How big player took on the Russian mafia and a KGB agent

ROMANOV UNRAVELLED

IAN JOHNSTON
IN LITHUANIA

VLADIMIR Romanov’s success in transforming himself from teenage black marketeer into respected international businessman was by no means inevitable.

Only some extremely deft navigation through the troubled waters that represented post-communist Lithuania enabled him to amass the £260 million fortune which has given him effective control of Heart of Midlothian Football Club.

For Romanov, danger lurked in the shape of a Russian mafia hungry for wealth and a nascent regime determined to bring the country and its business dealings under the rule of law.

It has become a stereotype that anyone among the fortunate few to emerge from the collapse of Communism across eastern Europe as a multi-millionaire must have been involved with some kind of shady underworld group.

And indeed the 57-year-old businessman found himself contending with prurient interest in his growing wealth from the Russian mafia and a notorious gangster.

He also had run-ins with one of Lithuania’s top politicians and a wealthy former KGB agent. In addition, three companies in which he had major stakeholdings became caught up in police investigations.

But time and again Vladimir Romanov has managed to cast aside his past and reinvent himself as a successful operator in tough but highly lucrative eastern European markets.

He is regarded as a legitimate businessman with whom western investors can deal, to the extent that he is even now sought after by the British Chambers of Commerce.

Instead of attempting to subvert the law, Mr Romanov appears to have recognised the turn in the tide that was eventually to sweep Lithuania into the European Union - and the opportunities for making vast sums of money, particularly by privatising formerly state-owned companies.

By ruthlessly exploiting the lack of laws and business regulations in the early years of Lithuanian independence - which helped to make the country a centre for trade in all manner of materials, from metal to textiles to oil - he realised he could make a fortune.

It is a strategy that he has been active in pursuing in other places - like Belarus and the Republica Serbska region of Bosnia Herzegovina - where others would fear to tread.

In those early years, Mr Romanov did reportedly meet with the infamous Lithuanian gangster Henrikas Daktaras and another underworld figure known as "Goga".

At the time their presence was simply a fact of life for leading business figures in the Lithuanian city of Kaunas, where Mr Romanov grew up and where he still retains a flat.

"You have to understand that through that period in Lithuania, people will have come across each other. But he doesn’t deal in the underworld or anything like that, he’s way above that," said his spokesman.

Another source who knew the mafia scene well described how the gangsters made money out of Lithuania’s drive to de-nationalise and enter the western world as a free-market economy. "Quite a lot of companies were stripped of their assets and went bankrupt. Criminal gangs got businesses for peanuts, took the machinery, the money and filed for bankruptcy," he said.

"There were open auctions for such companies. If there were three or four serious competitors, the price would rocket, [so] competitors would be scared off in a very direct way.

"There would be five or six guys in black cars and they would say, ‘If you are wise and you value your family life, do not participate in this auction’. It’s a common practice."

MR ROMANOV acquired major shareholdings in at least two firms which were subsequently to go bankrupt.

Many nationalised firms did not last long in free-market conditions after so many years of state protection and the fate of these firms - a textile company, Dirbtinis Pluostas, and a knitwear firm, Silva & Koton, which produced tights - was not entirely unexpected.

Mr Romanov, who also helped set up Lithuania’s first private bank, Ukio, managed to keep these firms afloat for about five years, by which time the patience of an asset-stripper would normally have run out.

However Dirbtinis Pluostas was a major employer in Kaunas, with a staff of some 1,600 people, so when it collapsed towards the end of 2001 there was an outcry that prompted an investigation by police fraud investigators.

The company had racked up debts of some £40 million - and the authorities wanted to know why. Mr Romanov was found to have done nothing wrong.

Suspicions that Dirbtinis Pluostas may have been one of the many victims of asset-stripping were unfounded. In fact, Mr Romanov appeared to have done everything to keep it afloat. When asked about "suspicions" surrounding the fate of the firm last year during an interview with a Lithuanian newspaper, Mr Romanov replied: "What about Dirbtinis Pluostas? We took part in the auction, I bought shares. Pluostas was subsidised and each kilogram produced there was making losses. We were keeping it for many years as it was, even though it had to go bankrupt a long time ago. The competition did their job."

This is thought to be the third and last time that Mr Romanov would feature in a police investigation. But in the first case, Ukio Bank, in which he has retained a substantial shareholding, the firm was found to be the victim of a scam.

In 1997, according to reports, police investigating a Lithuanian smuggling operation in Hungary found the leading suspect had been given a £1.4 million mortgage by Ukio Bank on the strength of a large building which included a bar and a shop.

But it then emerged the value of the property put up as collateral was not enough to cover the loan. A senior Ukio Bank official subsequently resigned, saying that the smuggling suspect had forced him to agree to the deal. While Mr Romanov is only a shareholder in Ukio Bank, he is seen as a significant influence and when he was told about the situation he is said to have ordered the bank official to file a report to the police.

THE power of the Lithuanian mafia may have since faded but the Russian "strain" has remained a serious threat to Romanov operations in former Soviet states to this day.

The Russian mafia was thought to have been behind a warning shot fired through the window of a branch of Ukio Bank in Vilnius in April 2001, as Mr Romanov’s empire spread beyond Lithuanian borders.

In Ukraine, his companies have been involved in privatising state companies by transferring shares to the workers and then buying those shares. There, they have come up against rivals not afraid to bring in hired muscle to secure an advantage.

On one occasion, as a Romanov operation and a Russian firm vied for control of a Ukrainian factory, an armoured car containing a team of heavily armed men, with the appearance of former Russian special forces, arrived to appropriate the list of shareholders. Such encounters make disputes with the remnants of the KGB and powerful Lithuanian politicians seem trivial to Mr Romanov and his team.

A man widely rumoured to have been a KGB agent who made a fortune by taking over investments made by the Soviet secret service was brought in to help run one project.

The move was not a success and Mr Romanov and he parted company. Mr Romanov later displayed no fear of KGB vengeance when he angrily declared that the former spook had, "as they say, f***ed up".

APOTENTIALLY more serious situation developed when a dispute broke out with Viktor Uspaskich, another ethnic Russian millionaire who narrowly missed becoming the Lithuanian PM at last autumn’s general election and is currently the economy minister.

Mr Uspaskich bought shares in a Romanov meat processing plant called Krekenavoi Agrofirma, but then belatedly discovered a clause which showed the company owed a large sum of cash to the bank.

Liutauras Varanavicius, 35, one of Mr Romanov’s closest advisers, dismissed the row as a "a minimal problem with a sale/purchase agreement".

"Mr Uspaskich bought shares and there was a pledge involved. It was a pledge of assets towards the bank which the buyer claims was not seen," he said.

"It’s a normal civil case, it’s too small an amount to remember ... half a million pounds. You assume the buyer knows everything. It was his choice not to do due diligence."

Perhaps Mr Romanov no longer needs to fear the wrath of Lithuanian politicians. Just as he has outgrown Lithuanian football - he sponsors his home town team FBK Kaunas - and moved to take over Hearts, his business interests are now largely outside his own country and he spends more time abroad than at home.

Trips to Scotland, Hong Kong, India, Venezuela, Ukraine, Belarus and the Balkans now take up much of his time. Lithuania is where he spends time with his wife, Svetlana.

Meanwhile, the jewel in the crown of Mr Romanov’s empire is the Birac aluminium plant in Republica Serbska, the Serbian part of Bosnia. Western businesses might have thought twice about acquiring the factory, which has a controversial past. In the days when the wanted war criminal Radovan Karadzic ran Republica Serbska, Birac provided funds that helped prop up his government. But this checkered history did not dissuade Mr Romanov from seeing an investment opportunity - even if some of his own staff were dubious - and winning the contract to privatise the plant.

Ukio Bank Investment Group, a parent company for his numerous business interests, which he is in the process of buying outright, owns 64 per cent of the shares in Birac, which now has assets said to be worth £300 million.

Mr Varanavicius said that Mr Romanov’s business instincts often surprised those close to him. "At the beginning, there is a feeling of disbelief that this can happen. Our group was very active in privatising factories in Lithuania. Nobody believed it was possible to do that but we had some success. He [Mr Romanov] then wanted to go to Bosnia. Again, everybody in the office was against it, but it was successful," he said.

POLICE in neither Kaunas nor the capital, Vilnius, would comment on Mr Romanov, but a government spokesman confirmed there were no concerns over the man promising to turn Hearts into Scotland’s top football team.

And to close associates like Mr Varanavicius any suggestion that Mr Romanov is an oligarch with a dubious past is dismissed far from the truth. Asked to define his character, Mr Varanavicius describes an easy-going, deeply religious man rather than a hard-nosed, driven achiever.

"One of the things which distinguishes him from other people is he is very willing to excuse [other people] ... if some guy is not performing or even doing something against him. His excusing of his enemies is a very special feature," he said.

"For him, religion is very important. I know a lot of people who were working as managers for him who left, stealing money from the company. He says ‘God will judge’."



Taken from the Scotsman