Putin's Kleptocracy_Who Owns Russia? Read online

  III. By early 2010, the Spanish prosecutor had been reassigned and the investigation appears to have gone dormant.

  IV. Joseph Serio, an American seconded to the Organized Crime Control Department of the Soviet Interior Ministry in 1990–91 who went on to head Kroll’s operations in Moscow, reached similar conclusions. On this subject and the global spread of Russian organized crime that occurred in parallel at this time, see Handelman (1995), Klebnikov (2000), Friedman (2002), Varese (2001), Gerber (2000), Williams (1997), and Shelly (2004).17

  V. When the KGB was broken up after its involvement in the 1991 coup attempt against Gorbachev, several separate security institutions emerged with different functions: The Foreign Intelligence Service (Sluzhba Vneshney Razvedki, SVR) was formed out of the First Directorate of the KGB and was responsible for external intelligence. The Federal Agency of Government Communications and Information (Federal’noye Agentstvo Pravitel’stvennoy Svyazi i Informatsii, FAPSI) was made responsible for electronic surveillance. FAPSI was the rough equivalent to the National Security Agency in the United States. It existed until 2003, when Putin reunited it with the FSB. The Main Administration for the Protection of the Russian Federation (Glavnoye Upravleniye Okhrany, GUO) came out of the Ninth Directorate of the KGB. It was renamed the Federal Protective Service (Federal’naya Sluzhba Okhrany, FSO) in 1996. It is roughly equivalent to the U.S. Secret Service and is responsible for the protection of high-ranking officials, including the president. The Ministry of Security was formed out of the internal security functions of the KGB and was responsible for domestic and border security. It was reorganized in December 1993 into the Federal Counter-Intelligence Service (Federal’naya Sluzhba Kontrrazvedki, FSK). The FSK was then reorganized into the current-day Federal Security Service (FSB) in April 1995, and it was the FSB that Putin took over as director in 1998.

  VI. Komitet vneshnikh svyazey—KVS, also sometimes referred to as the Committee on Foreign Economic Relations, or External Relations.

  VII. According to the account provided by a Kryuchkov loyalist in the KGB, General Yuriy Drozdov, they also believed that the pro-perestroika leadership around Gorbachev had among them “agents of influence” from the CIA. Such was the certainty of their belief that subsequent to the collapse of the USSR, conservative “patriots” even instituted proceedings against the architect of perestroika, Aleksandr Yakovlev, on these charges.

  VIII. The existence of this document became known when it was submitted by Richard Palmer, the former CIA station chief, as an appendix to his testimony before a U.S. House Banking Committee investigation into Russian money laundering. It was not included in the Fond 89 documents used in the trial of the CPSU, nor is there any indication of Gorbachev’s knowledge or complicity in the movement of these funds, although the fact that they were being moved by a small group of hard-line Party and KGB officials suggests their aim was to conceal what they hoped would be the death knell for the perestroika regime.

  IX. Sometimes also referred to in English as the First Main (from the Russian glavnoye) Directorate. The terms used in the organizational charts provided by Andrew and Mitrokhin are used throughout this text.27

  X. After the August 1991 coup failed, Kruchina was one of the officials who died, when he fell, jumped, or was pushed from a window. The extent of his efforts to move and hide CPSU money will never be fully known. Six weeks later his predecessor, Georgiy Pavlov, also fell to his death. In April 1991 Time magazine reported that Dmitriy Lisovolik had also leaped to his death, “after investigators found $600,000 in U.S. dollars in the office of Lisovolik’s boss, Valentin Falin, at Central Committee headquarters.” Veselovskiy named International Department deputy chief Karen Brutents as also having access to knowledge of the accounts, as well as three Politburo members, who were unnamed.

  XI. When the article’s author, Mark Deych, drowned many years later, the “patriotic” blogosphere exploded with denunciations of his work particularly in the perestroika period. As one vile example, see “Mark Deych: Shit sinks,” at http://www.liveinternet.ru/users/prozorovsky/post218488816/.

  XII. Annual average ruble-to-dollar exchange rates are used throughout, derived from Central Bank of Russia data.

  XIII. General Leonov of the KGB stated that the free-for-all grabbing of CPSU properties began as early as August 23, 1991: “There was a massive seizure of party property: Office buildings, educational institutions, publishers, printing houses, holiday homes, villas and offices, etc.” Leonov (2002), p. 51.

  XIV. Bonini and d’Avanzo have covered Russian politics and misdeeds as well as those of Western intelligence agencies, including the role of the Italian intelligence service SISMI in planting evidence they knew to be false of Saddam Hussein’s supposed efforts to obtain uranium to make nuclear bombs from Niger. The story is recounted in their 2007 book.53

  X. For a very sympathetic account of the coup from the former KGB chief of its Analytical Department, see Leonov (2002).58

  XVI. Ministry of Internal Affairs (Ministerstvo Vnutrennikh Del, MVD), which supervises all police, public order militias, and prisons.

  XVII. The All-Union Leninist Communist League of Youth (Vsesoyuznyy Leninskiy Kommunisticheskiy Soyuz Molodyozhi, Komsomol) was an organization for those fourteen to twenty-eight. For a detailed analysis of the Komsomol roots of one such successful early entrepreneur, Mikhayl Khodorkovskiy, see Sakwa (2014).

  XVIII. Major General Vyacheslav Shironin was once head of KGB counterintelligence. He also was involved in the massive KGB crackdown in Azerbaijan in the dying days of the USSR. He represented one of the main voices who supported the view that perestroika had itself been guided by Western intelligence agencies through “agents of influence” like Eduard Shevardnadze and Aleksandr Yakovlev.82

  Chapter Two

  The Making of Money and Power

  The Establishment of Putin’s Circle, from the KGB to St. Petersburg, 1985–1996

  IT BECAME clear to Russian and Western observers long before Putin started his third full term as president in 2012 that he operated a complex informal system in which subgroups were constantly balanced against each other, with Putin alone as the ultimate arbiter. His power derived less from the institutional legitimacy conferred by being head of state than from the successful operation of a tribute system that obliged all participants to recognize his authority. In the words of American economists Clifford Gaddy from the Brookings Institution and Barry Ickes from Pennsylvania State University, Putin operates a “protection racket”1 dependent on a code of behavior that severely punishes disloyalty while allowing access to economic predation on a world-historic scale for the inner core of his elite. By his third term, he had created a highly controlled security system able to use the laws, the media, and the security forces as a means of intimidating, and critically balancing, rival economic elites. Others have called it a “corporation,”2 “Kremlin, Inc.,”3 “a sistema,”4 or a “corporatist-kleptocratic regime.”5

  No one trying to analyze the locus of power in Russia in 2014 was calling it a normally functioning, democratizing, or even developing state. The Russian political analyst Yevgeniy Gontmakher, the deputy director of Moscow’s Institute of World Economy and International Relations, made the astute observation that “there is no state in Russia.” There is “a certain structure in which millions of people who call themselves bureaucrats work,” but they do not perform the function that a state is supposed to perform: “Instead of the state as an institution implementing the course of a developing country, we have a huge and uncontrolled private structure which is successfully diverting profits for its own use.” In present-day Russia, he continues, “there isn’t even a pale copy of this mechanism of the formation of the state.” The Parliament had become “yet another department of the Presidential Administration,” along with the entire legal system, and bureaucrats who thought they worked for the state in fact serve only the interests of an “extremely large monopolistic business s
tructure which can do anything it likes” and which controls “not less than 50 percent of the economy.”6

  Profits are diverted on the whole not to assist the population but to line the pockets of bureaucrats and the political elite. By 2013 the gap between rich and poor in Russia was larger than in any other major country, and twice that of Western Europe.7 A report on global wealth by Credit Suisse stated in 2013, “Of the 26 Russian billionaires in 2005, 25 of them were still on the list in 2010—a higher survival rate than any other BRIC or G7 country,” possibly reflecting “state protection of billionaire interests.” The report went on to say that, whereas across the world billionaires account for 1 to 2 percent of total household wealth, “in Russia today 110 billionaires own 35% of all wealth,” giving it practically the highest level of wealth inequality in the world.8 Irrespective of what term we use to describe Putin’s regime, most commentators in 2014 were agreed that its inner logic was focused on the protection of the wealth of those closest to the Russian president.

  This chapter examines the interlocking networks that Putin built beginning in the 1990s. It is not just the story of how Russia descended into uncontrolled corruption and violence, the trope that Putin himself now often repeats to compare his period of stability to Yel’tsin’s period of chaos. For Putin the 1990s was the period when “everything came true.” It was a time when a group of former KGB, mafia, and political and economic elites joined forces, combining their money, connections, and position to create the basis for Putin’s spectacular success in building an authoritarian and kleptocratic regime.

  The key to Putin’s political authority is thus not the law but rather vlast’, or power. Courses of action must be taken not because there are strict rules and regulations but because there is an unwritten understanding, or ponyatiya, about how things must be done. It is clear that even before his presidency, Putin sought to be at the center of a tribute system that would determine which Russian elites would get a seat at the privatization table and on what terms. Even before his inauguration in 2000, he said that he intended to bring into the Kremlin people who were connected to him personally. Defending why so many ex-KGB from St. Petersburg were given key positions in Moscow, he told ABC Nightline anchor Ted Koppel, “I’ve brought some of them to the Kremlin in staff positions—people who I’ve known for many years—and people whom I trust. So that is the reason why I’ve brought them in. Not because they worked in the KGB and follow some specific ideology. It has nothing to do with ideology—it has to do with their professional qualities and personal relationships.”9 Anton Surikov, a former military intelligence specialist who became an outspoken critic of Putin, was more candid in speaking to a Western journalist: “To tell you the truth . . . all Russian politicians are bandits from St. Petersburg.”10 One of the persistent features of Putin’s circle is that they promote their friends and do not forget to punish their enemies. Surikov—who had served as a go-between in relations between Chechen rebels and the Kremlin in 1999 but who then made many enemies within the establishment—was dead within several months of this 2009 interview, although no link was ever proven between his views and his death.

  Russia in the early 1990s was indeed a gangsters’ paradise. Some of the gangsters were mafia, some were ex-security people now in the private sector. The former sought to keep the state weak; the latter hoped to rebuild it as its new leaders. A lengthy analysis of the overall situation in Russia’s regions concluded, “Robbers are leaving the ‘highway’ more and more frequently to make themselves comfortable in offices, where a criminal business concludes transactions with a legal free enterprise. . . . [There is] a reorientation of the ‘crime boss’ into a respectable gentleman who gathers tribute from legal free enterprise without losing his coloration as a thief. . . . The criminal organizations are obviously gaining the upper hand over the state structures in their degree of organization.”11 The establishment of this tribute system occurred as Putin was becoming the linchpin in Russia’s main “window to the West,” responsible for all foreign economic relations in St. Petersburg.

  Putin’s St. Petersburg days underline this style of work, building overlapping networks of people in which he is at the center, relying on them to promote privatization while supporting the state, and assisting each other in personal gain. Putin occupied one position after another that regulated and controlled the privatization process, becoming indispensable in legalizing what otherwise would have been illicit activities. He relied not only on friends and coworkers in the former KGB, but also on those who shared his desire to develop capitalism in Russia, including both economists and businessmen who were willing to take the extraordinary risks required to build something from nothing in post-Soviet Russia. For this they needed and initially relied on criminal elements from the Russian underworld. Gradually private security firms headed by ex-KGB and -MVD officials appeared. Over time these officials formed the security team around Deputy Mayor Putin and then formed the core of his security team when he became president. But the story starts before Putin arrived back in his hometown of Leningrad, when he was stationed in the East German provincial city of Dresden; there he was part of a core of associates with whom he would build lifelong ties.

  Putin in the KGB: Dresden and the Founding of Putin’s Circle

  It is generally accepted that Putin joined the KGB in 1975, that he had at least a year of training both in Moscow and in Leningrad (where he met Sergey Ivanov, who has been part of his inner circle from the beginning and who became, under Putin, minister of defense, deputy prime minister, and head of the Presidential Administration, among other assignments), and that he was stationed from at least 1985 until 1990 in Dresden. Other aspects of his KGB career are highly contested, however. Putin’s own statements provide little clue. Some claim that before his 1985 posting abroad, he worked for the Fifth Chief Directorate in Leningrad, which was responsible for internal order and suppression of dissent.12 Others claim he worked as a rank-and-file Line VKR (foreign counterintelligence) officer of the KGB in Leningrad, responsible for preventing defections or recruitment of Soviet citizens by foreign intelligence agencies.13 Leaks from German intelligence services to journalists in 2000 suggest that Putin was given the cover of a TASS reporter in Bonn in 1975 but botched the operation and was asked to leave West Germany in the late 1970s.14 Others claim that he was photographed by Western intelligence in front of the West Berlin department store KaDeWe (in other words, a place he was not supposed to be as a Soviet citizen accredited to East Germany, not West Germany nor West Berlin). Andreas Förster, the editor of the Berliner Zeitung, claimed that Putin was accredited in the GDR from 1982 to 1986 under the false name Aleksandr Rybin, born February 9, 1947, according to the Diplomatisches Protokoll Fremde Missionen (Diplomatic List of Foreign Missions) of the GDR Foreign Ministry, in which there was allegedly a photo of Rybin that Förster claims bore a “striking resemblance to Putin.”15

  This confusion about whether Dresden was Putin’s first German posting led his German biographer Alexander Rahr to conclude that “forces of the so-called ‘invisible front’ in Moscow today try to put a thick fog of silence over this section of Putin’s biography.”16 Rahr himself has always had a high-level and close association with the Kremlin, receiving honorary degrees from the Moscow State Institute for International Relations and the Higher School of Economics. At the same time, he worked for Radio Free Europe, as well as being part of the negotiations that brought Mikhayl Khodorkovskiy out of Russia in 2013. For Putin’s most important German biographer to recognize that Putin’s German period was subjected to what one might call a significant scrubbing only combines with other details to indicate that Putin’s time there was probably not filled with routine paper-pushing. Certainly he could have had more success in covert operations than anyone would ever subsequently admit.

  It is also conceivable that one of the reasons his circle was so interested in that “thick fog of silence” was a 2011 allegation that the Putin household had itsel
f been infiltrated by a West German agent, a woman who became a confidante of his wife, Lyudmila Putina. A German journalist who covered intelligence matters claimed he had received confirmation from highly placed sources in both the BND (Bundesnachrichtendienst, the German Federal Intelligence Agency) and the Verfassungsschutz (the Office for the Protection of the Constitution) that this woman was a West German posing as a Baltic German with fluent Russian and German and that she operated under the names Lenchen and Lenochka. She was employed as an interpreter in the Dresden office, and she became close to Putina, who confided in her. “Lyudmila told her that Vladimir frequently beat her, and often cheated on her, that he had had trysts with other women.”17 This account of their relationship is roughly shared by Irene Pietsch, a German official’s wife who befriended Putina and subsequently wrote a book about it.18 But it is at odds with the remembrance of Putin’s biographer and coworker Vladimir Usol’tsev, who describes Putin as a devoted family man.19

  Putin and his wife, Lyudmila, at Easter service in April 2011. They had rarely been seen in public for several years and announced their decision to divorce in 2013. Photo by Sasha Mordovets, Getty Images

  The German journalist who researched this story, Erich Schmidt-Eenboom, noted for his extensive work on German intelligence activities, also stated that one of the activities of the KGB in East Germany after 1985 was to “take revenge” for the BND’s successful running of a KGB colonel codenamed Viktor who spied for the BND from the early 1970s to 1985 and who apparently was stationed in Dresden until 1985. Schmidt-Eenboom claims that Yuriy Drozdov and others were personally involved in the “cleanup” from this failure.20 Usol’tsev also claimed that Putin worked for counterintelligence in Dresden, recruiting future “illegals.” If so, this would certainly have put him in direct touch with Drozdov, who headed this directorate.21