The Oligarchs (48 page)

“Fine,” the businessman said. “It's your decision, Yuri Mikhailovich.”

The young bankers felt themselves to be newly minted Masters of the Universe. They did not want to be bossed around. Luzhkov, however, could have it no other way. He
was
the boss. He would decide where to dig, even if he had started digging for no reason at all except to stop a protest rally. His entire mind-set was that of digging, and his model of capitalism revolved around his own central role.

“Luzhkov arrived to this meeting as, above all, a
khozyain
who considered himself much wiser and more farsighted than the people sitting around the table,” Shakhnovsky recalled. “And he was not talking with these people as partners. No. This was a conversation looking very much down, very much so. He was lecturing them some, he was giving them advice some, but it was not a conversation.”

Berezovsky was appalled at what Luzhkov told the tycoons. Berezovsky believed Big Capital should tell the government what to do, and not the other way around. “We just scattered away from him,” Smolensky recalled of Luzhkov after that meeting. “We were the Moscow bankers, and he just lost us.”

Although Shakhnovsky wanted to keep the club's attention on the big picture, he was undone by Berezovsky, who soon brought to the club just the kind of deal making that Shakhnovsky hoped to avoid. Berezovsky remained the compressed ball of energy his friends had described in earlier years. In the autumn of 1994, he launched himself into a new orbit of dreams and plans. While other members of the club were still debating who in politics could become the patron of Big Capital, Berezovsky was already out recruiting. He didn't start small: Berezovsky wanted Boris Yeltsin.

 

The auto business proved lucrative and dangerous for Berezovsky. By the time the club began to meet in 1994, Logovaz was not just Russia's largest Zhiguli dealer but was also selling Mercedes, Honda, Chevrolet,
Chrysler, and Volvo vehicles and was planning to feature Daewoo cars as well. Towering billboards with the Logovaz white and blue symbol were erected on the major arteries leading into Moscow. A Logovaz report describing the company's marketing strategy boasted that although in 1993 only seven out of ten people knew what Logovaz was, by 1994, ten out of ten knew the company's reputation in the car business. Logovaz spent $1.2 million for advertising and public relations in the year that ended in mid-1994. The firm's big attentiongetter was Moscow's annual August auto show. Berezovsky also sponsored an annual $100,000 Triumph charity arts prize.
⁵

But the car dealerships had a dark underside—the business was a magnet for criminal gangs. Moscow became a playground for rival underworld mobs, who saw the car dealerships as a prize. At one point in late 1993 Berezovsky fled Moscow for Israel, where he received citizenship.
⁶
He apparently had been targeted by the gangs. In Moscow, two warring mobs, one led by Chechens, who were known for their ferocity, and the other by the Solntsevo gang, a Slavic mob named after a district in southwestern Moscow, were competing for control of the auto dealerships. In September 1993, Berezovksy's Logovaz car parks were attacked three times, and his showrooms bombed with grenades.
⁷

On Novokuznetskaya Street, an old Moscow avenue with a creaky tram line, Berezovsky's command center was the Logovaz Club, a restored early nineteenth-century Smirnov family mansion. From the outside, the Logovaz Club is an unmarked, low-lying gray building. But inside it is an old world–style salon, lavishly gilded and ornately decorated. The room I remember most was the spacious anteroom where I waited before appointments with Berezovsky: soft yellow walls, a red rose painted on the ceiling arch, tinkling glasses at the bar, a battalion of red wine bottles, blond wood chairs arranged in front of small round Parisian-café tables, an illuminated aquarium against one wall, and always a crowd of people shifting in their chairs, waiting to see Berezovsky. He would come breezing through, hands in his suit pockets, stride up to you, and beg your pardon. He was running late—always running late. He would be back, he promised, and he usually was. Meanwhile, the anteroom stirred, cellular telephones hummed, buzzed, and screeched, and the soft colors were broken by the latest news bulletins from a jarring, oversized, wide-screen television mounted on one wall.

At 5:00 P.M. on June 7, 1994, Berezovsky walked out the door of his
club and climbed into the backseat of his Mercedes 600 sedan, behind the driver. In the front, next to the driver, sat his bodyguard. At the peak of rush hour, Berezovsky's Mercedes wheeled out of the courtyard and onto the street, passing a parked Opel. A remotely controlled bomb, concealed in the Opel, exploded with enormous power, ripping apart the front of Berezovsky's Mercedes, sending thousands of small, deadly metal pellets flying through the air. Berezovsky's driver was decapitated, his bodyguard lost an eye, seven pedestrians waiting for the tram were injured, and windows in a building a block away were shattered. Climbing out of the bloody, smoking wreckage, Berezovsky was burned and badly shaken. Logovaz issued an angry statement that “this tragedy shows beyond a doubt that there are forces in society that are actively trying, by barbarically criminal means, to keep civilized entrepreneurship from developing in our country.” No names were named.

It was a fearsome time: police said fifty-two bombs had gone off in the city by June of that year, compared with sixty-one for all of 1993. The bomb set for Berezovsky was the most powerful of them all. Vladimir Kadannikov, Berezovsky's partner and director of Avtovaz, offered a $1 million reward for information leading to identification of the “initiators and perpetrators of the terrorist act” against Berezovsky. They were never found.

Berezovsky told me that four days after the bombing, still in bandages, he attended a reception held by Yeltsin to mark a Russian holiday. “Yeltsin saw me and he was surprised and asked what happened. I told him.” According to Berezovsky, Yeltsin motioned to his security ministers. “Do you see what happened to him?” he said of Berezovsky. “I am giving you one month to find out who did it.”
⁸
They never did find out. Berezovsky flew to Switzerland for medical attention.

When he returned to Moscow, he was burning with ambition. He wanted to be more than Russia's biggest car dealer. Leonid Boguslavsky, his friend from early years at the institute, recalled that Berezovsky was thinking as early as 1992 about television, especially powerful Channel 1, with a broadcasting signal that reached almost every household in the former Soviet Union. The Soviet authorities had invested in expensive satellites to make sure Channel 1 blanketed nearly 200 million people. The Logovaz business was “just a tool,” the Logovaz clubhouse was “just a tool,” Berezovsky told his friend Boguslavsky. “The most important tool will be Channel 1.”
⁹

Channel 1 and the related transmission and production facilities—including the 1,771-foot broadcasting tower in Moscow, Europe's tallest structure—were once supported by the state, but the government no longer shelled out the lavish subsidies of the Soviet years. Moreover, Channel 1, or Ostankino as it was also known, was riddled with theft. While the government continued to provide enough support to keep the powerful signal on the air, advertising money was diverted by individual production companies, very little of it finding its way back to the channel as a whole. The situation was similar to the assembly line in Togliatti, where cars rolled off practically for free, and middlemen sold them for a small fortune. In television, the state kept the “factory” going by subsidizing the broadcasting signal, but others reaped the cash from advertising. While Channel 1 claimed it ran only nineteen minutes of advertising a day in mid-1993, a study of programming found it broadcast one hundred minutes a day. Thus, even at the lowest rates, the revenue flow was 60 to 75 billion rubles a year, but a government audit found only about 11.2 billion rubles actually reached the station.
¹⁰

Igor Malashenko, who resigned in early 1993 after a brief stint as director of Ostankino, told me: “Commercially, it was an absolute disaster. It started in a very simple way: you know, when advertising was introduced, nobody knew how to sell it. And managers of Ostankino were just these old-time Soviet bureaucrats. Suddenly they found that they didn't have money to buy programs because state financing virtually stopped. And then imagine, some young producer would come to them and say, ‘Okay, I will provide you with programs. I just need to barter with you. I don't need any money from you. Just give me a certain amount of advertising time. I will sell it myself, it's my risk.' These idiots were absolutely happy—but economically they destroyed Ostankino.”
¹¹

Sergei Lisovsky, a concert promoter and entertainment mogul who became one of Russia's leading advertising tycoons, told me that in the early years Channel 1 merely sold off the errant blank spots between programs—the thirty-second or sometimes five-minute holes that were the result of sloppy scheduling. Later, as big advertising money flowed in to Russia, the various producers and programs began freelancing, selling their own advertising. To advertisers, especially Western consumer goods companies like Proctor & Gamble, this was bedlam. If they bought time, they had no idea what was being shown and no guarantee that it would be film, sports, or soap opera.

Moreover, the state continued to underwrite the costs of broadcasting the signal—electricity, satellites, and all the other expenses of Channel 1—although there was less money than in the old days. The carcass of a state-owned television network remained, while the lifeblood, advertising revenue, disappeared into the hands of the independent producers.

Berezovsky knew where the money lay. He had his own inside line to Channel 1 through a company called Reklama Holding. The word
reklama
means advertising in Russian, and Reklama Holding was formed to try and monopolize the advertising time on Channel 1. Berezovsky's advertising agency, Logovaz Press, had been among the founders of Reklama Holding. Lisovsky was the power behind Reklama Holding. The plan was that the company would be an intermediary, selling time on Channel 1 to advertisers and then buying it in wholesale blocks from the channel, cutting out other middlemen and gaining more control. Lisovsky and Berezovsky, as well as others involved in Reklama Holding, were making themselves the middlemen, while turning over a slice of their profits to Channel 1.
¹²
Berezovsky's ad agency, Logovaz Press, earned $1 million in profit in 1993–1994, according to the annual report.
¹³
One reason for the profits was that Logovaz Press was enjoying an 80 percent discount on advertising time. Once again, Berezovsky was getting something practically for free—the airtime—and reselling it for a small fortune.

Meanwhile, the television audience was burgeoning. After decades of dry programming, Russian viewers were entranced with films and soap operas from the West. Programs like the Mexican serial
The Rich Also Cry
and the American-made
Santa Barbara
drew enormous audiences. For advertisers, Channel 1 could deliver tens of millions of potential consumers who had a pent-up demand for Western goods like toothpaste and breakfast cereal. The cost of advertising in Russia per viewer was ridiculously cheap compared with the West. It cost about $1 to reach a thousand viewers in Russia, compared to about $15 per thousand viewers in the United States.
¹⁴
Channel 1 had much broader reach in 1994 than Gusinsky's smaller, private NTV, although Gusinsky's channel was attracting attention with popular movies and talented news broadcasters. Channel 1 bridged the vast distances of Russia through transponders and satellites erected and supported by the state.

In the early meetings of the club on Sparrow Hills, Berezovsky launched an idea that catapulted him from a car dealer to a kingmaker
for the remainder of the decade. He wanted the political influence, as well as the profits, that would come from commanding a television channel. He told the other businessmen he was putting together a plan to privatize Channel 1. Was it a business deal or a political deal? “Both,” Berezovsky declared. By cutting out all the other thieving middlemen, Berezovsky could make a fortune. By dictating the news coverage, Berezovsky could become a power broker.
¹⁵

Simultaneously, he was working his way into Yeltsin's inner circle. The restless Berezovsky could demonstrate an unexpected humility, and patience, when it served his ends. He had waited at the door for his friend Boguslavsky on those long-ago mornings; he had patiently played chauffeur to the Italians to learn more about their business with Avtovaz. Now he was applying the same tactics with the Kremlin and Yeltsin's family. He patiently infiltrated Yeltsin's inner circle.

Berezovsky had been introduced to the Kremlin crowd by Valentin Yumashev, a fresh-faced young journalist who had ghost-written Yeltsin's memoirs. Yumashev had been close to Yeltsin since the days of
perestroika,
and he was an editor at the popular weekly magazine,
Ogonyok
, which Berezovsky began to support financially. How did Berezovsky first meet Yumashev? The intermediary was Pyotr Aven, whose father was a mathematician at Berezovsky's institute. Aven had worked alongside Gaidar during
perestroika,
was foreign trade minister in Gaidar's government, and had been present at the café when Logovaz was formed.
¹⁶

A key witness to these events is Alexander Korzhakov, Yeltsin's beefy longtime bodyguard, who stood loyally at Yeltsin's side in the 1980s when Yeltsin was cast out of the Communist Party. Korzhakov, who had been assigned to protect Yeltsin by the KGB's Ninth Directorate, remained Yeltsin's friend and sidekick. They drank together and traveled together when Yeltsin was out of favor. Korzhakov was rewarded when Yeltsin came to power. Korzhakov built himself a small army in the early 1990s as head of the Kremlin's presidential security service. By some accounts, Korzhakov's army contained several thousand men, including the crack Alpha antiterrorist troops. Korzhakov's recollections are valuable because he had a firsthand view of events, but they are colored by his bitterness at being fired by Yeltsin in 1996 and his deep suspicions of the new capitalists, chiefly Berezovsky, who helped get him fired. Korzhakov comes across as a reactionary who saw no need for democracy or capitalism, a one-time
factotum who rose beyond his abilities but had a front row seat at the time Berezovsky arrived in the Kremlin.
¹⁷