In 2006, for example, the Financial Times published the following transcription of a videotaped conversation that took place in London’s Ritz Hotel, which was submitted in evidence to the U.K.’s Privy Council, where the British Virgin Islands case was on appeal. In it, Galmond is heard speaking to James Hatt, who had worked with Galmond and Reyman in St. Petersburg in the 1990s and now was working for Mikhayl Fridman, chairman of Alfa Group, who was trying to secure a 25 percent stake in the mobile phone company Megafon, linked to Reyman and IPOC. In the transcription, Hatt asks Galmond whether Mr. Reyman wants a settlement with Fridman and Alfa, to which Galmond replies, “He doesn’t want fucking Alfa in Megafon. That’s it. And if Fridman doesn’t understand the music he should have a word with Mr. Khodorkovskiy, and he should have a word with Mr. [Vladimir] Potanin and he should have a word with some of the other guys sitting outside Russia. One who owns a football club [Roman Abramovich] and another who is sitting in Marbella enjoying the sun [Vladimir Gusinskiy], not coming back to Russia and another one sitting here in London playing the political clown [Boris Berezovskiy]. Fridman and Potanin are the last two oligarchs in place and if they don’t understand the music, then they will have to face the music. They don’t want Alfa in Megafon.” Hatt tries to sum up: “So my question to Uncle Leonid [Reyman] is very simple: do you want me to take Alfa’s money?” To which Galmond replies, “No, I simply, we don’t. Neither Leonid nor I want you to take Alfa’s money.” Galmond subsequently maintained that his references to Reyman in this conversation were to the minister as a regulator of the industry, not as a beneficial owner of IPOC. He did concede that Reyman was named as the primary beneficiary of a Liechtenstein trust that held a stake in First National Holdings, which in turn held the Telecominvest shares, from 1997.255
While initially Reyman’s activities offshore were not prosecuted in Germany because they had not violated Russian law, in 2009 the German Supreme Court ruled that it had the right to pursue cases if crimes were committed on German soil, and the cases against Reyman were reopened. This move clearly indicated that Russian officials could not avoid the risk of being prosecuted for money laundering even when using offshore accounts. Vadim Volkov of the European University in St. Petersburg commented, “Obviously, this story could become a precedent. . . . Officials and businessmen who built their companies on dubious schemes are not immune from prosecution of law enforcement officers from other countries.”256
The Reyman case is only one of many cases of Russian political leaders close to Putin accused of corruption. This includes not only businessmen around him, from his Ozero circle, for example, but also ministers in his government, like Reyman. Yet even those who are pursued by international courts for corruption rarely, if ever, are extradited or prosecuted in Russia. Nor do they fall from Putin’s favor. On the contrary, those who were accused of corruption in St. Petersburg in the 1990s went on to spectacularly successful careers as recipients of state contracts once Putin became president.
Why Focus on Putin’s Corruption?
In the West it might seem remarkable that anyone whose whole career is marked by allegations of corruption should rise to become a three-term president of any country. In Russia it is less surprising. Russia of the 1990s was awash with criminal activity, and elites were barely separate from the mafia underworld. Putin, who was always known in St. Petersburg as the person who could get things done, had a practical approach to the criminal world. The mafia and the KGB had always had points of intersection and conflict—the 1990s were no different, and the mafia had its uses. It was global, it could move money, it could hide money, and in any case, some of that money would come back to St. Petersburg for investment.
So how did Putin operate? First and foremost, he made illegal activity legal. On the surface there is nothing wrong with this, except that the banker in the West who knowingly launders drug money is as guilty of a felony as the drug cartel that supplied his bank with the cash. Additionally Putin was not even-handed: he controlled who got access, and he had strong views about giving his friends market share and pushing his enemies from the scene. He certainly favored joint ventures with the state, in the form of his Committee for Foreign Liaison or other committees of the St. Petersburg mayor’s office, from the beginning. He was also vengeful: those who criticized him or his patron Sobchak did not, to put it mildly, get career advancement. Some examples:
1. Yuriy Shutov was an early assistant to Sobchak who saw the first shoots of corruption in the mayor’s office in 1990. He wrote about Sobchak in the most negative terms in a 1991 book that made him an early target for dismissal.257, XXI He also charged that Putin had used compromising material on Sobchak to obtain and maintain his positions.259 Shutov was arrested a number of times and remains imprisoned in 2014, despite successful appeals to the European Court of Human Rights.
2. Pavel Koshelev, a KGB colonel from Leningrad, had gone to school with Putin, had written a recommendation for him to enter the KGB,260 and was Putin’s judo partner in the KGB. While this would have been a perfect beginning to a successful career, he leveled a number of corruption charges against Sobchak and his team in the mid-1990s and was dismissed, only to be rehired by Mayor Yakovlev in the Petrograd district of St. Petersburg in 1996. He declared, “My first job will be to locate the money taken out of the Petrograd budget by the city administration,” referring to $250,000 he alleges disappeared rather than being used for restoration of the Petrograd district’s Austrian Square.261 Koshelev stated that after his dismissal he started to receive threatening phone calls. He gave friends a dossier incriminating Sobchak, instructing them to publicize it in the event of his death.262, XXII
3. On August 24, 1998, the journalist Anatoliy Levin-Utkin was beaten to death outside his apartment. He had worked as deputy editor for the newly established newspaper Yuridicheskiy Peterburg Segodnya. After his death, during which the documents and photos inside his briefcase were stolen, journalists investigated and publicized his stories. He had written an article on Putin’s activities as chairman of the KVS, his connections to Sobchak, and his participation in getting Sobchak abroad, all of this leading to an article in the next issue entitled “Vladimir Putin Became Head of the FSB Illegally.” The article provides a picture of Putin as a rank careerist from his KGB days onward who used KGB methods to suppress market competition in Petersburg.265 Evidently after this article appeared, “Putin’s people had called the newspaper and were very upset.”266 The editor of Yuridicheskiy Peterburg Segodnya, Aleksey Domnin, gave a news conference in which he said, according to the accounts, that “Levin-Utkin’s murder could be connected with stories the paper had run about the State Customs Committee, Bank Rossiiskiy Kredit and St. Petersburg native Vladimir Putin, who was recently appointed head of the Federal Security Service, the KGB’s main successor agency. ‘People from the northwestern customs department and from Bank Rossiiskiy Kredit called us and demanded that we reveal the sources and the authors of the articles,’ Domnin said. He also said that ‘Putin’s friends,’ whom he refused to name, met with him after the second issue of the paper came out. Domnin said ‘the meeting was of an obviously political nature.’ ”267 A car carrying the last issue (no. 3) that Levin-Utkin had worked on was detained by the militia under false pretenses, according to the Moscow-based Committee for Journalism in Extreme Situations.268, XXIII Soon afterward the newspaper stopped publishing altogether.
Mancur Olson writes that over time in emerging democracies, the rule of law will be established by those entrepreneurs who no longer want to use violence and absorb its costs.269 Clearly in St. Petersburg and in Russia as a whole, entrepreneurs fought to capture and maintain market share. Putin could have legitimized this by using his legal position to allow the market itself to decide who would win and who would lose. Instead he hired private security to decide who would get market share. Despite his training as a lawyer, he eschewed transparency and legal norms to make it clear that he himself could make or break a transaction. F
rom the very beginning he promoted ex-KGB officials, cooperated with mafia interests, and worked in a style that was reminiscent of the Soviet era and not called for in the Yel’tsin period. The chair of the St. Petersburg legislature, Aleksandr Belyayev, tried other methods to rein in Putin’s behavior as head of the KVS, but largely failed. He accused Putin of using KGB methods in running his office, spying on contacts and rival elites not to help Russian firms but to help his own friends, including foreign business partners.270
Sadly left unexplored by investigators was the evidence of significant Russian involvement in money laundering, including documents, according to Der Spiegel, showing that from 1993 to 1998 huge amounts of gold from St. Petersburg were melted down in Lugano, Switzerland, each year.271
Oleg Kalugin, the KGB general who denounced the failure of that organization to reform after the fall of the USSR, had been a senior officer in Leningrad with a rank above Putin’s. Kalugin subsequently left the country and settled in the United States, prompting Putin, in First Person, to call him a “traitor.”272 This produced a blistering open letter from Kalugin with the following passage: “If I were of your frame of mind, I could very well brand you as a thief, bribe-taker and even war criminal, the more so as you have left behind in Leningrad a foul smell of corruption, and some of your former associates are now on the run outside Russia’s borders.”273
When Russia was placed on the Financial Action Task Force (FATF) black list of states involved in money laundering,274 it was widely stated that one of the reasons the action had been taken was Putin’s clear involvement in SPAG. However, in truth, SPAG was a typical, not exceptional, example of Russia’s general pattern of noncompliance. The broader claims against Russia are a litany of challenges the country faced in 2000, as Yel’tsin’s era gave way to Putin’s. Yet in 1996, as Putin made his way toward Moscow, it is clear that the general features the FATF identified certainly applied to his own behavior while in St. Petersburg:
• Absence of or ineffective regulations and supervision for all financial institutions.
• Existence of anonymous accounts or accounts in obviously fictitious names.
• Absence of an efficient mandatory system for reporting suspicious or unusual transactions to a competent authority.
• Lack of monitoring and criminal or administrative sanctions in respect to the obligation to report suspicious or unusual transactions.
• Obvious unwillingness to respond constructively to requests.
• Inadequate or corrupt professional staff in either governmental, judicial or supervisory authorities.
• Lack of a centralized unit or of an equivalent mechanism for the collection, analysis, and dissemination of suspicious transactions information to competent authorities.275
In considering the balance of Putin’s contribution to the transition to democracy in St. Petersburg, it is worth noting that he, and he alone, was responsible for regulating foreign economic activity into and out of Russia’s “window to the West.” All accounts of Putin in this period, whether favorable or critical, agree that he was the “gray cardinal” who ran the mayor’s office. He represented a unique vortex of power, drawing everything toward him in this otherwise turbulent period. The city’s geographic situation on the Gulf of Finland and its talented population could have combined to make St. Petersburg a leader among Russian cities in relations with the outside world. And yet, based on calculations made by Hill and Gaddy, in St. Petersburg during this period, “on a per capita basis, foreign trade was 26 percent of Moscow’s, foreign investment was 55 percent, the number of small businesses set up with foreign participation was 38 percent, and the number of people employed by foreign-owned small businesses was 30 percent of the capital’s.”276 Putin’s style was a failure for the city because it suppressed initiative. But it was a victory for his clan. He would now bring that style and set of priorities to the country at large as he moved to Moscow.
* * *
I. The journalist Vladimir Ivanidze was working in 2000 for Vedomosti and tried, unsuccessfully, to get his editor to publish an exposé on Putin’s role in the St. Petersburg food scandal, which he thought showed Putin’s early involvement in corruption. He eventually left the country, writing from Paris. The allegations in Ivanidze’s original 2000 article were taken up by Oleg Lur’ye in Novaya gazeta.10
II. Western businessmen also reported being asked directly by Putin for a 25 percent commission, including an American firm that was permitted to donate free butter to the city of St. Petersburg only if it allowed the city to take 25 percent off the top, and it was Putin who did the asking, according to the American Richard Torrence, who worked as an advisor to Sobchak for International Projects at the time.26
III. A subsequent investigation by the Russian weekly Ogonek claimed that Timchenko began work in Leningrad’s branch of the Ministry of Foreign Trade in 1982, not 1985, but doesn’t suggest that Timchenko and Putin met each other until the early 1990s.
IV. Yuriy Koval’chuk’s brother, Mikhayl, was a physicist from the prestigious Ioffe Institute of Physics and Technology who, beginning in 2001, served as the Kremlin’s scientific secretary of the Council for Science and High Technologies. In 2007 he was appointed acting vice president of the Russian Academy of Sciences for Nanotechnology and was made a corresponding (not full) member of the RAS. The RAS Charter states that vice presidents must be full members, but in 2008 RAS members rejected his application for full membership, so he remained an acting VP.57 In 2013, having failed to pressure the RAS to promote Koval’chuk, the Duma passed a law handed down by the Kremlin, stating that henceforth all corresponding members would now be listed as full members. In addition RAS institutes’ control over their own property was transferred to a newly created government agency, a move regarded by some as a “personal vendetta” by Putin in defense of Koval’chuk.58
V. Aven left the government in 1994 and has risen to be first president and then chairman of the board of Russia’s largest private bank, Alfa-Bank. In 2014 Forbes estimated his net worth as $6.2 billion.87 As for Boldyrev, who had been a key democrat in the early 1990s and an initial ally of Sobchak, he lost his position in the Main Control Directorate of the Presidential Administration and went on to fight against corruption as a member of the Federation Council and a member of the Federal Audit Chamber. He became a founding member of the liberal Yabloko Party and fell out with Sobchak after 1993. Despite the fact that he represented St. Petersburg, by his own testimony Sobchak and Putin worked against him: “In 1994–5 when I was one of two representatives of St. Petersburg in the Federation Council, I never got the chance to speak live on St. Petersburg television.”88
VI. Valeriy Golubev reportedly served in the Leningrad KGB with Putin, who made him head of the Secretariat of the Mayor’s Office in July 1991, and then head of the Vasil’yevskiy Island district administration in April 1993. In that capacity Golubev assisted in obtaining for Putin an apartment—on the 2nd line, Building 17, apt. no. 24—on this island.95 He became a member of the Federation Council in 2002 and in 2003 a member of the Management Committee of Gazprom, then deputy chairman of its governing board96 and director general of Gazkomplektimpex.97
VII. Sergey Yushenkov believed that Putin was the one person who would have benefited personally from the apartment bombings in summer 1999 that marked the beginning of his ascent to the presidency,105 and it was reported by Izvestiya after his death that he frequently urged reporters to write about the involvement of “power structures” in the bombings, saying, “It’s all obvious, but no one will write about it.”106 Anti-Putin sources—including Anna Politkovskaya, Boris Berezovskiy, Aleksandr Litvinenko, and Chechen separatist groups—alleged that Yushenkov received information shortly before his death linking the FSB to the attack by Chechens on the Dubrovka musical theater complex in Moscow.107
VIII. Olesia Yakhno’s article, on which this information is based, is well-informed, at least partly because she was the wife of
Stanislav Belkovskiy, the director of the National Strategy Institute, who most notably led a campaign against Mikhayl Khodorkovskiy in the early 2000s, prior to the latter’s arrest for fraud. He also revealed details of the relationship between Putin and the oligarchs, including the alleged extent of Putin’s own personal wealth, which in 2007 Belkovskiy claimed included 37 percent of the shares in Surgutneftegaz and 4.5 percent of Gazprom.119
IX. Kinishi invested in a joint stock company with Petrov called Petrodin, which sold the gaming slots to the casinos in St. Petersburg. In 2012 he gave a very respectful interview in which he fondly remembered Putin’s efforts to control gambling and prevent the overt violence that had so scared Kinishi that he started to carry a pistol when he went to St. Petersburg. He recounts his many visits to the house and hotel controlled by Petrov on Kamennyy Ostrov (Stone Island, Pervaya Berezovaya Alleya, 7): “The house was in a posh address. . . . Putin also had a building nearby. Gena [Gennadiy] was there every day. Each day there were people outside the gate waiting to meet with Gena. It was like in a movie about the mafia. Security guards with Kalashnikovs opened the gate and closely examined who came in. A boss from another region arrives to talk to Gena and must wait his turn. Gena is sitting there every morning. He often said to me: ‘Kinishi, I’m so tired of this, people talk to me about their problems, and I sometimes just do not have time to deal with these problems.’ . . . In 1991, men with assault rifles stood at the subways and shopping centers, and we made good money. In 1992, authorities make a very large step toward legalizing casinos. Doors were open. And when the exhibition of equipment was hosted, Putin spoke to us and said ‘Welcome to foreign investors.’ After the exhibition we had evening cocktails at the house on Stone Island. Not in our building, but very close. Literally steps away.” In 1992 the house on Stone Island was taken over by a group of ex-KGB operatives who were moving into the casino business themselves. Both Petrov and members of the Malyshev gang had to leave St. Petersburg temporarily.129
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