Blowout

by Rachel Maddow

  Ukraine had been a founding member of the Union of Soviet Socialist Republics in the early twentieth century, but a conflicted one. The citizenry’s sense of itself as a separate and sovereign nation was never extinguished, and when it finally got the chance in 1991, the industrialized nation of fifty million chose independence, with an exclamation point. Nine in ten Ukrainians voted “yes” in the world-changing Act of Independence referendum that year. Even in Ukraine’s largely Russian-speaking oblasts on the Russian border like Luhansk, Donetsk, and Crimea, voters overwhelmingly picked independence.

  Three years later, the new Ukrainian government traded in its nuclear arsenal—the third largest in the world behind the United States and Russia at the time—for “security assurances.” The United States, the United Kingdom, and Russia signed on to the Budapest Memorandum in December 1994. Ukraine handed over its 176 long-range missiles and its nearly 2,000 nuclear warheads, and in return the other major nuclear powers agreed to respect Ukraine’s existing borders and its sovereignty. And maybe also do a little extra for the fledgling democracy. Even as an independent and sovereign nation, the former Soviet Socialist Republic of Ukraine was in need of help. The West chipped in with a large aid package. Cash-poor Russia promised what it could, and what it could promise was a robust and ongoing supply of cheap energy.

  Understandably, Ukraine had eyes for both suitors. The oblasts in western Ukraine tended to be more culturally European, keen on Ukrainian autonomy, and attached to the Ukrainian language. The eastern oblasts, with their large Russian-speaking populations, maintained greater affinity for all things Russian. So the national allegiance was always sort of in the middle. Ukrainians were hot to get in on Western Europe’s free-market capitalism, but in their wobbly, brand-new democracy they ended up entrusting their political leadership in Kyiv to the old Soviet apparatchiks. The president they elected in 1994 was a former boss of Soviet industry and a longtime chieftain in the Communist Party, Leonid Kuchma.

  Things went about as you’d expect with Kuchma in charge. The president tied Ukraine’s future and fortunes closer to Russia and then stuck pretty close to the old Soviet playbook. When Putin ran for election in 2000, after being designated successor to Boris Yeltsin, President Kuchma forked over $56 million to the presidential campaign. And when Putin’s victory earned him the keys to the Kremlin cash vault, he quickly returned the favor by sending $250 million to Kyiv. The thank-you check was ostensibly to pay off Ukraine’s growing debt to Russia. Energy from Russia was cheap, but not that cheap. In actuality, Ukrainian oligarchs pocketed the bonanza of rubles.

  When Kuchma’s second presidential term was coming to an end in 2004, he selected as his successor another old Soviet hand, Viktor Yanukovych. Kuchma had appointed Yanukovych to the governorship of the Russia-friendly Donetsk oblast in Ukraine’s far southeast back in 1997. And Yanukovych turned out to be a perfect match for Donetsk and its ways of governance. He was “a Communist Party apparatchik who prefers centralized authority,” one of Yanukovych’s allies explained. “He knows if he gives a little here, he can take a little there.” Yanukovych was reputedly taking a little from everywhere. No operation was too small or too tawdry—including an illegal chicken-smuggling racket that ultimately became a gross-out international scandal and corruption case study. “One ton of bad meat is mixed in with three tons of normal meat,” a worker explained to reporters from a German television station. A German microbiologist assigned to look at the resultant product said, “We have found a lot of microbes—especially intestinal bacteria. We have found things that can make us sick.”

  When Yanukovych had first announced his campaign for the presidency of Ukraine in 2004, Vladimir Putin did all he could to ensure Yanukovych’s ascendance. Putin sent money to Yanukovych’s Party of Regions. He made personal appearances with Yanukovych in the weeks before the final runoff. He is also widely suspected to have engineered a vicious assault against Yanukovych’s chief rival, the Western-friendly Ukrainian democrat Viktor Yushchenko. Yushchenko got extremely and mysteriously sick early in the campaign season, his movie-star-handsome face suddenly pocked with disfiguring lesions. The diagnosis was sinister: dioxin poisoning. Russian officials have always denied involvement in the poisoning. When Yushchenko was asked if he thought Putin gave the order, he offered cryptically: “I have an answer, but I cannot voice it.” Despite the monstrous and advancing effects of the poisoning, Yushchenko would not be intimidated or forced out of the race. He muscled through to the final two-man runoff against Yanukovych, a contest in which Putin’s operatives helped orchestrate miraculous voter turnout in the Russophile regions in eastern Ukraine. Putin’s crew was becoming quite accomplished at a certain sort of democracy. Yanukovych-friendly precincts boasted a turnout of up to 127 percent, according to impartial observers from the European Network of Election Monitoring Organizations. This miracle no doubt helped Yanukovych eke out a slim victory over Yushchenko.

  International election observers cried foul even before the final votes were counted. One man on the ground, Chairman Richard Lugar of the U.S. Senate Foreign Relations Committee, decried a “concerted and forceful program of election day fraud and abuse.” Somewhere near 100,000 protesters jammed into the central square in Kyiv—the Maidan—in the days and weeks that followed, in what became known as the Orange Revolution. (The Orange team leaned democratically West. The Blue team leaned autocratically toward Russia.) The Supreme Court of Ukraine took a hard look at the election shenanigans, declared the results invalid, and ordered a new vote. Yushchenko won the rerun going away and was sworn in to the presidency on January 23, 2005.

  Putin was a very unhappy camper after that election, but he was also a more educated camper. Yanukovych’s flameout was a painful lesson and reminder that politicians were never a sure bet. There was always the possibility they could get tangled up in ideologies, or ideals, or pleasing the voters, or even that voters might just not like them. Better to put your eggs in a few different baskets, Putin figured, including some outside the square four corners of politics. The Kremlin settled on a number of key industry titans and organized crime bosses in Ukraine who could be counted on to do Putin’s bidding in exchange for just cash: the oligarchs. No democracy needed, no international observers, no talkback. Nobody quite fit the bill for such an effort as well as Dmitry Firtash, a forty-year-old self-proclaimed multibillionaire who had succeeded precisely because of his thoroughgoing cynicism. Like Guccifer, only with ambition. And connections.

  Dmitry Firtash—according to the story he told diplomats from the West and reporters from Ukraine—grew up a nondescript boy in a nondescript family in a nondescript rural town in Soviet Ukraine. His father taught drivers’ education (“aim high in steering”); his mother worked in a sugar factory. The greatest portion of Dmitry’s meager inheritance was a disdain for the ruling Communist Party. Firtash relented to membership in the communist youth movement, he once said, only “after being locked in a party member’s office for two days without food or water.” Without pull to get a place at university, or one of those coveted party jobs that Mikhail Khodorkovsky had wangled, Firtash served a short stint (drafted, of course) in the Soviet army. He had plans to become a fireman, up until the Soviet Union collapsed in 1991. What followed in Ukraine after the collapse was a strange but oddly heady time, if one could keep one’s head. The way Firtash saw it, he was a young man “between two countries—one that had ended and one that was beginning.” But Firtash flourished in this strange twilight zone of lawlessness and wide-open possibility. He made his first fortune exporting canned goods and dry milk into Uzbekistan and other former Soviet republics, then moved into the much more lucrative field of brokering natural gas sales.

  There was a pile of money to be made in natural gas in Ukraine, so there were plenty of very interested parties. Firtash had to be able to deal with bankers, pols, and, most important, organized crime bosses. All of them well armed. All of them lo
cked in a dangerous and uneasy partnership that sometimes proved fatal for the unluckiest. Firtash knew certain dinner invitations could come with a side order of assassination. Even into the early years of the twenty-first century, the natural gas business was still operating by “the law of the streets,” Firtash explained to the U.S. ambassador to Ukraine. “It was impossible to approach a government official for any reason without also meeting with an organized crime member,” Firtash said. He did what he had to do.

  Particularly helpful to Firtash was his relationship with Semion Mogilevich, believed to be the “boss of bosses” of the Russian mob syndicate—worldwide. Mogilevich had a degree in economics from a university in Lviv, the largest city in western Ukraine, and a special talent for stock frauds of the bonanza size. He also enjoyed more traditional mob-like pursuits. So active was Mogilevich around the globe, he eventually landed on the FBI’s “Ten Most Wanted” list. His greatest criminal hits, according to the bureau, included “weapons trafficking, contract murders, extortion, drug trafficking, and prostitution on an international scale.” When asked about his ties to Boss Mogilevich, Firtash explained to American diplomats in Kyiv that he simply didn’t have the luxury of choosing his benefactors in Ukraine. Without Mogilevich’s help, he later explained, he would never have been able to build his business. His $5 billion business! Well, if you were Vladimir Putin, it was pretty plain to see Firtash’s potential utility. Here was a man who could be counted on to do what must be done. Here was a man, also, who sat at the nexus of fuel and corruption, which were, by 2006, fast becoming the future of Russian power and influence everywhere. And the exact means by which Putin would reassert Russian control in Ukraine.

  Ukraine had a mammoth appetite for gas—for Russian gas. The country consumed more fuel as a percentage of its GDP than any nation in the world, and its fuel of choice was natural gas. The country bought three-quarters of its supply through Russia’s state-controlled monopoly, Gazprom; it also made money transiting Russian gas through pipelines to Gazprom customers in Europe. So even after the Orange Revolution and the election of Yushchenko, Russia still managed to keep a hold on the reins of Ukraine’s economy, and its politics—which was perfect, as far as Putin was concerned. The infinitely corruptible energy business allowed Putin to pick and choose who would be rich and who would be powerful in Ukraine. He had learned this system well in St. Petersburg and then in Moscow, and it fast became Putin’s strategy for projecting Russian power beyond its borders. The biggest threat he had to keep at bay was the prospect of strong, rich, stable, Western-oriented democracies in Russia’s near abroad. That sort of thing could not only challenge or constrain Russia’s regional power; it could conceivably—the horror—inspire the Russian people themselves, leading them to demand a democratic say in their own government as well.

  The solution was simple: use Russian natural gas and oil not only to make money for the Russian state but also to keep neighboring countries corrupt and dependent. It solved so many problems. It reduced expectations for democratic governance and the rule of law in those countries. It created a corruptly empowered political class invested in preserving the Russia-dependent system that enriched its practitioners and their families. It also created comfortable space for organized crime to flourish. The Russian government, under Putin’s control, has steadily become more integrated with all kinds of transnational organized crime in the former Soviet sphere—and not just because Putin has tended to attract the kinds of broken-nosed toughs who would otherwise be called “henchmen” if Putin hadn’t made them so rich. The beauty of Putin’s ever-deepening kinship with the mob was that it gave him a whole other set of levers with which to settle problems—and to make problematic people go away—whenever it might be unseemly to wield the overt powers of the state.

  Putin’s team in the Kremlin was delighted to utilize a man with Dmitry Firtash’s special skills and talents to shape Ukraine to its liking, to turn it from its increasingly worrying flirtation with the West, with the European Union, with—oh, God—maybe even NATO. They cut Firtash a sweetheart deal in Ukraine before the first year of Yushchenko’s presidency was over. Firtash’s new company, RosUkrEnergo, was given the exclusive right to buy gas from Russia to sell to Ukraine. At a very large profit. About $800 million clear profit in 2007 alone. Firtash’s company wasn’t making anything. It wasn’t even necessarily moving anything. It wasn’t really doing anything at all except getting paid. Ukraine could just as easily have bought the gas with no middleman and no markup, but Putin wanted both the middleman and the markup; Dmitry would turn out to be handy! And so would the assurance of fantastical corruption at the very heart of the Ukrainian state, and so would the prospect of all the richest and most powerful and influential people in Ukraine being dependent on Russia’s every whim. It cost Gazprom a pretty penny—straight out of Russian government coffers—but it was worth it. Firtash (as well as some of Putin’s other Ukrainian oligarchs) would have plenty of cash to spread around to shape their country in ways that Putin would appreciate. Some of that cash went back to Moscow as tribute. Even more of it went to prop up Yanukovych’s Party of Regions, which meant a whole bunch of it passed through or ended up in the offshore bank accounts of the mercenary American political operative Paul Manafort, who was always available to help his friend Yanukovych, for a price. The price ended up being about $75 million over the course of a decade.

  Manafort was clearly quite taken with Dmitry Firtash, the source of much of that cash. He went so far as to set up a handful of business entities designed to help folks like Dmitry, and most particularly Dmitry, get money out of Eastern Europe and Central Asia and into U.S. or international real estate holdings. “The advantages of a single investor,” wrote Manafort, “include less exposure, more flexibility, less reporting requirements and the ability to organize off-shore to maximize the return of the investor.” These companies, such as CMZ Ventures LLC, founded in 2008, were managed by an ex-con named Brad Zackson who had learned the New York real estate business at the feet of a master, a Queens-based mogul named Fred Trump. Manafort drew up a vision statement for the fund, just as the world’s economy was collapsing and real estate was becoming really affordable: “to take immediate advantage of the distressed nature of the US property market…where sponsors are getting caught in the credit squeeze, creating a pressure to refinance or shed assets.” Manafort also envisioned buying on the international market, to “provide optimal flexibility to our investors.” Attorneys who took a good look at CMZ’s early deals suspected that “optimal flexibility” included the opportunity for Firtash to launder more than $100 million of questionable overseas profits on one real estate deal alone—a very suspect move to buy the site of the recently demolished Drake Hotel on Park Avenue in Manhattan.

  Manafort never actually closed any of the supposedly blockbuster real estate deals he conjured in order to spin-cycle those overseas millions. But he did successfully establish his worth as an oligarch’s helper and a political operative in Ukraine. He helped the Moscow-friendly Party of Regions win a solid plurality in the 2006 parliamentary elections, and he spent the next few years dinging Ukraine’s strongest Orange Party leaders, President Viktor Yushchenko and Prime Minister Yulia Tymoshenko. Tymoshenko was a particular threat to Moscow’s influence in Ukraine. She had made herself the front-runner in the 2010 presidential election by seizing on Firtash’s sweetheart gas deal and promising to end it. She made a good case: Why on earth should RosUkrEnergo be allowed to siphon off $800 million in a single year by playing a middleman nobody needed?

  Manafort and his team went at Prime Minister Tymoshenko with full force and helped to drive her approval ratings down to 20 percent six months before the 2010 election. Even her renegotiation of the Russia-Ukraine natural gas deal in 2009—no more Firtash—wasn’t enough to sway a majority of voters to her. The onetime rotten chicken smuggler and Party of Regions leader Viktor Yanukovych squeezed by her and into the presidency
, finally, in February 2010. Manafort received much credit for the Yanukovych victory and a rich new contract as the new Ukrainian president’s off-site political adviser.

  One of Yanukovych’s first acts as president was to sic a rabid state prosecutor on Yulia Tymoshenko. Lock her up! Yanukovych’s prosecutor charged Tymoshenko with the crime of abusing her official powers by “illegally” arranging the new Firtash-free gas deal with Russia without the required bureaucratic sign-offs. Tymoshenko had a lot of sympathy in the United States and Europe, so Manafort got right to work on the public relations front. According to reporting by Luke Harding in The Guardian—later corroborated in legal filings by Robert Mueller’s special prosecution team—Manafort engaged a sleazy PR firm run by American expats to draw up an energetic media operation to smear Tymoshenko. FBC Media said it could execute all the old standards like feeding reporters dirt on Tymoshenko and ghostwriting demeaning op-eds. Plus the everybody-does-it blast emails to key opinion makers in the West. But they were ready to play the new fields too. How about strategic messages hostile to Tymoshenko planted for exponential growth in the increasingly ugly Twitter universe? How about “Wikipedia page modification to highlight [her] corruption”? FBC said it could use these e-spaces to paint her as “reckless,” “unstatesmanlike,” and “at worst malicious, defamatory and antisemitic.” It could create an entire website dedicated to her ignominy: the Tymoshenko Files. Maybe even create anonymous online videos that would make her seem like a drunk-and-slurring-his-words-era Boris Yeltsin. “The social media space offers great opportunities for guilt by association,” FBC explained. Manafort secured FBC a six-month contract at $250,000 a month and the promise of a one-year rollover for work well done and on budget.