The Oligarchs (3 page)

7
William Browder, “The Hermitage Case: Organized Crime and Legal Nihilism Inside the Russian Government,” briefing document in the author's possession; “William Browder,” as told to Diane Brady,
Bloomberg Businessweek
, January 10–16, 2011.

8
“The Luzhkov Dilemma,” cable 10MOSCOW317, February 12, 2010, released by WikiLeaks,
http://wikileaks.ch/index.html
.

9
See Transparency International, “Corruption Perceptions Index 2010 Results,”
http://www.transparency.org/policy_research/surveys_indices/cpi/2010/results
.

10
Andrei Soldatov and Irina Borogan,
The New Nobility: The Restoration of Russia's Security State and the Enduring Legacy of the KGB
(New York: PublicAffairs, 2010), chaps. 12 and 13.

11
Nikolay Petrov, Maria Lipman, and Henry E. Hale,
Overmanaged Democracy in Russia: Governance Implications of Hybrid Regimes
(Washington, D.C.: Carnegie Endowment for International Peace, February 2010).

12
Quoted in a Reuters dispatch by Darya Korsunskaya, “Russia Needs Fair Polls to Back Reforms: Kudrin,” February 18, 2011.

13
Masha Lipman, “Putin's No-Participation Pact,”
Moscow Times
, April 1, 2011.

14
Anders Åslund, Sergei Guriev, and Andrew C. Kuchins, eds.,
Russia After the Global Economic Crisis
(Washington, D.C.: New Economic School, Center for Strategic and International Studies, Peterson Institute for International Economics, June 2010).

15
See “The World's Billionaires,”
Forbes
, March 9, 2011, available at:
http://www.forbes.com/wealth/billionaires
.

T
HE DEAD OF WINTER found the old man trapped in another brooding, dark season of discontent. Boris Yeltsin, the Russian president, had barely set foot in the Kremlin for two months after being hospitalized in December 1997 for an acute viral infection. In January he disappeared from view, far away from Moscow, at a wooded resort in Valdai, near the border with Finland. Yeltsin was capable of great spurts of activity, but now he was dormant. A year after recovering from heart surgery, his attention span grew short, and he seemed to fade in and out of discussions. In February he went to Italy for a state visit. He looked pale and stiff. At the Tomb of the Unknown Soldier in Rome, he broke protocol by failing to pay tribute to the Italian flag, despite frantic attempts by aides to stop him in front of it. He made a bizarre blunder by announcing that the UN secretary-general, Kofi Annan, would visit Iraq. Annan said he had no such plans. At a press conference, Yeltsin needed help answering simple questions. “I never said I would go to Iraq,” he replied, befuddled.

To a small group of Russia's wealthiest businessmen, Yeltsin's behavior was deeply unsettling. Russia needed a strong political leader. With its president ailing, the country seemed adrift. The winds
of the Asian financial crisis were already blowing into Russia, driving oil prices down and investors out. The businessmen had much to lose.

Just two years earlier, these tycoons had rescued Yeltsin from another of his dangerous winter hibernations. They offered Yeltsin their most talented political operatives, the enormous power of their television stations, and the front pages of their newspapers for his faltering 1996 reelection campaign. Yeltsin roused himself from a stupor, threw himself into the fight, and won. With the election victory, the tycoons and the president forged a bond—their wealth was grafted to his power. Neither they nor Yeltsin could let go of each other. As their power grew, the tycoons became known as simply the oligarchs, the men who owned and ruled the new Russia.

Now the oligarchs were restless, as their president once again drifted away. Boris Berezovsky was the most ambitious among them. He was a short man, with arching eyebrows and a soft, hurried voice. He had made his fortune exploiting the chaos of Russia's rapid transformation from Soviet socialism to market capitalism. He was fifty-two years old and indefatigable. His latest gambit was audacious—to replace the sitting Russian prime minister, Viktor Chernomyrdin, with someone else, preferably someone who would pay heed to the oligarchs. Berezovsky knew it was a huge decision: the prime minister was next in line of succession. Yeltsin was frequently ill. At any moment, his choice for prime minister could become the next president of Russia. Berezovsky and the other tycoons began to talk seriously about creating a “corporate government.” They would become a shadow board of directors. With Yeltsin sick and distant, they would appoint ministers and they would informally run the country. They were Big Capital, and the state was feeble.

The tycoons gathered quietly at the headquarters of Yukos, Russia's second-largest oil company, which was run by one of the oligarchs, Mikhail Khodorkovsky. The shadow board of directors decided it was time for Chernomyrdin to go, and they discussed who would replace him. Berezovsky also met with Yeltsin's chief of staff, Valentin Yumashev, and the president's influential younger daughter, Tatyana Dyachenko.

On Saturday, March 21, 1998, at his country house outside of Moscow, Berezovsky gave a long, taped interview to
Itogi,
a television news program popular among the political elite. The program was carried
on Russia's largest and most successful private television channel, NTV, founded by another of the oligarchs, Vladimir Gusinsky.

In the interview, Berezovsky declared pointedly that the campaign to succeed Yeltsin was already under way and that none of the leading candidates were “electable.” He spoke vaguely about “immense opportunities to bring forward new people.”

The interview was broadcast on Sunday evening. The next morning, Yeltsin fired Chernomyrdin.

 

This book is a chronicle of six men who helped lead Russia in one of the grandest, most arduous experiments ever attempted: to transform a vast country, in the grip of failed socialism, into an economy of free market capitalism. The story spans more than a decade and a half, from the dawn of Mikhail Gorbachev's
perestroika
and
glasnost
reforms in 1985 to the aftermath of Boris Yeltsin's resignation on December 31, 1999.

These six men became leaders of the new Russia, architects and apostles of a new order. By the end of the 1990s, they had tasted enormous political power or sizable wealth or both. Although their stories are different, the threads running through them are similar: they amassed and lost fortunes, took over the crown jewels of Russian industry, commanded private armies, played kingmaker in elections, and ruled the country and its citadel of finance, Moscow. They bought up the Russian mass media, especially television, and they seized not only factories but also the assets of the state itself, including the budget, the law enforcement system, and the Kremlin leadership. In their swaggering domination of early Russian capitalism, they were secretive, deceptive, and, at times, ruthlessly violent.

The new age that gave rise to these six men began on Sunday, March 10, 1985. Konstantin Chernenko, the Soviet general secretary, a sick man who had been in power only thirteen months, died, and the Kremlin physician, Yevgeny Chazov, telephoned Gorbachev, the youngest member of the ruling Politburo. Within hours black limousines were pulling into the Kremlin for the meeting that would put Gorbachev in power and eventually lead to the implosion of the Soviet Union. What Gorbachev began was revolutionary change that swept up every one of the six subjects of this book. Yet, at the outset, they were distant from the center of power. They were obscure scientists
and academics, bureaucrats and students. Certainly, on the day Gorbachev became general secretary, it would have been impossible to pinpoint them as standard-bearers of the coming revolution.

In a second-floor kitchen of a modest Moscow apartment made of crumbling, prefabricated concrete slabs, a rangy, angry young man, a construction crew boss, sat grousing about life in “developed socialism.” He was Alexander Smolensky, a thirty-year-old tough guy who drove a dump truck. He had grown up without a father. He was an outsider. His soul was filled with resentment at his lot.

At the Mendeleev Institute for Chemical Technology, a prestigious school for training chemical engineers, Mikhail Khodorkovsky, then twenty-one, was a year away from graduation. His boyish voice hid an inner drive and ambition. Khodorkovsky was already interested in economics—he collected the dues for the Komsomol, the Young Communist League, and was opening a youth café at the institute.

At a bastion of Soviet applied science, the Institute of Control Sciences, where mathematicians and theorists devised ways to control ballistic missiles and atomic power plants, Boris Berezovsky, thirty-nine years old, was a specialist in theories of human decisionmaking and headed his own laboratory, where he had lately been dreaming of winning a Nobel Prize.

Out on the highway to the international airport, a frustrated, skinny young man was at the wheel of his car, which he drove back and forth as an unofficial taxi. Vladimir Gusinsky, thirty-three, was drifting through life. Gusinsky was angry at the world. He had once dreamed of a career in the theater, where he had trained as a director, but he had failed to make it to the Moscow stage.

At the Moscow city council, Yuri Luzhkov sat in a sea of middle-aged Soviet bureaucrats and industrial managers. He did not stand out among the thousand members of the rubber-stamp city legislature. Luzhkov, then forty-eight, spoke the language of the managerial establishment. He was chauffeured around in a black, official Volga car.

At a backwater engineering and economics institute in Leningrad, a lanky redhead, Anatoly Chubais, thirty, displayed a certain stubborn, commanding presence. The son of an orthodox Communist who taught in the military academy, Chubais was losing his faith in the system.

Even if they had gathered in a room on the day of Gorbachev's ascension, these six men would hardly have known what to say to one
another. They came from different walks of Soviet life, from the
nomenklatura
and sciences, from the shady world of street hustlers and the ranks of Soviet industrial managers. But what distinguished them was an ability to change. Every one of them learned to manipulate the old system while at the same time making an incredible leap out of it into the new world.

Four of them, Smolensky, Khodorkovsky, Berezovsky, and Gusinsky, became wealthy magnates over the next decade and a half, a coterie of financiers whose fortunes were made in the shadows of political power and who informally ruled the country in Yeltsin's time. Two of them, Luzhkov and Chubais, became powerful political figures. Luzhkov was twice elected mayor of Moscow. The city harbored the largest concentration of capital in Russia, and here Luzhkov built an empire of his own. Chubais was the longest-surviving economic reformer of the 1990s and architect of the largest transfer in history of state-owned assets to private hands. More than any other single individual, he was the father of the wild land grab that followed.

The six men and their country had little preparation and even less experience from history for such a momentous transformation. From where, and from whom, did they learn how to carry it out? In Soviet times, they found the keys to locked libraries and read the “restricted” books on Western economics and finance. They studied in Eastern Bloc countries such as Hungary and Yugoslavia, which were experimenting with more relaxed kinds of socialism, and they traveled to the West. They marveled at the brash heroes of Hollywood films, which were smuggled into Moscow on pirated videocassettes. Later, they were tutored personally at the knees of global tycoons and financiers such as Rupert Murdoch, George Soros, and many others from Wall Street, London, and private banking capitals from Geneva to Gibraltar. American and European investment bankers and lawyers flooded Russia after 1992, helping write Russia's mass privatization program, drafting the all-important laws governing companies, and setting up capital markets. International financial organizations—the World Bank, International Monetary Fund, European Bank for Reconstruction and Development, and others—brought Western templates and ideas to Russia's nascent capitalism in the 1990s.

The new Russian tycoons also borrowed amply from a rich history of plutocracy in Europe and the United States. Although the Russian fortunes were relatively small—the top four Russian commercial
banks in 1995 would have ranked a little higher than thirtieth in Italy—they nonetheless adopted the style and methods of the great robber barons, emulating their brazen deals, steely self-confidence, daring gambits, and superrich fantasies. A resemblance to American capitalists of the early twentieth century was not entirely accidental. Theodore Dreiser's powerful novels
The Financier
and
An American Tragedy
were translated into Russian and widely read during the Soviet era because they provided such trenchant commentary on the underside of American capitalism. Many of the techniques of the first Russian financiers can be found in the deals made by Frank Cowperwood, the hero of
The Financier
, who exploited banks, the state, and investors, manipulated the whole stock market and gobbled up companies. The 1912 novel was based on the life of a real American magnate, Charles T. Yerkes.

But if they had Western models, these Russians were also unique. They inherited a country with a political and economic culture rooted in centuries of Russian obedience to authority, arbitrarily defined, from tsars to commissars. They inherited a society in which the simplest human instincts of individual initiative and entrepreneurship had been suppressed for seven decades, surviving only in the shadows. The Soviet mind-set lingered and could not be erased in the first years after the arrival of a market economy on alien soil.

Russia was also unique because of a critical choice made immediately after the Soviet Union collapsed. Yeltsin deployed a band of radical young reformers, including Chubais, who, believing they had little time, set out to wreck the old system at any cost. They chose to free prices and property first and to install rules and institutions of a market economy only later. The result was that Russian capitalism was born into an airless space, a vacuum without effective laws and a state so badly weakened it could not enforce laws that were on the books. Time and again, questions arose about the deals made by these six men: Were they legal? Were they criminal? But the questions were not easily answered because the players moved about in a world lacking the legal constraints or the moral compass of a mature Western society. In these early years, Russia was a state without the rule of law. Lying, stealing, and cheating were part of daily business, and violence, brutality, and coercion were often tools of the trade. It is not to excuse the contract killings, the blatant thefts, or greedy ambitions of those who led the Russian capitalist revolution to say that the entire experience
occurred in a free fall, a zone of the unknown. One of the Russian magnates ruefully told me in the summer of 2000 that his once-cherished hopes in Soviet times about the magic of free markets, private property, and the rule of law had all turned out to be serious oversimplifications. “It's taken us much longer than we thought,” he said, “and too many people were killed.”