates double-dealing him, and investigations by the Israel Security Authority of alleged fraud and money-laundering using Bank Hapoalim. Just this past January 2013, The French Court of Cessation upheld the original findings and sentences meted out to 3 of the 24 of the original 36 charged in the Angolagate scandal who had appealed their convictions on 27 October 2009. The French Court of Appeal in April 2011 had reduced Gaydamak’s sentence to 3 years, Falcone’s to 2.5 years and Charles Pasqua was acquitted on his first appeal. The French Court of Cessation upheld the original six year prison sentences as well as one year for former interior minister, Senator Charles Pasqua.

What were their crimes? In 1975, Angola gained its independedence only to become a site for further civil war between factions serving as either South African (American?) or Soviet proxies. With the demise of his Soviet sponsors in 1989, the Angolan government of Jose Eduardo dos Santos wanted to seek western support but encountered two problems – UN sanctions and a huge burden of indebtedness left over from the Soviet era representing two-thirds of its annual GDP. Dos Santos was still in the midst of the civil war as the MPLA tried to finally eliminate its long time opponent, Jonas Savimbi’s União Nacional para a Independência Total de Angola (UNITA). (Savimbi died in 2002 effectively finally ending the long civil war.) At the same time, the 1991 Bicesse Peace Accords forbad the import of additional lethal weapons.

The Angolan government sought to purchase combat helicopters, guns and ammunition from Russia using a Slovak company, ZTS-OSOS to be paid with the exchange of oil. Dos Santos turned to private entrepreneurs to assist him by trading diamonds and oil for armaments just as Joseph Kabila had in the DRC, but using Pierre Falcone in partnership with Arcadi Gaydanak who had the Russian connections to access the arms and get around the UN sanctioned weapons embargo. Arcadi Gaydamak and Pierre Falcone were given authority to control an Angolan bank account in France and authorized to sign contracts on behalf of ZTS. The profits on the oil were estimated at over £50million.

Falcone was born in Algeria, moved to France when he was six when Algeria achieved independence, and began his entrepreneurial life in Brazil, but eventually obtained Canadian citizenship. Falcone and Gaydamak orchestrated the delivery of US$790 million in Russian arms contrary to the sanctions. However, the initial French appeal agreed with the claim that, since the two had Angolan citizenship and were acting as official agents of the Angolan government, they were not bound by French sanction laws.

However, the really big profits were not made through arms sales – though, as you read, those profits were huge – but as agents in reducing, purchasing and reselling of debt instruments at no risk to themselves. In April 1996, Angola owed Russia $US386 million for past arms purchases. Angola also owed Russia $5 billion in debt left from the Soviet era. On 24 April 1996, the Angolan Minister of Economy and Finance, Augusto da Silva Tomás, issued a formal mandate that designated Pierre Falcone and Arcadi Gaydamak as agents empowered to act on Angola’s behalf to settle its $US5 billion debt. Arcadi Gaydamak and Pierre Falcone, joint owners of Abalone Investments, a shell company, negotiated a settlement of the debt. The $US5billion debt was to be reduced by 70% to $US1.5 billion to be repaid after a five year grace period dated from 20 November 1996 and then repayment over fifteen years of the reduced debt plus acrued interest calculated at 6% per annum assessed every six months and secured by a promissory note from the Angolan Central Bank. Andrey P. Vavilov, Russia’s First Vice-Minister for Finance, signed the deal on behalf of Russia. Effectively, Angola was supposed to repay a total of $US2,896,596,000 made up of the reduced capital debt of $US1.5 billion, the accrued interest during the grace period of $US457,160,000 and $US939,437,000 for interest during the fifteen year repayment period.

Abalone earned a “commission” of $US386 million, of which just over $138 million went to Gaydamak and almost $US125 million to Pierre Falcone, and just under $US49 million to Vitaly Malkin, the richest member of Russia’s Duma, who just recently resigned when it was revealed that he held Israeli as well as Russian citizenship and held large amounts of undeclared assets in Canada.. The balance of just over 30% of the funds were used to pay off a wide variety of other players including the Angolans who received $US110 million. The three greatest Angolan beneficiaries were José Eduardo dos Santos, President of Angola, US$36.25 million; Elísio de Figueiredo, Angolan Ambassador to France, $US17.55, Joaquim Duarte da Costa David, Director General of Sonangol until 1998 and then Minister of Industry, $US 13.25 million.

There was another level of profit when Russia decided to sell those notes to Abalone for 50% of their face value in six equal instalments for a further profit to Abalone over the next six years of almost $US500 million when Abalone resold those notes to Sonangol for their full face value in accordance with an agreement dated 30 May 1997. Abalone in the end effectively only paid about $US265 million for them. There were other levels of profits, some to Glencore for making the escrow arrangements and facilitating the pre-financing secured by prospective oil deliveries via Sonangol as collateral on which it undoubtedly made a further large profit. In 1999, Vitaly Malkin, as the representative of Rossiyskiy Kredit Bank (RK) which he owned, bought into Abalone by paying Gaydamak $US60 million and another level of profits were arranged when Russian Principal Notes (PRINS) and Instruments Arrears Notes (IANS) were exchanged at their depressed values for other secured notes at full value to Russia’s benefit by showing a reduced debt and to Abalone’s benefit by obtaining a huge profit since, when the deal went into effect on 23 August 1999, PRINS had a value of only 10.54 per cent of face value and IANS had only a 14.41 per cent face value.

In 2001, facing investigations of all these transactions, Gaydamak shifted the banking to Cyprus through Sherinvest Bank owned by Gaydamak and gave the impression that the debt repayments were going to Russia since Sherinvest Moscow was the name of Russia’s banking agent in Moscow. Since neither Falcone nor Malkin knew anything about this, Gaydamak had effectively double-crossed his partners. Between March and August 2001, Sonangol transferred $618,235,483.25 to Sberinvest. Angola was told that the debt had been repaid but Russia had not received the final eight payments. The deal blew open in 2005 and Angola agreed to pay Russia the balance owed. Gaydamak agreed to pay Angola $206 million which still left him with a profit of $US 181 million on the deal.

As he jockeys back and forth from Israel to Russia and avoids France, France has been unsuccessful in extraditing Gaydamak from Israel. Israeli law did not make his financial matters an extraditable offence. Nor were the other charges of arms dealing an offense at the time the actions were taken. There is, however, an ironic twist to the whole series of shill games. In 2006 and 2007, Joelle Mamane, his long time confidante and micromanager, transferred US$249 million in securities from Gaydamak’s company to the Manatel Foundation evidently without Gaydamak’s approval and evidently not for his benefit. Because there were so many levels of covers, Gaydamak had not been able to establish ownership. The Manatel Foundation gives its money away to Orthodox Jewish causes in Israel and Europe.

For a very long and very detailed dissection of all these deals, see “Deception in High Places: The Corrupt Angola-Russia Debt Deal.”

Click to access The_Corrupt_Russian-Angolan_Debt-Deal-04-11-2013-with_ISBN.pdf

Lev Leviev.30.04.13 30.04.13

Lev Leviev 30.04.13


Howard Adelman

I have been AWOL after visiting my two youngest children in Victoria and Vancouver. (In August, Daniel is getting married on Vancouver Island where he lives; Gabriel is just finishing film school in Vancouver and his film was showing at the student film festival, When we were there, we learned he was flying to Miami Beach this past Sunday to receive a film award.)

One recent piece of news relative to Obama’s use of small tactical moves to advance the peace process has emerged. In a meeting yesterday of Arab League members with US officials, including Vice President Joe Biden and Secretary of State John Kerry, at Blair House yesterday, the Arab League for the first time backed the idea of comparable mutually agreed territorial swaps in a land for peace deal.

This week I will finish my series of profiles on Israeli billionaires, in particular, the ones from Eastern Europe, and offer some summary observations. I will cover:

Lev Leviev (today)
Alexander Mashkevitch
Leonid Nevzlin
Vadim Rabinovich

Lev Leviev, like some other Israeli billionaires, relocated six years ago from Israel (B’nei Brak to London); he now occupies a US$70 million mansion in Hampstead. We already had a glancing acquaintance with Lev Leviev because of his association with Arkadi Gaydamak in Angola. Leviev and Gaydamak had become involved together in a joint venture to purchase a metallurgy plant in Kazakhstan in 1999 and subsequently when Gaydamak bought a 15 percent share of Africa Israel. As with most of Gaydamak’s partnerships, but very rare for Leviev, there was a falling out. In a London court last year (12 July), the High Court in London not only dismissed all legal claims of Gaydamak against Leviev (the suit was for a $1billion), but assessed legal costs against Gaydamak. The deal went back to 2001 when Gaydamak first entered the Angolan diamond market. Leviev brought to the deal his expertise in diamond cutting and conceived the idea of an Angolan controlled marketing of Angolan diamonds, a deal that has been very profitable for the Dos Santos family and his associates as well as for Leviev. There is no evidence that Leviev was involved in the arms for diamond trade, but the monopoly deal was, in part, designed to eliminate the trade in blood diamonds.

Leviev is a self-made billionaire. He arrived in Israel with his Lubavitcher family from Tashkent, Uzbekistan in 1971 at the age of fifteen but dropped out of school to learn diamond cutting. He lacked Dan Gertler’s family connections but his own inner ambition allowed him to master all eleven steps of diamond cutting without serving decades of apprenticeship. He paid his fellow cutters to teach him the requisite skills. By the age of 22, he had set up his own shop. By the age of 32, he had twelve of the most technologically developed diamond cutting and polishing plants. During that period of expansion, he established himself as a de Beers “sightholder” even though he was an outsider, a Bukharan Jew. He became one of the 100 or so individuals authorized by the de Beers cartel allowed to buy diamonds at fixed prices.

Just as he could not stand to be an outsider forced to buy diamonds from middle men rather than directly from de Beers, he soon chafed at having to buy rough diamonds through de Beers. In the upheavals in Eastern Europe, after receiving a blessing from Rabbi Menachem Schneerson, he convinced the Russian Minster of Energy to break the de Beers monopoly and, with his help by using the Lubavitcher network in the former Soviet Union, set up an indigenous cutting and polishing of diamonds operation in Russia so that the higher value polished diamonds could be exported. Leviev broke the de Beers monopoly. It was the same technique he would bring to Angola in 1997. In a joint venture with Alrosa, the Russian state diamond company, Leviev bought into the Catoca diamond mine. It helped that Dos Santos spoke Russian from his days as an engineering student in the Soviet Union so Leviev did not have to master Portugese.

Leviev now is the largest cutter and polisher of diamonds in the world. His company integrates the beginning of the business with the acquisition of rough diamonds to the retail level with high end stores in London, New York, Moscow, Dubai and other centres. His vertically integrated company gets its diamonds not only from Russia (Leviev is a personal friend of Putin) and Angola, but also Namibia, Alaska and the Northwest Territories in Canada where he was a pioneer in mining for diamonds.

Leviev’s diamond business is personally owned but he is also the controlling shareholder of Yehud, which owns Africa-Israeli Investments (AFI) in which he bought a 60% interest in 1996 for $400 million. AFI recently went through a financial restructuring that diluted his holdings from 75% to just under 53%. Like many other property developers, he got caught by the bursting American real estate bubble in 2007-2008 (just after the New York Times building and the Madison Avenue Clock Tower were purchased), the burst bubble in Europe – AFI owns property in Prague and London – and the more recent burst in the Russian bubble, ignoring that he bought his Hampstead home at the peak of the London market. Yehud also owns Gottex, the Israeli swimwear company, 1700 FINA gas stations in the American southwest, and a chain of 173 7-Elevens in New Mexico and Texas. AFI is a one-third owner of the Israel toll road, the Cross Israel Highway. It also owns the Russian language Israeli TV station, Vash Telecanal. Fortunately for him, AFI’s real estate investments in the USA, mainly in New York, have recovered a great deal of their lost value.

Leviev has mixed his political convictions with his investment strategies in assuming the role as the foremost developer in the West Bank with significant building projects in Har Homa, Maale Adumim, Zufim, Adam, Modiin Illit and Ariel. As a consequence, his jewellery stores have been the sites of pickets and protests and the British foreign ministry cancelled a prospective deal to rent space for its Israeli embassy in an AFI building in 2009 after a campaign led by Architects and Planners for Justice in Palestine. Some European Investment funds have also sold off their holdings in AFI, but it is not very clear in some cases whether this was because of perceived negative prospects of AFI or a response to protests. BlackRock, Investeringsforeningen Sydinvest, the Swedish AP1 pension fund and Dutch PFZW were joined by the US Teachers Insurance and Annuity Association College Retirement Equities Fund in selling their shares in AFI. Further, it is also not clear whether this sell off also precipitated the need for AFI to restructure.

Lev Leviev is possibly the most active philanthropist among the Israeli plutocrats and is certainly the foremost promoter of the restoration of Jewish life, culture and especially Jewish education primarily through the Jewish Learning Initiative in the former Soviet Union. He is President of the Federation of Jewish Communities of the CIS (FJC) representing the fifteen organized Jewish communities in the former Soviet Union. Leviev supports over 10,000 Jewish community civil servants, including 300 mostly Chabadnic rabbis as well as the extensive network of schools in which they teach..

Fathers are supposed to circumcise their own sons. Almost all hire a mohel or a certified doctor to perform the task. Not Leviev. One of the more interesting stories about Lev Leviev is that, without any training, at the age of 22 he followed his father’s practice and circumcised his own son, using his skills as a diamond cutter to get through. By now he has performed over a thousand circumcisions. Another is that he is a believer in women’s equality in the workplace. Two of his daughters have very high executive positions in his companies. Zvia, a daughter with four of her own children, runs the international marketing and mall businesses. Tomorrow, when Tamir Kazaz steps down as CEO of AFI, Leviev’s daughter, Hagit Leviev-Sofayev, a former executive of Deloitte in the economics department, is most likely to become CEO.