Berezovsky to the Rescue

But Yeltsin had not lost the support of the oligarchs, who were thrown into a panic over the prospect of a Communist winning the presidency. Berezovsky was attending the World Economic Forum in Davos, Switzerland, in early February 1996, when he had a conversation with George Soros, the Hungarian-born billionaire. The two had met when Berezovsky contributed $1.5 million to the Soros Foundation for Russian scientists. Soros told Berezovsky that Yeltsin had no chance to win the election and advised Berezovsky to leave Russia before the Communists took over and he got killed.⁴ Soros’s words did not have the intended effect. Instead, they spurred Berezovsky into action on behalf of Yeltsin’s candidacy. Having observed how Western politicians and CEOs at Davos were pandering to Zyuganov as if his election was assured, Berezovsky decided then and there to unite with fellow oligarchs at Davos so they would use their financial resources to turn the tide in favor of Yeltsin.

Berezovsky returned to his room at the Hotel Fluela and immediately phoned up one of Russia’s wealthiest businessmen, Vladimir Gusinsky, who was at the same hotel, with an invitation for a drink. Berezovsky and Gusinsky had an intense rivalry. Gusinsky owned Most Bank, as well as the popular independent television station NTV, which was a competitor to Berezovsky’s channel, ORT. In late 1994, Most Bank and AvtoVAZ Bank, in which Berezovsky had a significant share, had competed to provide banking services to the Russian airline Aeroflot. Thanks to Berezovsky’s connections with the Kremlin, AvtoVAZ Bank had won out. Korzhakov claimed later that Berezovsky had spread poisonous gossip about Gusinsky, including allegations that Gusinsky was plotting with Moscow mayor Iurii Luzhkov to have Luzhkov replace Yeltsin as Russia’s president. (Gusinsky was not helped by the fact that NTV was highly critical of the Kremlin’s war in Chechnya, providing Korzhakov with an excuse to send his thugs to harass and threaten Gusinsky and his security team in December 1994.)⁵

Gusinsky needed little persuading before he consented to stop feuding with Berezovsky and join forces with him. As part of their agenda, the two agreed that the war in Chechnya had to be stopped and that Yeltsin needed to rein in both the military and the security services.⁶ Berezovsky then invited other Davos oligarchs, including Mikhail Khodorkovsky of Menatep Bank and Vladimir Vinogradov of Inkombank, for a meeting, in which they decided to pool their financial assets in order to rescue Yeltsin’s campaign. Also in attendance was Chubais, now jobless. Chubais was asked by the oligarchs to form an analytical group to advise Yeltsin’s campaign in parallel to the group led by First Deputy Prime Minister Oleg Soskovets, Korzhakov, and FSB chief Barsukov that was officially in charge. According to Berezovsky, they turned to Chubais because the financial elite trusted him: “We knew that when he had been a civil servant he was completely honest with all of us. Perhaps this was the main thing—we never doubted his decency. Plus there’s his intelligence, strength and organizational abilities. He was the only solid figure.”⁷ Thus, at Berezovsky’s instigation, the so-called Davos pact was formed.

Of course, they first had to convince Yeltsin to go along with their plan. On his return to Moscow, Berezovsky contacted Viktor Iliushin, Yeltsin’s trusted chief of staff, and asked him to arrange a meeting between the Russian president and the oligarchs. At the meeting, which took place at the Kremlin a few weeks after the Davos gathering, there were six businessmen in attendance—Berezovsky, Gusinsky, Vinogradov, Khodorkovsky, Vladimir Potanin, president of Uneximbank, and Aleksandr Smolensky of SBS-Agro (Stolichnyi) Bank—along with Chubais, who seems to have done most of the talking. Chubais explained to Yeltsin that his campaign was in dire straits, and he was sure to lose the election unless he energized his electoral operation with the involvement of the businessmen and Chubais himself. Yeltsin was at first defensive, telling the group that they had the wrong information, but in the end, he said to Chubais: “Anatoly Borisovich, I am grateful for your input.”⁸

Following the meeting, Berezovsky had a short one-on-one talk with Yeltsin, which he had arranged through Yeltsin’s wife, Naina, to iron out the details of the plan. Berezovsky also told Yeltsin that Korzhakov wanted the election to be called off because Yeltsin’s chances were so low and warned Yeltsin that such a move might result in civil war.⁹ Berezovsky’s warnings about Korzhakov were soon borne out. On March 17, at the urging of Korzhakov and Soskovets, Yeltsin had his aides draft an operational plan to dissolve the Duma—which had just passed a resolution repealing the 1991 Belovezha Accords that marked the official end of the Soviet Union—as well as to postpone the presidential elections until 1998 and ban the Communist Party. Despite the strong objections of Anatolii Kulikov, minister of internal affairs, Yeltsin stuck with the plan until he was finally persuaded against it by his daughter Tatiana D’iachenko and Chubais, who argued fiercely with Yeltsin for an hour. Yeltsin recalled in his Midnight Diaries: “And finally I reversed a decision I had almost already made. To this day I am grateful to fate, and to Anatoly Borisovich Chubais and Tanya.”¹⁰

The Chubais analytical group began operating at full force. Chubais, who was being paid a hefty salary of at least $50,000 a month by the oligarchs, recruited top-notch media specialists, political experts, and pollsters to determine which voters to focus on and how to craft the messages. Large sums of money were directed at television advertising, which played a crucial role in swaying voters toward Yeltsin, especially given the Zyuganov campaign’s minimal television presence. According to some sources, the bulk of the money for the campaign did not come directly from the oligarchs but rather from a hidden scheme through which their banks purchased government bonds at a deep discount and resold them at market prices. The profits, or portions of them, were then used for Yeltsin’s re-election.¹¹ Other sources say that the tycoons contributed to a “black treasury” for the campaign as payment for the 1995 loans-for-shares auctions they had been allowed to win and for future privatization deals.¹²

The Big Payoff

However the Yeltsin campaign was financed, its results were positive. In the first round of the presidential election, held on June 16, 1996, Yeltsin won 35 percent of the vote; Zyuganov, 32 percent; Aleksandr Lebed, a popular general, 15 percent; and liberal democrat Grigory Yavlinsky, 7 percent. But a second-round runoff between Yeltsin and Zyuganov had to be held, and in order to assure a Yeltsin win, the endorsement of Lebed was essential. Berezovsky had already met with Lebed in early May and promised that the Yeltsin team would secretly fund his campaign in order to siphon off votes from the Communist camp. Lebed also accepted Berezovsky’s offer of a government post in exchange for endorsing Yeltsin after the first round of elections. According to Chubais, this offer was entirely Berezovsky’s idea. As a result, on June 18, Lebed issued a statement of support for Yeltsin’s candidacy, and Yeltsin announced that Lebed would be his new National Security Council secretary.¹³

The next day, June 19, Korzhakov made a bold move against the Chubais group, a move that would bring about his downfall. He had his security guards arrest two of Chubais’s top campaign aides as they left the Russian White House with $50,000 in cash, supposedly to pay concert artists for campaign performances. Berezovsky was holding court at the LogoVAZ Club with Chubais, Gusinsky, and others when the group heard the news. According to NTV president Igor Malashenko, who was also present: “The two coolest heads, as usual, were Boris [Berezovsky] and Goose [Gusinsky]. They sat down with Chubais to review our assets.”¹⁴ Those assets included both NTV and ORT, which were put to good use, with broadcasts late that evening portraying the arrests as a coup attempt by the security services. As Berezovsky later recounted: “While deciding what to do, we formulated, for the first time, the following idea: we always lose to the security services if we act secretly. But as soon as we confront them openly, the situation will change.”¹⁵

Berezovsky telephoned Tatiana D’iachenko, who arrived at 1 a.m. with Valentin Iumashev, her future second husband, and stayed at the club through the night, drinking coffee nonstop. Korzhakov’s men were ominously surveilling the building, but the group figured rightly that they would not go so far as to enter with Yeltsin’s daughter there. The next morning, Chubais went to see Yeltsin, who had been apprised of the situation but had slept through the night. Yeltsin immediately fired Korzhakov, Barsukov, and Soskovets in a nationally televised address.¹⁶

On July 3, 1996, Yeltsin was re-elected as Russia’s president with 54 percent of the vote, versus Zyuganov’s 40 percent. But in the meantime, on June 26, he had suffered a severe heart attack, which was kept secret from the public, and would be semi-incapacitated for the next several months. This meant that, with Korzhakov finally out of the picture, decisions would be made by the Family—a term used in Russian political parlance to describe Yeltsin’s team, composed of Tatiana, Iumashev, and his close advisors. On July 16, Yeltsin brought Chubais back to the Kremlin as chief of the Presidential Administration, while Chernomyrdin remained prime minister.

Had it not been for Berezovsky’s successful efforts to get financial backing for Yeltsin’s campaign from Russian businessmen and the favorable coverage of Yeltsin on ORT and NTV, Yeltsin would probably have lost his bid for re-election. As the editor of Ekho Moskvy (Echo of Moscow), Aleksei Venediktov, later observed: “Berezovsky knew how to unite people who could not unite … And so, in Davos, he included the outcast Chubais … Berezovsky’s contribution to the election of Yeltsin in 1996, as the organizer of these people, was enormous.”¹⁷ Even Chubais, who would soon fall out with Berezovsky, grudgingly acknowledged years later: “Of course, Berezovsky’s magnetism was colossal. His vivid, strong intellect, his instant reactions, his ability to generate original solutions … He played one of the most important, if not the key, roles in the 1996 elections.”¹⁸

On the night the results of the second round of the election were counted, members of the campaign staff went to the LogoVAZ Club. Naina Yeltsina was also there, and they celebrated until early morning. While sitting on the open veranda with Tatiana and Iumashev, Berezovsky poured himself a glass of brandy and took a sip. When he put the glass down on the table, it suddenly shattered into tiny pieces. Berezovsky mused later: “I don’t believe in mysticism, but I believe that so much energy had built up over these months, that it suddenly burst out, and broke this glass.”¹⁹

Defeat for Putin’s Boss

Despite Sobchak’s support for Yeltsin during the August 1991 coup attempt, as well as during the October 1993 storming of the Russian parliament, he was viewed with suspicion by the Russian president, who sidelined Sobchak politically after the coup plotters were defeated. Yeltsin’s coolness toward Sobchak was in large part a result of his concern about Sobchak’s political ambitions. The handsome, telegenic Sobchak was a member of the intelligentsia, who dressed smartly and spoke eloquently. He and his attractive, self-confident wife, Liudmila Narusova, interacted easily with foreign dignitaries and clearly enjoyed the limelight. (According to one source, Narusova became a liability for Sobchak, because “she acted more like Raisa Gorbachev than Naina Yeltsina.”)²⁰ Yeltsin, a former construction worker with a lot of rough edges, resented Sobchak mingling with Western leaders, especially after word reached him that Sobchak questioned his competence and wanted to run for president himself.²¹

Not surprisingly, Korzhakov, ever resourceful, had intervened, at one point calling the head of Sobchak’s security detail, Viktor Zolotov, to say “don’t work with Sobchak anymore. We know what he’s up to.”²² Zolotov, a fellow veteran of the KGB’s Ninth Directorate, did not comply. In 1995, Korzhakov arranged for the appointment of a new prosecutor general, Iurii Skuratov, who agreed to investigate Sobchak for corruption. Sobchak, meanwhile, had made it clear that he would not compete with Yeltsin for the Russian presidency but would run for governor (the renamed mayoral post) of St. Petersburg in the May 1996 election. But Korzhakov and his cronies, including Barsukov and Soskovets, lent their support to Sobchak’s competitor, Vladimir Iakovlev, and undermined Sobchak by publicizing the fact that he was under criminal investigation.²³

Their efforts did considerable damage to Sobchak’s image, already problematic because of his difficulty in communicating with working-class voters. Also, Sobchak spent so much time either traveling abroad or hosting international festivals and exhibitions at home that he did not accomplish a great deal to improve the lot of the average piterskie (inhabitants of St. Petersburg). The St. Petersburg writer Mikhail Vil’kobrisskii, recalled once hearing the mayor give a report at the Union of Industrial Enterprises: “The only completed investment project for that year was the second phase of the construction and commissioning of a crematory. During this era of economic reform, the death rate went up, and there was no money for burials, so the city authorities found an adequate solution.”²⁴

Contrary to what some of his biographers have written, Putin did not run Sobchak’s re-election campaign. He assumed Sobchak’s mayoral duties so the latter could devote himself fully to his re-election. As a former member of Sobchak’s campaign staff recalled: “Putin was entrusted with the management of the city. He did not have time to do anything else, which is why his participation in the election campaign was so minimal.”²⁵ Putin confirmed this in the documentary film produced by Ksenia Sobchak: “Sobchak made it clear that he did not want his staff involved in his campaign. He said ‘I have a campaign team who will run my campaign. You just keep doing your jobs.’”²⁶

Sobchak’s wife, Narusova, took charge of her husband’s re-election bid, along with Aleksandr Prokhorenko, a former professor at Leningrad State University and a member of the St. Petersburg Legislative Assembly. By all accounts, they were not up to the task. The campaign was completely disorganized and ran out of money—a sharp contrast to Vladimir Iakovlev’s campaign, which was flush with cash from supporters in Moscow and able to hire professional consultants. Putin later said that after the first round on May 19, 1996, when Sobchak emerged with 28 percent of the vote and Iakovlev 21 percent, he and Aleksei Kudrin tried to “jump into the fray, but by then it was hopeless.”²⁷ In the June 2 runoff, which followed an exceedingly poor performance by Sobchak in a televised debate between the two contenders, Iakovlev had the support of Communists and nationalists who lost in the first round. He defeated Sobchak, with 47.5 percent of the vote to Sobchak’s 45.8 percent. Narusova later admitted that it had been a mistake for her to run her husband’s campaign and explained: “My logic was this: if Tatiana D’iachenko could take a key role in Yeltsin’s campaign, then why was I any worse?”²⁸

Putin claimed that he called Iakovlev a “judas” for running against Sobchak and portrayed himself as a solid supporter of the incumbent mayor.²⁹ As chairman of the St. Petersburg branch of the pro-Kremlin party Our Home Is Russia, he also sent a letter to Yeltsin, Skuratov, and Chernomyrdin protesting Skuratov’s investigation of Sobchak.³⁰ But Dmitrii Zapol’skii, who was helping the Sobchak effort, recalled Putin’s role differently: “Rumors that Putin had animosity toward Iakovlev are false. I repeatedly heard from both Iakovlev and Putin that Putin never considered Iakovlev a traitor, and Iakovlev valued Putin’s skills.”³¹ According to Zapol’skii, Putin and his allies in the mayor’s office actually ended up privately switching their support to Iakovlev. Zapol’skii remembers being called to Putin’s office on a Saturday morning to lend a hand late in the campaign. Putin, Aleksei Kudrin, and Igor Sechin had already been there for several hours. Zapol’skii was surprised by what he observed: “Sobchak’s staff was not nervous because Sobchak might lose. No, they were worried that he would win.” He concluded that “there was a higher command [from the Kremlin]: drown Sobchak.”³² A former Putin associate in St. Petersburg said much the same thing to journalist Catherine Belton years later: “It’s totally possible that Putin was following the orders of the Kremlin … If you supposed that this was a special operation to liquidate Sobchak as a contender, then everything becomes clear.”³³

In a 1999 book about his campaign, Sobchak barely mentions Putin, except to defend him: “Putin, throughout this whole story, showed himself to be a highly decent person. He not only did not betray me, like many others, but also came to my defense and sent a letter to the highest authorities … protesting the rumors and slander against Sobchak.”³⁴Did Sobchak really believe that Putin was loyal to him? Or, with Putin rumored to be Yeltsin’s designated successor by this time, was Sobchak simply trying to stay on Putin’s good side?

A Move to Moscow

Putin says in his autobiography that his relations with Iakovlev “didn’t deteriorate” because of the election campaign and that Iakovlev even offered to have him stay on as his deputy governor. Putin declined the offer because he had signed a statement saying he would leave the St. Petersburg government if Sobchak lost.³⁵ But there might have been another reason for Putin’s refusal. Zapol’skii claimed that Putin had been assured by members of Yeltsin’s team that his future would be taken care of: “I think that at the time Putin already knew that if Anatolii Aleksandrovich [Sobchak] lost, he [Putin] would receive a very sweet job in the Presidential Administration—oversight of foreign property. And this meant colossal, huge money. This position was already reserved for him.”³⁶

In fact, the exact nature of Putin’s promised post in Moscow was not determined until two months after the gubernatorial election. When Chubais was appointed to head the Presidential Administration in July 1996, he rescinded his predecessor’s offer to make Putin a deputy chief of staff on the grounds that the proposed position no longer existed. (This may have been why Putin seemed to disparage Chubais in his autobiography, saying “he’s so hard-nosed, like a Bolshevik.”)³⁷ Chubais then left it up to Kudrin, newly appointed to run the president’s Main Control Directorate, to find another spot for Putin. With the help of his friend Aleksei Bolshakov, a first deputy prime minister, Kudrin got Pavel Borodin, head of the President’s Administrative Directorate, to bring Putin on board as his subordinate in August 1996.³⁸

Whatever Putin’s role in Sobchak’s defeat, Yeltsin had other reasons to want Putin on his team. During his time in the mayor’s office, Putin gained valuable experience in dealing with private businesses in Russia and abroad and with the mafia clans that controlled many of these enterprises. Also, his extensive ties with the law enforcement, security, and military bodies were a huge plus for the Yeltsin government. As Putin told his biographer Blotskii: “I was not the top leader in the city, but I must say that the sphere of my duties was very broad. In addition, I worked closely with the power organs, with all of them. As a result, I know all about them from the inside, thoroughly. And this is the greatest experience!”³⁹ For members of Yeltsin’s administration having someone on their team with direct lines of communication to these bodies, as well as many years of service in the KGB, would be an important benefit.

The confirmation of Putin’s appointment came at an opportune time. Just days earlier, on August 12, the Putins’ dacha had burned to the ground as a result of a faulty heater in the sauna. Putin made a dramatic rescue of his daughter Maria and his secretary, who was visiting with her husband for the night, from the second floor of the dacha. He lost a briefcase containing the family’s savings, $5,000, in the fire. But Putin prevailed on the builders to reconstruct the dacha at no cost, and his wife took the blow philosophically: “After that experience, I realized that houses, money and things shouldn’t add stress to your life. They aren’t worth it. You know why? Because at any minute, they could all just burn up.”⁴⁰

On their arrival in Moscow in mid-August, the Putins took up residence in a government-owned apartment in the same high-rise building as Kudrin and his family. According to Kudrin: “Vladimir Vladimirovich often came to visit us, as neighbors, with his daughters. The girls played with my Labrador. I think that’s why they got Koni [Putin’s Labrador] for themselves.”⁴¹ An acquaintance of Putin and Sechin, whom Putin brought to Moscow as his deputy, reported that Putin was unhappy when he found out that Sechin’s apartment was 317 square meters, while his was only 286. But there was no question that the move to Moscow enhanced the Putins’ lifestyle. That winter they would spend several weeks skiing in Davos, together with the family of Nikolai Shamalov, the future father-in-law of his daughter Katerina.⁴²

Managing Kremlin Property

Putin’s new boss, Pavel Borodin, was a former Communist Party apparatchik, who had been mayor of Yakutsk before joining the Yeltsin administration in 1993. Borodin had met Putin in St. Petersburg on a couple of occasions, but he was reportedly unenthusiastic about bringing Putin on board because of his known connections with the security services.⁴³ As for Putin, in one early interview he gushed about Borodin: “Frankly speaking, for me personally, the first phone call from Borodin was amazing. I did not expect it! Yes, we discussed immediate questions. And nothing more. But the fact that he showed attention, concern, was unexpected. That I did not expect, such a call from Borodin!”⁴⁴

After assuming his post, which included managing all Kremlin property, Borodin became known for playing fast and loose with those assets—vast real estate holdings, factories, aircraft, art, and palaces, valued at over $600 billion. According to Yeltsin biographer Timothy Colton: “Borodin spent the next six years on Yeltsin’s behalf meting out perks—offices, apartments and dachas, travel and vacation vouchers, hospital stays, and even books and cellphones—to lawmakers, bureaucrats and judges.”⁴⁵ Borodin bragged many years later that his department eventually had ninety-six thousand employees and an annual budget of $2.5 billion.⁴⁶

Just as Putin was starting his new job, Borodin’s department awarded a contract for renovating the Kremlin without competitive bidding to a company called Mercata, a filial of the Swiss construction firm Mabetex, which had earlier won construction contracts in Yakutsk when Borodin was mayor there. In 1999, Borodin would become the focus of a money-laundering and bribery investigation by Swiss prosecutors, who revealed that the cost of the vast renovation was overvalued by 30 percent, which was siphoned off by Borodin and his cronies and deposited in Swiss bank accounts.⁴⁷

Putin’s responsibilities included overseeing contractual and legal affairs relating to the Kremlin’s properties abroad. Felipe Turover—a young official in the Banca del Gottardo, which held the Swiss accounts of Mabetex and later assisted Swiss prosecutors in their investigation of Borodin—told Novaia gazeta in a December 1999 interview that, when Putin got his hands on all these vast holdings, he created front companies to retain the assets: “Thus property abroad was thoroughly plucked before the state got its hands on it.”⁴⁸ Turover’s allegations were never verified and, luckily for Putin, he left Borodin’s Administrative Directorate in March 1997, before the Mabetex scandal broke. He was replaced in his post by his deputy Sergei Chemezov, a KGB colleague from Dresden.

Berezovsky in the Limelight

Around the time that Putin arrived in Moscow, Berezovsky was in Chechnya with Security Council secretary Aleksandr Lebed, conducting peace talks with members of the Chechen separatist movement, led by Aslan Maskhadov, a military commander. On August 30, 1996, after hours of negotiations, Lebed and Maskhadov signed a peace agreement in Khasavyurt, Dagestan, near the Chechen border. The agreement, which provided for the withdrawal of Russian troops by the end of the year and deferred the question of Chechen independence until the end of 2001, paved the way for the signing of a formal treaty by Yeltsin and Maskhadov in the Kremlin in May 1997. Berezovsky later said that he had opposed the terms of the peace that Lebed negotiated, but after a few months of further meetings with Chechens, he realized that “Lebed had made the right decision and we had to retreat in order to get our act together, to take a new approach to solving the problem at its new stage.”⁴⁹ As for the Chechen leaders, Akhmad Kadyrov, who would later become the republic’s president, credited Berezovsky with stopping the war and saving Chechens from genocide.⁵⁰

Russian military leaders and MVD chief Anatolii Kulikov, whose internal troops had a large presence in Chechnya, were furious over the Khasavyurt Accords. In his 2002 memoirs, published just after Lebed was killed in a helicopter crash, Kulikov called Lebed a traitor who surrendered Russia to terrorists.⁵¹ But the Russian people were largely supportive of the peace. Indeed, Lebed enjoyed such a boost in popularity that he even started alluding to himself as a possible successor to Yeltsin and in a late September interview suggested that Yeltsin should cede power to his prime minister until after his planned heart surgery in November. This did not go down well with Yeltsin’s team, including Berezovsky. Soon television channels ORT and NTV, which had been portraying Lebed as a hero, did an about-face and began linking Lebed with fascist organizations. Kulikov, capitalizing on the displeasure Lebed’s political ambitions were causing the Kremlin, gave a press conference on October 16 in which he accused Lebed of plotting to seize power by means of a special “Russian Legion,” a military force that would be directly under the National Security Council. The next day Yeltsin announced Lebed’s dismissal. Chubais later recalled that, before Yeltsin’s announcement, the government had beefed up security around the Kremlin, including armored personnel carriers, to an extent not seen since the arrest of Stalin’s police chief Lavrenty Beria in June 1953.⁵²

Berezovsky was a direct beneficiary of this latest round of internecine Kremlin conflict. He wisely sided with Chubais and Chernomyrdin in urging Lebed’s removal, mainly because Lebed had teamed up with his enemy Korzhakov and endorsed Korzhakov’s candidacy for the Duma as a delegate from Tula. As a result, Berezovsky was rewarded with the post of deputy secretary of Russia’s Security Council at the end of October 1996. Yeltsin had already appointed Ivan Rybkin, former speaker of the Duma and dependably loyal to the Kremlin, to replace Lebed as head of that body. Berezovsky, as Rybkin announced, was put in charge of the “financial interaction” with Chechnya. But, given that the state treasury was bare, Berezovsky would have to encourage the Russian private sector and foreign businessmen to invest in the turmoil-fraught republic.⁵³

As Yeltsin’s former son-in-law Leonid D’iachenko noted in 2021, Berezovsky’s goal was “to provide the Chechens with special economic opportunities in exchange for formal loyalty to Moscow and rejection of the idea of secession from Russia.” This entailed direct interactions with Chechen leaders, a dangerous challenge for Berezovsky. In the words of D’iachenko: “The military and special services were involved in Chechnya. But there was an urgent need for a civilian who was able to ‘sort out’ questions and not be afraid to bring information unpleasant for the Chekists and the military to the very top. This person, moreover, had to have the personal courage to actually go to Chechnya, to negotiate in the very den of the bandits … The chance to get shot or become a prisoner was real for Berezovsky. After all, he often traveled without serious protection. Yes, he knew many influential Chechens. But was this a guarantee?”⁵⁴

Although Berezovsky’s appointment to the Security Council was an affirmation from the Yeltsin government of his value as an advisor and negotiator, he still felt the need to blow his own horn. When interviewed by The Financial Times at the beginning of November 1996, he foolishly bragged that he and six other businessmen—Potanin, Gusinsky, Khodorkovsky, Smolensky, Aven, and Fridman—controlled 50 percent of the Russian economy (a gross exaggeration) and credited his group with engineering Yeltsin’s re-election. He also made it clear that he and other moguls used their television and newspaper ownerships to advance their own agendas. Even worse, The Financial Times went on to quote Chubais as having said: “They [the leading businessmen] steal and steal and steal. They are stealing absolutely everything, and it is impossible to stop them.”⁵⁵

Not surprisingly, The Financial Times piece gave Berezovsky’s detractors (and there were many) an opportunity to disparage him. The St. Petersburg Times noted: “Berezovsky’s track record as a Russian businessman … has not been distinguished by success managing companies,” and quoted Andrei Piontkovsky, at the time director of the Moscow Center for Strategic Studies: “Berezovsky has earned his wealth, not thanks to capitalism, but thanks to the existence of bureaucrats who sign the documents he needs.”⁵⁶ The next month, Forbes magazine came out with a scathing profile of Berezovsky, portraying him as “a powerful gangland boss” who collaborated with Chechen criminals and was the prime suspect in the Listev murder. The article, which was unsigned, also claimed, falsely, that Berezovsky’s partner Nikolai Glushkov had been convicted of theft in 1982.⁵⁷ Berezovsky and Glushkov sued Forbes for libel in a London court and in 2003 won a retraction from the magazine as well as payment of legal fees. According to Berezovsky, the Russian security services, together with Korzhakov, had furnished the material for the article, whose author was revealed to be Paul Klebnikov. Klebnikov’s biography of Berezovsky, Godfather of the Kremlin, was published in 2000.⁵⁸

Business under the Table

Whatever falsehoods were said about Berezovsky, it cannot be denied that he profited financially from backroom deals with Kremlin associates. The story of Sibneft is a good example. In 1995, Berezovsky began a collaboration with a twenty-nine-year-old oil trader named Roman Abramovich, whom he met while cruising the Caribbean on Petr Aven’s yacht in December 1994. Abramovich proposed to Berezovsky that the two of them partner in creating a vertically integrated oil company, combining production and refining, which came to be called Sibneft. Although he had no experience with oil, Berezovsky liked the idea and took it to Korzhakov, Yeltsin’s daughter Tatiana, and Prime Minister Chernomyrdin, who gave their support because Berezovsky told them he would use his oil profits to fund the television channel ORT, an essential asset for Yeltsin’s presidential campaign. Despite the difference in their ages, Berezovsky and Abramovich soon became close, seeing each other almost daily. Berezovsky’s partner Elena Gorbunova and Abramovich’s then wife Irina became friends, and the two families went on holidays together during the years 1995–98.⁵⁹

Sibneft was officially created by a presidential decree in August 1995 and, thanks to Berezovsky’s lobbying, was included in the loans-for-shares auction at the end of December. After other bidders were persuaded to either withdraw or offer lower amounts, Berezovsky and Abramovich won, with a bid of $100.3 million, the right to provide a loan to the Russian government secured by 51 percent of Sibneft stock. Through subsequent cash auctions in 1996 and 1997, the two men, along with Patarkatsishvili, gained a controlling interest of 89 percent in Sibneft. Abramovich would later claim that in fact Berezovsky and Patarkatsishvili never acquired shares in Sibneft and were only facilitators of the deal. Their dispute would be argued in a much-publicized 2011–12 trial in a London court.⁶⁰

Another of Berezovsky’s financial schemes would also feature in a subsequent London court case, this time as a result of criminal charges by Russian authorities who pursued Berezovsky in exile. Sometime in 1994, Berezovsky set his sights on profits from the Russian airline Aeroflot and used his clout with the Kremlin to get the airline to transfer its accounts to AvtoVAZ Bank, which also handled LogoVAZ accounts and listed Berezovsky as a major shareholder. Then, as Berezovsky all but admitted in an interview with Kommersant, he engineered the 1995 appointment of the malleable Marshal Evgenii Shaposhnikov, a former defense minister, as director-general of Aeroflot and managed to get several high-level LogoVAZ employees hired to work under him. Among them was Glushkov, who joined Aeroflot in late 1995 as first deputy director for finance.⁶¹

Aeroflot had a lot of problems when Glushkov took over its finances. Not only was its fleet of aircraft decrepit; proceeds from ticket sales trickled into hundreds of foreign bank accounts that belonged to 150 regional offices. Even worse, much of the revenue was siphoned off by staff at Aeroflot offices, almost a third of whom were intelligence and FSB officers. Glushkov and Berezovsky wanted to transform Aeroflot into a Western-style company with a centralized payment system, so in June 1996, Shaposhnikov directed all Aeroflot offices abroad to send their revenues to a Swiss company called Andava, which would serve as a deposit center. Because injections of Western capital were needed, along with expertise in organizing loans, another Swiss firm, Forus, was enlisted as a financial consultant to Aeroflot and an intermediary with foreign banks. The firm became the depository for payments to Aeroflot by foreign airlines for flights over Russian territory.⁶²

The optics were bad, to say the least. Berezovsky and Glushkov had set up Forus in 1992 as a financial company trading currencies and, although Glushkov assigned his Forus shares to Berezovsky before assuming his Aeroflot post, he continued to be on Forus’s board of directors. Both men also had substantial shares in Andava, established in 1994 as a centralized treasury for AvtoVAZ. Interviewed four years later, Glushkov said rather lamely: “Back at that time we did realize that the situation might look dubious, but it was okay from the viewpoint of Aeroflot’s business interests.” According to Glushkov, Aeroflot’s operations became profitable, with its stock rising from $7 to $150 a share by 1998, and passenger turnover increased by nearly a million.⁶³

Not surprisingly, the Russian security services were unhappy with the remaking of Aeroflot. A source of easy money for their employees had been cut off. Glushkov recalled later that Korzhakov “said he would screw my head off and put me in jail … if I continued to violate the rights of the FSB.”⁶⁴ In 1999, after foreign intelligence chief Evgeny Primakov became Russian prime minister, a criminal investigation would be launched into Aeroflot’s finances. Allegations of fraud against Berezovsky and Glushkov persisted for years, as did litigation, until finally a British court put them to rest in 2018, with the judge concluding that there was no evidence the two had misappropriated funds from Aeroflot.⁶⁵

In 1997, Russian political analyst Lilia Shevtsova described the Russian political regime as a system based on personalized, paternalistic rule, rather than on collective decision making, which even the totalitarian Soviet regime had practiced. Powerful political insiders, she wrote, were weakening legitimate political institutions and creating a “shadow politics,” hidden from the public, and this provided “fertile soil for the corruption of power and the criminalization of politics.” The regime depended on the loyalty of the president’s entourage and the power structures, rather than on public support. Yeltsin “won a democratic election, but only in the guise of a pitifully sick man, providing a smoke-screen for the clans clashing behind his back.”⁶⁶

Ominously, Shevtsova observed that the security services and police were now more powerful than they had been in Soviet times. She was describing the perfect storm for the emergence of an authoritarian leader who would gain public confidence as a spokesperson for popular interests, while undergirding his power with the crucial support of the security and law enforcement agencies. The groundwork had been laid for Putin’s future presidency.