Good Cop/Bad Cop

At this point Putin was still a relatively minor player in Kremlin affairs and may not have even met Tatiana, although he had interacted with Iumashev, who replaced Chubais as chief of staff when the latter became first deputy prime minister in March 1997. Chubais selected fellow St. Petersburger Aleksei Kudrin as deputy minister of finance to serve under him, which left vacant Kudrin’s position as head of the Main Control Directorate (GKU). Kudrin, who would eventually be referred to as “the personal accountant of the president,” recommended to Iumashev that Putin be his replacement. Putin portrayed the move as a welcome change, although he had been working under Borodin for only seven months. He told Kudrin that he found the job boring: “It was not my thing. It was not lively work in comparison with what I had done in Petersburg. Yes, Petersburg was not the center, not the capital, but the work there was of a different quality, more energetic.”⁶ Putin may also have had an inkling that Borodin was headed for trouble.

Putin’s past employment in the KGB proved useful in his new post. The GKU was the government’s financial watchdog, tasked with oversight of business sectors and government bodies to ensure that malfeasance was not occurring with state funds. This meant that the GKU had access to vast amounts of sensitive financial information, which it was authorized to pass on to law enforcement officials and prosecutors. Putin became a point man between the Kremlin and the security and law enforcement bodies. In May 1997, Putin told journalist Elena Tregubova that Yeltsin had given his office a mandate to fight corruption in the Ministry of Defense and large state-owned enterprises and agencies. Special teams of employees from the GKU, the FSB, MVD, and Ministry of Finance were scrutinizing the budgets of these powerful bodies for possible corruption.⁷

Putin tackled his new job with apparent zeal. Within two months he had examined the budgets of a third of the country’s eighty-nine regions and republics and charged 260 officials with infractions. By the next September, he had disciplined 450 officials for budgetary abuse. But, as Myers noted, he was careful not to step on toes: “Putin learned quickly that service in the Kremlin required delicacy and discretion in interpreting how far to take his investigations.”⁸ Thus Putin covered up a scandal involving the notoriously corrupt former defense minister Pavel Grachev (known as Pasha Mercedes), who was accused of complicity in the illegal transfer of weaponry, because Grachev knew too many Kremlin secrets.

Nemtsov recalled that Putin once sent him information suggesting that there was corruption among people working for Chubais and ended with the comment “I report at your discretion.” Nemtsov telephoned Putin: “You wrote that Chubais is a thief, and everyone around him is a swindler. In that case, you should have concluded ‘I think that it is necessary to initiate criminal proceedings.’ Instead, I see a strange phrase: ‘I report at your discretion.’ What am I to make of this?” Putin responded without a pause: “You are the boss, you decide.” “A classic example of the behavior of a security officer,” Nemtsov concluded. “In general, he was not noted for anything scandalous, but he did not manage to do anything outstanding either.”⁹ In fact, Putin seems to have wisely grasped that such cautious behavior was the only way to survive—and get ahead—in the highly dysfunctional and unpredictable Kremlin. Such wisdom eluded the mercurial Berezovsky.

Putin’s seeming cautiousness did not mean that he lacked ambition. Quite the contrary. He had already decided that, in keeping up with other members of the Kremlin elite, he needed to finally get a higher degree. Putin says in his autobiography that in 1990 he began work on a dissertation at LSU, when he was still employed by the KGB: “I chose a topic in the field of international private law and began to draft an outline for my work.”¹⁰ But nothing came of it. Then, suddenly, in 1997 he produced a 218-page dissertation, titled “Strategic Planning of the Reproduction of the Mineral Resource Base of a Region under Conditions of the Formation of Market Relations: St. Petersburg and Leningrad Region” and was awarded a candidate of economic science degree (slightly lower academically than a US PhD) by the St. Petersburg Mining Institute.¹¹

How could Putin, who never attended the Mining Institute, have found time to do the required research and writing on this completely new subject? According to Olga Litvinenko, the daughter of Vladimir Litvinenko, who was rector of the Mining Institute, her father wrote Putin’s dissertation. The production of dissertations was a lucrative business, she said, which Vladimir Litvinenko and other faculty members used to supplement their modest salaries. The standard price for a candidate’s thesis was around thirty thousand euros, but Putin had helped her father get his position as rector in 1994, so he may not have been charged. Olga, who later became estranged from her father, claimed that she was with him at their dacha when he put together Putin’s dissertation during the summer of 1997. She recalled that he brought a photocopier to the dacha and spent most of the time copying pages from books and cutting and pasting them onto blank A4 sheets, occasionally adding his written commentary. Putin did not make an appearance at the dacha to see how things were going, but he did show up to successfully defend his dissertation after being given prepared remarks.¹²

Several of those who worked with Putin in Sobchak’s office also received higher degrees from the Mining Institute. Among them was Igor Sechin, who would eventually serve as Putin’s top advisor when the latter became president. A former intelligence officer, Sechin was educated as a philologist specializing in French and Portuguese, but he wrote his 1998 dissertation on the economics of oil pipelines. (He later became head of the Russian oil company Rosneft.) Viktor Zubkov, a future prime minister (2007–8) defended his dissertation in 2000 on the subject of the taxation of Leningrad mineral resources. As The Insider wryly observed of Putin and his St. Petersburg colleagues: “All of them, regardless of their education, suddenly became specialists in the field of mineral resources of the Leningrad region.”¹³

Putin’s dissertation went largely unnoticed until 2005, when two researchers at the Brookings Institution in Washington, DC, managed to get a copy from a Moscow library. They found that in the key section of the work, on strategic planning, more than sixteen pages of text were taken verbatim from the Russian edition of a 1978 American business school textbook titled Strategic Planning and Policy.¹⁴ When asked about the plagiarism in 2006, Litvinenko responded that he had “followed Putin’s academic work from the very beginning.” He added that the first draft of Putin’s thesis was rejected, and the academic committee recommended that he rework it, but “within a few months he returned with a completely revised version that took note of the criticisms and was accepted for defense.” This was proof, Litvinenko said, that Putin did the work himself.¹⁵

As of 2023, Litvinenko, who managed Putin’s 2000 and 2004 presidential campaigns in St. Petersburg, was still rector at Putin’s alma mater, now the St. Petersburg Mining University. Putin apparently did not begrudge him for doing such a sloppy job with his dissertation. Like many of the Russian president’s favorites, Litvinenko has prospered financially under the Putin regime. In 2021, he made the Forbes Billionaires List as owner of almost 21 percent of PhosAgro, a Russian chemical holding company that produces fertilizers and phosphates. Forbes estimated his assets to be worth $1.5 billion.¹⁶ The Russian online news site MBX Media reported in March 2021 that since at least as far back as 2014 Litvinenko has failed to disclose for tax purposes millions of dollars of earnings from PhosAgro, but Russian tax authorities have turned a blind eye.¹⁷

The Lure of Oil

By the spring of 1997, Berezovsky was riding high, literally—flying back and forth to Chechnya to meet with Chechen leaders and work on the peace deal with Russia, signed by Yeltsin and Maskhadov on May 12. He had already played a key role in negotiating a hostage crisis, begun when Chechen forces commanded by separatist Salman Raduev kidnapped twenty-two members of Russia’s MVD forces on December 14, 1996. Berezovsky flew to Grozny and, following talks with First Deputy Prime Minister Movladi Udugov and field commander Shamil Basaev, secured the release of the hostages. In June 1997, Berezovsky made his private jet available to fly four Russian journalists home to Moscow after they were held in Chechnya for three months.¹⁸ And in August 1997, he was instrumental in gaining the release of three NTV reporters abducted in May, reportedly for a huge ransom.¹⁹ These efforts would later lead to accusations that he had encouraged Chechen terrorists.

Despite the fact that Maskhadov was elected handily as Chechnya’s president in January 1997, his efforts to establish a working secular government faced huge obstacles, as evidenced by the many kidnappings. Chechnya’s economy was in a shambles after the war, and hardline Islamic separatists like Raduev rejected any Russian presence in the republic. A top priority for the new Chechen government was to resuscitate the oil pipeline that ran through Chechnya from Baku, Azerbaijan, to Novorossiisk on the Black Sea, so that the republic could get oil tariffs and transit fees. Chechnya’s integration into the oil market would provide much-needed resources for the restoration of its economy. The signs were positive. Berezovsky said at a press conference on May 13, 1997, that “Russia was interested in having a section of the Caspian pipeline pass through its territory [Chechnya],” and in July Azerbaijan president Gaidar Aliev signed an agreement with Russia that endorsed shipping oil from Baku through Chechnya.²⁰

Berezovsky’s interest in the Caspian pipeline had as much to do with his potential financial gain as it did with Chechnya’s economic recovery. He wanted to use the pipeline to gain control of the Russian government oil giant Gazprom. With this goal in mind, Berezovsky flew in early June 1997 to Budapest, where he convinced George Soros to back a plan for him to become Gazprom’s chairman with an initial investment of $1 billion in the company. On June 14, the day after Chernomyrdin and Maskhadov signed an agreement to open the pipeline, Soros met in Sochi with Berezovsky and Prime Minister Chernomyrdin to seal the Gazprom deal.²¹ But when Soros went to see Nemtsov in Moscow, Nemtsov persuaded Soros against the Gazprom plan on the grounds that it represented another backroom deal by robber barons. Nemtsov insisted that the government now wanted fair play. Alex Goldfarb was present when Soros broke the bad news to Berezovsky at the LogoVAZ Club: “Boris could barely control himself. As soon as George left, he exploded: ‘How could he do it? We shook hands! Did he really believe those clowns? Doesn’t he know that Nemtsov’s sole role is to act as “Chubais with a human face” for foreign consumption? I personally recruited him for that role back in March when we still were one team.’”²²

In August 1997, Boris Nemtsov’s deputy Sergei Kirienko announced that talks with Chechnya about the pipeline were deadlocked because Chechnya was demanding “impossible” tariffs. This prompted a rebuke from Berezovsky, who was quoted by Nezavisimaia gazeta, a newspaper he now owned, as saying that the Russian Ministry of Finance was sabotaging the deal. After more deliberations, Nemtsov declared on September 15 that Chechen territory would not be a part of the Caspian pipeline because Moscow had decided to transmit the oil through Dagestan.²³

After Berezovsky died, Nemtsov recalled that Berezovsky had at one point paid him a visit to inform him that Chernomyrdin and Gazprom Chairman Rem Viakhirev had decided that he, Berezovsky, would head Gazprom’s board of directors. Nemtsov “could not believe his ears” and phoned up Chernomyrdin and Viakhirev, who reluctantly confirmed what Berezovsky had said. Nemtsov then told Berezovsky that his Gazprom plan would happen “only over my dead body,” to which Berezovsky responded: “I will destroy you. I will launch the Channel One television, all my media resources, so that you are no more.” Nemtsov added that “indeed, Boris Abramovich achieved much of what he threatened.”²⁴

Internecine Conflict

Berezovsky had other irons in the fire. One involved the government telecommunications company Sviazinvest, which Vladimir Gusinsky was hoping to take over when it came up for auction on July 25, 1997. A year earlier, Gusinsky had received the go-ahead from Yeltsin’s privatization minister, Alfred Kokh, to prepare for the auction by bringing in investors and speaking to security and defense officials, who depended on Sviazinvest for their secure communications. Berezovsky suggested to Gusinsky that if he won the auction, Berezovsky might be interested in becoming a partner. As Gusinsky later told David Hoffman: “Berezovsky has to be number one everywhere. He has to be the best man at every wedding, the grave digger at every funeral. If something happens somewhere without Berezovsky, he is full of anxiety.”²⁵

Unfortunately for Gusinsky and Berezovsky, with the arrival of Nemtsov into the government, the rules of the privatization process had changed. As with Gazprom, Nemtsov and Chubais wanted to end the practice of deciding in advance of auctions which oligarch would get the prize. The pair was determined that the auction for Sviazinvest would be open to all competitors, including Vladimir Potanin, who had already enlisted Soros as an investor. But neither Gusinsky nor Potanin wanted to face the uncertainty of an open auction, so they tried to get Chubais to agree to a deal in which Gusinsky would get Sviazinvest and Potanin would acquire the next big company that came along. On July 23, Berezovsky flew with the two men on Gusinsky’s private jet to see Chubais, who was vacationing near St. Tropez in the south of France. In an attempt to persuade Chubais, Berezovsky allowed that, of course, the eventual goal was normal competition, but it was a mistake to suddenly introduce such a drastic change. When that did not work, Berezovsky made threats: “You are igniting a war. You don’t want it, but it is going to happen.”²⁶

Valentin Iumashev argued with Chubais and Nemtsov for hours, pointing out that it was unreasonable to turn the tables on Gusinsky after he had spent so much time doing the groundwork for the privatization of Sviazinvest. “What’s going to happen after Gusinsky loses?” Iumashev asked them. Noting that Gusinsky and Berezovsky controlled much of the media, Iumashev gloomily predicted that “in a month we will no longer have a government of young reformers.”²⁷ But Chubais and Nemtsov hung tough. And, despite a last-minute attempt by the oligarchs to agree between themselves on what their auction bids would be, Potanin ended up the winner. Berezovsky and Gusinsky then unleashed their fury. Sergei Dorenko, an anchorman on ORT, whose show was watched by millions of Russians, accused Potanin of using money from shady shell companies to finance his bid. Appearing subsequently on Ekho Moskvy, which Gusinsky owned, Dorenko suggested that there was a conspiracy behind the deal. Gusinsky’s newspaper Segodnia followed up with an article raising further questions about the suspicious origins of Potanin’s money and about his questionably close relationship with Kokh.²⁸

A few days later, on August 1, 1997, Berezovsky told Tatiana D’iachenko on the phone that the night before he, Gusinsky, and Mikhail Fridman had a very difficult meeting with Chubais, which lasted until 3:30 a.m. Berezovsky said that Chubais had mistakenly thought Potanin was honest and was “very shaken” when he learned from Berezovsky and Gusinsky about Potanin’s underhandedness. Adding that Potanin was not the only one “who doesn’t play by the rules,” Berezovsky told Tatiana that Alfred Kokh must leave his post.²⁹ According to Nemtsov, Berezovsky also pressured Yeltsin’s family (presumably Tatiana and Iumashev) to complain about him to Yeltsin, who then summoned Nemtsov to his office sometime in August and asked with irritation: “Are you really unable to do all this without such an uproar?” Nemtsov explained passionately that “this is a war in which either they win, or we do.” Yeltsin was silent and then finally said: “They are nobody. I don’t know them.”³⁰

Kokh resigned several days after Berezovsky’s talk with Tatiana, but Berezovsky’s lobbying was unsuccessful in getting Chubais to nullify the results of the auction. So he upped the ante considerably on September 13, when Nezavisimaia gazeta published a devastating front-page attack against Chubais, which portrayed him as a cynical, power-hungry schemer, who was enabling Potanin to create a private super-monopoly. Around the same time, there were reports on ORT that Potanin organized orgies with stripteasers for Nemtsov. Nemtsov’s mother was so upset that she called her son and asked him whether the reports were true. Nemtsov advised her “not to react to such nonsense.” But as Nemtsov later wrote: “Berezovsky and Gusinsky were doing everything to create a zone of public alienation around us, so that we would either resign from our posts or the president would fire us.”³¹ All this was too much for Yeltsin, who called business leaders to the Kremlin and urged that the public attacks against Chubais and Nemtsov cease.³²

Alex Goldfarb recalls trying to convince Berezovsky that the conflict was dangerously close to bringing down the government, asking him, “why such a fuss about a phone company for Gusinsky?” Berezovsky retorted angrily: “That’s not the point. I don’t care whether Goose [Gusinsky] gets it or not … It’s about whether Tolya [Chubais] can have it his way because he decided that he is the state. Fucking Bolshevik.” As Goldfarb realized, “the fight was not between Gusinsky and Potanin. They were just surrogates for the two epic figures of Yeltsin’s reign: Chubais and Berezovsky, the ultimate technocrat and the super-tycoon. It was a political clash of opposing views on the role of the oligarchs in the new Russia.”³³

Berezovsky should have realized that he would pay a heavy price for indulging in revenge. Chubais and Nemtsov visited Yeltsin on November 4 and urged Yeltsin to dismiss Berezovsky from his position as a deputy secretary of the National Security Council. Yeltsin needed little persuasion. As he explained in his memoirs: “Why did I fire Berezovsky in November? My motivations are probably more difficult to explain than it might seem at first glance. I never liked Boris Berezovsky, and I still don’t like him. I don’t like him because of his arrogant tone, his scandalous reputation, and because people believe that he has special influence on the Kremlin. He doesn’t. I never liked him, but I always tried to keep him on my team.”³⁴ On November 5, 1997, the Kremlin announced that Berezovsky had been fired.

Berezovsky struck back. He and Gusinsky received documents showing that Chubais and members of his economic team had been paid close to a half million dollars as an advance on a book they were writing about privatization. They acted on the information immediately. On November 12, an investigative journalist named Alexander Minkin, who was close to Gusinsky, reported on Ekho Moskvy about the book revenues, saying that they were a veiled form of a bribe and money laundering. The scandal cost Chubais dearly. Although he retained his post as first deputy prime minister, Yeltsin took away his finance portfolio. But whatever short-term satisfaction Berezovsky and Gusinsky got from their latest attack on Chubais, the long-term repercussions for them would hardly be worth it. The warning to them from Sergei Lisovskii, who had worked on the 1996 Yeltsin campaign, would prove prescient: “If you destroy Chubais, you will eliminate yourself in several years’ time, because in the long run, Chubais will never sink you, never jail you—he has created you as Russian capitalists. And anyone else in his place will treat you very cruelly.”³⁵ Nemtsov would later say bitterly: “We had a liberal democratic government with Chernomyrdin and others. We had a real chance to move the country in a democratic direction. And when Berezovsky decided to destroy our government, and succeeded, what did we get? We ended up with a KGB government.”³⁶

Rescuing Sobchak

Although Putin remained out of this Kremlin conflict, he had his own problems. Korzhakov and Barsukov had been fired, but Russian Prosecutor General Iurii Skuratov and MVD chief Anatolii Kulikov were continuing the investigation of Putin’s former boss Sobchak for corruption during the period Sobchak served as mayor. One particular accusation involved Sobchak contracting with a construction/real estate company, Renaissance, for the renovation of several city-owned apartment buildings. Renaissance later sold apartments to officials in the mayor’s office, including Putin and Kudrin, at reduced prices. Equally scandalous was that Renaissance pressured the residents of a communal apartment next to Sobchak to relocate, so that the mayor could take it over and expand his living quarters. In April 1997, the Duma passed a resolution calling for the prosecutor general to complete the investigation of Sobchak, and three of Sobchak’s former staff members were later arrested in St. Petersburg.³⁷

The newspapers were full of speculation about the Sobchak case, and one article, published by Novaia gazeta in June, seemed ominous for Putin and Kudrin as well. The author, Pavel Voshchanov, unleashed a devastating critique of Sobchak, detailing how he had dipped into the city’s coffers for his personal benefit and describing his penchant for hugely expensive Italian clothes and his connections with gangsters. But then Voshchanov pointedly added that “Sobchak did not forget about his subordinates, who now hold high positions in the Kremlin.” As if to predict that these Kremlin officials would not be touched, he lamented: “We know that if someone is close to power, if he is comfortable in its tangled corridors, nothing threatens him. Any sin of his will be overlooked.”³⁸

As Voshchanov suggested, Putin and Kudrin were protected by the Kremlin. Nonetheless, Sobchak knew a great deal about their illegal financial machinations, particularly Putin’s. Who could predict what he might say to prosecutors under pressure? Sobchak’s wife, Narusova, began visiting Putin regularly in Moscow during the summer, conveying to him that her husband would soon be arrested and leaving Putin with the impression that Sobchak might not keep quiet if that happened.³⁹ Lest Sobchak incriminate his former subordinates, he had to be protected from prosecution. This proved to be a complicated task, in which several Kremlin figures participated.

Iumashev revealed in an interview years later that Chubais, Nemtsov, and Kudrin repeatedly told him that the Sobchak situation was urgent and something needed to be done. Iumashev paid a personal visit to both Skuratov and Kulikov, asking them to let up on Sobchak, but to no avail. The only person who could possibly put a stop to Sobchak’s prosecution was Yeltsin, but he still deeply resented the former St. Petersburg mayor and thus had no motivation to protect him. “I knew that Boris Nikolayevich would never, under any circumstances, call the prosecutor general,” Iumashev said. “I did not even try to have a conversation with Yeltsin on this topic.”⁴⁰ Yeltsin recalled in Midnight Diaries: “I kept repeating the same thing to the people who came to Sobchak’s defense—Chubais, Yumashev, Nemtsov: ‘If there is any suspicion, it has to be investigated and proven whether the man is guilty or not.’”⁴¹ Skuratov says in his memoirs that he visited Yeltsin in September to inform him about the Sobchak case, and Yeltsin calmly told him to do what he had to do.⁴²

The situation reached a crisis point on October 2, 1997, when Chubais got a phone call from Narusova, who put her husband on the line. Sobchak was frantic because the media was predicting his immediate arrest. Chubais reassured him: “Don’t worry, Anatolii Aleksandrovich, the situation is completely under control. I had a conversation on this subject with the head of the Presidential Administration, Iumashev. He assured me that without his consent and the consent of Boris Nikolaevich [Yeltsin] no actions will be taken against you.” Chubais told Sobchak that he would be meeting with Iumashev that day, and Sobchak’s problem would be first on their agenda.⁴³ Alarmed, Chubais then called Nemtsov, who was with Yeltsin at the time. Nemtsov urged Yeltsin to do something to prevent Sobchak’s arrest, but Yeltsin resisted until finally Nemtsov told him that Sobchak had a serious heart condition and might die in custody. According to Yeltsin, he then relented slightly, asking that a message be sent to Skuratov saying “you can’t harass a sick man.”⁴⁴

But Skuratov later wrote that he did not hear from Yeltsin until October 7, when Yeltsin sent him an official order saying only, “it is necessary to calm down the activity of the [investigatory] group.”⁴⁵ In the meantime, Sobchak had been summoned for questioning by St. Petersburg prosecutors on October 3, and he complained of heart pain. Putin quickly arranged for Sobchak to be transported to the Military Medical Academy hospital, where Putin’s doctor friend Iurii Shevchenko diagnosed a heart attack. After a few weeks, the investigation team became impatient and decided to send some Moscow cardiologists to verify Sobchak’s heart ailment. Desperate to avoid this medical scrutiny and Sobchak’s possible arrest, Putin came up with a plan. On November 7, a holiday, officers under the command of Putin’s friend Aleksandr Grigor’ev, first deputy head of the St. Petersburg FSB, transported Sobchak via ambulance to Pulkovo Airport, where he “ran up the stairs” to board a chartered jet from Finland and was flown to Paris.⁴⁶ By the time Sobchak returned to Russia from exile in June 1999, the charges against him had been dropped, and Skuratov was under a shadow.

Skuratov was outraged when he learned later that it was Putin who had orchestrated Sobchak’s escape: “Just imagine: a team of investigators, including from the FSB, is working. And then an official from the Presidential Administration arrives and, going beyond his authority, and not trusting the investigators, including those from the organization where he served and would soon head, practically crushes the investigation.”⁴⁷ But Putin’s decisive action earned him great esteem from his Kremlin colleagues. Iumashev lauded him for taking such a terrible risk, saying that he had warned Putin he would have to fire him if the plan did not work because Yeltsin would disapprove of him breaking the law. Chubais concurred: Putin had “put his head on the block.” In the words of the political observer and publisher Gleb Pavlovsky: “There were a lot of talkers around the Kremlin who were not ready to carry out any project, but this—the logistics of Putin’s accomplishment! He didn’t just declare loyalty, he did the best he could and succeeded.”⁴⁸ Even Yeltsin, despite his dislike of Sobchak, was impressed: “Later, when I learned about what Putin had done, I felt a profound sense of respect for and gratitude toward him.”⁴⁹

As for Putin, in his autobiography, he denied playing a role in Sobchak’s escape: “His friends—I think they were from Finland—sent him a medevac plane, and he was flown to a hospital in France … Frankly, I didn’t even know the details.”⁵⁰ But later he acknowledged that he had orchestrated it: “I just considered it my duty to help Anatoly Alexandrovich. And here’s why: if I knew, or at least I suspected, that he was to blame for something, I would not lift a finger. But I wasn’t just sure, I knew, I just knew for sure, one hundred percent, that he was innocent.”⁵¹ To save himself and others, Putin had prevented Sobchak’s prosecution for bribery and financial crimes that Putin knew Sobchak was guilty of. And in doing so, he had used the security services to break the law. Yet this was perceived by Yeltsin and his team as an act of courage and loyalty and would help Putin earn the presidency.

Trouble at the Top

If it were not for its long-term ramifications, Putin’s rescue of Sobchak would have been a minor incident compared with what else was going on in the country at the time. By the end of 1997, the Russian government was deeply in debt, both foreign ($123.5 billion) and domestic ($95 billion). Falling oil prices, due to a financial crisis in Asia, contributed to budget shortfalls, as did the fact that most of the oligarchs were delinquent on their taxes. In addition, as David Hoffman points out, the conflict between Berezovsky and Chubais had “paralyzed the political elite, undermined the confidence of investors and left Russia unprepared for the approaching disaster.”⁵² But political drama in the Kremlin continued, with Berezovsky, who remained a close advisor to Yeltsin’s chief of staff, Iumashev, and controlled influential media outlets, often the catalyst.

In February 1998, Berezovsky suffered a spinal injury resulting from an accident while speeding on a snowmobile at night. After treatment in Switzerland, he was back in Moscow by March and began meeting with Iumashev, Tatiana, and other members of Yeltsin’s team to discuss getting rid of Chernomyrdin, who they all agreed had lost his usefulness as prime minister. With Yeltsin’s ability to govern increasingly in doubt, the post of prime minister, next in line to the succession, was crucially important. Although Yeltsin obliged the group by firing Chernomyrdin on March 23, his choice of Sergei Kirienko as Chernomyrdin’s replacement displeased Berezovsky, who began lobbying against the Duma’s approval of the nomination. Kirienko, a thirty-five-year-old former banker and minister of energy, was from Nizhnii Novgorod and close to Nemtsov. The last thing Berezovsky wanted was a reformer of Kirienko’s ilk taking charge as prime minister.⁵³

Berezovsky’s audacity did not sit well with Yeltsin, to put it mildly. In a speech at a private awards ceremony for Russian cosmonauts in mid-April, Yeltsin unexpectedly brought up a recent telephone conversation he had had with Berezovsky. Berezovsky, he said, was intriguing to influence the formation of a new government, and if he didn’t stop, Yeltsin warned, he would be exiled from the country. According to the journalist who broke the story, Berezovsky wanted his ally Ivan Rybkin, former secretary of the National Security Council, to replace Chernomyrdin. A source in the Duma told the journalist that Berezovsky had also hatched a backup plan whereby the Constitution would be amended so that, in the case of Yeltsin’s incapacity, his successor would be not the prime minister but the chairman of Russia’s Federation Council, Egor Stroev, who was close to Berezovsky. Iumashev reportedly tried to do damage control after Yeltsin’s outburst by asking the cosmonauts to refrain from repeating what he said, but the word got out.⁵⁴

However much Yeltsin disliked Berezovsky, the oligarch’s political clout was formidable. Two weeks later Yeltsin was compelled against his will to approve the appointment of Berezovsky as executive secretary of the Commonwealth of Independent States (CIS), a regional intergovernmental association that was formed in 1991 and comprised twelve of the fifteen former Soviet republics. (Ukraine and Georgia later left the alliance, and Turkmenistan changed its standing to an associate member.) With Russia as its driving force, the CIS aimed at cooperation on such issues as trade, collective security, and combatting organized crime and terrorism. But by the time Berezovsky entered the picture, there was such deep dissension among members, with some seeking closer cooperation with Russia and others leaning toward the West, that experts were predicting the organization’s demise.

Berezovsky had been lobbying for the CIS post, without Yeltsin’s knowledge, by appealing personally to each of the government leaders for their support. When Ukrainian president Leonid Kuchma nominated Berezovsky at a CIS meeting in Moscow on April 29, 1998, and all the other heads of state voiced their enthusiastic agreement, Yeltsin was caught completely off guard. He asked them to consider other candidates on the grounds that Berezovsky was too controversial a figure politically in Russia. Finally, Yeltsin summoned Berezovsky for a private discussion and was persuaded to go along with the appointment.⁵⁵

Berezovsky threw himself into the job with his usual zeal. Interviewed on NTV on June 8, 1998, he reported: “Over the last six weeks I have been trying to figure out what the Commonwealth is all about today. I have traveled through all the CIS states, met with all the CIS presidents, and gained a picture that accurately shows where we are now.”⁵⁶ He stressed that economic problems should have priority but noted that real cooperation was not possible until regional conflicts, like those in Abkhazia, Chechnya, and other places, were addressed. Acutely aware of nationalist sentiments, Berezovsky also made it clear in subsequent statements that, for the CIS to succeed as an organization, whatever restrictions were imposed on its member states, they should not impinge on the states’ independence.⁵⁷

Ekho Moskvy editor Venediktov later praised Berezovsky for his success with the CIS: “He was never in Moscow. We couldn’t get him for an interview because he was flying around to the various capitals, trying to persuade the presidents [of CIS states] that Yeltsin was great and Russia was great … He managed to convince the presidents to come together, to stop the disintegration process. This was really his accomplishment. No one else did it … And, in general, he was respected.”⁵⁸ Berezovsky was asked by Venediktov in September 1998 if he saw his CIS position as a stepping-stone to a greater political role. Berezovsky seems to have taken the question seriously, responding that he had no such ambitions, particularly regarding the presidency, because of the strong Russian nationalist sentiment in the country: “I believe that it is wrong for a Jewish person to claim to be at the helm of a state like Russia today.”⁵⁹

Putin Moves Up

In the meantime, Putin had also received a new position, and a promotion. In May 1998, Yeltsin appointed him first deputy director of the Presidential Administration, with responsibility for relations with Russia’s eighty-nine regions. The regional governors were elected and thus had considerable independence, posing a potential political threat to Yeltsin. Putin already had a lot of information on their financial dealings from his work heading the GKU, so he was well suited to be a watchdog over the regions on behalf of the Kremlin.⁶⁰ Putin recalled in First Person that he had found the GKU job so boring—a complaint similar to what he said about his first Kremlin post—that he was considering leaving to start a private practice as a lawyer. So his promotion was a real boon: “I developed relationships with many of the governors at that time. It was clear to me that work with the regional leaders was one of the most important lines of work in the country. Everyone was saying that the vertikal, the vertical chain of government, had been destroyed and that it had to be restored.”⁶¹

Putin only stayed in this job for a little more than two months. As it turned out, Yeltsin had bigger plans for him, much bigger. Putin later claimed that it came as complete surprise when, in mid-July, Prime Minister Kirienko asked to meet him at the airport as Kirienko arrived from seeing Yeltsin in Karelia and then congratulated Putin on his appointment as director of the FSB. “I can’t say I was overjoyed,” Putin recalled. “I didn’t want to step into the same river twice.” In fact, Liudmila Putina recalled that she and her husband had talked about him taking the FSB job three months before he was formally offered it, and he had told her that he would not accept it.⁶² Whatever his reluctance, Putin must have understood that his new position was a huge step forward in his career.

The security services had been in the throes of reform ever since the KGB was disbanded in late 1991, with numerous reorganizations and leadership changes. Everybody who favored democracy, presumably including Yeltsin, wanted the new security services to abide by the law and observe people’s rights, but in the environment of bandit capitalism that arose in post-Soviet Russia, this was difficult to achieve. An even greater problem was that many KGB officers either held on to their jobs or entered into private security. The latter developed into a burgeoning business that included technical surveillance and gathering kompromat on rivals, as well as maintaining ties with the Russian mafia. Other KGB veterans joined the so-called active reserves, serving in government, media, or university positions while reporting back to their superiors in the security services, as Putin did before the August coup.⁶³

Although Yeltsin, himself a former Communist apparatchik, had metamorphized into a democrat, his weak leadership and consequent low popularity made him increasingly dependent on his security services. As the journalist Tregubova put it: “Yeltsin, who was losing control not only over his own country but also over his own family, which was bogged down in dubious friendships with oligarchs who were shaking the political boat with all their might, apparently lost faith in the effectiveness of democratic levers of government and was increasingly inclined to rely only on the old, proven levers of the special services.”⁶⁴ While continually claiming that he wanted to reform the FSB, Yeltsin did just the opposite. He had allowed Korzhakov, a former KGB general, free rein to go after his enemies until he was forced by the Family to get rid of him. Mikhail Barsukov and his successor at the FSB, Nikolai Kovalev, had been KGB veterans. And now, instead of appointing a civilian with democratic credentials to replace Kovalev, Yeltsin turned to Putin.

Yeltsin said in his memoirs that he decided it was time for Kovalev to go because Kovalev had an antipathy toward business: “He couldn’t help himself. He simply despised people with money.”⁶⁵ The fact that Kovalev was investigating banks and businessmen made the president and his team uneasy. As Komsomol’skaia pravda observed: “Many people close to the president were concerned that the FSB chief did not bow to anyone in particular and did not swear loyalty to the Boss at every turn and constantly stressed that he took no part in political games. So they impressed little by little on the president: He is not reliable, he is not one of us, and in terms of personal loyalty he is the wrong man.”⁶⁶

Kovalev was an experienced general with a devoted following at FSB headquarters. As a mere lieutenant colonel, Putin did not have the same gravitas, and his appointment did not go over well with his new subordinates. Putin’s work as an intelligence office abroad was also scoffed at, because he had been sent to East Germany, considered a backwater.⁶⁷ Putin himself admitted that he was “greeted cautiously” when he arrived at the FSB, but he insisted that his rank was irrelevant because he had left the KGB several years earlier and thus was the first civilian leader of the security services, “even though nobody paid attention to that.”⁶⁸

Berezovsky told Alex Goldfarb that Iumashev came to him in June to ask him his opinion of Putin as a possible FSB chief, explaining that the top criterion for the job was loyalty. Berezovsky responded, “I support him 100 percent.” According to Goldfarb, “Boris liked the idea of putting a lieutenant colonel over multistar generals; the newcomer would not be a part of the old-boy network, and would in fact be snubbed by the top brass, which should only strengthen his loyalty to the Kremlin.”⁶⁹ But of course, Putin had his own network of former KGB cronies whom he would bring into the FSB. In his first press interview as FSB chief, he said clearly: “It is important not only to retain but also to arrange an influx of fresh personnel—and this is our job.”⁷⁰

Yeltsin later wrote: “Putin went about reorganizing the FSB very intelligently … Although the reorganization meant that a number of officers had to be retired, it proceeded calmly and, I would say, cleanly. Putin’s structure would prove to be quite workable.”⁷¹ It was most certainly workable for Putin. When he cleaned house at the FSB, firing around two thousand senior staff members, including Kovalev’s old-guard, Putin replaced many of them with allies from the Leningrad KGB. Viktor Cherkesov became his first deputy, while Nikolai Patrushev was appointed a deputy FSB chief and head of the FSB’s newly created Department of Economic Security. Former Leningrad KGB official Viktor Ivanov, who had worked with Putin in Sobchak’s office, was placed in charge of internal counterintelligence. And Sergei Ivanov, another member of Putin’s team under the mayor, became head of the FSB’s Department of Analytics and Strategic Planning as well as a deputy FSB chief. Others would arrive in the next year or so, providing Putin with a power base that no one in the Kremlin would dare to challenge. As Tregubova observed, when Putin took over, “the FSB, led by the Yeltsin favorite, began to resemble more and more not an anticrisis control center but a spare center of power, which Yeltsin had prepared in case the critical situation in the country developed into an irreversible one, which subsequently happened.”⁷²