The Oligarchs (29 page)

Luzhkov was a widower in those years, and late one evening he
invited Gusinsky to his home. “A lonely man, he was not old then, but perfectly lonely,” Gusinsky recalled. “He said, ‘What shall we have, let's have tea.' I said, ‘Let's drink tea.' Now, what have we got for tea? Out of his refrigerator he took a piece of stale, moldering rye bread. This I remember distinctly. He had nothing at home because he didn't live there. He would sometimes sleep there, but very often he simply spent the night at his office. Strange person. My relations with him then grew very warm.”

In 1988 Gusinsky opened a cooperative, named Infeks, as a consulting company to help Western investors fathom the complexity of doing business in the Soviet Union. He was still a skinny young man wearing outsized eyeglasses and a big smile. For a fee, Gusinsky served as a fixer and provided legal advice and crude marketing data. He was working out of a cramped, windowless office on the far outskirts of Moscow, hardly a financial kingpin, but he was increasingly a man with connections who knew his way around the corridors of power.

Gusinsky's horizons were rapidly expanding beyond Moscow. In 1988 a group of American businesspeople came to Moscow looking for investment opportunities, among them Margery Kraus of APCO, a consulting firm owned by Arnold & Porter, then Washington's largest law firm. Kraus and Gusinsky quickly found that they understood each other and on December 13, 1988, announced plans for a joint venture partnership to bring business prospects to Moscow. When Western clients came to the capital, Gusinsky would help them navigate the often obscure world of the bureaucracy.
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Kraus took Gusinsky to dinner one evening in Washington. She needed some cash afterward and walked with Gusinsky to an automatic teller machine to get the money. Gusinsky was wide-eyed. He had never seen such a thing. The machine was part of an electronic banking network called MOST, which was written on the ATM. Gusinsky adopted the name for his new joint venture and eventually for his Moscow bank. In Russian, the word “most” means bridge. Gusinsky said the new business would be his bridge to the outside. He told Kraus, “For us it will be a hard currency machine.”

Boris Khait, then Gusinsky's deputy, recalled that APCO asked them to carry out a study of the food market because a midsize American fruit wholesaler wanted to know about the demand for fresh fruit. Gusinsky carried out a market “survey” by sending out students to
question foreigners in the city, who, it was thought, would pay in hard currency. They were asked what kinds of fruit they wanted to buy in Moscow. Khait was puzzled to learn that the greatest demand was for something called “kiwi.” Khait had been deputy director of a medical technology institute and considered himself a relatively well educated man. But he had never heard of a kiwi.
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Gusinsky took Luzhkov to the United States on a tour arranged by Kraus, his partner in Washington. Luzhkov, who still had crude ideas about economics, wanted to start a huge, centralized food manufacturing business in Moscow. He asked Gusinsky about creating “an immense enterprise that would manufacture everything” the city needed. Gusinsky was skeptical; at this time, Luzhkov was still “a Soviet bureaucrat with no idea about how the market worked—that the main point is to allow everybody to produce everything, and then there will be no problem of food supply.” Luzhkov still thought in terms of massive, centralized, state-run factories, and he persisted. “Do you know anybody in America?” he asked Gusinsky.

The tour was an eye-opening experience for both of them, Kraus recalled. No one was interested in Luzhkov's plan for a giant centralized food factory in Moscow, but Gusinsky and Luzhkov found themselves flying on private jets. They were featured guests of corporate giants Phillip Morris and ConAgra Foods. They also visited Lehman Brothers on Wall Street. Kraus recalled one remarkable afternoon when, after meeting ConAgra officials in Omaha, Nebraska, the two Russians toured a local supermarket. Luzhkov asked a constant stream of questions and insisted on seeing the back of the store where the meat was cut. “Luzhkov was just blown away,” Kraus recalled of the goods-laden store they inspected. Another time, Kraus was driving them to an appointment and pulled in to a Kentucky Fried Chicken drive-in for lunch. When their order came down a chute and through the car window, the two Russians were amazed. They had never seen such a thing. Gusinsky and Luzhkov were a funny pair, two men not widely known outside the Soviet capital, a hustling cooperative pioneer and a Moscow administrator exploring superprosperous America like virtual time travelers in a strange land. In New York City, they were shown an overstuffed candy store. They insisted that a driver take them to a dozen more stores to satisfy themselves that the first one was not just set up for their visit. Soon they realized there really was one on every corner. Luzhkov lost his luggage and Kraus bought
him new clothes. He traveled with two pair of socks, which he washed in the hotel room. Gusinsky absorbed the lessons well and one night was sitting in Kraus's kitchen, pondering his future. “He drew on a napkin his vision for a conglomerate,” Kraus recalled. “He wanted to talk about
everything!”

Back in Moscow, Gusinsky's faith in political connections proved critical to his next big leap, into construction and real estate. Earlier, in his Metal cooperative, he had built small, stand-alone shell-shaped garages out of corrugated metal, which sprang up around the dreary apartment blocks of Moscow. In the cooperative days, it was enough to make things people wanted and sell them. But now Gusinsky wanted to repair and reconstruct old buildings. Moscow was littered with longforgotten, dilapidated structures, and the lethargic state construction firms did not want to bother with small jobs. Gusinsky realized that he could make a small fortune by fixing up buildings and selling them on Moscow's increasingly high-priced real estate market, where rents for good offices and luxury apartments were approaching New York and Tokyo levels, pushed up by burgeoning demand among the new rich.

But first Gusinsky had to get a bargain on the old buildings. He needed Luzhkov. As a city official, Luzhkov could, with a stroke of the pen, parcel out city buildings. But Gusinsky knew that Luzhkov had to benefit in some way as a result. This was not a matter of crude bribery. What Luzhkov needed was career-enhancing results. Mikhail Leontiev, a journalist who knew both Luzhkov and Gusinsky at the time and later worked for Gusinsky, told me, “Luzhkov is a workaholic. He likes to have a result. Gusinsky is very energetic too. They complemented each other very well.”

Luzhkov desperately wanted to expand Moscow's overburdened housing supply. Gusinsky and Luzhkov struck a deal: Luzhkov would give Gusinsky the rights to an old building, absolutely free. Gusinsky would then reconstruct the building and give half or even 75 percent of it back to the city. For Gusinsky, it was still enormously profitable to sell the remaining part, and for Luzhkov, who controlled the building permission slips but had no other resources at his disposal, it was an effortless way to gain valuable, freshly repaired housing and office space for the city. Later, the scheme became the backbone of Luzhkov's method for rapidly increasing residential housing in Moscow; hundreds of thousands of square meters of housing space were built by contractors with similar deals.

Moscow in the early 1990s was just beginning to blossom into the money-soaked, anything-goes Russian boom town that it later became, where corruption was rife and there were no clear boundaries between private and public interests. To get something done in the city, you needed money and influence, guts and bribery, and the whole environment was one of secrecy and deception. Even the smallest city department blithely demanded some kind of bribe or payoff, and big projects were always accompanied by hefty corruption. This was the world in which Gusinsky made his early fortune.

Yuri Schekochikhin, a crusading investigative journalist and democratic reform politician, wrote despairingly that criminal structures were coming to power in the city, taking advantage of the triumph of the reformers in 1990 and 1991. In a lengthy article published in June 1992 in the newspaper
Literaturnaya Gazeta,
which he entitled simply “Fear,” Scheckochikhin said his sources were so fearful that they insisted on answering questions about Moscow corruption on hastily scribbled bits of paper, which they then burned. The criminal structures “have already divided among themselves the spheres of influence in Moscow,” he wrote. “They have already sold out to each other Moscow's tasty morsels.”

“Who governs Moscow today?” he asked. “Those who took into their hands Moscow's assets—its land, its buildings, and whole districts.” Schekochikhin said the real power in the city was reserved not for small businessmen who got started after Communism collapsed nor the “real criminal businesses” that took advantage of “chaos in the country,” but rather a shadowy “third group” close to the city government. He noted how Luzhkov had given a building to Gusinsky's company, Most. “I have information that Most has bought up virtually for nothing over one hundred buildings in Moscow already and there is no law that can prevent it from doing this,” he wrote, saying that it was not the elected leaders who were running the city but the tycoons close to power. These were the “real masters of Moscow.”
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Gusinsky was getting into big money, far more than he had ever known before. Tens of millions of dollars were running through his hands. His life was a blur of long nights and weekends with never a day off.

Danger lurked where money accumulated. When he first started stamping out bracelets, Gusinsky came face-to-face with small-time gangsters. The criminal gangs that had existed below the surface of
Soviet life—and under the heel of Soviet authority—became brazen during
perestroika,
just as the cooperatives blossomed. The bandits would be at the door as soon as they smelled money. At first, Gusinsky simply puffed up and tried to scare them off with the same volcanic anger he had once summoned up as a boy on the courtyard. “You would take something heavy in your hand and scare them away,” he recalled. But soon he was hiring his own security force to keep out the gangsters who demanded money for protection. Gusinsky knew he lived in a lawless vacuum and it was no use turning to the police. He had to make his own rules, since he was probably operating outside the Soviet-era laws that made entrepreneurship a crime. “We had two options,” he said, “to either pay the bandits or to keep the security service on the payroll.” Later, as his businesses grew, especially as he built an empire in construction and banking, Gusinsky kept the bandits at bay with his own thousand-man security service. Bobkov, the former high-ranking KGB general who had been in charge of persecuting dissidents, became a key member of Gusinsky's corporate high command. Bobkov was described by Gusinsky as an analyst, but he was really concerned with all aspects of Gusinsky's security. In Gusinsky's empire, as in others, private in-house security services oversaw many different aspects of defending the company, from bodyguards to “analysis” of competitors to links with the state security organs. Gusinsky was a pioneer in creating these private services, which drew from elite Soviet military units and the KGB. For years, Gusinsky brushed off criticism of his security operation, saying it was necessary to keep out the criminals and guard his construction sites and bank branches. “Bandits, bandits, bandits!” he moaned when I asked him about the dangers he felt. When criticized for Bobkov's presence in his organization, Gusinsky declared that he would “hire the Devil himself if he could provide us with security.”
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Gusinsky's financial center, Most Bank, which began as little more than an accounting department, expanded with the patronage of Luzhkov. The bank snared the city's main accounts in the early 1990s, a privileged status that allowed Gusinsky to play with municipal deposits, earning handsome profits for himself while he paid a small percentage back to the city. Gusinsky set up his offices in the same high-rise building where Luzhkov administered the city, next door to the Russian White House. Gusinsky's own automatic teller machines were stationed in the hallways, and the elite in Moscow were using
his Most Bank credit cards. As he famously put it at the time, it was possible to make money from thin air.

What did it take to survive? As he looked out from his high-rise office at the sprawling city below him, Gusinsky pondered his success. You had to have some kind of inner drive, some kind of inner fuel that forced people like him to want to be first. It was a very small group of people, willing to take risks, desperate to succeed.

 

In the days of Gorbachev's
perestroika
and
glasnost
reforms, and later during the radical change of the early Yeltsin years, journalists became beacons of hope for Russian society. Especially after the Soviet collapse, journalists were admired and respected. “They were rulers of the minds,” Oleg Dobrodeyev, a prominent television editor and executive, recalled in an interview many years later.
¹¹
“In the first Supreme Soviet of Russia, one-tenth of its members were journalists. Their popularity and their authority in those years after August 1991 was fantastic!” It was not unusual for journalists to participate openly in politics. Dobrodeyev remembered that the journalists became the eyes and ears of the intelligentsia, the banner carriers for reform and democracy; sometimes he was even invited to participate in closed government meetings. “People who were the base of reforms—the engineering and technical intelligentsia, doctors, teachers, those who sincerely wanted changes—looked to journalists as their brightest representatives, and spokesmen of their aspirations.”

In contrast to the gray, obedient Soviet-era press, brash new publications sprang up, such as the newspaper
Kommersant,
which became the bible of the early cooperative movement. The editor, Vladimir Yakovlev, recruited young reporters who were open-minded about a whole new language of commerce, capitalism, and money, a vocabulary that simply did not exist in the staid world of Soviet journalism. One of this generation was Mikhail Leontiev, who was a friend of the early cooperative businessmen. He got his start with the first issue of
Kommersant
in 1989. Leontiev later moved on to another prominent reform paper,
Nezavisimaya Gazeta,
which had been created by the democratic reformers who triumphed in Moscow city politics. The name meant “independent newspaper.” The office was spread out on an old factory floor, and it attracted many of the most talented journalists of the day with the idea that it would remain truly independent.