Michael Cherney Mikhail Chernoy Russian Oligarchs Russia

Cherney grew up in Tashkent ( Uzbekistan ) in a modest family whose father was a book-keeper and an engineer, the oldest of three sons. At the age of fourteen, Cherney started working, as he joined his father on moonlighting jobs. After high school, he was drafted into the Soviet Army and attended a technical college. Later, his athletic pursuits – boxing and soccer – led to employment in sports administration.

Cherney went into business in the eighties, as a pioneer in the cooperative movement. With his brothers, he rented plastic-making factories, bought raw supplies, ordered stamping equipment, and produced various household goods that in those days sold like hotcakes. This was post-Brezhnev time, when small businessmen were not persecuted as much.

Later, in 1985, it turned out that the Soviet laws did not specifically interdict this activity.

So those who made money through their work and drive were not the lawbreakers - the police and the State Attorney's office were.

In 1987, Chernoy relocated to Moscow , where he quickly entered into business.

There in 1989 he met an American businessman, originally from Odessa, named Sam Kislin, who offered him a business partnership.

Kislin has a trading company called TransCommodities. He sold sewing machines and popular consumer electronics to former Russian enterprises.

By 1991, the centralized Soviet system of industrial supplies and deliveries had unraveled, leaving whole industries in a state of collapse. Supplanting the government, TransCommodities stepped into the breach: Cherney was bartering cars for coal directly from miners and supplying it to plants outside the Soviet Union. Soon TransCommodities became a major metals supplier, grossing $200 million.

After two or three years, the Cherney’s company employed between 300 and 500 people. To make business grow, Michael traveled to Moscow and revived his old sports contacts.

Cherney worked hard, but trading did not attract him. He was by nature a manufacturer, rather than a merchant; he wanted to produce, rather than sell, and realized - or, rather, his instinct told him - that the biggest profits were in manufacturing. He tried to understand the inner workings of every factory that Kislin was dealing with.

In his first year as Kislin's partner Cherney made two million dollars. Then he suggested that Kislin and he find an idling factory, get it running, and sell its product in the West. Kislin went to Austria and landed a contract to supply three million tons of coke.

In turn, Cherney was told of coke smelters in Kemerovo and Donbass that were dying out without supplies. Cherney flew down to Kemerovo, in an area called Kuzbass in Central Siberia. Once he figured out what was what, he had an idea. The partners begin bartering cars and consumer electric appliances for coal directly from miners; then they supplied it to coke and coal concentrate manufacturers, and then supplied their product to plants in Austria and Yugoslavia.

In late 1991, the partners decided to manufacture coke on their own, and they were producing a million tons a year. Cherney and Kislin not only exported it abroad, but also sold it to smelters in Russia and Ukraine who needed it. In exchange, they would take metals that they could sell in the West. Out of consumer-goods trader, Trans Commodities became a major metals supplier grossing $200 million a year.

By 1992, Michael Cherney had enough money to be a player in the next stage of Russia's economic development: privatization.

"In those days," Cherney says, "anyone who had his head screwed on right, who had drive and took risks, could make millions, just like European traders in America centuries ago. Every country in the West has gone through a similar privatization."

By the time privatization started in 1993, he entered a partnership with his younger brother Lev.

Michael invested tens of millions of dollars, as well as the connections in the ministries and the industries he had cultivated in four years.

Lev brought in the Reuben brothers of TransWorld Group, a UK metal trading company. The Reubens offered Lev, who in turn offered Michael, to become partners in developing Russian aluminum industry.

In the early 1990s, Trans World invested heavily in Russia and the former Soviet Union. Trans World acquired a number of aluminum factories. Designed to encourage investment and revive the aluminum sector, Russian authorities approved a system in which individuals could essentially rent factories. Raw materials were imported, processed, shipped, and sold overseas without having to pay any taxes. In exchange for facilities and cheap labor, the plants received payments to sustain the labor force.

In the Soviet Union, alumina, the raw material for aluminum production, was purchased in Australia and New Zealand. Most of the product, 75 percent, was consumed domestically, by the military- industrial complex. As the market era dawned, the Military-Industrial complex reduced orders, the hard currency for alumina vanished, the smelters came to the point of stoppage, and the workers went for months unpaid. The Cherney brothers with their Western partners offered the new Russian government a plan to prevent the stoppage: We will buy alumina, we will deliver it to smelters, we will pay wages, we will pay electricity and all other production expenses. Our conditions: your surplus product will be sold exclusively through us and at the price that will take into account our expenses. This system was called "tolling". Russia benefited from it, and the government gave a green light.

Soon, the partners' net profits amounted to 30 percent from metals' cost.

Alexandr Bovin, one of the ideologists of perestroika and Russia's former ambassador to Israel recalls saying once at a government meeting, "All you need is a couple more Cherney brothers, and you would reconstruct the entire heavy industry."

In 1993, privatization started: Yeltsin's reformist government developed a voucher system. A number of foreign companies had already come to the Russian market. They bought up Russian product at low cost, but they could not believe they could buy companies for vouchers. The Cherney brothers found their bearings fast. They believed in privatization, in Russia's democratic reform, earlier than others did. People were suspicious of vouchers and were ready to sell them. The Cherneys were buying them out through their investment companies.

Vouchers turned into shares, and the Cherneys began buying stock in ferrous and nonferrous companies. In three or four years they, along with their partners, came to buy a controlling majority in Russia's largest smelters: Bratsk, Sayansk, Novokuznetsk, and Krasnoyarsk.

"In privatization, we were outsiders, not linked to either Party bosses or gangsters or security services," said Cherney. "I suspect this is why they fought us. In 1994-97, they were not striking against the hustlers who built financial pyramids, but those who wanted to build up industries and create jobs. Nobody needed those companies. The Soviet Gossnab that had provided money and raw materials and had marketed the product now collapsed. All the factories were gradually going down the tubes. The foreigners were not interested in saving them - then they would have to stop their own factories. Besides, they still remembered NEP, the Soviet 1920's capitalist experiment, when at first private capital was allowed in, and then the profits were taken away. But in 1994, if it had not been for privatization, in two years the factories would have turned to scrap metal. They served as quiet little troughs for local authorities. And suddenly here we come - not Party functionaries, but simple Jewish boys. Basically, earning ten dollars today, borrowing another twenty, investing another thirty, and collecting a profit of three hundred. Which makes a lot of people envious. But what happens at State-owned factories that no one bought? Nothing works, and no one pays the wages."

While the Soviet military-industrial complex was working, most of the 3.5 tons of aluminium manufactured a year was consumed domestically. After the collapse of the Soviet Union, the Western companies expected the Russian smelters to stop and the prices to go up. But after a couple of years industrialists like Cherney brothers and their partners began reviving the industry and learned how to compete with Western monopolies and give them a run for their money on the market. Now Russia consumed 400,000 tons, and 3 million went for export. Naturally, Western monopolies went to war against the Russian newcomers.

Beginning in 1998, Chernoy invested in Bulgaria by creating the Mobiltel Company, which quickly became the leading cellular provider in Bulgaria. In 2000, the Bulgarian government launched an inquiry to determine who the shareholders in Mobiltel were and what proportion of the shares they owned. The government investigation revealed that Chernoy owned 95% of Mobiltel through an off-shore investment fund called Eastern Telecom Market Fund. The government, allegedly attempted to extort a bribe from Cherney which he refused to pay, forced him to sell his controlling stake in the company and banned him from Bulgaria.

In 2002, 80% of the capital in the Bulgarian State-owned tobacco company, Bulgartabac, was placed on the market. Chernoy put together a three-partner consortium to bid for Bulgartabac.

Chernoy planned to purchase Bulgartabac by establishing the Metatabac Consortium, which was created in April of 2002. Ownership was structured between three groups: the Russian firm Soyuzcontracttabac, which owned 35%, MCG Holdings, a firm owned by Chernoy, which owned 35%, and another 30% held by a Cypriot company named Metacontact Ltd.

In May 2003, Chernoy succeeded in having the ban on his coming to Bulgaria revoked by the Sofia City Court. That October, it was reinstated after an appeal by Chief Secretary of the Ministry, general Boyko Borissov and Director of the National Security Service, Ivan Chobanov. On January 16, 2004, the ban was once again rescinded by the Bulgarian Supreme Court.

Cherney immigrated to Israel in 1994. There he was falsely accused of concealing an attempt to purchase the Israeli state-owned telecom company Bezeq. In this affair, Chernoy allegedly arranged to have Israeli businessman Gad Zeevi purchase 20% of the Israeli telecom using money provided by Chernoy. After the Bezeq scandal, Israeli authorities launched an investigation into Chernoy’s activities in Israel. The investigation was dropped as a result of no evidence being found of any wrong doing by Cherney. In fact, the police officier who was responsible for creating and conducting the investigation on Cherney was dismissed from the police force on charges of harassment.

In Israel he has established the Michael Cherney Foundation, which assists terror victims, helps gifted children and holds events which address concerns of Israel’s security and international terrorism.

On November 24, 2006, Cherney filed a suit against Oleg Deripaska, the Russian billionaire who owns the huge Russian aluminum company, RusAl, in the Commercial Court of London’s High Court. Cherney seeks a Court declaration affirming that Deripaska holds 20% of the RusAl shares on behalf of Cherney or damages for breach of Deripaska’s agreement to dispose of the shares and to account to Cherney for the proceeds.

The claims are based on a written agreement between the two businessmen that was signed in London in March 2001. As of December 2006 RusAl is in the final stages of negotiating a takeover of domestic rival SuAl and the aluminum assets of Glencore, a major Swiss commodities trader, which would create a new company valued at up to $30 billion. According to this estimate, Cherneys 20% stake in RusAl would be worth approximately $3 billion.