In acting on the results of the investigative report by the Sal’ye Commission, the St. Petersburg City Council could not have been clearer in assigning blame and suggesting remediation. In a paragraph that Investigator Andrey Zykov was subsequently to call “the control shot to the head,”78 the Council recommended that the documents be turned over to the Procurator General’s Office for prosecution: Putin was accused of “showing complete incompetence, bordering on bad faith in drafting contracts . . . and an unprecedented negligence and irresponsibility in the submission of documents to the parliamentary group.”79 The Council recommended that Putin and his deputy be “removed from their posts”80 and that the “right of the Committee for Foreign Liaison to conduct business be withdrawn.”81 Procurator Vladimir Yeremenko sent a representation to the mayor proposing that he start an investigation of “the Committee for Foreign Liaison’s improperly drawn-up contracts and false registration of some licenses.”82
The report was passed on to Moscow, to fellow Petersburger and corruption crusader Yuriy Boldyrev, chief of the Main Control Directorate of the Presidential Administration, who investigated the matter. He issued a statement on March 31, 1992: “The Main Control Directorate has received documents from St. Petersburg city council representatives attesting to the necessity of removing the head of the city’s Committee for Foreign Liaison Vladimir Vladimirovich Putin from his post. I request that the question of appointing him to any other post not be raised before the Main Control Directorate reaches its final decision regarding this issue.”83 He called to Moscow Sobchak and all his deputies, including Putin, and they wrote down their version of events. Boldyrev recalled, “There were enough material facts that checked out.”84 He requested of Minister of Foreign Economic Relations Pyotr Aven, who had already reinstated Putin’s right to issue licenses, that Putin not be given any further authority until the case was finally settled.85 As part of the investigation, Yel’tsin’s federal representative to the St. Petersburg and Leningrad oblast’ was asked to assist. Boldyrev also requested documents from Putin and his KVS and found the level of cooperation so lacking that he wrote Putin on February 12, 1992, “I have been sent documents that are incomplete, and are not relevant to my request to the point that it is not possible to draw any conclusions. I was not even sent a copy of the licenses or copies of the contracts, which should be at least thirteen. I have been delivered only two documents, one of which is in Finnish, which at the very least is unjust on your part. I demand the presentation of a full set of documents by February 17.”86 Boldyrev also reported the entire case to Yel’tsin, who, like Minister of Foreign Economic Relations Pyotr Aven, ultimately did nothing.V
No one was able to unseat Putin or oblige Mayor Sobchak to discipline his own deputy. The local procurator general also declined to take up the case. The KVS continued to function as before, and even after Putin was promoted to first deputy mayor in March 1994, he held on to his function as chairman of this committee. The Council’s report asked Sobchak to consider the position of both Putin and Putin’s deputy, Aleksandr Anikin. In response Sobchak didn’t fire Putin, but Anikin did lose his job. Anikin’s own deputy, Aleksey Miller, was promoted to take his place.89 In 2000 Putin would appoint Miller as deputy minister of energy, and then in 2001 as head of Gazprom, a position in which he was widely reported to have acquired vast wealth.90
While Putin temporarily lost the right to grant contracts, this authority was once again reinstated by Minister Aven later in 1992.91 Once he regained his authority, he granted licenses to those, like Vladimir Yakunin and Andrey Fursenko, with whom he would ultimately be associated as co-owners of the Ozero Cooperative.92 Yel’tsin disbanded the national legislature in October 1993, and the local legislature in St. Petersburg, which was elected to serve until 1995, was also disbanded when Sobchak had Yel’tsin sign a decree dissolving it, leaving the city without a counterbalance to the mayor’s office until a legislature was finally seated in the fall of 1994. Sal’ye and the other deputies had to either run again for the new assembly, over which the mayor now had tremendous powers (mirroring the national situation under the new presidential system), or find other work—and in any case already by this time the legislature had been limited to one meeting on Wednesday afternoons, with the mayor’s office providing only the most scant information, like budgets of only two to three pages.93
Despite the investigations that swirled around him, Putin was promoted to first deputy mayor in March 1994, only fueling the view that Sobchak was also involved in this corrupt business. Indeed Sobchak was implicated in handing out apartments on Vasil’yevskiy Island to his friends and family, including Putin. Around this time Putin’s address changed to the one that would be listed as his personal address on the document establishing the Ozero Cooperative.94 Andrey Zykov, a lead investigator in the case against Sobchak and Putin (Criminal Case No. 18/238278–95), subsequently stated quite categorically that the procurator’s
dossier had material on the purchase of Putin’s apartments on the 2nd “line” of Vasil’yevskiy Island in St. Petersburg. In 1993, the City had resettled and refurbished some apartments there, and it turned out that Putin, then the deputy mayor, had the desire to live in that neighborhood. So a scheme was hatched. A joint stock company called Liniks owned some apartments in Vsevolozhsk, it’s not clear how. The Head of the administration for the Vasileostrovskiy District, Valeriy Golubev,VI proposed that these apartments be exchanged for the ones on Vasil’yevskiy. . . . The settlement of this issue could not be achieved without a scandal . . . and it took the personal intervention of Mayor Anatoliy Sobchak. At market prices this was a decidedly unequal exchange as the flats on Vasil’yevskiy Island were much more expensive than apartments in Vsevolozhsk. The units were then distributed to Golubev [and others], and apartment 24 in building 17 on Second Line Avenue went to Putin.98
After his electoral loss in 1996, Sobchak was charged by the procurator general with corruption for his role in this apartment exchange, and he had to flee the country in an operation widely reported as masterminded by Putin. Thus getting Sobchak out of the country not only saved the former mayor but also protected those, like Putin, about whom there was a lot of incriminating information. As Sal’ye stated, “Before, Putin was under Sobchak’s protection, and now Sobchak was under Putin’s protection [krysha].”99
When Putin went to Moscow in 1996, one of the first positions he took was in the Main Control Directorate, where he would have had access to all the documents that Boldyrev and others had gathered. Boldyrev had been one of the original founders of the Yabloko Party, and it is worth considering that Putin’s particularly harsh treatment of Yabloko has stemmed from their leader’s early involvement in investigating his corruption.
Marina Sal’ye continued to follow Putin and to seek his removal. In 2000, just as Putin became acting president, the opposition and international media got wind of this long-forgotten episode and began to publicize it widely. In an interview with the London Sunday Times in 2000, Sal’ye once again summarized what her commission had uncovered:100 “When we compared the original contracts with the table [Putin] had first given us we discovered a discrepancy of $11m which he had tried to conceal. To this day we have no idea what happened to that sum.”101 The contract with Dzhikop alone deprived the city of $7 million in potential earnings. “Most of the contracts signed were fraudulent,” Sal’ye asserted. “The companies were highly dubious; the contracts were riddled with mistakes, fictitious sums and irregularities that meant in practice they were legally non-binding. Millions of dollars [an estimated $92 million] were earned, and millions of dollars vanished. Whereto remains a mystery.”102 Sal’ye summed up the operation and Putin’s ambition this way: “The whole point of the operation was the following: Cook up a legally defective contract with a person, take a license to the Customs Office, on the basis of this license open the border and send the goods abroad, sell the goods and put the money in your pocket. That is what happened. It was therefore not
put out to tender. They needed their ‘partners,’ ‘partners’ of the shadow economy, criminal and mafia structures, front companies that could ensure this ambitious scam. These were Putin’s ‘partners.’ He chose them himself and that’s why his daily lamentations about the disappearing firms deserve nothing but contempt.”103 She claims that in 2000 she went to the Moscow offices of State Duma deputy Sergey Nikolayevich Yushenkov (who was an ex-military man, member of the Liberal Russia Party, and head of the Duma’s defense committee for a time), with whom she was going to cooperate politically. Standing behind Yushenkov, obviously uninvited, there was another person: “I saw a person there who I didn’t want to see any time, any place, under any circumstances. I’m not going to reveal his name. But I then understood it was time to go. And Sergey Nikolayevich was soon killed.”104, VII
As for Putin’s own view of the earliest period in his political career, he has a very different take. In his autobiography, First Person, he relates the following exchange with three journalists, answering their questions in ways that are often at odds with the documented facts:
Much has been written in the St. Petersburg press about the food delivery scandal. What was that?
In 1992, there was a food crisis in the country. . . . Our businessmen presented us with a scheme: if they were allowed to sell goods—mainly raw materials—abroad, they would deliver food to Russia. We had no other options. So the Committee for Foreign Liaison, which I headed, agreed to their offer. We obtained permission from the head of the government and signed the relevant contracts. The firms filled out all the necessary paperwork, obtained export licenses, and began exporting raw materials. The customs agency would not have let anything out of the country without the correct paperwork and accompanying documents. At the same time, a lot of people were saying that they were exporting certain rare earth metals. Not a single gram of any metal was exported. Anything that needed special permission was not passed through customs.
The scheme began to work. However, some of the firms did not uphold the main condition of the contract—they didn’t deliver food from abroad, or at least they didn’t import full loads. They reneged on their commitments to the city.
A deputies’ commission was created, headed by Marina Sal’ye, who conducted a special investigation.
No, there wasn’t any real investigation. How could there be? There was no criminal offense.
Then where does this whole corruption story come from?
I think that some of the deputies exploited this story in order to pressure Sobchak into firing me.
Why?
For being a former KGB agent. Although they probably had other motives too. Some of the deputies wanted to make money off those deals, and they wound up with nothing but a meddlesome KGB agent. . . . I think the city didn’t do everything it could have done. They should have worked more closely with law enforcement agencies. But it would have been pointless to take the exploiters to court—they would have dissolved immediately and stopped exporting goods. . . . You have to understand: we weren’t involved in trade. The Committee for Foreign Liaison did not trade in anything itself. . . .
But the granting of licenses?
We did not have the right to grant licenses. That’s just it: A division of the Ministry for Foreign Economic Relations issued the licenses. They were a federal structure and had nothing to do with the municipal administration.108
These statements are simply factually incorrect: the Sal’ye Commission certainly did exist, it did report, it did censure Putin by name, recommend his removal, and recommend that the matter be handed over to the Procuracy. The St. Petersburg legislature concurred and also called on Sobchak to remove Putin. The matter went all the way to Moscow, where the chief of the Main Control Directorate, Boldyrev, also specifically recommended that Putin’s KVS not be allowed to work until the investigation was completed. This was not a small matter, nor was Putin “just like” everyone else at that time. Putin was given permission to issue licenses and contracts, and his personal signature is on many of the deals. His KVS made over $34 million in commissions alone for just the licenses and contracts he submitted to the parliamentary commission. This figure is reliably estimated to be about one-tenth of the total amount of business the KVS licensed during this period; this figure also excludes the income from those businesses, including gambling, in which the KVS owned a share of the company.
Moreover Putin was not a victim of the wiles and whims of anonymous businessmen. Among those with whom he signed the first agreements were his personal friends and acquaintances: Rahimov, Warnig, Timchenko, and Smirnov. The gap between the documents of the case and Putin’s account brilliantly demonstrates his ability to deflect criticism, to admit that something happened but that he was on the sidelines, or even himself a victim of others’ venal or politically motivated actions. Additionally, despite what must have been a huge effort to find concrete evidence of Putin’s own bribe taking, there is none. Any cuts Putin took, any favors he received in return for favors he gave were not documented, did not occur in Russia, or were “commissions” for the Mayor’s Contingency Fund. If he is the owner or partial owner of any of these companies, they must be registered abroad, not in Russia. This Teflon ability to deflect criticism and to not give his critics an easy win with evidence of bribe taking would stand him in good stead throughout his career.
As for Sal’ye, she went into hiding in 2000, spending over ten years living in a remote settlement of twenty-five dachas on the border with Latvia. She reemerged only in 2010 to give a series of interviews in a desperate attempt to prevent Putin from running for a third presidential term. In an interview with Radio Free Europe, she stated, “Putin wrote in his book and I almost quote: ‘There were not any licenses at all.’ But I have everything in my files. [After a pause] They’re going to kill me.”109 Following the demonstrations to protest the theft of the 2011 Duma elections, she joined the protest rallies in St. Petersburg in February 2012 and announced she would work with the anti-Putin and anticorruption Party of National Freedom, led by Boris Nemtsov, Vladimir Milov, Vladimir Ryzhkov, and others. But on March 21, 2012, she died of a massive coronary at the age of seventy-seven. Critically, four days after her death, unnamed supporters exercised her “nuclear option” by uploading all of the documents, including all those cited above, onto her public Facebook page.110 Based on the evidence provided in those documents, it is impossible to avoid the conclusion that Putin was directly involved in the food scandal. The public investigations at the time that resulted in the St. Petersburg legislature censuring him, recommending his removal, and advising the mayor to forward the case to prosecutors for criminal prosecution showed his culpability. Putin’s subsequent denial of the evidentiary basis of these acts, saying “there wasn’t any real investigation,”111 represented a massive cover-up.
Putin, the Gambling Industry, Organized Crime, and Baltik-Eskort
Not only was Putin involved in licensing all foreign economic activity, but beginning on December 24, 1991, by Order No. 753-r of Mayor Sobchak, he was made head of the supervisory council overseeing the entire gambling industry in St. Petersburg. He was given the authority to license all activities, to allocate city property for casinos, to work with tax collection agencies, and to oversee compliance.112 In public he adopted a tough no-nonsense approach to criminality. Speaking at a public meeting in 1991, he threatened, “If criminals attack the authorities, there must be an appropriate punishment. It’s the duty of the militia to be severe and even cruel if necessary. It is the only way to reduce criminality, the only way. We hope to eliminate ten criminals for each officer killed, within the law of course.”113 In his book First Person Putin writes:
At that time we were trying to bring order to the gambling business in St. Petersburg. . . . We created a municipal enterprise that did not own any casinos but controlled 51 percent of the stock of the gaming businesses in the city. Various representatives of the basic oversight organizations—the FSB, the tax p
olice, and the tax inspectorate—were assigned to supervise this enterprise. The basic idea was that the state, as a stockholder, would receive dividends from its 51 percent of the stock. In fact, this was a mistake, because you can own tons of stock and still not really control something. All the money coming from the tables was cash and could be diverted. The casino owners showed us only losses on the books. While we were counting up the profits and deciding where to allocate the funds—to develop the city’s businesses or support the social sector—they were laughing at us and showing us their losses. Ours was a classic mistake made by people encountering the free market for the first time. Later, particularly during Anatoliy Sobchak’s 1996 election campaign, our political opponents tried to find something criminal in our actions and accuse us of corruption.114
But how did the city become a majority owner in the gaming industry in St. Petersburg? Putin, the head of the Committee for Foreign Liaison, turned to the legal advisor to the committee, Dmitriy Medvedev, who reportedly came up with the formula: “by relinquishing the right to collect rent for the facilities that the casinos occupied,” the city could claim 51 percent ownership of all gambling activity. They did this by establishing a joint stock company called Neva Chance,115 which was officially housed at the same address as Putin’s KVS—6 Antonenko Pereulok (lane).116 Neva Chance went on to create over twenty-five different companies, all in the gambling industry and many of them headed by ex-FSB officials, including Valeriy Polomarchuk, who later became the representative in St. Petersburg of Lukoil.117 Also alleged to have been involved was Roman Tsepov, a former officer in the Ministry of Internal Affairs, who cofounded with Viktor Zolotov the private security company Baltik-Eskort.118, VIII
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