Swedish Cellular Safety Network controlled by Russian Oligarch
April 24, 2014 § Leave a comment
The following blogpost is a translation of an article posted by Emanuel Sidea in the Swedish business magazine Veckans Affärer on Wednesday April 23.
BREAKING The Swedish cellular network, used by police, rescue services, coast guard, nuclear and electricity grid surveillance network, is controlled by an oligarch with ties to Russia’s presiden Vladimir Putin. Emanuel Sidea at Swedish business magazine Veckans Affärer reveal how Sweden’s strategically important infrastructure network fell in foreign hands.
It has a high degree of reliability and covers virtually all of Sweden. This is why the majority of Sweden’s key civil functions and organisations such as police, search and rescue, and electricity and nuclear monitoring services use the old 450-MHz cellular band for its mobile communication.
However, unknown to most, Sweden’s most critically important base network is owned and controlled by Leonard Blavatnik, a Russian oligarch with ties to Russia’s presiden Vladimir Putin.
Here is how oligarchs and a Russian minister scrambled over the license for the Swedish so-called ”safety network”. In the beginning of 2005 investors were invited to bid for a licence to operate in the 450-MHz band of the Swedish cellular network. Telia, the state-owned cellular operator, was in the process of shutting down the analog network by the end of 2007 and was looking for alternate operators to take over the entire 450-MHz band. Bids from five companies were received by the state-controlled Post and Telecom Authority (PTS) managing the auction. Marianne Treschow who was the Director-General at the time recall board discussions about the owners behind the bidding companies.
”I remember that there were discussions, but that all companies were approved”, she states today.
The highest bid turned out to amount to a whopping 86 MSEK (USD 13,000,000) offered by Nordisk Mobiltelefon (NMT). The year previous the same company had acquired the licence to operate the Norwegian 450-MHz band.
NMT is backed by a true veteran in the business – Arnfinn Röste, who has worked for Ericsson in China and has subsequently started several different companies in the cellular business. NMT is his latest project and plans for the company are geared toward further Nordic expansion, as implied by the company name. NMT’s plan is to digitize the 450-MHz band to 3G standard. At this time the major cellular operators are busy developing their 3G networks, however they are working in the high frequency band of 2,100 MHz as the low frequency bands are already at full capacity with GSM (2G) and its precursor, NMT.
The high frequency band has certain advantages: its capacity is greater. One mast can handle many calls and a lot of simultaneous data although short range is drawback. Many base stations, each costing approximately SEK 1,000,000, are required to cover a small area.
Signals emitted in the lower frequency band cover larger areas. The 450-MHz band has the potential to cover over 90 % of Sweden’s area with fewer than 500 base stations. 3G networks in the 2,100-MHz band comprise all of 8,000 to 9,000 base stations and only manage to cover up to 50 % of the land mass. In addition to this the 450-MHz band is highly reliable and is therefore used by core civil functions, chief among them the Swedish police, Swedish nuclear plants, coast guard and search and rescue services.
Vattenfall, owner and operator of the national power grid, uses it to remotely control its installations.
Robert Lindmark is responsible for public relations at Vattenfall’s power grid department. ”The advantage of the 450 network is that it covers areas where no one else has cellular coverage. This ensures that we can get in touch with our staff in the field and that we can download series of data from installations, such as the distribution of electricity and at which voltage and ampere it flows”, says Robert Lindmark.
In mid-2006, following the Government Supreme Court’s judging in favour of NMT in the license auction, NMT’s operation kicks into high gear and major investments are laid down. NMT’s low frequency band now covers almost all of Sweden – making it the sole operator to handle traffic in 90 % of the land mass and all of its coastline. NMT cooperates with the state-owned network operator Teracom in using their masts to build its cellular network.
Johan Jobér, who operated NMT together with Arnfinn Röste, states that a company named Access Industries expressed interest in acquiring NMT by the turn of 2007-2008. ”They made an indicative offer, but subsequently retracted it”, says Johan Jobér.
By the end of 2007 NMT closes its books with debts amounting to SEK 0,5 Bn. Losses amount to almost SEK 103 million whereas the turnover only reaches SEK 41 million. In the spring of 2008 the company’s accountant determines in his assessment of the annual report for 2007 that the future operation of the company is uncertain as it requires funding.
A few months later, in September 2008, the investment bank Lehman Brothers is declared bankrupt, triggering a global financial crisis. This causes a crash in the Nordic credit market and widespread panic. Banks do not trust each other even for overnight loans. Companies promised credits see these withdrawn. In November 2008 NMT is finally forced to cancel payments and the company files for reconstruction. The following month, in December 2008, a firm called AINMT Holdings AB (Incorporated) is created as a subsidiary to Delaware-registered Access Industries.
Johan Jobér, who participated in the discussions, describes a situation with several interested parties joining the negotiations. ”Teracom threatened with shutting down the network unless it became Access Industries. I suppose Teracom saw them as financially strong”, says Johan Jobér.
Teracom’s CFO Inge Lindberg is actively driving the negotiations and sources claim him to have stated that ”it is just as well to let NMT go bankrupt”. Inge Lindberg has declined to be interviewed by Veckans Affärer, citing as reason that he is no longer an employee of Teracom. In February 2009 NMT’s Norwegian company duly files for bankrupcy, shortly followed by NMT’s Swedish company.
Teracom now enters to protect the 37,000 customers’ use of the network. Teracom manages the operation of the 450-MHz network for two weeks. In February 2009 the Norwegian assets are acquired from the remains of Nordisk Mobiltelefon AS. This business is concluded in fifteen minutes. Shortly thereafter, in March 2009, AINMT also acquires the Swedish assets from the bancrupt NMT’s estate. This transaction is concluded in two weeks. The new owner demand PTS to transfer the cellular licence won by NMT to AINMT Holdings AB, owned by Access Industries. Access Industries is an investment company founded by Leonard Blavatnik. PTS accepts the license transfer.
Who is the new owner?
Leonard Blavatnik was born in Odessa in the former Soviet Union and studied at the Moscow Institute for transportation engineers. The family emigrated to the United States in the 1970’s and became American citizens. In 1986, at age 29, Len Blavatnik, as he chooses to call himself, creates his investment company Access Industries. He graduates from Harvard three years later. The Soviet Union is dissolving and awash in business opportunities. Victor Vekselberg, an old friend of his from the Moscow Institute, entices Leonard Blavatnik back to Russia. Access Industries cooperates with Victor Vekselberg in the creation of a conglomerate called Renova Group. The year is 1990.
They invest in aluminium and in other raw materials companies in the process of privatization, via a coupon system.
Pjotr Aven, Boris Jeltsin’s first foreign trade minister, has described parts of the pivatization process as ”pure theft of Russian property”. Few seem to know how Leonard Blavatnik collected his initial seed capital for purchase of shares during this time. Anders Åslund, a high-profile economist at the Peterson Institute for International Economics in Washington DC, is well acquainted with both Vekselberg and Blavatnik. He knows Vekselberg very well. Anders Åslund too does not know where Blavatnik found his seed capital. ”Profits from trade in raw materials was a likely source, but I cannot tell for sure”, says Anders Åslund.
U.S. magazine The New Yorker tried to chart the elusive Leonard Blavatnik earlier this year. It too was unable to ascertain the origin of his seed capital. The magazine did however establish his efforts to reposition himself as anything but an oil and raw materials oligarch, chief among them donations to Harvard, The Bill Clinton Foundation and through the purchase of Warner Music. Access Industries presents itself as an American company registered in the low-tax state of Delaware.
The truth is that the company has been involved in major business deals in Russia over a long period of time. Leonard Blavatnik and Victor Vekselberg have made a name for themselves by creating a consortium called AAR together with oligarch Michail Fridman’s Alfa Group. They and oil giant BP created the jointly owned TNK-BP which was acquired by Rosneft in 2013.
Victor Vekselberg is now based in Switzerland while Leonard Blavatnik operates out of New York and London. They are not heavily engaged in Russia these days, according to Anders Åslund. ”TNK was their last joint project”, says Anders Åslund. Here it is prudent to mention that Vladimir Putin brought a commerce delegation led by Victor Vekselberg during his state visit to Stockholm in April 2011. The following year Putin himself wrote an article in state-owned Russian paper Rossijskaja Gazeta, in which he personally thanked TNK. Blavatnik, Vekselberg and Fridman had in 2002 – prior to the partnership with BP – contributed funds for the restoration of a military base on the Kamchatka peninsula.
For Lars Nicander, head of Centre for Asymmetric Threats and Studies of Terrorism at the Swedish National Defence College (SNDC), the information that oligarch Leonard Blavatnik owns the 450-MHz network comes as a surprise. “One should assume that a risk assessment has been made, although this can not be taken for granted. Decisions often cross each other, you begin by finding the lowest bidder and make a security assessment at a later phase”, says Lars Nicander. At Net1, AINMT’s commercial brand name for its cellular services, Vattenfall is presented as a reference client. Here, a Vattenfall executive testifies: “We were presented with the choice of building our own system, which is very costly, or turn to the commercial actors on the market.
Robert Lindmark, communications executive for power distribution at Vattenfall, states that the company owns its own broadband network, but that the company uses the 450-MHz network in remote, sparsely populated areas and in the archipelago.
What about the risks of allowing subcontractors access to Vattenfall’s management of the power grid?
“Safety is an important matter to us and we want to be absolutely sure that no one can enter our systems and manipulate stations”, says Robert Lindmark. “We make enormously high demands and write substantial secrecy agreements for power distribution that goes far beyond other industries.”
The Swedish Security Service (SÄPO) recently warned about the risks associated with government agencies outsourcing its services to third parties, something that Lars Nicander at the SNDC also warns against. “Naivety regarding security issues has been rife. We have seen something of an awakening lately”, says Lars Nicander.
In March 2013 the US published a list of sanctions aimed at Russian individuals close to Vladimir Putin. Neither Leonard Blavatnik nor Victor Vekselberg was listed, however, US FM John Kerry has threatened with further sanctions down the line. According to British newspaper The Guardian, Blavatnik, Vekselberg and Fridman, along with nine other oligarchs, are at risk to be included in the next round of sanctions. However, Anders Åslund, an acquaintance of Viktor Vekselberg and Len Blavatnik, indicate that they are not particularly close to president Putin. “They are the finest and most honest among oligarchs and have the least contact with Putin and his cohorts”, he says.
Not the only Russian bidder
The oligarch Leonard Blavatnik, now in control of the company who owns the Swedish security network, was not the only Russian among the bidders battling for the frequency licence. The second highest bidder was Green Network. It is represented by Claus Abildström, attorney for Jeffrey Galmond, also an attorney, from Denmark, and major shareholder in the Russian cellular company Megafon. Green Network initially appeals the license ruling to the County Administrative Court, then on to the Administrative Court of Appeal and finally all the way up to Sweden’s Supreme Administrative Court.
At this juncture there is a major brouhaha in Russia among shareholders of the Russian cellular operator Megafon in which Jeffrey Galmond is engaged. The Danish business press files stories about how the ”jetset lawyer” Jeffrey Galmond have been investing in Russia since the early 1990’s. Many pointed questions are raised about how an attorney from Denmark in but a decade, acting through his Bermada-registered company IPOC, have collected shares in telcos worth several tens of billions of Danish Kroner. An accountant from PWC notes, in a court case in Switzerland in 2004, that there exists an intricate network of IPOC companies which have been engaged in money laundering. German prosecutors also investigates Jeffrey Galmond and his companies on the same allegations.
The Russian oligarch Michail Fridman, another major shareholder in Megafon, provides an explanation to the Dane’s fortune – he suggests that Jeffrey Galmond’s share in Megafon is actually owned by the Russian Minister for telecommunications, Leonid Reiman. In Zurich in May 2006 an international arbitration tribunal rules that Leonid Reiman ”was the de facto owner of IPOC and that he had committed criminal acts according to Russian law”.
Leonid Reiman was one of the closest to president Vladimir Putin’s since their time together in S:t Petersburg in the early 1990’s.
The Reiman and Putin families were so close that Putin’s wife Ljudmila worked at a telecom company in S:t Petersburg from 1988 until Reiman became Minister of Telecommunications in 1999. There exists ”overwhelming evidence” that shows that Minister Leonid Reiman is the actual owner of IPOC in Bermuda, a company that owns shares in telcos that his own department regulates, writes a chief prosecutor on the British Virgin Islands to the American Justice Department in 2007.
This is the Jeffrey Galmond, alleged middleman for Leonid Reiman, who is behind Green Network in Sweden. Green Network has set its sight on the licence to operate a cellular network in the 450-MHz band. The Supreme Administrative Court verdict arrives in June 2006 – NMT gets to keep its license. NMT has now won the final round against Green Network, although at a steep legal cost and with a considerable delay in developing the service.
Another of the companies that placed bids on the Swedish 450-MHz band was Cubio Network Sweden AB. The bid stated that the company was owned by Complus Holding via the Finnish subsidiary Cubio Communications. It has later transpired that Leonid Reiman was behind Luxembourg-based Complus Holdings, via Telecominvest.
That there were connections between Green Network and Cubio is confirmed by a press statement sent by the Finnish company Cubio on September 2, 2004, in which the board member Claus Abildström reveals that Cubio stands ready to invest EUR 40 million in the Finnish CDMA network. The same Claus Abildström subsequently represented Jeffrey Galmond’s Green Network in the license auction concerning the Swedish 450-MHz band. In other words, the same few individuals appear time and again in license bids and in investigations about corruption and money laundering where intricate company constructs shield the real owners from view.
In May 2008, the Russian Minister for Telecommunications Leonid Reiman is deposed. American embassy officials in Moscow compile a report as of May 22, 2008, a report subsequently revealed by Wikileaks, stating that many analysts consider the cause of Leonid Reiman’s fall from grace his questionable business deals in the telecom sector. A few months later a new attempt is made to take ownership of the Swedish 450-MHz band.
Translation by Johan Kylander