Russia’s Ministry of Education and Science purged thousands of “unsuitable” school textbooks from schools, eliminating the business of many of the nation’s book publishers. The purge is raising eyebrows, as the only company unaffected is the Soviet-era publisher Enlightenment, owned by close Putin friend Arkady Rotenberg.
In Soviet-era Russia, schools were required to use textbooks from the Ministry. The fall of the Union allowed more access for independent companies, but the books had to be “approved by the government, based on expert opinions from the Russian Academy of Sciences and the Russian Academy of Education, certifying that the material was, among other criteria, factual and age appropriate.” The current restrictions imply that even this appeared too lax for Putin, who once said the collapse of the Soviet Union was “the greatest geopolitical tragedy of the 20th century.”
The Ministry provided various reasons for banning the specified books. Math books from publisher Lyudmila Peterson were, they claimed, “‘hardly designed to instill a sense of patriotism’ in young Russian minds.” The books used characters from non-Russian books such as Snow White. It remains unconfirmed whether the actual math work in the book was wrong or did not fit the criteria for the age group; however, as The New York Times points out, the actual reasons point to Enlightenment and Rotenberg.
“The country is now run by a few families, or clans, close to Putin,” a publisher told the Times. “They used to focus on the very biggest businesses: oil, gas, big infrastructure projects, the banks. But now that they have eaten all the food in that cupboard, they are eating the mice, and the mice’s food, going after smaller and smaller markets.”
The Times reports:
Mr. Putin first directed that the state-owned company be sold into private hands, records show, in a deal that circumvented a requirement intended to ensure the highest prices for state assets. Then, having installed Mr. Rotenberg as chairman, Mr. Putin’s government knocked out much of Enlightenment’s competition.
The remaking of Russia’s textbook industry features a murky trail of transactions that dead-ends in the opaque offshore tax haven of Cyprus, and a cast of characters including a federal lawmaker from the party loyal to Mr. Putin and the software giant Microsoft, which recently signed an agreement with Enlightenment to help it provide Windows-based tablets to Russian schools. That deal came after Mr. Rotenberg, along with other close Putin friends, had been targeted by international sanctions stemming from Russia’s annexation of Crimea.
Microsoft signed the agreement with Enlightenment, but Rotenberg’s presence on the board could cause problems. An American company can be severely punished if caught doing business with anyone under sanctions. The Times presented Microsoft with this report on Enlightenment and proceeded to halt all plans.
“Microsoft signed a nonbinding agreement to provide, free of charge, to Prosveshcheniye [Russian name for Enlightenment], the same type of technical assistance that we provide at no cost to thousands of schools and publishers worldwide,” said Microsoft, adding:
Although we conducted due diligence in both Russia and the U.S. — including consulting the U.S. government and engaging respected international law forms — and have not found evidence that Prosveshcheniye is subject to U.S. or E.U. sanctions, we’ll follow up on the concerns by postponing work under the agreement and conducting an additional review.
Putin and Moscow employed similar methods to control Russia’s lucrative oil and gas industry. Rosneft, Russia’s top petroleum company, succeeded the Soviet Union’s Ministry of Oil and Gas when the union fell in 1991. It did not maintain its monopoly, however; Yukos became the top company until owner Mikhail Khodorkovsky was arrested for alleged fraud. The arrest occurred after Khodorkovsky argued with Putin and claimed the government was corrupt. After the arrest, Putin’s government swooped in and froze shares of the company. Rosneft, owned by Putin’s “lieutenant” and old friend Igor Sechin, purchased the most profitable assets of Yukos. This moved Rosneft to the top of the list.
Putin made sure the purchase landed in Rotenberg’s hands. He quickly denied the public an open auction and assigned Gazprombank to find the buyer. Gazprombank is an arm of state-owned Gazprom oil industry, headed by Alexei Miller, Putin’s close friend. Bank Rossiya, Putin and his friend’s personal bank, manages the assets of Gazprombank.
The situation regarding school textbook publishers may arguably be even more confusing. In addition to Enlightenment, Olma Media Group, Eksmo, Drofa, and an unknown company make up most of the Russian publishing industry. Moscow allowed Olma, Eksmo, and Drofa to bid on Enlightenment. Olma won the bid, but it should be noted that Eksmo eventually purchased Drofa. Eksmo publishes books that glorify Soviet leader Josef Stalin. Olma paid $71.5 million for the company, which “was actually higher than its appraised value.” After the purchase, Enlightenment sales skyrocketed. In 2012, “its annual revenue was close to three times the purchase price.” Half of the contracts to the company were from Moscow. General Director Dmitri Ivanov said the company is profitable because everyone worked hard on the business. In the weeks following, more suspicious behavior came to light:
Just weeks after Olma Media Group bought Enlightenment, it sold it, for an unknown price, to a company registered in Cyprus. Then, in a final circular twist, the Cyprus-based Enlightenment turned around and bought 99 percent of Olma Media Group. Virtually overnight, the true owners of Russia’s largest textbook publisher had become impossible to trace. That is because the merged operation was now registered offshore in Cyprus, a popular tax haven that does not require companies to disclose their shareholders.
Records show that the initial financing that made the entire transaction possible — a $54.2 million loan — came from SMP Bank, which is controlled by Mr. Rotenberg and his brother, Boris. That loan was then refinanced with a $77.1 million line of credit from Gazprombank, the bank that had appraised and then auctioned off Enlightenment for several million dollars less just weeks before.
This is when Arkady Rotenberg became the board chairman. He initially claimed he receives no payment for his position, but he told Interfax another story.
“For me, this is a significant project, and in large part not financial, although it is business as well — there is profit there, there are dividends,” he said. “This should in fact be a decent business.”
Arkady and his brother Boris were judo sparring partners with Putin in their youth. Arkady’s business specializes in Finnish goods and is worth $3.1 billion because he owns a construction company that receives profitable contracts from the government. He also created pipeline company Stroigazmontazh in 2008. The company “acquired five Gazprom contractors,” which pushed Stroigazmontazh to become the top construction company in Russia. The construction company received billions from contracts with Gazprom, also owned by a Putin crony, and the 2014 Sochi Winter Olympics. In addition to those business interests, Arkady is also president of Russia’s Dynamo Moscow hockey club.