The Oligarchs (94 page)
Authors: David Hoffman
35
Vladimir Vinogradov, interview by author, June 28, 2000.
Vladimir Vinogradov, interview by author, June 28, 2000.
36
Plenty of crisp $100 bills were available at the time too. In the spring of 1996, the U.S. Treasury replaced the old $100 bill with a new one that was better protected against counterfeiting. A very large supply of the new billsâmillions of dollars worthâwas shipped to Russia and kept for a while in the U.S. embassy in Moscow before being swapped for the old bills through the Russian banking system. The United States carried out a public relations campaign in Russia to reassure people that the new bill was legal tender.
Plenty of crisp $100 bills were available at the time too. In the spring of 1996, the U.S. Treasury replaced the old $100 bill with a new one that was better protected against counterfeiting. A very large supply of the new billsâmillions of dollars worthâwas shipped to Russia and kept for a while in the U.S. embassy in Moscow before being swapped for the old bills through the Russian banking system. The United States carried out a public relations campaign in Russia to reassure people that the new bill was legal tender.
38
The newspaper
Novaya Gazeta
published a lengthy article on the subject in March 2000, stating that it had thirty-seven pages of documents, including the list of oligarchs and their structures that paid for the Yeltsin campaign. The article contained many tantalizing conclusions, including a similar description of the scheme of reprocessing the MinFin bonds. However, I was told by an informed source that the article was not produced by the newspaper but was received from an outside source and published verbatim. The identity of the outside source is not known.
The newspaper
Novaya Gazeta
published a lengthy article on the subject in March 2000, stating that it had thirty-seven pages of documents, including the list of oligarchs and their structures that paid for the Yeltsin campaign. The article contained many tantalizing conclusions, including a similar description of the scheme of reprocessing the MinFin bonds. However, I was told by an informed source that the article was not produced by the newspaper but was received from an outside source and published verbatim. The identity of the outside source is not known.
42
Streletsky claims his men carried out a secret operation, late at night on June 18, to open the safe in the office of German Kuznetsov, deputy finance minister for international financial settlements. It was room 2â17 in the Russian White House, headquarters of the Chernomyrdin government. Streletsky said he suspected the room was at the core of the Chubais campaign finance operation. According to Streletsky's account, during the nighttime incursion, his men found $1.5 million in cash wrapped in plastic and blank forms for money transfers of $5 million each for printing services and advertising. The blanks showed that money was being transferred to the Bahamas and to Baltic divisions of American banks. The five blanks in the safe were numbers 19â23. If there were eighteen previous ones, he concluded, that meant a total of $115 million. Streletsky's men bugged the room, he said, listening to everything from the floor above, hoping to catch whoever drew cash from the safe. Streletsky is not a neutral source. He was attempting to disrupt the Chubais team, and his account should be read in that light. It seems strange that the Kremlin's own security service
had to bug the government's own building to gather information on Yeltsin's own campaign operatives. Streletsky's version of how the trap was set appeared in his book,
Obscurantism
(Moscow: Detektiv-Press, 1998).
Streletsky claims his men carried out a secret operation, late at night on June 18, to open the safe in the office of German Kuznetsov, deputy finance minister for international financial settlements. It was room 2â17 in the Russian White House, headquarters of the Chernomyrdin government. Streletsky said he suspected the room was at the core of the Chubais campaign finance operation. According to Streletsky's account, during the nighttime incursion, his men found $1.5 million in cash wrapped in plastic and blank forms for money transfers of $5 million each for printing services and advertising. The blanks showed that money was being transferred to the Bahamas and to Baltic divisions of American banks. The five blanks in the safe were numbers 19â23. If there were eighteen previous ones, he concluded, that meant a total of $115 million. Streletsky's men bugged the room, he said, listening to everything from the floor above, hoping to catch whoever drew cash from the safe. Streletsky is not a neutral source. He was attempting to disrupt the Chubais team, and his account should be read in that light. It seems strange that the Kremlin's own security service
had to bug the government's own building to gather information on Yeltsin's own campaign operatives. Streletsky's version of how the trap was set appeared in his book,
Obscurantism
(Moscow: Detektiv-Press, 1998).
43
Sergei Lisovsky, interview by author, December 15, 2000.
Sergei Lisovsky, interview by author, December 15, 2000.
44
A tape of Lavrov's comments was made public on June 26, 1999, by Viktor Ilyukhin, chairman of the Duma security committee, a Soviet-era prosecutor who was close to Korzhakov.
A tape of Lavrov's comments was made public on June 26, 1999, by Viktor Ilyukhin, chairman of the Duma security committee, a Soviet-era prosecutor who was close to Korzhakov.
45
Sergei Zverev, interview by author, June 23, 2000.
Sergei Zverev, interview by author, June 23, 2000.
46
Chubais said in an NTV interview that Barsukov at first reacted to the call “like an astonished child,” saying he did not even know Yevstafiev or Lisovsky.
Hero of the Day,
June 20, 1996.
Chubais said in an NTV interview that Barsukov at first reacted to the call “like an astonished child,” saying he did not even know Yevstafiev or Lisovsky.
Hero of the Day,
June 20, 1996.
47
Tape of Kiselyov bulletin; Christophe Beadufe, “Yeltsin Election Aides Arrested, Cancellation of Vote Feared,” Agence France Presse, June 20, 1996.
Tape of Kiselyov bulletin; Christophe Beadufe, “Yeltsin Election Aides Arrested, Cancellation of Vote Feared,” Agence France Presse, June 20, 1996.
48
Yevgeny Kiselyov, interview by author, August 2, 2000.
Yevgeny Kiselyov, interview by author, August 2, 2000.
49
The real source of the $538,850 was never determined. Yevstafiev said he did not touch the box. When I asked Lisovsky about it four years later, he said, “It is altogether unclear” if there was a box of money. I replied, “It's not clear that there wasn't.” Lisovsky retorted, “Let us stop here; that it's unclear if there was, and unclear if there wasn't.” In December 1996, the popular broadsheet newspaper
Moskovsky Komsomolets
, which is part of Luzhkov's empire, published what it described as a transcript of a conversation between Chubais, Ilyushin, and a third man, identified as Sergei Krasavchenko. The conversation was supposedly secretly tape-recorded June 22 by the Russian “special services,” two days after the detention of Yevstafiev and Lisovsky.
The real source of the $538,850 was never determined. Yevstafiev said he did not touch the box. When I asked Lisovsky about it four years later, he said, “It is altogether unclear” if there was a box of money. I replied, “It's not clear that there wasn't.” Lisovsky retorted, “Let us stop here; that it's unclear if there was, and unclear if there wasn't.” In December 1996, the popular broadsheet newspaper
Moskovsky Komsomolets
, which is part of Luzhkov's empire, published what it described as a transcript of a conversation between Chubais, Ilyushin, and a third man, identified as Sergei Krasavchenko. The conversation was supposedly secretly tape-recorded June 22 by the Russian “special services,” two days after the detention of Yevstafiev and Lisovsky.
Chubais expresses fear for the fate of his aides and suggests the documents in the case be hushed up. All three men called the transcript a fake, denying the meeting had taken place. The veracity of the transcript is not known. On April 7, 1997, the general prosecutor closed the investigation without finding out where the money came from. No one was charged with wrongdoing. An audit of the 1996 campaign said of the money: “There are no official documents confirming ownership of this sum by the federal budget or by a private or legal entity.” The money was turned over to the government on April 17, 1997.
50
Berezovsky addressed the issue November 17 on NTV. His explanation included the statement that “I simply exercised the right of any Jew to formalize my relations with Israel. You know, Israel is a unique country. Any Jew, wherever he lives, has the right to be a citizen of Israel.” He was describing the 1950 Law of Return: “Every Jew has the right to come to this country as an
oleh
” (a Jew immigrating to Israel) and that a visa for an
oleh
should be granted to “every Jew who has expressed his desire to settle in Israel.” Many Israeli Jews also retain citizenship in other countries.
Berezovsky addressed the issue November 17 on NTV. His explanation included the statement that “I simply exercised the right of any Jew to formalize my relations with Israel. You know, Israel is a unique country. Any Jew, wherever he lives, has the right to be a citizen of Israel.” He was describing the 1950 Law of Return: “Every Jew has the right to come to this country as an
oleh
” (a Jew immigrating to Israel) and that a visa for an
oleh
should be granted to “every Jew who has expressed his desire to settle in Israel.” Many Israeli Jews also retain citizenship in other countries.
51
Berezovsky's desire for respect was severely dented by a highly critical article in
Forbes
, published in December 1996, headlined, “Godfather of the Kremlin?” He sued the magazine for libel in Britain. On March 6, 2003, prior to a trial,
Forbes
acknowledged in a British court that it did not have evidence to support some allegations in the article, and that “it was wrong to characterize Mr. Berezovsky as a mafia boss.” Berezovsky dropped the libel suit.
Berezovsky's desire for respect was severely dented by a highly critical article in
Forbes
, published in December 1996, headlined, “Godfather of the Kremlin?” He sued the magazine for libel in Britain. On March 6, 2003, prior to a trial,
Forbes
acknowledged in a British court that it did not have evidence to support some allegations in the article, and that “it was wrong to characterize Mr. Berezovsky as a mafia boss.” Berezovsky dropped the libel suit.
52
A later estimate was that Gazprom loaned Gusinsky $130 million and the debt was converted to equity, giving Gazprom the 30 percent share in NTV.
A later estimate was that Gazprom loaned Gusinsky $130 million and the debt was converted to equity, giving Gazprom the 30 percent share in NTV.
53
Andrei Richter, interview by author, October 1996.
THE BANKERS' WARAndrei Richter, interview by author, October 1996.
3
Boris Nemtsov, interview by author, November 1995.
Boris Nemtsov, interview by author, November 1995.
5
Dmitri Vasiliev, interview by author, September 16, 1999; November 20, 1999.
Dmitri Vasiliev, interview by author, September 16, 1999; November 20, 1999.
6
Nemtsov, interview by author, September 20, 1997.
Nemtsov, interview by author, September 20, 1997.
7
Chubais recalled that on a visit to London, he and Nemtsov asked Prime Minister Tony Blair, “What do you think is better, Communism or bandit capitalism?” According to Chubais, Blair thought for a minute and said, “Bandit capitalism is better.” Chubais added, “Absolutely right. And then the question arises, Bandit capitalism or normal capitalism? When this dilemma arises, you have to solve it.” Chubais, remarks to reporters, December 2, 1997. Author's transcript.
Chubais recalled that on a visit to London, he and Nemtsov asked Prime Minister Tony Blair, “What do you think is better, Communism or bandit capitalism?” According to Chubais, Blair thought for a minute and said, “Bandit capitalism is better.” Chubais added, “Absolutely right. And then the question arises, Bandit capitalism or normal capitalism? When this dilemma arises, you have to solve it.” Chubais, remarks to reporters, December 2, 1997. Author's transcript.
8
Chubais later gave what I thought was a cogent description of the three competing models of capitalism in the late 1990s in Russia. “Position of Berezovsky: businessmen must control the
vlast”
(a word that means the authorities, the political powers). “Luzhkov's position: the
vlast
must control business.” The young reformers, he said, wanted to “separate business from
vlast
âseparate ownership from
vlast.
” Chubais, remarks to reporters. Author's transcript.
Chubais later gave what I thought was a cogent description of the three competing models of capitalism in the late 1990s in Russia. “Position of Berezovsky: businessmen must control the
vlast”
(a word that means the authorities, the political powers). “Luzhkov's position: the
vlast
must control business.” The young reformers, he said, wanted to “separate business from
vlast
âseparate ownership from
vlast.
” Chubais, remarks to reporters. Author's transcript.
9
Chubais, interview by author, May 13, 2000. Chubais also said at the time: “Imagine a situation in which a person who has earned a lot of money, who regards himself as the master of the country, reasons as follows: I got the president elected, I got the government appointed, and now it is the time for me to collect my dividends. Such an attitude is repulsive and unacceptable to me.” Chubais, interview by V. Bazhenov,
Argumenty & Fakty
, November 20, 1997, p. 1.
Chubais, interview by author, May 13, 2000. Chubais also said at the time: “Imagine a situation in which a person who has earned a lot of money, who regards himself as the master of the country, reasons as follows: I got the president elected, I got the government appointed, and now it is the time for me to collect my dividends. Such an attitude is repulsive and unacceptable to me.” Chubais, interview by V. Bazhenov,
Argumenty & Fakty
, November 20, 1997, p. 1.
11
Chubais, interview by author, May 13, 2000.
Chubais, interview by author, May 13, 2000.
12
Steven Mufson and David Hoffman, “Russian Crash Shows Risks of Globalization; Speculators Ignored Economy's Realities,”
Washington Post
, November 8, 1998, p. 1.
Steven Mufson and David Hoffman, “Russian Crash Shows Risks of Globalization; Speculators Ignored Economy's Realities,”
Washington Post
, November 8, 1998, p. 1.
13
Anders à slund, “Why Has Russia's Economic Transformation Been So Arduous ?” (paper presented to the World Bank Annual Bank Conference on Development Economics, April 29â30, 1999). à slund points out that another factor, in addition to Yeltsin's reelection, was the 1996 agreement for a three-year extended fund facility with the International Monetary Fund. These loans were conditioned on performance benchmarks by Russia, which were often not met. The “soft” agreement, à slund says, “convinced foreigners and Russians alike that Russia was too bigâor too nuclearâto fail, and that anything goes in Russia” (p. 12).
Anders à slund, “Why Has Russia's Economic Transformation Been So Arduous ?” (paper presented to the World Bank Annual Bank Conference on Development Economics, April 29â30, 1999). à slund points out that another factor, in addition to Yeltsin's reelection, was the 1996 agreement for a three-year extended fund facility with the International Monetary Fund. These loans were conditioned on performance benchmarks by Russia, which were often not met. The “soft” agreement, à slund says, “convinced foreigners and Russians alike that Russia was too bigâor too nuclearâto fail, and that anything goes in Russia” (p. 12).
14
James Fenkner, interview by author, September 26, 1998.
James Fenkner, interview by author, September 26, 1998.
15
I have heard many stories about these abuses. They were nicely summarized by Mark Whitehouse in the
Moscow Times
, “Dirty Dealing,” April 7, 1998, p. 1.
I have heard many stories about these abuses. They were nicely summarized by Mark Whitehouse in the
Moscow Times
, “Dirty Dealing,” April 7, 1998, p. 1.
16
Smolensky, interview by author, October 10, 1997; August 31, 1999.
Smolensky, interview by author, October 10, 1997; August 31, 1999.
17
Standard & Poor press release, July 14, 1997. The agency's “speculative grade long-term counterparty rating” for SBS-Agro was single-B and the outlook was “plus/positive,” the best of the four banks rated.
Standard & Poor press release, July 14, 1997. The agency's “speculative grade long-term counterparty rating” for SBS-Agro was single-B and the outlook was “plus/positive,” the best of the four banks rated.
18
Offering circular, SBS-Agro Finance B.V., prospectus, July 18, 1997.
Offering circular, SBS-Agro Finance B.V., prospectus, July 18, 1997.
19
Xavier Jordan, interview by author, July 1997; Jordan, telephone interview by author, October 6, 1997.
Xavier Jordan, interview by author, July 1997; Jordan, telephone interview by author, October 6, 1997.
20
Had he been offered, Gusinsky confessed that he might have grabbed an oil company too. Gusinsky told me, “Had they invited me, it would have been a difficult decision for me to make. I think I would probably have participated if I had been invited.”
Had he been offered, Gusinsky confessed that he might have grabbed an oil company too. Gusinsky told me, “Had they invited me, it would have been a difficult decision for me to make. I think I would probably have participated if I had been invited.”
21
The magazine was published in association with
Newsweek,
which is owned by the Washington Post Company.
Itogi
was typical of Gusinsky's start-ups: smart, entertaining and provocative. If you were exhausted from the political tedium all week long in the newspapers, you could look forward to reading
Itogi
, which was aimed at an intelligent, middle-class audience. Travel, leisure, and consumer goods were featured prominently, as well as thoughtful coverage of the arts.
The magazine was published in association with
Newsweek,
which is owned by the Washington Post Company.
Itogi
was typical of Gusinsky's start-ups: smart, entertaining and provocative. If you were exhausted from the political tedium all week long in the newspapers, you could look forward to reading
Itogi
, which was aimed at an intelligent, middle-class audience. Travel, leisure, and consumer goods were featured prominently, as well as thoughtful coverage of the arts.
22
Gusinsky had sought foreign investors for the stake, but it was still too early; he did not want to give up control, and they did not want to take the risks.
Gusinsky had sought foreign investors for the stake, but it was still too early; he did not want to give up control, and they did not want to take the risks.
23
Alexei Mukhin,
Special Services and Their Representatives in Russian Society
(Moscow, 1999), pp. 35â36. Pamphlet. In Russian.
Alexei Mukhin,
Special Services and Their Representatives in Russian Society
(Moscow, 1999), pp. 35â36. Pamphlet. In Russian.
24
Gusinsky said the Italians wanted the stake, but “the military blocked the selling.” Chubais said, “Gusinsky was helping to convince the special services that were categorically against the auction.”
Gusinsky said the Italians wanted the stake, but “the military blocked the selling.” Chubais said, “Gusinsky was helping to convince the special services that were categorically against the auction.”
25
Gusinsky and Potanin confirmed this in October 1997 interviews, as did Andrei Trapeznikov, Chubais's press secretary. Gusinsky, interview by author, October 15, 1997; Potanin, interview by author, October 14, 1997; Trapeznikov, telephone interview by author, October 25, 1997.
Gusinsky and Potanin confirmed this in October 1997 interviews, as did Andrei Trapeznikov, Chubais's press secretary. Gusinsky, interview by author, October 15, 1997; Potanin, interview by author, October 14, 1997; Trapeznikov, telephone interview by author, October 25, 1997.
26
Igor Malashenko, interview by author, March 7, 1997.
Igor Malashenko, interview by author, March 7, 1997.
27
Gusinsky, interview by author, September 22, 2000.
Gusinsky, interview by author, September 22, 2000.
28
Jordan and Potanin announced on July 9 that they were merging Jordan's Renaissance Capital with Potanin's International Financial Company. The merger did not go through until after the Svyazinvest auction, but the two were already working closely together.
Jordan and Potanin announced on July 9 that they were merging Jordan's Renaissance Capital with Potanin's International Financial Company. The merger did not go through until after the Svyazinvest auction, but the two were already working closely together.
29
Jordan, interview by author, October 1, 2000.
Jordan, interview by author, October 1, 2000.
30
Soros, interview by author, June 1997.
Soros, interview by author, June 1997.
31
Jordan, interview by author, May 22, 1998. The story of the loan was first disclosed by Chrystia Freeland, “Soros âLent Millions' to Bail Out Kremlin,”
Financial Times
, March 5, 1998.
Jordan, interview by author, May 22, 1998. The story of the loan was first disclosed by Chrystia Freeland, “Soros âLent Millions' to Bail Out Kremlin,”
Financial Times
, March 5, 1998.
32
John Thornhill, “Robber Capitalism to Shareholder Rights: George Soros Has Overcome His Misgivings About Investing in Russia,”
Financial Times
, July 30, 1997, p. 38.
John Thornhill, “Robber Capitalism to Shareholder Rights: George Soros Has Overcome His Misgivings About Investing in Russia,”
Financial Times
, July 30, 1997, p. 38.
33
Subscription agreement, July 24, 1997: “Subscription Agreement. Deutsche Bank AG and Open Joint Stock Company and âUnited Export Import Bank' and Renaissance
Capital International Limited and Svyaz Finance Ltd. and Mustcom Limited and ICFI (Cyprus) Limited and The Investors and Renaissance Subscribers.” Draft, July 23, 1997, in possession of the author.
Subscription agreement, July 24, 1997: “Subscription Agreement. Deutsche Bank AG and Open Joint Stock Company and âUnited Export Import Bank' and Renaissance
Capital International Limited and Svyaz Finance Ltd. and Mustcom Limited and ICFI (Cyprus) Limited and The Investors and Renaissance Subscribers.” Draft, July 23, 1997, in possession of the author.
34
This investor, who asked to remain anonymous, told me he bought into both Potanin's and Gusinsky's investment consortiums for Svyazinvestâit was so hot he wanted to be certain of winning something.
This investor, who asked to remain anonymous, told me he bought into both Potanin's and Gusinsky's investment consortiums for Svyazinvestâit was so hot he wanted to be certain of winning something.
35
Potanin's strategy is described in official documents and internal memos on the deal, which I obtained from a potential investor.
Potanin's strategy is described in official documents and internal memos on the deal, which I obtained from a potential investor.
37
Gusinsky, interview by author, October 15, 1997. Potanin also confirmed that discussions about a merger or deal took place beforehand. In Potanin's version, “I proposed from the very beginning our participation in his consortium, where he is the leader. If we win together he can do whatever he wants.” But Gusinsky refused.
Gusinsky, interview by author, October 15, 1997. Potanin also confirmed that discussions about a merger or deal took place beforehand. In Potanin's version, “I proposed from the very beginning our participation in his consortium, where he is the leader. If we win together he can do whatever he wants.” But Gusinsky refused.
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