The Oligarchs (46 page)

Dzhabrailov denied any role in Tatum's killing, but questions haunted him. Less than a month after the assassination, the United States revoked Dzhabrailov's visa after a journalist for
USA Today
reported to the embassy that his life had been threatened by Dzhabrailov during an interview about Tatum's murder.
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Luzhkov remained silent about the murder for a long time. Inexplicably, he kept Dzhabrailov in place and later promoted him to manage the Manezh shopping mall. Still later, Dzhabrailov campaigned for president of Russia, plastering central Moscow with his smiling face on billboards.
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Luzhkov later told a reporter, “If the American side has sound evidence of his involvement in this horrible murder and terrorist act, I am ready to draw the most radical conclusions—I mean to stop all contact with him, business or personal. If not, we will take the decision on whom to deal with on our own, without any pressure or instructions from America.”
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Luzhkov said in response to my question about Tatum: “There was no decisive reaction to this murder from your side either. And I have as little to do with this murder as you do.”
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Tatum's killer was never found by Moscow's homicide detectives. That was not unusual: in the city that year they found the killer and the person who ordered the killing in only three of 152 murders believed to be contract killings.
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Nor did the Moscow newspapers and central television stations raise the issue at the time.

Luzhkov was almost never criticized by the press, in part because he provided a financial lifeline to many newspapers and television stations in the form of subsidized rents. One journalist told me that his entire apartment building, occupied by the newspaper's reporters, was given to them cheaply by Luzhkov. They believed he could take it away, and they were careful not to offend him. Luzhkov was a king in his own realm, and he reveled in the fact that no one could challenge him. “For long years, Yuri Mikhailovich lived in an environment, in an atmosphere of being everybody's favorite,” his friend Yevtushenkov told me. “He was a sacred cow whom nobody dared criticize much.”
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When Luzhkov was offended by an article or a broadcast, he regularly sued for slander in the city courts—which he also subsidized—and won almost every case. But this insular cocoon later proved costly to Luzhkov.

In a speech that was reprinted in
Moscow News
, an independent weekly newspaper, Yegor Gaidar said, “The economic life in Moscow is terribly bureaucratized and full of regulations, which results in widespread corruption. Everybody who has to deal with the Moscow municipal structures knows it perfectly well. And, regrettably, the process here is growing bigger, not smaller.”
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Luzhkov filed suit against Gaidar, saying the city's reputation had been hurt. Gaidar took the case seriously. His lawyers provided evidence of bribe taking in the city, but, after an initial victory in the lower court, Luzhkov won on appeal. The judge gave no reason.
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Yet the obvious truth of Gaidar's claim was illustrated once again in November 2000, when police arrested Vladimir Kochetkov, who was head of a municipal housing and construction authority, after he tried to extract a $827 bribe for signing a contract for street lights. They found that Kochetkov had a $700,000 Swiss bank account, and they discovered $67,000 in a plastic bag behind a radiator in his house.
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The first years of the new Russia were a perplexing time for Luzhkov as a political leader. The country declared itself a democracy and market economy, but the laws, traditions, and mind-set of the earlier era lingered. There was no handbook for this twilight zone between the Soviet experience and the new capitalism. One of the most difficult questions was the relationship between public and private interests. The old system was ruled by arbitrary party diktat, and private business
interests did not exist or were banished to the shadows. Then, practically overnight, the party was gone and replaced with a new electoral-based democracy. The new political leaders, among them Luzhkov, were just as suddenly faced with a plethora of hungry new private business interests. These business interests, no longer relegated to the shadows, were powerful. In the passage from the old world to the new one, the lines between public interest and private gain were blurred. The private interests helped themselves to the public treasure, and the new leaders of Russia—including Luzhkov—let them at it.

The mixture of public interest and private business was foreshadowed in a brief controversy involving Luzhkov's role in a company called Orgkomitet, which had somehow secured the monopoly privilege to sell city-owned housing to private owners. In 1991 Luzhkov, then vice mayor under Popov, became head of Orgkomitet. As a city official, he transferred the rights to two valuable buildings to Orgkomitet, which was an apparent conflict of interest.
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After press criticism and pressure from a prosecutor, Luzhkov resigned from the company on April 22, 1992. One of Luzhkov's assistants told me that Orgkomitet was one among many shady, quasi-private companies that began to feed off the city in the 1990s, and Luzhkov got involved by “accident.” Luzhkov later said, “Orgkomitet was created along with a huge number of new market structures at a time of pervasive uncertainty. As soon as we saw what it was, we immediately liquidated it.”
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But Orgkomitet was an early precursor of Luzhkov's basic system, which combined public and private interests. This approach came into full view in the 1990s with the birth of a corporate giant headed by Luzhkov's close personal friend, Yevtushenkov, the one-time plastics engineer, a quiet and cautious man with wire-rim glasses and a very low-key style that belied his influential position at Luzhkov's side.

Yevtushenkov's path to wealth began at a small backwater of the municipal bureaucracy, the Moscow City Committee on Science and Technology. It was a marginal department, and Yevtushenkov, the director, found that his budget subsidies had dried up. In 1993, the year after Luzhkov became mayor, Yevtushenkov went commercial. He simply transformed his small city department into a private company. The original idea, he said, was to generate profit for the committee to substitute for lost state subsidies. “I was experimenting, as everyone was,” Yevtushenkov explained. His experiments became
very profitable indeed, leading to the creation of a sprawling conglomerate with holdings in telephones, electronics, insurance, tourism, and other businesses. The company was called Systema.

Yevtushenkov told me that he was a friend of the Luzhkov family but insisted that he did not use his friendship to speak with Luzhkov about business ventures.
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Another Luzhkov assistant said that Yevtushenkov was closer to Luzhkov than anyone else except Luzhkov's wife, Yelena Baturina. Yevtushenkov had been best man at their wedding. Luzhkov's wife was president of a plastics company, Inteko, which Luzhkov had described as his chief source of family income. At one point Yevtushenkov sold his 24 percent interest in another plastics factory, Almeko, to Baturina's firm, which she ran with her brother Viktor.
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The source of early capital for the Systema conglomerate is not known. One version came from Yevgeny Novitsky, president of Systema, who said the conglomerate grew out of a group of import-export companies making easy money in the early 1990s selling Russian oil abroad and importing computers. “We took loans, purchased oil, sold this oil to the West. Then we bought computer goods, televisions, computers, food products, sold them in the market here, and on account of this, a large profit market developed. In 1993 it was possible to make 100 percent in one operation. Buy something for a dollar, sell it for two.” The story sounded typical of the quick-riches tales of the era, but it did not account for the advantage that Yevtushenkov enjoyed as a pal of the mayor.

That advantage came in the early days of privatization. According to its own reports, Systema's assets multiplied almost sixfold between 1994 and 1996, to more than $1 billion. One of the most revealing acquisitions was the Moscow telephone monopoly, the fifth-largest phone system in the world, with 4 million lines. It was a notoriously creaky network, and one exchange, 231, had been in service since 1930.
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But it was still a potentially lucrative company, since the demand was strong for more and better phones. If telephone rates could be raised—and that was a decision Luzhkov would have to take—the phone company could be profitable. “Quite by chance,” Yevtushenkov recalled, “I found myself in a field that began to develop very fast—telecommunications.”

When Luzhkov's government decided to privatize 33 percent of the telephone company in 1995, Yevtushenkov went for it. He just created
a new version of his old city government committee. The name was slightly changed, however, from Moscow City on Science and Technology to Moscow City on Science and Technology and Company. The “and Company” was a group of firms mostly controlled or owned by Systema. His new firm was declared the winner of the Moscow City Property Fund investment tender for the Moscow phone company on April 21, 1995. The price was $136 million, of which $100 million could be provided in equipment; the price was a fraction of the company's market capitalization at the time of $2 billion.
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When the privatization results were announced, the winner was identified only as the “Moscow Committee on Science and Technology and Company.” The Systema conglomerate, the real force behind the deal, was not mentioned. The privatization was an insider deal. It was exactly the kind of cheap sell-off that Luzhkov was publicly denouncing in his fight with Chubais, but his own city was engaged in the same practice, benefiting his friend Yevtushenkov.
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When I asked the Moscow property committee for details of the tender, all I received was a fax listing the conditions before the tender, and a second page, a short list of investment tender winners for the week. No prices, no terms, no details.
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Systema was a very private, almost hidden company. In the mid-1990s, when Yevtushenkov was expanding, Systema was not well-known and received less attention than the financial and industrial empires of Gusinsky, Smolensky, Berezovsky, and Khodorkovsky. Even the smart financial analysts in Moscow seemed confused about Systema. As late as 1998, stock brokers who issued research bulletins to foreign investors about the telephone company often failed to note that the “Moscow Committee on Science and Technology and Company” was linked to Systema. Nor was it clear who really owned the Systema conglomerate. The company issued no detailed reports on its ownership and only skimpy financial documents. Novitsky told me the parent company was 100 percent owned by another firm, Systemainvest, which in turn is 40 percent owned by a Luxembourg investment company, and the remainder in the hands of individuals, including Yevtushenkov. Luzhkov denied that Systema was “a spare pocket for the mayor.”
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As Moscow boomed, Yevtushenkov's conglomerate became ever more deeply woven into the fabric of the city's financial flows. The Moscow Bank for Reconstruction and Development, part of Systema,
became one of Moscow's “authorized” banks, with the lucrative privilege of distributing city money, such as the subsidies to Zil. Systema's insurance company insured the Moscow subway. Systema-Neft operated a chain of Moscow gas stations. Systema-Gals was a major real estate developer in the center of Moscow. Systema Telecommunications had interests in two Moscow cellular phone companies, one of which became a market leader. Systema also owned Detski Mir, the famous, sprawling children's store, the Intourist travel agency, and a group of electronics factories. Yevtushenkov wore many different hats all at once: Luzhkov's friend and adviser, the boss of Systema, and other posts such as chairman of the council of the Moscow Stock Exchange. He moved effortlessly back and forth between public interest and private business.

Alexei Ulyukaev, a reformist member of the city council and the deputy director of Gaidar's institute, described this as typical of the Luzhkov method. “In the Moscow network, it's important to have two legs—one in business, the other in the administration,” he told me. Luzhkov created a system in which it was not unusual for a city department to be linked to a private business. “On the one hand, they manage budget money,” Ulyukaev said, “but then they are, on the other hand, making money. And third, the city oversees it all. They are supply, demand, and administration.” Ulyukaev called it “commercialization” of the government. “Virtually every structure of the city has its own off-budget fund,” he said, used for collecting profits from its businesses. The profits were often hidden. In a prospectus written for overseas investors in 1997, the city admitted that all of its off-budget funds amounted to a fifth of the entire $9.9 billion in revenues, and many experts said the actual amount was far greater. Ulyukaev said the details remained undisclosed to the city council as well.
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What would be considered conflict of interest in a Western economy was standard procedure in Moscow. When the city borrowed $500 million on global capital markets in 1997, it decided to make loans from the proceeds to encourage investment. Yevtushenkov had a seat on the twenty-four-member council that decided on the loans. Who got the money? Systema did—at least three loans: $16.5 million for a downtown real estate project, $16.5 million for a factory making television sets, and $15 million for a plant making digital telephone
exchanges. Yevtushenkov told me he wasn't present when the loans were discussed, but a city official said he was present and sat silently.