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. Last Updated: 07/27/2016

Luzhkov, a Market and a $2Bln Haul

MTThe sprawling Cherkizovsky Market, where $2 billion in purportedly contraband goods were seized in September.��
Last September, a police raid on Moscow's sprawling Cherkizovsky Market resulted in the confiscation of 6,000 containers of purportedly pirated and smuggled goods from China worth $2 billion — the biggest haul of contraband in Russia's history.

Yet there was little mention of the seizure until earlier this month, when Prime Minister Vladimir Putin suddenly asked why the investigation was showing no results.

"A result would be to send people to jail — but where are the convictions?" Putin asked senior ministers at a June 1 government meeting, according to a transcript on his web site.

Unsurprisingly, authorities showed a flurry of activity after the prime minister's public complaints.

The Investigative Committee said last week that a criminal case had been opened and three customs officers have been arrested for illegally clearing the goods. Prosecutor General Yury Chaika announced that 22 containers with Chinese-made children's clothes would be destroyed because of "health risks."

The case did not stop there.

Last Sunday, Chaika's deputy Alexander Buksman upped the ante by calling Cherkizovsky Market "hellspawn" that needed to be exterminated.

"It is a source of corruption, offenses and various crimes. We need the will and the power to tear out this pest," Buksman said in televised remarks.

Cherkizovsky is no small enterprise — the market is said to be Eastern Europe's biggest trading ground. Closing it would not only put thousands of traders out of work but destroy a profitable part of Ast Group, the conglomerate that controls it.

Ast Group is owned and controlled by Telman Ismailov, a 52-year-old, Azeri-born businessman who rose from humble beginnings as a small trader to become one of the country's wealthiest people. Forbes ranks him as Russia's 61st wealthiest individual with an estimated personal fortune of $600 million.

And Ismailov is said to be a close friend of Mayor Yury Luzhkov.

While the multimillionaire has not been accused of wrongdoing by law enforcement agencies, he was the target of a recent documentary film that claimed that billions of dollars have been laundered at Cherkizovsky Market.

The film, titled "Cherkizon" and aired on June 8 on Rossiya state television, was authored by Arkady Mamontov, a muckraking journalist who in the past has been accused of producing work for the Kremlin.

Thus, it came as little surprise when Luzhkov appeared on TV Center, the channel that he controls, earlier this week and promised to shut the market by the end of the year.

"After everything that happened, I think the market will certainly be closed. And we will try to have this done by the end of the year," a somewhat tense Luzhkov said Tuesday.

The next day, the Investigative Committee said it would send Luzhkov written recommendations on how to accomplish this. It also announced that it would oversee a new joint committee of prosecutors and officials from the Interior Ministry, customs and security services to investigate the case further.

Mamontov and news reports on state-controlled media have suggested that Ismailov was falling from grace because he had been feasting in a time of famine.

On May 23, a week before Putin's remarks, Ismailov threw a party that might have just been too lavish for the crisis-fraught times. A coterie of celebrities, including Richard Gere, Sharon Stone and Paris Hilton, appeared at the glamorous opening of his Mardan Palace Hotel in Antalya, Turkey, which reportedly cost $1.5 billion to build.

Located on the Mediterranean coast, the luxurious hotel boasts a 16,000-square-meter outdoor pool that takes a half-hour to traverse by gondola and that hides a glass-domed underwater aquarium. The hotel also offers gold-plated mirrors on the floors of suites' bathrooms and a private beach made of 9,000 tons of silky white sand imported from Egypt.

Russian media showed Ismailov dressed in a three-piece suit at the opening, sitting on a posh, embroidered sofa with golden lion armrests.

Another prominent guest at the opening was Mayor Luzhkov, who attended with his billionaire wife, Yelena Baturina, national media reported.

Ismailov has denied that he or his company have anything to do with the market accusations. His lawyer, Pavel Astakhov, said in a statement that Ast Group was merely subletting space and could not be blamed for tenants' illegal activities.

"The seized goods belonged to tenants who brought them to the storage facilities. Only they, traders or manufacturers can be held responsible for smuggling or counterfeit," the statement said.

Messages left over the past week at the many companies that make up Ast Group were not returned.

Putin's spokesman Dmitry Peskov declined to comment on the case Thursday.

Analysts agreed that the sudden market investigation could not be a coincidence, but they were divided over whether the real target was Ismailov or Luzhkov.

Sergei Nikolayev / Vedomosti
Ismailov opened a luxurious $1.5 billion hotel in Antalya, Turkey, on May 23.
"There is a complicated web here, and it is difficult to understand who wins and who loses," said Nikolai Petrov, an analyst who follows Moscow city politics at the Carnegie Moscow Center.

Sergei Mitrokhin, head of the liberal Yabloko party and a City Duma deputy, suggested that Ismailov's decision to invest his fortune in Turkey rather than at home had upset the federal government.

"By spending all this money abroad, he did not behave gratefully. That is why authorities are now investigating business activities that they had long closed their eyes to," Mitrokhin said.

Others called the affair the beginning of the end of Luzhkov's career.

"Ismailov has slowly been moving his assets into Turkey, and it would be impossible for him to do this without Luzhkov's political cover," said Alexei Mukhin, an analyst with the Center for Political Information.

"This is the first step in a campaign to unseat Luzhkov," he said.

The mayor seemed to hit back at his critics in an article in Thursday's Moskovsky Komsomolets, which quoted an anonymous source in the city administration as saying that Luzhkov would not bow out easily. "If the pressure gets too strong, he can go all-in like Murtaza Rakhimov did," the source said.

Earlier this month, Bashkortostan President Rakhimov launched a strong public attack on the "vertical power" system set up by Putin.

But Mitrokhin said he saw no evidence that the country's leadership wanted to challenge the city's powerful mayor. He said a massive market like Cherkizovsky needed more than just cover from City Hall. "It cannot exist without tacit support from the police, customs and federal authorities," he said.

Mitrokhin noted that City Hall had tried unsuccessfully to close the market before. "Luzhkov tried a few times, but he was barred from doing that," he said.

Spokespeople at City Hall refused to comment on the market investigation.

But Luzhkov said Tuesday that City Hall had failed in previous attempts to challenge the market's rental agreement in the courts. He said 80 percent of the market's premises were rented from the Federal Sports University and that the university had no right to engage in the trading business.

The Investigative Committee, for its part, has opened an investigation into former university rector Oleg Matytsin, who signed the current rental agreement with the market. Matytsin, who left his post in 2006, is accused of abuse of office because rent payments bypassed the federal budget and went straight to the university, the committee said in a statement posted on its web site.

The university hit back this week, saying in a statement on its web site that it had canceled the lease agreement as early as 2007 but that tenants had won court rulings allowing them to stay until December 2009.

Rent is seen as the key to profitability at Cherkizovsky and other markets, where middlemen like Ismailov's Ast Group rent comparably cheap government land and sublet it to traders at much higher prices.

In another sign that Ismailov's once-excellent ties with City Hall are deteriorating, investigators have questioned his brother Fazil Izmayilov, the prefect of the capital's northern administrative district, Izvestia reported.

Izmayilov, who looks strikingly similar to Ismailov and shares the same patronymic, Mardanovich — has changed the spelling of his surname, the newspaper reported, citing sources in the city administration.

The brothers are members of the city's tightly knit community of Mountain Jews who hail from Azerbaijan and the North Caucasus and speak an Iranian language.

A representative of the community described Ismailov as a "well respected" and "very generous" member.

"Most Russians have broken the law in one way or another," he said on condition of anonymity. "But Ismailov, I think, is actually cleaner than many people."

Meanwhile, some national media have speculated that Ismailov might opt for a better future in Turkey, reporting that he has applied for citizenship.

Yet despite his $1.5 billion investment there, some locals seem ungrateful. Antalya Mayor Mustafa Akaidyn has ordered an investigation into the hotel construction because of possible planning violations, RIA-Novosti reported Thursday.