Inside Story Pattern emerging of frontmen bypassing Western sanctions

Was Russia’s McDonald’s franchise sold to a straw man for supersized profits?

With sanctions on Russia following the invasion of Ukraine, burger giant McDonald's ostensibly retreated. Recordings depicting the chain's sale suggest it wasn't all kosher

People eat at fast food restaurant Vkusno-i Tochka in a former McDonald's location in Moscow, Russia, June 5, 2023. (AP Photo/Alexander Zemlianichenko)
Businessman Alexander Govor, owner of the Vkusno i Tochka fast food chain and founder of the GiD company, looks on at a newly opened fast food restaurant in a former McDonald's outlet in Bolshaya Bronnaya Street in Moscow, Russia, June 12, 2022. (AP Photo/Dmitry Serebryakov)
People line up to visit a newly opened restaurant in a former McDonald's location in Moscow, January 25, 2023. (AP Photo/Alexander Zemlianichenko, File)
Russian President Vladimir Putin (R) holds a meeting with Kabardino-Balkaria's then-prime minister Gennady Gubin (L) and the president Arsen Kanokov (C) in Nalchik, the capital of the republic of Kabardino-Balkaria, October 30, 2005. (Photo by ALEXEY PANOV / ITAR-TASS / AFP)

Foreign tourists who visit Russia today often visit one of the branches of Vkusno I Tochka — a burger chain registered soon after Russia invaded Ukraine in February 2022.

It is modeled after McDonald’s restaurants and its menu looks very similar to that of the American burger giant, which left Russia in May 2022. The Coca-Cola it served was replaced with a similar line of drinks by a local brand, Dobry (which is also produced by the Russian subsidiary of Coca-Cola, HBC), and the Big Mac became the Big Hit. Apart from a few details here and there, nothing fundamentally changed in the schematics of the restaurants or the menu; the only significant change was the ownership.

On May 27, 2022, it was reported that McDonald’s was selling its stores in Russia to a local licensee, Alexander Govor. At the time, there were some doubts that Govor, a little-known entrepreneur who owned a few gas stations, shops, and 25 McDonald’s franchise locations in Siberia, could afford to buy the entire chain. Govor himself told the Russian media that he “paid a symbolic price” but that he “couldn’t reveal the details of the deal.”

But, it turns out through clandestine recordings provided to The Times of Israel, Govor may be a stand-in for another buyer who, due to Western sanctions on Russia, couldn’t close the McDonald’s deal himself. (McDonald’s international headquarters did not acknowledge repeated requests for a response.)

The leaked “McDonald’s tapes,” combined with another set of recordings surrounding a failed deal to purchase Forbes, show that there might be a pattern: Frontmen try to acquire important assets in the West for Russian billionaires who are either sanctioned or uninterested in revealing their involvement, while in Russia the real beneficiaries of the big deals are obscured by unknown local names for the same reason.

The Forbes case gained international attention in October when Russian oligarch Magomed Musaev was the focus of a Washington Post report about his attempt to acquire the Forbes media conglomerate via American billionaire Austin Russell — a claim that Musaev called “absolute nonsense.” Musaev, who has close ties to the Kremlin and Russian intelligence, has an estimated value of some $30 billion. He also lives in the United States on an O1 visa for “individuals who possess extraordinary abilities.”

In a set of recordings regarding McDonald’s made available to The Times of Israel, Musaev says that the real buyer of the McDonald’s assets in Russia was Arsen Kanokov, a Russian billionaire who has been sanctioned by the US, Canada, New Zealand, the EU, and Ukraine for his support of the war in Ukraine and Russia’s annexation of Ukrainian territories.

Russian President Vladimir Putin (R) holds a meeting with Kabardino-Balkaria’s then-prime minister Gennady Gubin (L) and the president Arsen Kanokov (C) in Nalchik, the capital of the republic of Kabardino-Balkaria, October 30, 2005. (Photo by ALEXEY PANOV / ITAR-TASS / AFP)

In the recordings made available to The Times of Israel, Musaev says that he was the one to help Kanokov get McDonald’s. “I have my debtors — Arsen Kanokov, for example… I helped him get McDonald’s, the most awesome company,” Musaev says, continuing, “Kanokov is under sanctions, but he bought all these assets, McDonald’s, OBI… I helped him… Arsen Kanokov owes me about $10 million.”

Kanokov is currently the Russian senator from the Kabardino-Balkarian Republic and serves as deputy chair of the senate’s Committee for International Affairs. He previously was the head of his republic and a member of the Russian parliament’s lower house, the State Duma.

As a member of the Federation Council, Russia’s senate, Kanokov voted in favor of Russia’s recognizing the independence of the territories of Donetsk and Luhansk, located in the historical Donbas region of eastern Ukraine. Later, Kanokov also ratified treaties that incorporated Donetsk and Luhansk, as well as the regions of Zaporizhzhia and Kherson, into greater Russia.

In the recordings, Musaev goes on to explain that a sophisticated scheme had to be designed to transfer the funds out of Russia. According to the recordings, the cash in Russian currency is transferred through “a Kremlin bank” and ends up in Kenya, where he collects it in US dollars. The name of the bank used for these cash transfers out of Russia is not mentioned.

A newly opened restaurant in a former McDonald’s location in Moscow, January 25, 2023. (AP Photo/Alexander Zemlianichenko, File)

Polina Hasin, an Israeli expert on Western sanctions policy against Russia, said, “In the case when Russian oligarchs or officials under sanctions want to hide their involvement in some assets, whether in the Russian Federation or abroad, they often act through frontmen — relatives, subordinates, or long-trusted persons.”

On tapes obtained by The Washington Post, Musaev says that 28-year-old Russell, a tech entrepreneur and founder and CEO of Luminar Technologies who had expressed interest in obtaining Forbes for $800 million, was just a stand-in for himself.

In 2016, Musaev helped Russell land a $20 million seed investment in Luminar and became its second-largest outside shareholder. In 2018, Musaev bought Forbes Russia and apparently had set his eyes on global Forbes as well. This past November, the $800 million deal to sell Forbes to a group of investors led by Russell was scuttled after questions were raised about potential Russian or other foreign influence in the acquisition.

People line up to visit a newly opened restaurant in a former McDonald’s location in Moscow, January 25, 2023. (AP Photo/Alexander Zemlianichenko, File)

Within the last few months, the Russian assets of French dairy company Danone and Danish brewery Carlsberg were seized and put under the temporary ownership of the Federal Agency for State Property Management.

Eventually, Danone fell into the lap of Yakub Zakriev, a nephew of Chechen leader Ramzan Kadyrov, while Baltika, a local brewery owned by the Carlsberg group, is now led by Taimuraz Bolloev, a close ally of Russian President Vladimir Putin.

Since Carlsberg didn’t authorize or approve the seizure of its assets in Russia and blamed the state for its illegal takeover, Bolloev recently suggested that Baltika be nationalized — although there has been no precedent for that in modern Russia.

Businessman Alexander Govor, owner of the Vkusno i Tochka fast food chain and founder of the GiD company, looks on at a newly opened fast food restaurant in a former McDonald’s outlet in Bolshaya Bronnaya Street in Moscow, Russia, June 12, 2022. (AP Photo/Dmitry Serebryakov)

“The story of foreign companies that have not yet left Russia is tragic,” Hasin told The Times of Israel. “Putin signed several decrees that oblige the sellers and buyers not only to obtain his consent to the sale of assets in strategic industries, but also demand they sell assets at a discount of at least 50 percent or ensure the interests of people close to him, as was the case with the Danone and Carlsberg companies.”

According to Hasin, the only option for companies such as these, which want to leave Russia without angering shareholders and Russian authorities, is to write their local assets off as losses and withdraw from the country completely. Still, she said, many companies are afraid that the directors they leave behind, who are Russian nationals, may end up facing criminal charges — as was the case with Carlsberg.

The writer, a former member of Knesset, is a senior non-resident fellow at the Atlantic Council and executive director of ROPES.

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