Chicago’s expansion into Ukraine, Moscow a story of cultures, corruption
On July 17, 1991, Kraft General Foods hosted a luncheon at the Palmer House Hotel for Chicago Mayor Richard M. Daley and Kyiv, Ukraine Mayor Grigory Malishevsky.
They were there to legitimize their growing relationship by signing a Chicago Sister Cities International (CSCI) agreement. For Chicago, it provided a more official avenue for Daley and some of the country’s largest corporations to further gain a foothold in Eastern Europe.
For Ukraine, it provided another means by which Kremlin officials and Russian oligarchs could visit and invest in a major U.S. city. One with large Ukrainian and Russian communities.
Daley inherited CSCI from his father, who signed the first agreement with Warsaw, Poland in 1960. It was considered a “tired and largely ceremonial venture” until Daley established its volunteer board of directors in 1990. CSCI is partially funded by taxpayer money and received a city grant this year for $528, 643.
That same July, Leonid Kravchuk, then the presidential candidate representing Ukraine’s push for sovereignty, was hosted by CSCI to discuss economic development with local business leaders. His associate, Vitaly Mayco, attended a “series of meetings with the heads of five major Chicago businesses.”
For 30 years, Kravchuk was a member of the Ukraine Communist Party carrying out its various disinformation campaigns. He’s a former head of its propaganda-and-agitation department and was the chief ideologist on its Central Committee when he began his presidential campaign.
On Dec. 1, 1991, 92% of Ukrainians voted for independence from the Soviet Union. Four days later, Kravchuk was elected as the first-ever president of Ukraine.
That same month, the Ukrainian parliamentary commission found that the Communist Party and Soviet President Mikhail Gorbachev was behind a “massive criminal cover-up that led to thousands of deaths” after the Chernobyl nuclear disaster. Kravchuk “without a doubt” shares responsibility for the Chernobyl cover-up, the committee said.
Three weeks after the election, the Soviet Union was dissolved and the country moved toward a more open economy. At the time, that meant corruption in nearly all facets of the economy between organized crime, government agencies and officials, business owners and outside investors.
As the Russia and Soviet officials battled for control over Russia, a wave of foreign investment was moving in from Chicagoland. McDonald’s opened its first store in Moscow in 1990. In 1991, the Andrew Corp. started installing fiber optic communication systems in Moscow and St. Petersburg subways. In 1992, Boeing opened its Moscow design center with 10 Russian scientists. In 1993, Motorola hired Russia’s Khrunichev Enterprise to launch 21 of its satellites into space.
Kraft opened its first office in Russia in 1994 and in 1995 bought Ukraina, a top confectionery brand in Ukraine. In April 1996, the Whitman Corp., owner of Pepsi-Cola General Bottlers, announced it was partnering with Pepsi to invest $165 million to build production and distribution facilities in St. Petersburg and other areas. It planned a total investment of $500 million.
In August 1996, the Chicago-based Wrigley Company said it would be building a $25 million factory in St. Petersburg.
During that time, Vladimir Putin was the head of St. Petersburg’s Committee for External Relations. It’s in charge of encouraging foreign investment in Russia’s economy. Under Putin, it created investment zones and offered tax breaks in exchange for foreign investment in Russia’s economy and local infrastructure.
As head of the committee, Putin controlled which foreign companies could register their offices in St. Petersburg. Officials involved with the deal, claim Putin was “instrumental in cutting through the local bureaucracy” to enable Wrigley to open its plant.
“These kinds of opportunities don’t come every day. If the big companies are successful others follow them in. You take a leap of faith…it may sound like a big deal, but it’s just business,” said William Piet, who ran the project for Wrigley.
“Just business” meant Illegal payoffs. “Most American businesses in Russia (paid) up to 30% of their profits as protection money to the (mafia groups),” according to former FBI Director Louis Freeh.
Numerous laws were broken by the Chicago companies in their attempt to go after Russia’s 150 million consumers.
James D. McHugh was an Irish bricklayer from the South Side who started his construction company in 1897. Almost a century later, McHugh Construction opened operations in Russia. It built numerous buildings in Moscow, including the ABC News HQ, Amoco/BP gas stations and Russia’s International Monetary Fund. It employed a large number of Russian nationals to build those buildings and others.
In 2001, it paid $1.5 million to resolve a lawsuit that it was evading paying payroll taxes to the Russian government by paying its construction workers with cash. To get that cash there, McHugh concealed it in construction containers that were sent to its facilities in Moscow. It maintained a double set of books to conceal its accounting.
Five years ago, it was fined $12 million by the state of Illinois for not hiring enough women and minority-owned sub contractors on the seven public projects it received contracts for. McHugh poured the concrete for part of Trump’s Tower in Chicago. It also built McDonald’s Chicago HQ.
John Deere’s been operating in Orenburg, Russia since 2005. It opened its first manufacturing facility there six years ago to produce seeding, crop care and tillage equipment for Russia. Five years later, it opened another facility south of Moscow. It now has a network of 70 dealers in Russia and has been selling parts there for more than a century.
In 2011, Deere was investigated for bribing Russian officials in violation of the Foreign Corrupt Practices Act, the 1977 law that bars companies from paying bribes to foreign officials. Deere’s HQ is in Moline, Ill. The SEC later closed the investigation with no charges.
Caterpillar has operated in Russia for more than a century. It has five offices in Russia and Kazakhstan and a manufacturing facility near St. Petersburg. The U.S. has exported almost $150 million in tractors to Ukraine and Russia over the last year.
Caterpillar’s Peoria, IL headquarters was raided by federal officials two years ago. (Its digital team is located downtown Chicago.) Officials seized documents and electronic records as part of a criminal accounting and tax fraud investigation into Caterpillar’s use of overseas shell companies to avoid paying more than $2 billion in U.S. taxes.
It hired then Kirkland & Ellis Senior Counsel William Barr as lead attorney to “take a fresh look at Caterpillar’s disputes with the government, get all the facts, and then help us bring these matters to proper resolution based on the merits.”
Caterpillar’s tax strategy that’s under investigation was developed by PricewaterhouseCoopers (PwC). Kirkland & Ellis represented PwC against a former employee who first raised questions about the tax strategy.
Chicago-based Archer Daniels Midland (ADM) is the largest processor of farm commodities in the U.S. It started trading wheat, corn and soybeans in Russia in 1980. It has sales offices in Saint-Petersburg, Krasnodar and Novosibirsk.
For 25 years, agribusiness titan Dwayne Andreas was its CEO. In June 1995, he donated $1.5 million to the Russian Orthodox Church in the U.S. to help renovate its property in Moscow. Instead, top church officials used his donation to cover “personal credit card bills, pay sexual blackmail, support family members and make up shortfalls in various church accounts.”
For years, Putin has raised the presence of the Russian Orthodox Church and used its religion to create divisions between Russia and the West. He’s also used it as a means to relate with the far right’s Christian conservative groups.
Andreas, who was friends with Gorbachev, was accused of making the donation as an attempt to get new business in Russia. In 1996, ADM plead guilty to price fixing in the citric acid markets to eliminate its competition. It paid a $100 million fine, which was then the largest criminal antitrust penalty ever.
That same year, Trump Indiana, Inc. entered into an agreement with the City of Gary, IN to build a hotel and casino riverboat and start a charitable foundation for the area. Trump once called the floating casino the largest “riverboat in the world.” It was located about 25 miles southeast of downtown Chicago.
In August 1996, Daley and Chicago hosted the DNC Convention at the United Center where Bill Clinton and Al Gore were nominated for reelection. That same month, Daley and Moscow Mayor Yuri Luzhkov announced the two cities had signed a CSCI agreement to increase trade and continue to build their cultural and diplomatic links. The agreement was the first and only one established between Moscow and a U.S. city.
It was an interesting time for the mayors to further their international deals considering the massive amounts of fraud and corruption that was going on between various government officials, agencies and organized crime factions in their own cities.
For Daley, it was the Hired Truck Program scam where the city paid various truck companies to have their trucks sit for eight hours every day. A mob associate worked in the city’s transportation department that handed out the contracts. Companies in Daley’s 11th Ward received almost $50 million through their work in the program. And almost one out of 10 of the trucking firms used were “either owned by alleged mobsters or Outfit associates or by family members, often women, of reputed mob figures.”
In 1996, there were 1,179 homicides in Chicago. Many of those were via the criminal gangs and turf wars over which areas they ran. Same as Moscow—but on a much more dangerous level for corporate businessmen.
If you were doing business in Moscow in 1996, your were the target of the mafia. There were 8,000 or so organized crime groups battling each other over which commercial areas they controlled. It’s been estimated they owned almost half of Russia’s stock exchanges and more than half of the banks. In 1995, 4% of Russian murders were attributed to contract killings.
Two months after the CSCI agreement was signed between Chicago and Moscow, Trump announced he would be expanding into Moscow. He said he’d be investing $250 million in Russia and licensing his name to two luxury residential buildings. He also filed to trademark his name in Russia.
He was also working with Moscow Mayor Luzhkov.
“We are actually looking in Moscow right now, and it would be skyscrapers and hotels, not casinos. Only quality stuff…I’ll be soon going again to Moscow. We’re looking at the Moskva Hotel. We’re also looking at the Rossiya. That’s a very big project; I think it’s the largest hotel in the world. And we’re working with the local government, the mayor of Moscow and the mayor’s people. So far, they’ve been very responsive,” Trump said.
Two years later in 1998, then Russian Ambassador to the U.S. Yuri Ushakov visited Chicago to attend CSCI’s 6th annual U.S-Russian Business Council meeting. Ushakov is currently Putin’s foreign affairs adviser.
Russia’s inflation reached 84% by the end of the year and the economy ultimately collapsed. It defaulted on the ruble and its domestic debt. The political crisis for then president Yeltsin eventually prompted the naming of Putin as his successor. Putin became Russia’s acting president on the last day of 1999.
Various Russian oligarchs have investments in companies that have headquarters in Chicago.
The A. Finkl and Sons Group operated Finkl Steel along Chicago’s North river front for more than a century. It moved to the South Side five years ago. Its parent company is Swiss steel-maker Schmolz + Bickenbach. Russian oligarch Viktor Vekselberg owned 42% of it until last year, but he was forced to lower his investment to 11.9% to avoid U.S. sanctions.
Last year, Vekselberg was questioned by Robert Mueller’s U.S. Special Council investigators about his company Columbus Nova’s use as a conduit to funnel $250,000 into the Trump inauguration fund, $35,000 into the Trump Victory Fund and $29,600 into the RNC.
He was put under sanctions by the U.S. in April 2018. Last year, when the U.S. Air Force learned of the sanctions, it revoked a $419.6 million contract it had with Finkl to build bomb bodies for large warheads.
Finkl & Sons’ headquarters are a 2-minute walk to the North American Headquarters of Evraz, a Russian-owned steel and mining company. Russian oligarchs Roman Abramovich and Alexander Abramov own controlling shares in the company.
In 2012, Evraz became Russia’s largest producer of cooking coal when it took over Raspadskaya, one of Russia’s largest coal mines. Its domestic steel rival is OAO Severstal. Severstal is the largest steel company in Russia and is run by Russian oligarch Alexey Mordashov. In August 2008, it paid $775 million for Esmark, a U.S. steel company located in Hinsdale, IL.
Esmark was started in 2003 by Craig Bouchard and his brother Jim with $2.65 million and 25-cent shares. Over the next five years, they bought nine steel facilities with total annual sales of $3 billion. It became the fourth largest steelmaker in America.
Less than two years after Severstal bought Esmark for $775 million, it sold three of the steel companies back to Esmark.
Earlier this year, in another deal with the Russians, Bouchard’s Braidy Industries announced a $200 million deal with Rusal, a Russian aluminum company connected with Russian oligarch Oleg Deripaska. The western Kentucky plant will make U.S. auto parts. The agreement gives Rusal a 40% stake and Braidy Industries 60%.
The project was made possible by Kentucky Senator Mitch McConnell and his vote to lift sanctions on Rusal. In the last six months, he steered about $4 million in U.S. Treasury money to fund infrastructure upgrades for Rusal’s new aluminum plant while blocking $4 million in federal funding meant for Kentucky coal miners’ to pay for their health care and pensions.
Daley’s approval by the Obama administration for his Metropolitan Regional Center business as a federal EB-5 Regional Center has enabled him to continue to do work on the international stage after leaving office. The designation means his firm, Tur Partners, has the authority to solicit foreign investors for business projects in 14 counties from Kenosha, WI to Chicago to Gary, IN.
EB-5 programs let foreign investors get visas in exchange for investing in American projects. The program has a history of being used by corrupt developers to pay themselves or be paid by investors who are looking for a way to get around sanctions.