Chapter 2
A Meeting in St. Petersburg
So it was in Russia in those days—it was unclear who was more at fault: the government or the financial wheeler-dealers. It was clear who the losers were, however: ordinary Russians.
—Paul Klebnikov, Godfather of the Kremlin
On their return to Leningrad in January 1990, the Putins found Soviet life in turmoil. Mikhail Gorbachev’s reforms had unleased widespread ethnic discontent in the non-Russian republics, and the Soviet economy was in free fall. More importantly, a fundamental shift was occurring in people’s expectations and values regarding their government. Although there were historical examples, few had anticipated that Gorbachev’s cautious liberalization “from above” would ignite a revolution from below. As demands for democratic change hit a fever pitch, the KGB’s dominance over society was under threat. Not long after Putin’s return to Leningrad, Oleg Kalugin, his former boss, made headlines when he harshly criticized the KGB in a series of interviews with the Russian media.1
Putin’s five-year stint in Dresden had been cut short by six months because the First Chief Directorate, not surprisingly, was reducing its staff abroad. Putin claimed in his autobiography that he had been offered a position at intelligence headquarters in Moscow, but he turned it down because “the country didn’t have a future. And it would have been very difficult to sit inside the system and wait for it all to collapse around me.”2 But Putin’s former Dresden boss Lazar Matveev recalled that, although Liudmila had her heart set on Moscow, Putin chose to go back to his old job in Leningrad because the Moscow offer did not include an apartment.3 The First Chief Directorate as a rule provided housing—which was owned by the state—for all its staff, so if the agency did make an offer to Putin, it cannot have been a serious one. Obviously, the Putins could not move to Moscow without a place to live.
Liudmila Putina recalled Putin’s job situation differently than her husband: “Now I can’t even remember why Vladimir Vladimirovich turned down the Moscow position. It seems that they [the KGB] did not come through with what they had proposed, and the job did not have good prospects.”4 Putin’s biographer Alexander Rahr observed that “a veil of mystery” surrounds the question of whether Putin actually received an offer to transfer to Moscow and suggests that Putin’s superiors were displeased with the fact that Putin and his Dresden colleagues had failed to anticipate the collapse of the East German Communist leadership. As a result, Rahr wrote, Putin ended up with a minor Leningrad post: “Putin was back where he started fifteen years before—his tasks again were to spy on and recruit foreign students.”5
With only a twenty-year-old washing machine given to them by a Dresden neighbor and a small sum of US dollars, Putin and his family had no choice but to move in with his parents, where they occupied the smaller space in a two-room apartment. In March 1990, after assuming a job monitoring foreign students at Leningrad State University—under cover as assistant rector for international affairs—Putin became a member of the KGB’s “active reserve.” But money was tight. Liudmila recalled: “For three months, he was not paid his salary. I remember that by the end of the third month I started getting seriously alarmed because we simply had no money. But then, everything was paid to him all at once.”6
In May 1990, while retaining his university post, Putin became an advisor to Anatoly Sobchak, the newly elected chairman of the Leningrad City Council and a well-known democrat. According to Putin, when he told Sobchak, who had earlier been one of Putin’s lecturers in the LSU law department, that he was still on the KGB payroll, Sobchak brushed it off, saying “Well, screw it.” Apparently Sobchak decided that, given the political turmoil at the time, it was useful to have an assistant with a direct line to the KGB, despite Putin’s subsequent claim that “although I was formally listed in the security agencies, I hardly ever set foot in the [KGB] directorate building.”7
In fact, Oleg Kalugin said that Sobchak was actively seeking out someone from the KGB to serve on his staff.8 This is confirmed by journalist Dmitrii Zapol’skii, who wrote Putinburg, a book about St. Petersburg in the 1990s. Zapol’skii pointed out that Sobchak needed someone from the KGB to serve as his “watcher,” who would keep an eye on financial flows, especially the shadowy ones, and resolve any issues that arose with the security services. Putin was singled out by Sobchak because he was not working for the KGB openly but under the guise of a university employee, so Sobchak’s image as a democrat would not be tarnished.9 As Masha Gessen put it: “This was the sort of politician Sobchak was: he talked a colorful pro-democracy line, but he liked to have a solid conservative base from which to do it … Sobchak—who had risen through the ranks both at university … and in the Communist Party—knew that it was wiser to pick your KGB handler yourself than to have one picked for you.”10
In June 1991, after being elected mayor of Leningrad, Sobchak appointed Putin chairman of the newly formed City Committee for Foreign Economic Relations, with responsibility for attracting foreign investment. Among those working in Sobchak’s office was another former student of his, Russia’s future president Dmitry Medvedev; the economist Aleksei Kudrin; and Igor Sechin, a former intelligence officer, who would become known derisively as “the carrier of Putin’s briefcase.” Anatoly Chubais, chairman of the Leningrad Committee on Economic Reform and a vocal advocate of what came to be known as “shock therapy” also worked for Sobchak briefly before moving to Yeltsin’s government. Putin later claimed, unconvincingly, that he had sent a letter of resignation to the KGB when he started working for Sobchak in 1990, but that the letter “got stalled somewhere,” and thus he was still an active KGB officer when the August 1991 coup attempt occurred. So on August 20 he resigned.11 By that time, however, it was clear that the hardline Communists in Moscow would fail to seize power. Putin, it seems, was hedging his bets, and at the last minute threw his lot in with the democrats.
Putin and his wife were vacationing on the Baltic Sea, near Liudmila’s hometown of Kaliningrad, when news of the coup attempt broke on August 19. Although he phoned Sobchak that night, Putin did not fly back to Leningrad until the next day, joining Sobchak at a special session of the city council in the Mariinsky Palace and informing him of his decision to quit the KGB. Putin’s timing was perfect. By August 21, the coup attempt had failed. In subsequent interviews not long after the coup, Putin disclosed his KGB past. But he insisted that he had only been a foreign intelligence officer and had played no role in the KGB’s nefarious domestic operations.12
Figure 5. Anatoly Sobchak and Putin, early 1990s. AP photo/Dmitry Lovetsky.
Berezovsky was also on holiday, in the Seychelles with his girlfriend Elena Gorbunova, when the coup attempt was launched. Like most Soviet citizens, they were caught completely by surprise and did not know what to expect as they flew back to Moscow. But when it became clear that Yeltsin, a former party apparatchik now shouting the slogans of democracy, had emerged victorious, Berezovsky saw new, boundless opportunities to pursue his business goals. Putin had a different reaction. He was later to say that the Soviet collapse and the demise of the KGB came as an unpleasant shock: ”During the days of the coup, all the ideals, all the goals that I had had when I went to work for the KGB, collapsed. Of course, it was incredibly difficult to go through this. After all, most of my life had been devoted to work in the agencies.”13
Money, Money, Money
According to Putin biographer Chris Hutchins: “Anatoly Sobchak’s dream was to make the new St Petersburg [renamed as such in September 1991] the financial capital of Russia; a project that would require an organizer with an abundance of skill and nerve. Putin might be a political novice, but he had a degree in international law, spoke a couple of languages, ran an efficient office and appeared to be almost nerveless.”14 Sobchak, by all accounts, considered Putin an invaluable member of his team, appointing him deputy mayor of the city at the end of 1991 and delegating much of the decision making to him. Karen Dawisha, author of the seminal book Putin’s Kleptocracy, noted, “Foreigners who did business in Russia universally reported that if you wanted to get something done in the city, you worked through Putin, not Sobchak.”15
Meanwhile, in September 1991, Berezovsky told a Russian newspaper that LogoVAZ had received a $20 million syndicated loan from six Russian banks for AvtoVAZ to manufacture ten thousand cars for sale domestically at European market prices.16 And thanks to his friend Petr Aven, who became minister of foreign economic relations in the new Yeltsin government, LogoVAZ was able to expand its business further. The company got a license to export raw materials, such as oil and aluminum, which were Russia’s main sources of hard currency. Russian firms that obtained foreign trade rights through government connections were able to acquire these commodities at low state prices and sell them at much higher prices abroad.17
Berezovsky, who once told Aven “I will not stop until I earn a billion dollars,” was on a roll.18 In 1992, LogoVAZ created a joint venture with an Oklahoma oil company called GHK Corp and the Russian oil producer Samaraneftegaz for the export of Russian oil. Exports of oil and other raw materials also brought traders huge returns because they avoided taxes by hiding their profits abroad. Aven told Klebnikov in May 1992, “We have no idea how much money passes through without paying taxes.”19
Aven would resign his post in December 1992 amid charges that Russia’s earnings from exports were being illegally siphoned off; he promptly joined a company he had been responsible for regulating—Alfa Group, which was making a fortune exporting oil and metals. He would later tell an interviewer: “When I was minister, Boria [Berezovsky] clung to me everywhere I went. He carried my bags, was at my home every day. One time we spent the night in the same place. When I got up at half past seven, Berezovsky, already dressed, though with a sleepy face, rushed to escort me to the car, in the rain, carefully holding an umbrella over me. But as soon as I was fired, he immediately disappeared.”20 In fact, Aven and Berezovsky remained friends until the Alfa Group had a dispute with Berezovsky over the acquisition of the newspaper Kommersant in 1999, and Alfa Group CEO Fridman accused Berezovsky of threatening him.
Putin and Berezovsky were first introduced, by Aven, in October 1991, just two months after the coup attempt. Aven and Berezovsky brought GHK chief Robert Hefner and Oklahoma’s governor, David Walters, to St. Petersburg to meet Sobchak, a meeting that Putin had arranged at Aven’s request. After the group sat down to hear Sobchak talk, with Putin and Berezovsky on either side of the mayor, Berezovsky, who had eaten a big lunch with wine, nodded off to sleep. According to Aven, Putin was incensed and refused to shake Berezovsky’s hand when he left. Putin even took Aven aside and said: “I did everything for you. For him to behave like that—to sleep at such a meeting … Don’t call me anymore and don’t count on my help … [Berezovsky] better not show up again in our city. If I meet him, I’ll break his legs.”21
Berezovsky remembered the meeting differently, claiming that it was Sobchak, not Putin, who expressed anger to Aven. According to Berezovsky, he developed a cordial relationship with Putin after this first meeting, stopping by his office whenever he visited St. Petersburg: “I can’t say that our acquaintance turned into some kind of very close friendship. But it continued to evolve and ultimately grew into friendship … the relationship became very trusting, and from the beginning developed quite rapidly, as did everything in Russia.”22
LogoVAZ had begun to import foreign cars—Mercedes and Volvos—so Berezovsky approached Putin with the idea of a service center for them in St. Petersburg. Putin “responded with great enthusiasm” to the proposal. Berezovsky would later remark to Masha Gessen, unconvincingly, that Putin was the first bureaucrat he met who did not take bribes.23 But both Putin and Sobchak seem to have benefited personally from the deal; the two were soon driving Mercedes to work at the mayoral offices in the Smolny Institute.24
It is not surprising that Berezovsky, a Jewish scientist-turned-entrepreneur, was courting a former low-level KGB officer, who had spent several years fighting Soviet dissidents in Leningrad. Nor is it hard to understand why Putin would play such an important role in the new democratic government of St. Petersburg. As the exiled human rights activist Vladimir Bukovsky observed bitterly after returning to Moscow following the 1991 Soviet collapse: “For Russia, the result was a shoddy tragicomedy in which former second-rate party bosses and KGB generals played the part of leading democrats and saviors of the country from communism.”25
Bukovsky urged Yeltsin to institute a Nuremberg-style reckoning with the crimes of the past regime, but this, of course, never happened. As a result, the revolution sparked by Gorbachev’s reforms and the emergence of Yeltsin as Russia’s president was not enough to overcome the country’s deep-seated culture of authoritarianism, a culture that for decades had deprived Russian people of any tradition of self-governance. Everybody wanted to make money in the Yeltsin years. But instead of a capitalist system governed by the rule of law, Russia was becoming a country where bribery and violence combined to stifle free competition. In this environment, it was only natural that Putin and Berezovsky would be scratching each other’s backs. The knives would not come out until much later.
Brokering Deals in the Mayor’s Office
Looking back at the early 1990s, Petr Aven described what it was like to be living in Russia: “What had seemed out of reach became possible: money, travel, books. Just yesterday everyone received almost the same salary and spent ten years hoarding dollars; one could visit Poland only with permission from the district [party] committee; the most important books were obtained only through samizdat. Now there were huge new opportunities, new unthinkable prizes, the most important of which … were wealth and power, merged together.”26
Putin, the straight-shooting KGB officer turned democrat, who only occasionally sipped vodka, was hardly immune to these allures. Responsible for issuing export licenses and regulating foreign joint ventures in St. Petersburg, Russia’s largest trading city, he found ample opportunity to reap the rewards of the new Russian economy, often by corrupt means. Sobchak, who made frequent trips abroad to meet with foreign leaders, gave Putin free rein in running the powerful mayor’s office, even leaving him with a stack of signed blank official documents, to be filled out as decrees by Putin when the need arose.27 In addition to Putin, Sobchak hired numerous other former Communist Party officials and KGB officers to work for him. This created an atmosphere of impunity in the St. Petersburg government. As Myers observed of Sobchak: “To secure his power, he needed the apparatchiks, not the democrats. This would be a central dilemma in Russia for years to come.”28 Not surprisingly, this situation put Sobchak at odds with the democratically elected City Council, which began unsuccessful efforts to impeach him in 1992.
The first of many scandals that occurred around Putin at the time involved the gambling industry, one of the many responsibilities that Sobchak handed over to his deputy. As Putin recounted in First Person, the city gained 51 percent control of the casinos by offering free rental of municipal buildings to casino owners but somehow missed out on getting any of the gambling profits. Putin explained that the cash had been “diverted” and that “ours was a classic mistake made by people encountering the free market for the first time.” Many assumed that some of the casino profits were diverted toward the city hall and ended up in the hands of Putin and Sobchak. As Putin noted: “Later, particularly during Anatoly Sobchak’s 1996 election campaign, our political opponents tried to find something criminal in our actions and accused us of corruption.”29 No criminality was ever proven. But years later, the investigative news site The Insider interviewed Franz Zedelmeier, a German businessman whose company was in charge of security at the St. Petersburg branch of Credit Lyonnais in the early 1990s. Zedelmeier claimed that every week or ten days Sobchak would bring to the bank a suitcase full of cash for transfer abroad.30
The notorious oil-for-food scandal created a much greater political controversy, even threatening Putin’s job. A food shortage, caused in part by the worst harvest in a decade, became dire in St. Petersburg after the Soviet collapse, and the government did not have funds to pay for food imports. (Inflation was so out of control that people were selling cigarette butts for a ruble apiece.) The city even introduced ration cards for milk, meat, and sausage. In late 1991, Petr Aven and Acting Prime Minister Egor Gaidar granted Putin’s request for the legal authority to issue licenses for the export of raw materials (oil products, metals, timber, copper, aluminum, and cement) located in the St. Petersburg region. The licensed intermediary companies were to barter or sell the raw materials abroad in exchange for food products. But the only food imports received in the exchange were 128 tons of vegetable oil. In 1992, a commission of deputies from the Leningrad City Council, led by Marina Sal’e, conducted an investigation of the scam and found that over $100 million worth of exports had disappeared without any accounting.31
The contracts, doled out by Putin with no competitive bidding, were signed without dates, names, and registration numbers, and the values of the raw materials to be sold were vastly understated. When Sal’e and another commission member asked Putin for detailed documentation on the contracts and the fate of the deliveries, he refused, claiming “this information is a commercial secret.” Journalist Oleg Lur’e estimated in a piece for Novaia gazeta that the firms engaged in “saving St. Petersburg from starvation” earned around $34 million in profits.32
When the St. Petersburg legislators demanded Putin’s dismissal because of the apparent scam, Aven protected Putin from losing his job.33 (This may partly explain why Aven became one of Putin’s favored oligarchs, enjoying occasional one-on-one talks with the Russian president.) Both the St. Petersburg mayor’s office and the Kremlin managed to put the brakes on the Sal’e investigation, and the uproar eventually simmered down. Sobchak, who ignored demands for Putin’s removal by the Leningrad City Council, even showed his confidence in Putin by making him first deputy mayor in June 1994.34
A Part-Time Mafioso
It was later revealed that Putin had given export contracts to a number of his friends, including those with mafia connections, who sold the raw materials and deposited the proceeds in offshore accounts. One example was a license to export more than $30 million worth of oil products that Putin gave to the St. Petersburg firm Nevskii Dom, owned by his friend Vladimir Smirnov, a businessman and a close associate of the notorious Vladimir Kumarin, leader of the Tambov crime group. The oil products ended up in Britain, and the money disappeared.35
Smirnov and Kumarin (who also went by the name Barsukov) became co-owners of the St. Petersburg Fuel Company, which in 1994, thanks to Putin, received exclusive rights to supply St. Petersburg with gasoline, along with the permission to establish a network of gas stations.36 Smirnov, who would eventually become head of Russia’s atomic energy agency, partnered with Putin and some German financiers in August 1992 to establish the now infamous St. Petersburg Real Estate Holding Co., known as SPAG. Officially SPAG was a joint Russian-German venture to attract investment in St. Petersburg real estate. In reality, SPAG was a vehicle for laundering money from South American drug cartels and the Tambov crime group, with city hall as a middleman. In 1994, Putin signed an affidavit giving Smirnov voting rights over the shares in SPAG owned by the St. Petersburg government. Putin served on SPAG’s advisory board until after he was elected Russian president in 2000, thus encouraging investment in the company and providing it with respectability.37
Kumarin—called the “night governor” of St. Petersburg, because of his powerful influence on the city’s politics and business—has since 2009 been serving a lengthy prison sentence for extortion and murder (including the killing of parliamentarian Galina Starovoitova in 1998). Apparently in the hopes that Putin would eventually order his release, Kumarin denied ever knowing Putin.38 But numerous sources, including Sobchak’s daughter, Ksenia, have disputed Kumarin’s claim. Ksenia Sobchak said on Dozhd’ television in 2016: “Everybody knew Kumarin. I personally was there at several meetings when he was with Putin … I was a little girl and they [my father, Putin, and Kumarin] would be together at a table. This happened a lot.” Pointing out that Kumarin would have a lot to reveal about Putin, Sobchak observed that Kumarin did not realize that Putin’s decision to keep him behind bars would never change.39
The alliance that the St. Petersburg government forged with organized crime and the security services was on clear display when Ilya Traber, one of the city’s most powerful mobsters, gained control of St. Petersburg’s vital seaport—which handled all freight traffic for European Russia—and the city’s oil terminal. Putin’s support was crucial to Traber’s efforts, because he issued licenses to Traber and his friend Gennadii Timchenko, reportedly a former employee of the KGB, which gave them a monopoly over oil exports through the oil terminal. The journalist Catherine Belton, who interviewed several of Traber’s former associates for her book Putin’s People, notes that the alliance between Traber and Putin “troubled even businessmen.” Citing a former senior KGB official, Belton claims that “with the help of Putin’s men in City Hall, the seaport became a major hub for smuggling drugs from Colombia into Western Europe.”40
Traber was known in St. Petersburg as “the Antiquarian” because he made a fortune in the early 1990s as an antiques dealer. (One of his partners in that business was Putin’s close friend Nikolai Shamalov, whose son would marry and later divorce Putin’s daughter Katerina.) Dmitrii Zapol’skii recalled in a 2017 interview that the home of Sobchak and his wife Liudmila Narusova, which Zapol’skii visited, was filled with Traber’s antiques.41 Much later, Putin would also avail himself of Traber’s talents. According to a 2017 investigation by Aleksei Navalny, Traber renovated a lavish secret island villa for Putin in the Gulf of Finland in 2011–13.42
In 2016, Spanish prosecutors issued an international arrest warrant against Traber as part of their investigation of money laundering by the Tambov and Malyshev crime organizations. Later, during a 2018 trial of the ten-year money laundering case in Madrid, Traber, who was not a defendant because Spanish courts do not try people in absentia, was cited as a member of the Tambov group. He reportedly was so angry that he threatened the lead investigator, Jose Grinda, and his family with reprisals.43
In Putinburg, Zapol’skii provided his take on how the city operated with Putin and Sobchak at the helm: “In the early nineties, a new economic model of a gangster state emerged in St. Petersburg, under which any initiative immediately fell under the control of bandits and their curators in the special services. Not a single gangster, not a single organized crime group was able to emerge without the approval of authorized operative officers of the KGB and its successors.” According to Zapol’skii, when Putin first assumed the role of Sobchak’s deputy, he was viewed by the officers of the St. Petersburg security services with derision, because of his unimpressive KGB resume. But their opinion changed as Putin became “the supervisor who oversaw the flow of money and power in the swamp city of St. Petersburg.”44
In moments of crisis, Putin turned to trusted friends from the “power organs”—the military, police, and security services. One such crisis occurred in October 1993, when Liudmila Putina was involved in a serious automobile accident. The Putins had been staying at their dacha in Zelenogorsk while their city apartment was being renovated. Katerina, age seven, was home sick but late in the morning persuaded her mother to drive her to school so she could appear in a school play. As Liudmila recalled, they had to rush to get there in time. Just as they were nearing the school, her car crossed an intersection and was hit broadside by another vehicle. Katerina had only bruises, but Liudmila was knocked unconscious and suffered extensive injuries, including spine and skull fractures.45
At the time of the accident, Putin was escorting Ted Turner and Jane Fonda around St. Petersburg. The pair was visiting the city because Turner was considering staging the 1994 Goodwill Games there. Fonda later recalled that when Putin told them his wife had been in an accident, Turner urged him to go to the hospital, but “Vladimir Putin wouldn’t do it. He stayed with us.”46 Putin says in his autobiography that he went briefly to the hospital emergency room, where a doctor assured him that his wife would be fine, so he left without seeing her.47
Putin had already dispatched his aide Igor Sechin to the crash site to retrieve Katerina and that night he called on the prominent physician Iurii Shevchenko to transfer Liudmila from the local hospital to the Military Medical Academy, where she had a spinal operation the next day.48 After weeks of rehabilitation, Liudmila required further treatment that was not available in Russia. So Putin’s friend Matthias Warnig, a former Stasi officer who had known Putin in Dresden and had recently opened the St. Petersburg branch of Dresdner Bank, helped out. Warnig got Dresdner Bank to pay for Liudmila to be airlifted to a clinic in Bad Homburg, Germany, as well as to cover some of her expenses there.49 Warnig’s good deed paid off. He later was invited to join the boards of Bank Rossiia and VTB Bank, along with those of the oil giant Rosneft and Rusal, the massive aluminum producer.50
As Liudmila Putina was recovering, the other driver involved, twenty-one-year-old Sergei Levkin, accused her of causing the accident by illegally going through an intersection at high speed. A prolonged legal battle ensued, lasting over two years. Finally, thanks to the efforts of a lead investigator with the St. Petersburg Department of Internal Affairs, the court ruled that Levkin was responsible for the accident. Although Levkin only received a suspended three-year sentence, he reportedly was ordered to pay Putin’s wife fifteen million rubles (over $500,000) in damages.51 Levkin’s legal team was clearly no match for the resources Putin was able to muster.
Berezovsky Gets His Krysha
When it came to moneymaking, Berezovsky had no more scruples than Putin. He persuaded Petr Aven to double the customs duties on imported cars, which made domestic brands sold by LogoVAZ more popular. (Berezovsky promised Aven a share of LogoVAZ in return for the favor but in the end gave Aven only a six-month stint as a LogoVAZ consultant, driven to work in a white Mercedes.)52 LogoVAZ also managed to buy large fleets of AvtoVAZ cars on consignment (with 10 percent down), repaying the company at the agreed ruble price more than two years later, when the rapidly declining ruble had become worth much less. As Hoffman observed, AvtoVAZ turned into a “gold mine” for Berezovsky, who later told Hoffman: “I understood one important thing. At that time, an enormous number of people wanted to buy cars. It didn’t matter if they lacked an apartment. It didn’t matter if they lacked clothes. But if only there would be a car!”53
In addition to the huge profits he was making with LogoVAZ, Berezovsky came up with a new venture, which took advantage of the privatization scheme introduced in 1992 by the state at the instigation of Anatoly Chubais, a member of Yeltsin’s cabinet. Vouchers with a face value of ten thousand rubles were distributed to all Russians. They could then be exchanged for shares in the state companies that were being privatized or sold. Instead of creating millions of shareholders, the result was that the ownership of Russia’s valuable property ended up in the hands of shrewd businessmen, who bought up vouchers and used them to acquire enterprises that were auctioned at bargain-basement prices. As Hoffman noted: “The voucher had opened a door, and beyond it was a wonderland of unregulated securities, surrogate money and wild finance, a period that was a perfect illustration of what happens when the market has no rules.”54
Berezovsky’s new scheme involved a company, the All-Russian Automobile Alliance, which he established with much fanfare in late 1993 to manufacture a “people’s car” for domestic sale. Kadannikov, the respected director of AvtoVAZ, was chairman, and Berezovsky general director, of the company, which began issuing so-called bearers’ certificates for public purchase at $10,000 each. Although similar to shares, the certificates did not include the holder’s name, which it made it difficult to get future dividends, and trading it for a genuine share was discouraged. Nonetheless, between December 1993 and mid-1994, the public purchased $50 million worth of bearers’ certificates. The project never got off the ground, and the proposed factory to produce the cars was never built.55
Like other powerful Russian businessmen, Berezovsky needed a krysha to protect him and his colleagues from the gang violence that had become an everyday occurrence in Russia. (Translated as “roof,” krysha covered a wide range of services, including physical protection, settling disputes, and lobbying.) As Khinshtein pointed out, the automobile business was especially vulnerable to criminals: “In Togliatti [home of AvtoVAZ] not a single car could leave the gates of the factory unless local bandits received their percentage of sales.”56 In late 1993, after LogoVAZ parking lots were attacked several times and a grenade exploded in one of its show rooms, Berezovsky fled briefly to Israel, where he managed to get citizenship, although he had no intention of residing there permanently. Israel would become a safe haven for Berezovsky when things got rough in Russia.57
The root of the gang warfare was a conflict between Russia’s two main criminal groups, the Chechens and the so-called Solntsevo gang, a Slavic group from the southwest part of Moscow. It was widely rumored that Chechens with mafia ties were employed for the physical protection of Berezovsky and LogoVAZ and that Berezovsky’s business partner Badri Patarkatsishvili, a Georgian, had contacts with the criminal underworld in the Caucasus.58 But whatever the truth of the rumors, Berezovsky’s security detail did not manage to prevent an attack that came close to killing him. (Berezovsky’s precipitous conversion to Russian Orthodoxy, accompanied by a visit to Patriarch Aleksei two months earlier, did not protect him either.)59 On June 7, 1994, Berezovsky was in the backseat of his Mercedes leaving LogoVAZ headquarters in central Moscow when a bomb exploded in a nearby parked car. His driver was killed, and his bodyguard lost an eye. Berezovsky’s partner, Elena Gorbunova, was supposed to have accompanied Berezovsky in the car, but luckily, she had become impatient waiting at LogoVAZ for him to leave and departed on her own ten minutes earlier.60 Berezovsky was so badly burned that he had to fly to Switzerland for several months of treatment. Those behind the attack were never found, but Berezovsky initially blamed it on competitors in the auto industry. (He would later falsely attribute the bombing to Vladimir Gusinsky, the television magnate, along with Gusinsky’s political ally Moscow mayor Iurii Luzhkov.)61
Berezovsky already employed men from the former Ninth Directorate (guards) of the KGB, along with some Chechens, to provide security for him and LogoVAZ, but the bombing incident and his increasing public visibility apparently convinced him of the need for more extensive protection. A former MVD officer named Sergei Sokolov, who ran a security company called Atoll, claimed that he was hired to head Berezovsky’s security detail in 1995. Sokolov was subsequently the source for a secret 1997 FSB report alleging that Atoll provided Berezovsky not only with physical protection but also with intelligence. According to the report, Sokolov received $1 million from Berezovsky for the purchase of sophisticated surveillance equipment to be used against commercial competitors and other opponents.62 After Berezovsky became part of Yeltsin’s entourage, media reports about Atoll spying on members of Yeltsin’s family and government figures would cause a scandal and draw the attention of Russian law enforcement.
Berezovsky Penetrates Yeltsin’s “Family”
By 1993, Berezovsky ambitions had extended beyond making money. Just as he had earlier discarded academic distinction for business success, Berezovsky now aspired for political influence. His lavish LogoVAZ Club on Novokuznetskaia Street in Moscow became the go-to meeting place for important politicians and businessmen, who would gather there to discuss the political and economic situation in the country and share meals at the club’s restaurant. Alex Goldfarb, Berezovsky’s close aide and friend, described the club: “A visit there was proof of one’s status. The quality of the wine and the artistry of the chef were legendary … Over the bar, which also served as a waiting room, hung the first HDTV in Moscow. There was a white grand piano, played occasionally by one of Boris’s old friends, an elderly Jew in a white suit. In the corner stood a stuffed crocodile, for reasons unknown.”63
Figure 6. Berezovsky meets with Yeltsin, 1994. TASS/ZUMApress.com.
The consummate goal for Berezovsky was an entrée to Yeltsin and his inner circle. This opportunity came in late 1993, when, on the advice of Aven, a young journalist named Valentin Iumashev approached Berezovsky to inquire if he would be willing to finance the Russian publication of Yeltsin’s second book, Notes of a President (Zapiski prezidenta), which Iumashev had ghostwritten. Iumashev, who later married Yeltsin’s daughter Tatiana, was deputy editor of the journal Ogonek, which intended to publish the book, but lacked the necessary financing. Yeltsin’s personal bodyguard at the time, Aleksandr Korzhakov, later told Paul Klebnikov that Iumashev brought Berezovsky to him, and he, Korzhakov, then introduced Berezovsky to Yeltsin. Berezovsky and AvtoVAZ chief Vladimir Kadannikov each contributed $250,000 to the publication of the book.64
The official launch of Yeltsin’s book took place on June 12, 1994, just five days after the violent attack on Berezovsky, at the exclusive President’s Club, which Berezovsky had been invited to join as a result of the book deal. He was the first businessman to be accepted into the club. Berezovsky, with his wounds painfully visible on his face and hands, decided to attend the celebration in order to demonstrate to the Russian president just how bad the violence had become. He succeeded in his purpose. Elena Gorbunova noted that “of course, Boris Nikolaevich was impressed.”65 According to another source, Yeltsin was horrified. Two days later, he signed a decree “On Urgent Measures to Protect the Population from Banditism and Other Manifestations of Organized Crime.”66
The President’s Club, at 42 Kosygin Street, featured tennis courts, where Yeltsin played regularly; a swimming pool; saunas; a bar; and a restaurant. Among the members were FSB chief Mikhail Barsukov and Yeltsin’s bodyguard Korzhakov, along with a few of Yeltsin’s favored advisors, businessmen, and cultural figures.67 Berezovsky began to meet with Korzhakov there on a regular basis. By all accounts, Korzhakov, who was standing next to Yeltsin on a tank in August 1991 when Yeltsin and his followers thwarted the coup attempt and later wrote a self-serving book about his experience working for Yeltsin, had tremendous sway with the Russian president.68 A former officer in the KGB’s Ninth Directorate, Korzhakov had been Yeltsin’s bodyguard since the late 1980s and had become his political advisor, gatekeeper, and tennis partner, as well as the monitor (some say abettor) of Yeltsin’s prodigious alcohol consumption. Yeltsin recalled in his memoirs: “With each month and each year the political role of the Federal Guard Service, and specifically my chief bodyguard, Aleksandr Korzhakov, was growing. Korzhakov fought with everyone who didn’t submit to his influence and anyone he considered ‘alien.’”69 Korzhakov became so powerful that, as Yeltsin wrote, in the spring of 1996, when Yeltsin’s doctors expressed grave concerns about Yeltsin’s heart and urged an operation, they sent their collective letter to Korzhakov, who did not show it Yeltsin until later.70
Berezovsky cultivated a close relationship with Korzhakov, but the latter turned out to be an unreliable and manipulative interlocutor, who would be fired by Yeltsin in 1996, in part at Berezovsky’s instigation. In a 2002 interview Berezovsky dismissed Korzhakov as a “court clown,” who insinuated himself into Yeltsin’s bodyguard so he could spy on Yeltsin for the KGB.71 But in the mid-1990s Berezovsky, like everyone else in Russia’s political and financial world, went to Korzhakov when he needed something from the Kremlin.
In late 1994, Korzhakov helped Berezovsky persuade Yeltsin to privatize the state-owned Channel One and offer it to a group of financiers, including Berezovsky, without an auction. Berezovsky was able to consolidate most of the shares and gain control of the new station, called by the acronym ORT, for Obshchestvennoe rossiiskoe televidenie (Public Russian Television). In order to resolve the conflicts among the existing advertisers, who had been siphoning off profits from the state, Berezovsky decided to start from scratch and impose a three-month moratorium on advertising. The moratorium, which naturally aroused the ire of the advertisers, was announced on Channel One on February 20, 1995, by Vladislav Listev, Russia’s hugely popular television anchor, who was set to become the new executive director of ORT in April. Just days later, on March 1, 1995, the thirty-eight-year-old Listev was fatally gunned down in the stairwell of his Moscow apartment. The murder of the much-adored newscaster shook the country to its core.72
Berezovsky, who was in London with Russian Prime Minister Viktor Chernomyrdin at the time, flew home immediately on his private jet, only to learn that the police were about to search his office because he was a suspect in the murder. In mid-February, Berezovsky had met with two police officers, who introduced him to a stranger claiming to know the person responsible for the car bombing outside LogoVAZ. Berezovsky had paid the stranger $100,000 as a fee to prevent a further attempt to kill him, but apparently the payment was a setup, designed to frame him for the Listev murder. In fact, Berezovsky had his security men videotape the transaction and then handed the tape over to police. He later used this recording as part of the evidence he presented to Yeltsin in an appeal to successfully persuade the Russian president of his innocence.73
Although there were other suspects, including advertising executive Sergei Lisovskii, the Listev killing was never solved, and the case was closed in 2009. Paul Klebnikov, in his highly critical 2001 biography of Berezovsky, elaborated on the theory that Berezovsky’s $100,000 payment was evidence that he hired Listev’s killers.74 But Klebnikov suggested that Berezovsky’s motive was Listev’s declaration of a moratorium on Channel One’s advertising, when in fact the moratorium was Berezovsky’s decision, and Listev initially opposed the idea. Not surprisingly, after Berezovsky fled Russia in 2000, his guilt became widely accepted as fact in the country. As Russian journalist Aleksandr Politkovskii, husband of murdered journalist Anna Politkovskaya, noted in 2018: “Berezovsky became a fugitive, and it’s always easy to blame a crime on a fugitive.”75 Significantly, in a 2021 interview, Listev’s widow insisted that Berezovsky had nothing to do with the murder of her husband. She said there was never a conflict between Listev and Berezovsky and that the two had very cordial relations.76
The continuous intrigue and internecine conflict, often instigated by Korzhakov as Yeltsin descended into poor health and alcoholism, makes one wonder how the Kremlin even functioned at this time. The St. Petersburg government, of course, had its own share of dysfunction, with the city’s crumbling infrastructure, corruption, and violence, but Putin was adept at managing the various clans that were competing for economic riches and political influence. Unlike Berezovsky, who was fighting enemies right and left, Putin had a solid “Petersburg team” (Sechin, Medvedev, Kudrin) he could depend on. He also retained his connections with invaluable former KGB colleagues like St. Petersburg FSB chief Viktor Cherkesov. That said, both he and Berezovsky faced the political uncertainty posed by the upcoming 1996 elections—Sobchak’s run for re-election in St. Petersburg and Yeltsin’s bid to retain the Russian presidency. These contests would prove crucial to the ambitions of Putin and Berezovsky as each sought to carve his path forward amid the tumult of Russian politics.