Putin's Kleptocracy_Who Owns Russia?

by Karen Dawisha

  All had careers that have flourished under Putin. In 1998 Putin, who was then director of the FSB, appointed Sergey Ivanov as one of his deputy directors.167 Patrushev preceded Putin to Moscow and there became chief of the Federal Counter-Intelligence Service Directorate of Internal Security, and in 1998 followed Putin as chief of the GKU, the Control Directorate of the Presidential Staff, and then deputy chief of the Presidential Staff. He moved over to the FSB the same year, rising to become director in 1999, replacing Putin, and then becoming secretary of the Security Council in 2008. Strzhelkovskiy, who never rose to the level of political importance the other Putin-connected siloviki achieved, worked in the Leningrad KGB from 1980 to 1991, rising to the rank of lieutenant colonel. In November 1990 he created the travel agency Neva, which became the official travel agency of the St. Petersburg administration. When Putin was named prime minister in 1999, he named Strzhelkovskiy deputy minister in charge of physical training, sports, and tourism, and after 2000 he became the deputy minister of economic development and trade and head of its State Tourism Committee.168 In 2008 this “longtime friend” of Putin was named CEO of the privately held mining company Norilsk Nickel, the world’s largest producer of nickel and palladium. He had the support not only of Putin but also of one of the three major shareholders, the billionaire Vladimir Potanin. He was appointed over the objections of other oligarch board members and major shareholders, including Oleg Deripaska, who cited his lack of managerial and metals industry experience.169 When he eventually resigned in 2012 with a $100 million cash golden parachute, the New York Times summarized the significance of the unprecedentedly large payout by noting that “it is likely to be remembered most as another data point in the shift of corporate wealth and influence away from the first generation of former Soviet businessmen—known as the oligarchs—and toward a coterie of well-connected former security service agents who made their mark under President Vladimir V. Putin.”170

  Some accounts claim that Putin met Cherkesov in the 1980s, when the latter was a top official in the Leningrad KGB.171 Cherkesov graduated from Leningrad State University’s Law School in 1973, two years earlier than Putin. He was the director of the St. Petersburg FSB from 1992 to 1998, and apparently he and Putin were friends there, even going to the bathhouse together.172 Cherkesov in particular was reviled by the democratic opposition as someone who was actively and personally involved in the suppression and interrogation of dissidents in Leningrad in the 1970s and 1980s. He was infamous in St. Petersburg as the last KGB officer to arrest anyone (under Article 70) for political crimes, the future Yabloko Party Duma deputy Yuliy Rybakov. The case was closed by Gorbachev, who in 1991 rehabilitated all the Leningrad intellectuals who had been repressed under the harsh regime imposed in that city by Cherkesov and others in the local office of the KGB’s Fifth Main Directorate.173 It was a cruel irony, therefore, when in 1992, only months after the collapse of the USSR, Cherkesov was appointed head of the Ministry of Security (the successor to the KGB and precursor to the FSB) in St. Petersburg over the protests of horrified democratic activists and lawmakers in the city. He followed Putin to Moscow, becoming one of his deputies at the FSB and moving into other top federal positions under Putin’s protection. Putin’s appointment of Cherkesov as his deputy at the FSB prompted a group of human rights campaigners, including Yelena Bonner (the widow of the nuclear physicist and dissident Andrey Sakharov and a human rights activist in her own right), to write an open letter warning, “Under Putin, we see a new stage in the introduction of modernized Stalinism.”174

  This clarion call from Russian activists went unheeded, and the siloviki continued to gain influence. Grigor’yev was Cherkesov’s deputy at the FSB until 2001, when the two had a falling-out, allegedly over how many of the contract murders in St. Petersburg should be blamed on the Tambov crime family and how many on Yuriy Shutov (an early assistant in Sobchak’s administration who was fired after accusing the mayor’s office of being mired in corruption). Cherkesov wanted to lay the blame exclusively on Shutov, and Grigor’yev is said to have wanted to go after Tambov, in particular Aleksandr Malyshev and Vladimir Kumarin. Grigor’yev also contended that Cherkesov had appointed two officials with known connections to Tambov, according to Segodnya.175 Patrushev, who by 2001 was director of the FSB, announced Grigor’yev’s resignation “due to the transition to other work.”176 The incident underlined the tensions between the FSB and their colleagues in the organized crime world. Grigor’yev went on to become head of the Agency for State Reserves, Gosrezerv, responsible for maintaining state reserves of raw materials to prevent the kind of chronic shortages of foodstuffs, oil and gas, medicines, and other hard-currency exports that had become dangerously low in the early 1990s. Fiona Hill and Clifford Gaddy of the Brookings Institution are right to underline the importance to Putin and his team of this unique agency and his circle’s control over it, since it gave them the ability to dispense favors via the selected “release” of raw materials from the strategic reserves for sale abroad.177

  Yevgeniy Murov and Viktor Zolotov have been critical to Putin’s personal security since the 1990s. With the former Ministry of Interior officer Roman Tsepov, Zolotov cofounded a security company called Baltik-Eskort (License No. 020004)178 in St. Petersburg in 1992, which provided security for both Sobchak’s family and Putin. Zolotov had been in the Ninth Chief Directorate of the KGB (which provided bodyguards to the Soviet elite) and was photographed next to Yel’tsin when the latter spoke atop a tank during the attempted August 1991 coup.179 As an officer like Putin in the KGB’s active reserves, he was able to establish and run a private security agency while receiving KGB cover and support. As mayor Sobchak had the right to Federal Protection Service (FSO) security, yet even though Zolotov was an officer in the FSO, his family did not have that right, and neither did Putin or his family. They therefore employed the services of Baltik-Eskort, where Zolotov also happened to work “on the side.”180

  Zolotov had worked for General Yevgeniy Murov, who had served in the First Chief Directorate of the KGB (foreign intelligence) in Southeast Asia during the Soviet period. Murov served in 1997–98 as deputy director of the FSB in St. Petersburg and Leningrad oblast’. From 1998 to 2000 he was first deputy head of the Department for Economic Security of the central FSB.181 On May 18, 2000, Putin named Murov director of the FSO, the agency that provides overall security for political leaders.182 He remained in this position until at least 2014. He was put on the 2014 U.S. sanctions list. From 1992 to 2000 Zolotov served in the St. Petersburg FSB, including as deputy chief of their Department of Economic Security. He was reputed to be one of Putin’s sparring partners in boxing and judo and provided him with personal security. Zolotov followed Putin to Moscow and became head of the Presidential Security Service in 2000, where he was elevated to lead what has essentially become a Praetorian Guard to protect Putin and his regime.183 He was added to the U.S. government visa ban and asset seizure list in April 2014.184

  Connected with Zolotov and Putin was Roman Tsepov, who was reputed to have been closely involved in running Putin’s tribute system while in St. Petersburg. Investigator Andrey Zykov stated in 2012 that in the 1990s “Putin had become the main person involved in many criminal cases, as he participated in the criminal privatization, in particular of BMW; Baltic Shipping Company, helping to arrange the sale of Russian ships at low prices; with all the actions carried out by the criminal authority Traber;XXV purchasing the alcohol distillery ‘San Trust’ through the criminal authority Misha Kutaisi [real name Mikhayl Mirilashvili]; and even the privatization of the Hotel Astoria” in St. Petersburg, about which Zykov made the following claim based on the results of the police investigation: “In the autumn of 1998, in St. Petersburg a tender was held for the sale of a 40% stake of the hotel Astoria. Putin had tried to increase his own stake in the company which owns the hotel,XXVI in order to win the tender. But he did not succeed. The tender was awarded to the manager of the plant for the production of alcoholic
beverages, [Aleksandr] Sabadash. Putin threatened that he will crush the plant and finish its chief. At the end of 1998, the parties reached a compromise—Sabadash paid Putin compensation of about $800,000.”187, XXVII Peter Reddaway provides the following detailed description of Tsepov and Baltik-Eskort:

  While Tsepov’s company charged Putin only a nominal $400–500 a month for guarding him, he had Tsepov collect tribute from city businesses for the use of the city’s Committee [for Foreign Liaison], which Putin headed. He also had Tsepov take part in major commercial operations like the privatization of the Baltic Shipping Company. In addition, he helped Baltik-Eskort to become the biggest security agency in St. Petersburg. It expanded its remarkably efficient business to include the supply of enforcement services and the transportation of the cash needed for illegal deals. Also, Tsepov was allowed to become a nominal officer of the MVD’s unit for combating organized crime (RUBOP),XXVIII to wear the insignia of various security agencies, and to display a special VIP pass on his car.189

  Tsepov himself admitted that he started working as Putin’s bodyguard only after the privatization process at the Baltic Shipping Company had produced several killings and threats to Putin’s life. As a result, he was asked by the city to enter into a contract for “the maintenance of public order in places of stay of V. V. Putin.”190, XXIX

  Both Zolotov and Tsepov had been supporters of the conservatives in the failed coup against Gorbachev, and Tsepov apparently sought to go to the defense of the Supreme Soviet when Yel’tsin attacked the White House in 1993.191 Leonid Nikitinskiy’s research suggests that while Zolotov provided the muscle for Putin and the mayor’s office, Tsepov had “the more difficult part of the job: construction of the balance and the spheres of influence between Petersburg representatives of the Central Government, the power structure, the Mayor’s Office, business (which in those years was seldom transparent) and outright criminal structures. There is evidence that Baltik-Eskort provided high security transportation for the ‘black cash’ [chyornyy nal] needed for such operations.”192 Other sources also talk about Baltik-Eskort’s role in St. Petersburg; one source stated that “Baltik-Eskort prior to 1996 actively worked with the mayor’s office to fulfill orders that could not be put in the hands of official law enforcement agencies, including relations with many foreign business partners.”193 Baltik-Eskort’s offices were reportedly subjected to over thirty searches by various federal regulatory bodies, all to no avail; Tsepov, according to Andrey Konstantinov, was the subject of several murder plots.194

  All this supports the argument not just about the level of criminality in Petersburg at the time but also about the direct involvement of Putin and his circle. Tsepov stayed in St. Petersburg after Putin went to Moscow but continued to be subjected to assassination attempts and criminal investigations as late as 1999, when he was charged with large-scale extortion and inflicting grievous bodily harm, under Section 3 of Article 163 of the Russian Criminal Code.195 But he was not convicted, due to what the press described as his “complicated relationship with law enforcement.”196

  Some reports allege that after Putin became president, Tsepov continued to be involved in the day-to-day running of the Kremlin’s tribute system, in which the “administrative resources” of the Kremlin were provided to those who paid the largest tribute and presented the best prospect for providing stability of leadership for the Kremlin in various regions.197 In other words, in this scheme, tribute payments to get on the electoral roll went to the highest state officials whose approval was necessary for anyone to be registered as a candidate. Once a person was accepted as the candidate, payments from the Kremlin’s public funds were disbursed for the campaign. In this way governors were chosen who responded to central interests irrespective “of their success in promoting the welfare of the inhabitants of the region.”198 Days before Tsepov died, the newspaper Russkiy Kur’er wrote that he had operated a price list for promotion to governor that included charges of $3 million to $5 million to be included on the “presidential candidate list” (i.e., those candidates whom Putin would favor with visits to their regions, for example) and additional sums for “verbal praise in the presence of the President.”199

  Tsepov died as a result of a mysterious poisoning in 2004, said by some to be a “radioactive element,”200 and the local procurators opened a criminal investigation of murder.201 The case was quickly closed, however, “in the absence of any suspects,” despite the fact that many of the careful analyses of Tsepov’s last weeks showed there was an abundance of suspects.202 Kommersant speculated about who might have killed Tsepov:

  Despite the modest post of Director of a security company, Roman Tsepov was considered a highly influential businessman. His main influence was very broad, ranging from the pharmaceutical and security business to port, tourism, transport, insurance and even the media. According to sources in law enforcement, Roman Tsepov maintained close contacts with many security officials from Interior Minister Rashid Nurgaliyev to the head of the presidential guard Viktor Zolotov. They say that he was the entree to Deputy Chief of the Presidential Administration Igor Sechin and even to Vladimir Putin. The MVD’s unit for combating organized crime (RUBOP)203 claimed that Mr. Tsepov actively used his connections to lobby for the appointment of officers to the Ministry of Internal Affairs and FSB. This, incidentally, is why he was known in certain quarters as “The Producer.”204

  It was also reported that he overstepped his limits when he was commissioned by Sechin, Zolotov, and even Putin to “negotiate” with the embattled Yukos oil company executives, including Mikhayl Khodorkovskiy, during which he apparently demanded a place on the Yukos board along with Gennadiy Timchenko. The Russian commentator Yuliya Latynina stated on the radio station Ekho Moskvy on September 25, 2004, that when she was told this story, “I had the impression that Mr. Tsepov . . . didn’t understand that this [deal] is for others, and that, in essence, these people didn’t need a representative in the person of Mr. Tsepov.”205 The myriad stories about Tsepov’s lists and how he overstepped his boundaries may well have been the Kremlin signaling to others that they should not similarly transgress.206

  Irrespective of whether or not Tsepov exceeded his authority, his funeral provided an opportunity to observe the interlocking relationships between siloviki and mafia at the heart of the Putin regime. He was given a three-gun salute and buried next to the submariners who died in the Kursk accident, and mourners included numerous Interior Ministry officials, as well as Vladimir Kumarin (also called Vladimir Barsukov), the alleged head of the Tambov crime family; Aleksandr Sabadash, to whom Putin had given the monopoly on distilling vodka in the early years in Petersburg and who was now a member of the Federation Council (the upper house of Parliament); and the head of President Putin’s FSO, General Viktor Zolotov.

  Arkadi Vaksberg, a highly respected forensic and legal writer for Literaturnaya gazeta, who authored many books on the hidden secrets of the Stalin regime, wrote a book from his home in Paris on the renewed use of poisonous toxins in post-Soviet Russia. He had the following to say about Tsepov’s death: “The circumstances surrounding his death . . . demanded some clarification. Things were complicated by the fact that the pathologist’s finding and the autopsy report were never published and the history of the illness was classified. . . . [However] Tsepov’s own doctor, Pyotr Perumov, leaked some details. The patient fell ill on the evening of September 11 [2004]. That morning he had drunk some tea in the office of one of the heads of the St. Petersburg office of the FSB. During the day he had a business lunch and later ate an ice cream that one of the agents had brought him. His state suddenly worsened with unusual symptoms appearing. The doctors could not explain what was happening and he asked them to get him ready for an air-lift to Germany where he also had a family doctor. But the problem could no longer be treated. It was affecting the brain. It later became known (unofficially of course) that Tsepov had died of colchicine poisoning. . . . Tsepov had been taking pills to prevent cardiac p
roblems. . . . Quite likely someone had swapped the tablets. Or perhaps he was killed using an unknown poison based on heavy metal salts that introduce radioactive isotopes into the body. This is quite likely since they found a level of radiation in his body that was a million times the normal level! . . . Everyone agrees that for some very influential people their connection with Tsepov had become a source of embarrassment. His self-assurance and the amount of information he possessed had reached dangerous proportions. Everyone also realized that his killers were present at their victim’s ceremonial funeral.”207

  Putin associates were key players in establishing business in Russia from the very earliest days, and their relationship with Putin has been richly rewarded. But others from the early Putin era have also made their mark during his subsequent terms, particularly those with whom he worked in the mayor’s office as head of the Committee for Foreign Liaison and the group around the Ozero Cooperative. Putin’s story is not just the story of cowboy capitalism. It is the story of how an extremely adept political figure was able to gather around himself a group of varied individuals who were devoted to Russia, to be sure, but also, and indeed even more so, to their personal survival and prosperity. It is the story of law enforcement’s continuous efforts to stop the accruing of ill-gotten wealth by this group, and its ultimate failure.

  Putin and His Circle in the St. Petersburg Mayor’s Office

  Putin began his political career in St. Petersburg in May 1990, as advisor to the City Council leader and then to Mayor Anatoliy Sobchak, and later as the deputy (and then first deputy) mayor under Sobchak. From June 28, 1991, to June 1996, he was also the chairman of the Committee for Foreign Liaison (KVS), responsible for encouraging, regulating, and licensing foreign investment in St. Petersburg and Russian investment through St. Petersburg abroad. This committee was uniquely positioned to regulate the movement of money, goods, and services into and out of Russia’s largest trading city, whose ports and rail and pipeline terminals controlled 20 percent of all Russian imports and exports.