Putin's Kleptocracy_Who Owns Russia?

by Karen Dawisha

  X. L’vov’s bank served as the preferred bank for most of the public institutions in St. Petersburg and was so successful that in 1993 it paid its shareholders over 1,000 percent dividends. L’vov became deputy minister of finance in the first Putin government.151 St. Petersburg governor and Putin ally Valentina Matvienko also had an interest in the bank when her son Sergey became vice president, despite his having been charged in 1994 with robbery and infliction of bodily harm (Criminal Case No. 187898).152

  XI. In 2005 Novaya gazeta came into possession of documents purporting to show that Tenex had set up a subsidiary in Germany for the purpose of representing Tenex interests in selling nuclear fuel and nuclear technology but also for the purpose of continuing to launder money.177

  XII. A further 5 percent of the PTK went to Viktor Khmarin, Putin’s close associate and friend, through the company Vita-X. Bigger stakes went to ZAO Petroleum (12 percent), affiliated with Gennadiy Petrov, and the Baltic Bunker Company (12 percent), which had links with Petrov, Traber, and Dmitriy Skigin, who was expelled from Monaco in 2000, according to police officials there, for links to the Tambov crime family.196

  XIII. Spanish prosecutors were said to have had incriminating evidence not only against Petrov but against two other St. Petersburg friends of Putin: Leonid Reyman, who became Putin’s first minister of communications, and Vladislav Reznik, who followed Putin to Moscow and became head of Rosgosstrakh (the Russian State Insurance Company) before being dismissed in 1998 for “violations committed in the course of the company’s privatization.”198 Putin nevertheless picked Reznik to be deputy chairman of United Russia, in charge of its economic program in 2001. Reznik was also picked to be the main author in 2006 of the law On Preventing Laundering of the Income from Criminal Activities and Financing of Terrorism.199

  XIV. Leading the investigation were Lieutenant Colonel Andrey Zykov, the senior investigator for particularly important cases of the Criminal Investigation Department of the Investigative Committee of the Ministry of Internal Affairs of the Russian Federation’s Northwest Federal District, based in St. Petersburg, and Oleg Kalinichenko, a senior operative officer in the St. Petersburg branch of the Anti-Corruption Department of the Ministry of Internal Affairs. Although these documents have not been made public, quite a lot of the information that fueled the investigation is available and has been the subject of journalistic investigations by both New Times and Novaya gazeta, as quoted in the text.

  XV. In addition to the charges against Putin, Zykov alleges that other Putin associates were under investigation. He claimed to have documents related to an apartment that Aleksey Kudrin, the deputy mayor and future minister of finance under Putin, purchased in Italy.215 The investigators evidently also made a request to the Central Bank of Russia (N 17/sch-8005) in connection with Case No. 144128, seeking information about Kudrin’s personal checking accounts and safety deposit boxes, but Novaya gazeta claimed that the request was rejected because data on Kudrin was “not relevant to the case under investigation.”216 German Gref, who became Putin’s minister of economic development, was alleged to have approved a contract for $470,000 to Twentieth Trust for renovating a one-thousand-square-meter building in St. Petersburg, with money going to firms in Germany, Finland, and the United States. Investigators stated that the work was never done.217

  XVI. The transcription of Zykov’s testimonials is available in Russian on the author’s Web page at www.miamioh.edu/havighurstcenter/putins-russia.

  XVII. Oleg Kharchenko was the head of the City Property Management Committee from 1991 to 2004 and rose to become the chief architect of the Sochi Olympic construction company Olympstroy. He and Putin were linked in the German-registered company SPAG. Also being investigated were Sergey Tarasevich (head of the Federal Migration Service’s St. Petersburg office), G. A. Filippova (head of the Housing Renewal Department), V. A. Dryakhlov (head of the Vasil’yevskiy Island Militia), Vladimir Yeremenko, a procurator (investigated for providing forged documents that retroactively registered apartments acquired for the main participants, including Putin and Sobchak), and Yuriy Kravtsov (chairman of the St. Petersburg Legislative Assembly and member of the Federation Council).242

  XVIII. The details were published in several sources, including a “documentary narrative” written as a thinly disguised fictional account by Andrey Evdokimov, which Investigator Zykov claims was based on inside knowledge of the criminal corruption scandals of the period.243

  XIX. Dresdner Bank, which had employed Matthias Warnig, was taken over by Commerzbank in 2009.

  XX. For example, at InfoCom-2002253 and BibliObraz—2007.254

  XXI. His subsequent writings from prison were restatements of these basic views, along with broader analyses of the basic forces shaping international politics, with long quotes from the discredited Protocols of the Elders of Zion. They certainly indicate that prison did nothing to soften his views of either Sobchak or Putin.258

  XXII. Koshelev’s efforts to publicize the wrongdoings of the Sobchak administration were the subject of journalist Andrey Evdokimov’s book Austrian Square.263 The factual correctness of Evdokimov’s book was affirmed by Petersburg procurator Andrey Zykov.264

  XXIII. Issues of the newspaper, which ceased to exist soon after, have disappeared from the Internet and from local, state, and university libraries in Russia, although individual copies are in the author’s possession and have been scanned into the author’s website at www.miamioh.edu/havighurstcenter/putins-russia.

  Chapter Four

  Putin in Moscow, 1996–1999

  PUTIN LEFT St. Petersburg for Moscow after Anatoliy Sobchak lost the May 1996 mayoral election to Vladimir Yakovlev, another first deputy mayor, whom Putin had publicly and unapologetically branded a “Judas” both during the campaign and subsequently.1 During much of the time he was in St. Petersburg, Putin was under investigation by the St. Petersburg legislature and the Procuracy for many of the activities previously discussed. The arrival on the political scene of an opponent only accelerated those investigations and added new ones, with the result that he would spend considerable effort over the next few years “controlling” the situation in his home city.

  While in St. Petersburg, Putin had become head of the local office of Our Home Is Russia, the first of many Kremlin “parties of power,” a post he held until June 1997, despite the fact that the party lost the 1995 Duma elections in Petersburg.2 He also worked for Yel’tsin’s reelection campaign, even while managing Sobchak’s failed campaign. A falling-out between Yel’tsin and Sobchak had created a conflict of interest of sorts for Putin and led some to believe that he had run a lackluster campaign for Sobchak on purpose. Nevertheless being on the losing side in these electoral campaigns evidently did nothing to strengthen his support for truly democratic elections, and thus when he decided to leave St. Petersburg and go to Moscow, he did not seek a position in the ruling party or Duma. Rather he sought a post that would allow his strengths to come to the fore, shaping events behind the scene.3 Why was Putin able to secure a series of key positions in Moscow beginning in 1996? Hill and Gaddy provide the answer: “The people who brought Vladimir Putin from St. Petersburg to Moscow never cared about his credentials as a specialist in developing business. For them he was an expert in controlling business. All the time Putin worked in St. Petersburg, he played an official role as deputy mayor and chairman of the Committee [for Foreign Liaison], but, behind the scenes, Mr. Putin operated in his most important identity—the Case Officer. In St. Petersburg, Vladimir Putin was an ‘operative.’ Businessmen were not partners but targets.”4 Putin demonstrated that it was he who would select those who would become and remain wealthy. Those who stood against him and his circle would face a very tough uphill battle. While Putin came to power in 2000 with the pledge to stop the oligarchs’ plundering of the Russian state, he had essentially been involved in the same kind of activity in St. Petersburg, as the Sal’ye Commission demonstrated. He and his circle
also used the state as a vehicle for their own vision and their own personal interests.

  While he may have left St. Petersburg physically, Putin certainly remained very involved in the politics of the city, not least because of the many close political associations he maintained and depended upon there. And of course he maintained his home in the Ozero Cooperative, north of St. Petersburg. The Russian press wrote that in 1996, when they interviewed St. Petersburg politicians and asked about Putin, who had just been offered a position in Moscow, “one could see concern and even horror in their eyes: ‘I will not say anything about him to the press.’ And after a moment of nervous silence they would add something totally frightening: ‘Please don’t write that I didn’t want to talk about Putin!’ ”5 Putin certainly continued to cast a long shadow in his native city, surrounded as he was by the St. Petersburg–based circle of ex-KGB politicians and friends who helped cement his political base as he rose to power. But it would also seem that he depended on those who remained in St. Petersburg to ensure that the activities he had been involved in during the early 1990s did not result in any successful criminal prosecutions.

  The year 1996 saw a lot of changes for Putin. His wife too started a new job, working in the office of Telecominvest, established by Putin’s friend and future minister of communications Leonid Reyman.6 Putin himself started work in Moscow in July. That same summer, in St. Petersburg, evidently while he was there on summer holiday in August, his dacha burned down, and several months later he, along with his closest friends, formally established the Ozero Cooperative. According to his own account, he was able to “force them [the sauna builders who had installed the faulty sauna oven that Putin claimed had caused the fire] to rebuild the house,” which they did, “and even better” than the original.7 Security for the Ozero Cooperative was said to have been provided by Rif-Security, a firm owned by Tambov head Vladimir Kumarin and Vladimir Smirnov.8

  Most of Putin’s closest circle would eventually find their way to Moscow, but the one person he took with him at the beginning was Igor Sechin. He noted in First Person, “I liked Sechin. When I moved to Moscow, he asked to go along. I took him.”9 Of all Putin’s lieutenants, Sechin was the one with the reputation for the greatest loyalty, a trait that Putin values above all. Sechin would rise with Putin, accompanying him at every stage, until becoming head of the world’s largest oil company, Rosneft, in 2012.

  The Presidential Property Management Department, July 1996–March 1997

  Putin’s first job in Moscow was as deputy head of the Presidential Property Management Department.10 He claims the PPMD wasn’t his first choice, that he wanted to work for Yel’tsin’s personal staff and had been offered the post of deputy chief of staff. But then fellow Petersburger Anatoliy Chubays became chief of staff and, evidently having grave doubts about Putin’s liberal credentials,I eliminated the position to avoid hiring Putin. Putin reports in First Person that Pavel Borodin, the head of the PPMD, had promised him this appointment, and when confronted with the fact that Putin was still waiting for the call, Borodin had retorted, “I didn’t drop [Putin]. It was our little pal Chubays who ruined it.”12

  The enmity expressed in this statement and repeated by Putin in First Person is symptomatic of the broader antagonism between the KGB elites and the liberal reformers. In one account of the early 1990s era of privatization, former KGB general Nikolay Leonov described Chubays as “the executioner of the [Soviet] economic system. To perform the role of executioner, special talents are required. One needs to be insensitive to others’ pain and have the ability to coolly perform these acts as prescribed by certain ideological doctrines or strangers’ recommendation.” In explaining why Chubays would be involved in this “execution,” Leonov put the blame squarely on Chubays’s Jewish roots: “Many researchers have noted that every work of destruction of the state is charged to non-indigenous nationalities. Their conscience is not bound to the genetic ties binding the titular nation [i.e., the Russians], they are alien to its history and spirituality.”13 Leonov concluded that “Boris Yel’tsin was wrong in predicting that Anatoly Chubays was the face of a new generation. No, this [new generation] has the face of another person—it is the face of Putin.”14 Thus for this older generation of KGB veterans who suffered a temporary setback when the August 1991 coup failed, Putin represented the culmination of their ideological, ethnic, and institutional desire for revanche.

  Hill and Gaddy underscore that it was the connection between Chubays, chief of Yel’tsin’s Presidential Administration, and Aleksey Kudrin, who was head of the Main Control Directorate at this point, that led to Putin’s placement in the PPMD, and Putin certainly concedes that Kudrin helped him obtain the position. But they point to a “confidential memorandum” Chubays wrote after the 1996 election, proposing not only that the Communist Party needed to be eliminated as a political force but that disloyal cadres needed to be removed from the Presidential Administration and replaced by liberal economists who were committed to privatization but willing to fight oligarchic rule. Chubays points a finger at the oligarchs who controlled most of Russia’s wealth, had weakened the state, were avoiding paying taxes, and had operated in a nontransparent fashion. Chubays turned to Kudrin: “Chubays’s memo specifically recommended bringing Kudrin in from St. Petersburg. It did not mention Vladimir Putin, but Putin nonetheless came along.”15

  Kudrin intervened for Putin with Chubays, but all Chubays would offer was a position as head of the Directorate for Public Liaison, the public relations arm of the Kremlin. In a clear if ironic understatement, given his career trajectory, the future president lamented, “That really wasn’t my cup of tea, but what could I do? If I had to work with the public, then I would work with the public.”16 He agreed to take the job, but then Kudrin was able to intervene with Prime Minister Viktor Chernomyrdin’s first deputy, Aleksey Bolshakov, who had been the first deputy of the Leningrad City Council’s executive committee.17 And so Borodin took Putin on personally in the PPMD. Kudrin’s role in helping Putin to improve his chances in Moscow and going to bat for him is typical of Putin’s career, as Viktor Talanov observes. Talanov was a member of the Leningrad and then St. Petersburg legislature and a trained psychologist and wrote a psychological study of Putin, whom he knew, in which he concluded that Putin had two key characteristics: a very high tolerance for risk and an ability to make close friendships with influential and forceful patrons who were able to “extract” (vytyanut’) him from any difficulties.18

  Kudrin became head of the Main Control Directorate (GKU), whose powers had been strengthened by a presidential decree (ukaz) on March 16, 1996, which gave the GKU logistical support, under Article 9, from the PPMD. While Chubays had not sought to appoint Putin, it was the tandem of Kudrin and Putin that strengthened the effectiveness of their work. Chubays himself became a victim of the oligarchs’ revenge when he was forced out of his leadership position in the Presidential Administration by a kompromat attack (a slanderous attack using real or faked compromising materials) involving the receipt of book advances alleged to be veiled bribes. This was the beginning of the Bankers War, and the beginning of the end for Chubays’s unimpeachable power.

  Putin and Borodin knew each other when Putin was St. Petersburg’s deputy mayor. In 1994 the PPMD was involved in expropriating a property that the Kremlin wanted for hosting foreign dignitaries at 6 Polovaya Alleya on Kamennyy Ostrov, an elite island housing summer dachas built by the tsars in St. Petersburg on the northernmost branch of the Neva River. The leaseholder of the mansion was a German national, Franz Sedelmayer, who lived in the house and also used it as the office of a U.S.-registered security firm, Kamennyy Ostrov Co. He established the U.S.-Russian joint stock company in 1991 with the St. Petersburg branch of the Ministry of Internal Affairs to provide security equipment and counterterrorist training for those guarding foreign diplomats and businessmen, especially in advance of the 1994 Goodwill Games.19 He claimed to have sunk $4 million into the business before Yel’tsin i
ssued a 1994 decree nationalizing the holdings without compensation, on the grounds that the company had not been properly registered in the first place. Sedelmayer turned to the U.S. consulate in St. Petersburg for help, and Consul General John Evans protested, “In every country there are occasions when the state needs to take private property for public use. We understand that. But it is an internationally recognized principle that when this happens there should be prompt and adequate compensation of the private party.”20 But neither the consulate nor the U.S. Embassy in Moscow was able to help. So Sedelmayer looked to Putin, who offered that the city could take over Sedelmayer’s share in the venture and assist in finding him an alternative space but could not compensate him for the expropriation. Together they wrote Borodin, “asking him to compensate us for our leasehold improvements for around $800,000. To our surprise, Borodin wrote back to us stating that the company had been established illegally, and thereby the Russian state had no duty to pay us any compensation.”21

  Sedelmayer had to leave the country, but he successfully sued Borodin and the Russian government in courts in Sweden and Germany and was awarded $2.3 million plus interest. When the Russian state, now headed by Putin, refused to pay, Sedelmayer sought to sequester Russian state property in both Sweden and Germany. The cases dragged on for more than twenty years22 until, in 2013–14, Sedelmayer was able to obtain the foreclosure and sale of Russian government properties in both countries, despite interference and threats of retaliation by the Russians.23 In the meantime, the St. Petersburg mayor’s office became partial owner of one of the most prestigious addresses in the country, which happened to be only steps away from the house used by Gennadiy Petrov.