Stepashin Gets the Family’s Blessing

With Skuratov’s flames at least temporarily extinguished, the Family now focused on getting rid of Evgeny Primakov, whose alliance with the Communists in the Duma and the Federation Council presented a major obstacle to the political and economic agenda of the Yeltsin clique. Although not disloyal to Yeltsin, Primakov was a liberal in the Soviet tradition and had socialist proclivities that were incompatible with Yeltsin’s fervent anti-Communism. According to an opinion poll conducted in the spring of 1999, Primakov also enjoyed the approval of two-thirds of the electorate, which offered him an incentive to press for his own policy views if he and Yeltsin disagreed or even to decide to run for president. As Khinshtein put it, “In contrast to the eternally sick president surrounded by a palace clique, Primakov saw his popularity grow by leaps and bounds.”³

Yeltsin and his team wanted a prime minister who would be beholden to them and show unwavering loyalty. But who would take Primakov’s place as prime minister, a key stepping-stone to the presidency? Everyone in Yeltsin’s circle, it seems, was feverishly endeavoring to promote the “right” candidate. With the presidential election looming in 2000, the pressure was intense. In Shevtsova’s words, “the weaker the president grew, the more acute became the Family’s need to find a successor they could rely on after his departure.”⁴

The candidate favored by Chubais and Iumashev was MVD chief Sergei Stepashin, considered a democrat despite having held law enforcement posts, including chief of Russia’s security services in 1994–95. Although he was blamed by many for the FSB’s botched attempt to rescue 1,500 hostages held by Chechen separatists in the town of Budennovsk in the summer of 1995, Stepashin had always demonstrated fierce loyalty to Yeltsin, and that meant a lot to the Family.⁵ But the opinion of other members of Yeltsin’s team had to be considered, and there was by no means a consensus. According to Stepashin, Yeltsin had been seriously considering as his successor Railways Minister Nikolai Aksenenko, whom Berezovsky and Abramovich had been pushing for.⁶ But Chubais rushed to Yeltsin’s country residence at the last minute and persuaded him that the loyal and “moderate” Stepashin was much better suited for the prime minister’s job.⁷

To complicate matters, Yeltsin was wildly unpopular and facing impeachment on five charges by the Duma, which had scheduled a vote on the matter for May 15, 1999. Dismissing Primakov before the impeachment vote was risky, because it could increase the possibility of the impeachment resolution passing. But Yeltsin took a gamble and on May 12 announced Primakov’s resignation while naming Stepashin acting prime minister. This caught Duma members completely off guard and prevented them from overcoming their differences in time to muster the two-thirds majority necessary for any of the five articles of impeachment to pass. A week later, the Duma, to avoid giving Yeltsin an excuse to dissolve the parliament, approved Stepashin as prime minister.⁸

Chubais was delighted over Stepashin’s appointment. Speaking at the Carnegie Endowment for International Peace in Washington, DC, in May 1999, he said that Stepashin represented “a new generation of Russian politicians” who would bring stability to Russian political life. Despite his portrayal in the Western media as a spymaster, Chubais said, Stepashin was “definitely not a Communist.” Primakov, by contrast, attracted Soviet-era Communist figures who wanted to reverse Yeltsin’s economic reforms, which was why Yeltsin had to dismiss him. Apparently to counter widespread reports that Berezovsky had helped to engineer Primakov’s dismissal, Chubais made a point of telling the group that Berezovsky’s role in Primakov’s firing was “much lower than he [Berezovsky] would hope.”⁹ But of course, in sponsoring the incessant media attacks against Primakov, Berezovsky did his part.

Yeltsin later wrote that he had never intended for Stepashin to become Russia’s president and had appointed him prime minister as a buffer between Primakov and the real successor, Putin. Stepashin, according to Yeltsin, was just a placeholder until the time was ripe to introduce Putin, whom Yeltsin had already decided upon as his successor. But Iumashev, who was a constant presence at Yeltsin’s side, had a different story. He told Yeltsin biographer Timothy Colton that Stepashin was a serious candidate until he seemed unable to handle the crises the Kremlin was facing—the upcoming Duma election and Chechnya.¹⁰ Iumashev confirmed this in a later interview: “Yeltsin really believed that Stepashin could become his successor. But at some point, the president realized that it was a mistake and it would have to be corrected.”¹¹

If the plan was to have Putin be the successor, Yeltsin did not inform Stepashin, or anyone else for that matter. He admitted as such in his memoirs: “It was too early to put Putin in. Someone else had to fill the gap … This role had to be entrusted to the nice, decent Sergei Vadimovich Stepashin. Of course I would try to explain to him that the question of the future, of the presidential elections, was still open. And he, too, would have a chance to show himself … Stepashin, and of course many other people, would assume that he was the government’s main candidate for the 2000 presidential elections.”¹²

Operating on the belief that he was a serious candidate to succeed Yeltsin, Stepashin quickly stepped into the role of statesman and seemed to do a reasonably good job. On June 19, 1999, he attended a summit of the G8 countries in Cologne, Germany, where the main topic of discussion was the armed conflict in Kosovo and the implementation of the United Nations peace accord between NATO and Yugoslavia. Stepashin appeared at a press conference after the first day of meetings and discussed Russia’s participation in the settlement of the Kosovo crisis, despite its support for Serbian president Slobodan Milosevic.¹³

The next month Stepashin made his first trip to the United States to pursue arms control, encourage investment in Russia, and resolve other problems in order to improve Russian-American relations after tensions had arisen over Yugoslavia. On July 23, he had a long interview with CBS News, in which he displayed an impressive knowledge of issues. Asked whether he planned to run for president in 2000, Stepashin said that his first goal was to stabilize the economic and political situation in Russia and to ensure a favorable outcome for the Duma elections. “And then,” he said, “I think closer to the winter, we’ll see—time will tell.”¹⁴

Stepashin was reportedly well received both at the G8 summit and during his visit to the United States.¹⁵ But, according to one Russian account, this was a drawback for him: “In the opinion of many experts, the results of the prime minister’s PR actions did not strengthen his power. It could have been foreseen that, if he managed to accumulate serious political weight, Yeltsin and his entourage would immediately feel sharp pricks of jealousy and begin to look for shortcomings in his activities.”¹⁶ In other words, the Family wanted Yeltsin’s heir to be someone who could be controlled.

Chechnya Heating Up

A daunting challenge for Stepashin was the deteriorating situation in Chechnya, which the Kremlin had failed to address effectively. Instead of following up on the 1997 peace agreement signed between Yeltsin and Aslan Maskhadov by bolstering the Maskhadov government and allocating funds to improve living conditions for Chechens, the Kremlin appeared to do little as radical militant Islamists backed their elected leader into a corner. The kidnapping of MVD Major-General Gennadii Shpigun in early March 1999 prompted the Kremlin, Stepashin in particular, to threaten Russian military intervention if Shpigun was not released and acts of terrorism not brought under control. It was at this time, according to what Stepashin revealed to the press in January 2000, that the Kremlin began planning for a limited incursion into Chechnya. But the plan was only to create a “security zone” that extended to the Terek River, close to the northern border of Chechnya, not to engage in “large-scale hostilities” with Chechens.¹⁷ Primakov, who as foreign intelligence chief in 1994 had opposed the first Chechen war, reportedly objected fiercely to this plan, but his removal in mid-May allowed it to go forward.¹⁸

Stepashin met Maskhadov on June 11 in Ingushetia, the Russian region bordering Chechnya to the west, and implored Maskhadov to “separate yourself from the bandits.” If he did not, Stepashin told Maskhadov, “then you are finished.”¹⁹ During the next weeks, the situation heated up further, with skirmishes between Russian and Chechen troops and missiles fired from Russian helicopters along the border with Dagestan. Maskhadov’s radical Islamist opponents, including Shamil Basaev and Movladi Udugov, seemed to be pushing Chechnya into conflict by stirring up adherents of Wahhabism, which espoused a pure form of early Islam and especially appealed to radical militant youth.²⁰

Following the Shpigun abduction, Maskhadov gave an interview in which he blamed Berezovsky for the crisis his government was facing, because Berezovsky had in the past negotiated with Chechen criminals and paid them in order to get hostages released: “All those Berezovsky trips, all those bags of money, playing with criminals, as well as opponents [of the legitimately elected president] leads right to this result.”²¹ Although he was no longer secretary of the National Security Council, Berezovsky remained in contact with Chechen politicians and had several telephone conversations with Udugov in the spring of 1999, followed by a meeting with him in Moscow. Udugov, a former foreign minister in Maskhadov’s government, proposed a plan to Berezovsky: led by Basaev, Wahhabis from Chechnya would begin military attacks against neighboring Dagestan, which would provoke Russian troops to move in and cause the collapse of the Maskhadov government. Given that Maskhadov and his allies wanted Chechnya to become fully independent and eventually integrated with the West, Russia would be far better off with an Islamist government in Grozny, which would be staunchly anti-Western. Thus, Udugov proposed, after a limited military action in Dagestan, the Kremlin would install him and Basaev as Chechnya’s leaders.²²

Berezovsky later told Alex Goldfarb that he had not been keen on this proposal, because an Islamic state on Russia’s doorstep “might have unpredictable consequences.” But he nonetheless went with the plan to Prime Minister Stepashin, who said “he would take it from there.” At the beginning of September 1999, when the conflict in Dagestan was well underway, Berezovsky discussed the situation with Putin, by this time the new prime minister, but warned him not to start a full-fledged war in Chechnya, which he said would never end. Berezovsky suggested instead that they should try to bring Basaev and Udugov back into a coalition government with Maskhadov, so the two sides could “neutralize” each other. After hearing him out, Putin responded: “Stop your contacts with Chechens. No more phone calls, nor messages, no small favors. You cannot imagine what my people are telling me about you. If I believed 1 percent of it, we would not be talking here.” Berezovsky promised he would follow Putin’s instructions.²³

Putin’s statements in his autobiography appear to confirm that Berezovsky raised concerns about further military action and suggested an alternative: “In my view, his [Berezovsky’s] proposals on Chechnya are not realistic or effective. Frankly speaking, that is why nothing that he has proposed is being implemented.”²⁴ But Berezovsky would later be accused of supplying Udugov with funds to finance a raid by Basaev and the Arab warrior al-Khattab into Dagestan that took place in early August. Also, he was reportedly present at meetings in Nice between Voloshin, an active proponent of the raid, and Basaev in early July. So, whatever his rethinking of the plan later, he may well have contributed to its implementation.²⁵

Mudslinging

The Yeltsin team had reason to encourage Chechen rebel warlords to incite a conflagration with the Russian military. Absent a crisis, the team’s plan for a successful transition from a Yeltsin presidency to one controlled by its handpicked successor was far from certain. Moscow mayor Iurii Luzhkov, head of the Fatherland (Otechestvo) Party, was highly popular and considered a likely contender for the presidency. Luzhkov had used his authority over Moscow’s economy to forge ties with some of the country’s most powerful banks and media outlets, as well to build alliances with many of the regional governors.²⁶ At one point, members of the Yeltsin group had sent Berezovsky as an emissary to give Luzhkov an offer: if he agreed to grant them legal immunity and guaranteed the results of privatization, Yeltsin would support him as his successor. Luzhkov declined the offer. In the words of journalist Mikhail Zygar: “Luzhkov was sure that the Family was in trouble, beyond salvation … [He] was reluctant to join the fight on the side of those he considered to be the losers. He wanted to associate himself with the winners.”²⁷

Luzhkov began courting Primakov, whose poll ratings were impressive, especially in comparison with Yeltsin’s dismal ones. An alliance between the two men presented the Yeltsin forces with an existential threat. Yeltsin later described the situation:

By the summer of 1999, the slow rapprochement of Primakov and Luzhkov had begun … Together he [Luzhkov] and Primakov could obtain an overwhelming advantage in the Duma elections, especially because Primakov knew how to make a good deal with the Communists … But how to stop them? … In July I repeatedly talked to Sergei Stepashin about this situation … It was clear to me that the final round of a pitched political battle was approaching … Stepashin was able to reconcile some people for a time, but he wasn’t going to become a political leader, a fighter, or a real ideological opponent to Luzhkov and Primakov in the Duma elections. A new political party had to be created, and the prime minister had to be changed.²⁸

Although he had opposed Yeltsin’s impeachment, Luzhkov was becoming increasingly aggressive in criticizing the Yeltsinites. And he had managed to gain the support of Vladimir Gusinsky, who controlled both NTV and the widely read newspaper Segodnia. At the end of May, the popular political commentator Evgenii Kiselev appeared on the NTV show Itogi with a chart displaying the president’s political elite (using the hitherto unpublicized term “Family”) and suggested that its members were engaged in corruption and hiding their ill-gotten funds abroad. Yeltsin later said that the show was like a “stab in the back from people I thought were of my mind,” and put him into a state of shock.²⁹ To make matters worse, the Mabetex scandal reemerged on July 14, with the formal announcement by Swiss prosecutors that they had opened a criminal money-laundering investigation into Pavel Borodin, his wife, and twenty-two other unnamed senior Russian officials. When one of the investigators was asked whether Yeltsin or his daughter were being investigated, he responded “Not yet.”³⁰

Tatiana D’iachenko, in an interview ten years later, recalled the Family’s panic:

An enormous well-equipped propaganda machine was working against Papa. NTV, the Moscow television channels, newspapers, magazines … Their aim was a simple one: to win the elections in the year 2000 … When it became clear that Papa did not want to support the Primakov-Luzhkov tandem, the people were inundated with stories about the Family, about stolen billions, credit cards, castles in Germany and France, houses in London, and so on.³¹

The Kremlin decided to retaliate, pressuring the state-owned Vneshekonombank to renegue on a loan agreement with Gusinsky’s Media-Most company and then announcing that the company was insolvent. In a July 13 newspaper interview, Berezovsky, who was just completing the purchase of Kommersant Publishing House, claimed that Media-Most owed more than a billion dollars in loans and was thus forced to engage in “political racketeering.” By supporting Luzhkov, Berezovsky said, Gusinsky was “openly confronting the Kremlin and the president” and was “acting in the same way as the Communist Party that he criticizes.”³² After ORT repeated the claims about Media-Most, Kiselev suggested on Itogi that NTV was the victim of a smear campaign engineered by Berezovsky and Aleksandr Voloshin, who was now chairman of the board of ORT.³³

According to Khinshtein, Berezovsky had begun to craft a strategy for a media counterattack at the end of June, when he assembled a small group of close allies on his yacht for a cruise on the French Riviera near St. Tropez. Among the guests were Badri Patarkatsishvili, Nikolai Glushkov, and Sergei Dorenko, who until March had hosted a weekly news commentary program, Vremia, on ORT. Khinshtein described the scene:

It was there, swaying on the waves of the Mediterranean Sea, that Berezovsky described his ingenious venture, announcing that Dorenko would soon return to ORT in order to raze Primakov and Luzhkov to the ground. “And how will the Family look at this?”—they asked him. Boris Abramovich only grinned in response: “The Family will do everything that I propose. They have no other choice, otherwise they will be finished.”³⁴

Putin contributed to the effort by initiating an FSB investigation into Luzhkov’s wife, businesswoman Elena Baturina, and her brother Vladimir Baturin, owners of two firms that produced plastics and were allegedly suspected of illegally transferring millions of rubles abroad through fictitious foreign contracts.³⁵ Luzhkov reacted with a fierce counterattack, appearing on NTV’s Itogi on July 18 to denounce Berezovsky for being behind the illegitimate case against his wife, along with the Presidential Administration. Asked how that could be, since Berezovsky was not in charge of the FSB, Luzhkov retorted: “Unfortunately the FSB now works for the Kremlin and not the country.” After Luzhkov insisted that the FSB had been instructed to find “something criminal” in his wife’s business, Putin and the Family apparently decided to back off from the attack on Baturina. The prosecutor’s office announced within days that there was no case against her.³⁶

Stepashin opposed the Kremlin’s use of the media for mudslinging against its political opponents. At a government meeting on July 19, 1999, he observed: “I watched television last night. The channels do nothing but attack each other. They do not cover important events, as if there are no problems other than their own in the country.”³⁷ But his moderate strategy and his attempts to mediate between the presidential team and its opponents did not sit well with the Family. According to Nemtsov, both he and Chubais thought Stepashin was doing a good job as prime minister: “He was a considerably mild man, accommodating and honest. We were convinced that he would not act foolishly. For Russia, such a president would mean a step forward.” But, Nemtsov said, those close to Yeltsin convinced the president that he needed someone who would ensure that he and his family were protected legally: “The members of Yeltsin’s circle were indifferent about how the new president would lead the country. They were only concerned about themselves.”³⁸

Fending Off Investigations

Although he was not implicated in the Mabetex case, Berezovsky was still on the radar of law enforcement bodies. At the request of Russian prosecutors, Swiss police had raided the offices of Andava and Forus, the two companies that had handled Aeroflot’s foreign transactions, in early July. And on July 14, Iurii Chaika, interim prosecutor general, extended the investigation of the Aeroflot case by another six months. Khinshtein reported that Berezovsky and his colleagues faced charges of money laundering and embezzlement. But he added: “Do not think that Berezovsky is sitting with his arms folded waiting for a Black Maria to call at his doorstep. The Kremlin staff and other power structures have lately stepped up their pressure on the Prosecutor’s Office.”³⁹

Chaika and Skuratov had been classmates at the Sverdlovsk Institute of Law in the early 1970s. When Skuratov became prosecutor general in 1995, he brought Chaika to Moscow to serve as his first deputy, commenting in an interview that Chaika was “a very energetic, demanding, and tough person in the fight against crime.”⁴⁰ Chaika pursued the Mabetex investigation after Skuratov took temporary absence from his post in February, and Skuratov had counted on his support when the Kremlin demanded his resignation, asking Chaika to investigate the source of the sex tape. But on April 2, when Skuratov got the news that the Kremlin had arranged for the Moscow prosecutor’s office to initiate a criminal investigation of him, he learned that Chaika had turned against him and was backing the probe. “I had known Chaika for a long time, considered him my comrade, a like-minded person,” Skuratov recalled. “The betrayal on his part was a heavy blow for me, which I experienced painfully.”⁴¹

The Kremlin had reportedly promised to reward Chaika by keeping him in Skuratov’s job on a permanent basis. But in late July, he was forced to step down because of a scandal involving his son Artem. In March 1999, Artem Chaika had loaned his father’s car (complete with official flashing lights) to a couple of armed bandits from Ingushetia, who were stopped by the police, arrested, and charged with extortion of a Moscow businessman for $100,000. As one source put it, “The likelihood that Chaika could stay on as prosecutor general after such an incident was virtually zero.”⁴² Nonetheless, Putin did not forget the debt the Family owed Chaika. After he became prime minister on August 9, Putin appointed Chaika minister of justice. Chaika has remained a key member of Putin’s team ever since, surviving even worse scandals involving him and his family. He became Russian prosecutor general in 2006 and was implicated in Russian attempts to interfere with the 2016 US presidential elections.⁴³

Skuratov himself was in limbo, prevented from working in his office but still supported by the Federation Council, so not officially dismissed. He wrote in his memoirs that in the late summer of 1999, Berezovsky, apparently with the Family’s approval, paid him a visit and asked him to publicly renounce his struggle against Yeltsin’s entourage. In return, Berezovsky said, the Family would support him if he chose to embark on a political career and run for election to the Duma. Skuratov told Berezovsky that he might consider some sort of a compromise if the Kremlin admitted publicly that the sex tape was a fabrication. Ten days later, the two had another meeting, during which Berezovsky dangled another offer: if Skuratov resigned, the tape would be disavowed and Skuratov would be given a special appointment as Russian coordinator of relations with foreign law enforcement authorities. Skuratov thought seriously about accepting but decided in the end that he would be betraying his colleagues who had worked for many months on the investigations. Surprisingly, he was grateful for the offer: “I confess, despite all the hostility, that it made me respect Berezovsky.”⁴⁴

Calling Vladimir Putin

Berezovsky also made another overture on behalf of the Family. In mid-July 1999, he flew in his Gulfstream jet to the south of France and paid a visit to Putin, who was vacationing at a hotel in the seaside resort of Biarritz with Liudmila and their two daughters. According to Goldfarb, Berezovsky said to Putin as the two had lunch: “Boris Nikolaevich sent me. He wants you to become the prime minister.” Putin responded: “I am not sure that I am ready for that,” and suggested instead that he be given Gazprom to run. After more coaxing by Berezovsky, Putin finally acceded but insisted that the offer had to come from Yeltsin himself. Berezovsky agreed, noting that he had been sent to sound Putin out because Yeltsin “does not want to hear no for an answer.”⁴⁵ Just before the presidential elections Berezovsky gushed to an interviewer about how he respected Putin, and added that “there’s one other trait that distinguishes Putin from all the others … Putin had never struggled for power, he only accepted Yeltsin’s proposal.”⁴⁶

Interviewed by Petr Aven in 2014, Iumashev gave a different account of Berezovsky’s visit to Putin. Iumashev claimed that Berezovsky had heard that Voloshin was discussing Putin as prime minister when events in Dagestan started heating up. So, without saying a word to anyone, Berezovsky rushed to the vacationing Putin and told him, “A decision has been made, Vladimir Vladimirovich, you will be the next president.”⁴⁷ In fact, the appointment was still uncertain as late as August 6 when Iumashev, Tatiana, Voloshin, and Chubais deliberated intensely for several hours, without Yeltsin present. Yeltsin had met with Putin on August 5 and tentatively offered him the job of prime minister, but Voloshin had persuaded Yeltsin to wait over the weekend before making a final decision. Chubais was so opposed to Putin becoming prime minister that he organized a meeting with a group of oligarchs to get their support on Sunday, August 8, and asked Aven to go to Putin and advise him against taking the position. Aven duly arranged to meet Putin that same afternoon at Putin’s dacha, but when Putin arrived, forty minutes late, he leapt out of the car shouting, “I have already agreed!”⁴⁸

According to Yeltsin, Stepashin, Putin, Voloshin, and Aksenenko, the first deputy premier, had assembled in his office at 8 a.m. that morning. There he informed them that he had signed a decree removing Stepashin as prime minister and appointing Putin in his place. Stepashin at first refused to accept the decree but then backed down. Putin recalled only that the meeting was “very unpleasant,” because Stepashin did not take the news well.⁴⁹

The next day, August 9, 1999, Yeltsin announced Putin’s appointment on national television. In itself, this might not have been considered a hugely significant event. Putin was, after all, the fourth prime minister to be appointed in the last sixteen months. But, after reminding his audience that there would be a presidential election in less than a year, Yeltsin declared Putin his designated successor: “I have confidence in him. And I want those who go to the polls next July to be confident in him as well and make him their choice. I think he has enough time to show himself.”⁵⁰

Chubais later said that he had backed Stepashin because he had a greater chance than Putin of being elected president: “I fought for my point of view to the end. Right up to that moment when Yeltsin informed Stepashin of his removal.”⁵¹ Chubais had good reason for this assessment. Stepashin’s approval ratings had risen from 19 percent in May to an impressive 42 percent by early August. But for Yeltsin and the other members of the Family, Stepashin was a weak prime minister. Berezovsky later said: “I think Stepashin is a liberal, of course, but he failed to show such willpower or such courage as Putin has shown. Putin did risk a lot as he was coming to grips with Primakov and Luzhkov, because the two guys were the undisputed leaders in that race. As regards Stepashin, he got scared and began to shuffle between the Kremlin and Primakov, Luzhkov and other political forces.”⁵²

In other words, Stepashin was hesitant to go along with extreme solutions in order to defeat Yeltsin’s opponents. When he gave his parting speech to the cabinet on August 9, Stepashin made what seemed like a veiled warning. He stressed that the government must act legally and adhere to the constitution and that the upcoming parliamentary elections must take place as scheduled. He added that “our people will not be deceived by anyone, no matter who wants to do so.”⁵³ Later, just before the Russian presidential election, Stepashin would be more explicit in his concerns about violations of the law. Speaking at the National Press Club in Washington, DC, in March 2000, Stepashin noted that in Russia “the institution of press censorship was being restored,” and warned that “whoever is putting thoughts into Mr. Putin’s head [about reviving censorship] … has to be stopped.”⁵⁴

Outside observers saw a threat as well. The Moscow Times editorialized that “the anointment of Putin—a KGB hack who has never held an elected office—sends the strongest signal to date that his [Yeltsin’s] regime is contemplating a dangerous adventure.”⁵⁵ Communist Duma leader Viktor Iliukhin told the paper that he feared Putin would act against the constitution and cancel elections. But others just considered the Putin appointment a sign of the Kremlin’s incompetence. “It’s hard to explain madness,” Boris Nemtsov told Ekho Moskvy. “The people have grown tired of watching an ill leader who is not capable of doing his job.” Journalist Iulia Latynina was perhaps the most scornful: “Monday morning [August 9], it finally became clear who will not become Russia’s president in the year 2000. It will not be Vladimir Putin … The only thing worse for Putin [than this appointment] would be an endorsement from a Russian lesbian association.”⁵⁶

More Challenges for the Family

It was perhaps not a coincidence that on August 7, the day before Yeltsin confirmed his decision to appoint Putin as prime minister, warlords Basaev and Khattab invaded the Russian republic of Dagestan with 1,500–2,000 armed Islamic militants and declared their goal of establishing an Islamic state in the republic. Stepashin, after being told by Yeltsin that he was going to lose his job, flew to Dagestan on August 8 with the army’s chief of staff, General Anatolii Kvashnin, and authorized a full-scale bombing of the villages occupied by Chechen rebel forces. He warned that the situation was very difficult and that “we could really lose Dagestan.”⁵⁷ But, as he later made clear, Stepashin was opposed to Russian forces going beyond the Terek River: “In August of that year [1999] we told Mr. Putin that it was not desirable that we move any further forward because that might result in some negative implications.”⁵⁸ Putin and the Family, however, had a greater adventure in mind.

On becoming prime minister, Putin asked Yeltsin to grant him “absolute power” to conduct the necessary military operations in Chechnya, which Yeltsin did. Then Putin issued an ultimatum to the Russian military: the Chechen invaders had to be repulsed from Dagestan in two weeks. A combination of heavy Russian bombing of occupied villages and lack of support among local Dagestanis for the Islamic republic envisaged by Basaev and Khattab allowed this goal to be achieved. By August 23, Chechen rebel fighters had withdrawn, and Putin, accompanied by reporters, flew to Dagestan a few days later to celebrate the victory by handing out medals to fifty of the fighters. In his remarks Putin warned about the enemy’s plans and “acts of provocation to be expected in the near future.” As Steven Myers observed, Putin’s remarks “contained the seeds of caution—and, some believed, forewarning—that the conflict had not ended with Basayev’s retreat back into Chechnya.”⁵⁹ In fact, within less than two weeks, Putin’s prescience would be starkly demonstrated.

While fighting had de-escalated in the North Caucasus, the Kremlin faced daunting political challenges at home. Despite Putin’s impressive command of the situation in Dagestan, most pundits deemed him a nobody, just another example of Yeltsin’s impulsive decision making. Polls in August showed that only 1 percent of respondents would vote for a Putin presidency, confirming the concerns of Chubais.⁶⁰ Meanwhile on August 17, Primakov, who had been courted by the Communists, formally joined the powerful Fatherland-All Russia Alliance, a coalition with Russia’s regional governors formed by Luzhkov two weeks earlier. Primakov was widely regarded as the country’s most powerful politician, with polls showing he was trusted by close to 50 percent of respondents. With Primakov on board, more governors were expected to jump on the Fatherland-All Russia bandwagon. Political experts were predicting a victory for the political bloc in the December parliamentary elections and a win for Primakov if he became a candidate in the presidential election scheduled for mid-2000. As Iumashev recalled: “At that time, Putin was opposed by the Primakov-Luzhkov tandem, whose joint ratings were off the charts. The most successful mayor with a budget larger than the total budget of two-thirds of Russia. And the political heavyweight, the favorite of the people and all the special services, Yevgeny Maksimovich Primakov. The entire political elite lined up for them. The governors and presidents of the republics raced to support the future prime minister and president. Businesses were waiting in line to offer money for the election campaign to Primakov and Luzhkov.”⁶¹

The new alliance posed an existential threat to the Yeltsin team. Although the bloc’s platform opposed a return to a Soviet-style economy, run by the state, it did advocate greater government control over business, along with curbs on presidential powers, which would put an end to the prevailing Yeltsin system of crony capitalism.⁶² And Luzhkov himself had publicly spoken of reallocating shares of some companies to those who lost out in the original privatization process. In the words of author Vasif Guseinov: “The thing that frightened the Family and its entourage the most was the redistribution of property that would surely take place if either Luzhkov or Primakov became president.”⁶³

Alarm bells sounded even louder for the Yeltsin team when more stories on Kremlin corruption began to make headlines. On August 19, 1999, an account of massive Russian money laundering via the Bank of New York appeared in The New York Times. According to the report, “Investigators say the transactions seem to add up to one of the largest money laundering operations ever uncovered in the United States, with vast sums of money moving in and out of the bank in a day.”⁶⁴ On August 25, the leading Italian newspaper Corriere della Sera reported that Yeltsin’s family was being investigated by the Swiss for using credit cards that were billed to Mabetex, which also allegedly transferred one million dollars to a Hungarian bank account for the use of Yeltsin’s family. Then on September 3, the paper published a list of twenty-four Russians who were being probed by Swiss authorities for money laundering through Mabetex. Pavel Borodin, Putin’s old boss, was at the top of the list, along with his family members, and former deputy prime minister Oleg Soskovets was also included.⁶⁵ The impact of these revelations was huge, leading to calls in the West for a suspension of the billions of dollars of International Monetary Fund lending to Russia and demands by Russian politicians that those who looted state assets be jailed.

Yeltsin was reported to be in panic mode, as his advisors struggled to respond.⁶⁶ On September 3, he had a meeting with the new FSB chief, Nikolai Patrushev, to discuss the Bank of New York scandal. After the meeting Patrushev told reporters that the case was purely political and connected with upcoming US elections. “It is simply ridiculous,” Patrushev said, “to talk about sums of $15–20 billion that were supposedly laundered.” As for the Swiss credit cards held by Yeltsin and his family, Patrushev said he did not discuss those “rumors” with the president.⁶⁷

That same day, Yeltsin’s chief of staff, Aleksandr Voloshin, held a briefing for journalists to address the corruption scandals. According to Elena Trebugova, the Kremlin had been conducting secret meetings to decide how to react, but when Voloshin stepped forward, he did not deny the accusations. All he could say was that “the proper response to what is happening will follow in the near future. Russia will not be wronged anymore.” Tregubova was incredulous: “This could in no way be called an adequate response to the flow of compromising evidence that has harmed the reputation of not only the government but the entire country.”⁶⁸

A Dramatic Change of Subject

Public attention was diverted from the scandal the very next day, September 4, when the first in a series of devastating bombings occurred in the city of Buinaksk, Dagestan. A powerful truck bomb exploded at Apartment House No. 3, which housed soldiers, mainly Dagestani, of the Russian army’s 136th Motor-Rifle Brigade, along with their families. Fifty-eight were killed, and more than hundred wounded.⁶⁹ An earlier, much smaller bomb attack had taken place on the evening of August 31 in an underground shopping center at Moscow’s Manezh Square, killing one person and injuring dozens. But that attack, for which two Dagestani terrorists would eventually be convicted, was downplayed by the authorities. Appearing remarkably complacent, FSB chief Patrushev assured a journalist that there was no necessity for additional security measures to be taken in Moscow.⁷⁰

Russian authorities immediately attributed the Buinaksk attack to al-Khattab, who they said had used Wahhabi Chechen rebels to carry it out and was hiding in Chechnya. In March 2001, six organizers and perpetrators would be tried and sentenced to varying degrees of imprisonment by the Dagestani Supreme Court, with two others prosecuted later. But, as John Dunlop has pointed out in his deeply researched book on the 1999 bombings in Russia, the version of the bombing put forth by Dagestani prosecutors cannot be trusted, given the clear violations of legal procedure during the investigation and trials. Dunlop provides evidence suggesting that, while some of those convicted were guilty as charged, the FSB and certain elite units of the MVD were aware of the terrorists’ plan and abetted it. Officers of these agencies thoroughly examined the truck that carried the explosives from Chechnya when it reached a checkpoint and let it pass through. Dunlop concludes that “elements among the FSB and the regular police wanted the terrorists to succeed in their plans, most likely because they had been ordered to do so by their superiors.”⁷¹

These superiors included FSB chief Patrushev, one of Putin’s closest allies.⁷² At the helm of the MVD was the recently appointed Vladimir Rushailo, a veteran internal affairs officer, who, as deputy chief of the MVD’s organized crime division, had formed ties with numerous businessmen, including Berezovsky. Berezovsky had been a generous donor to a special foundation Rushailo set up for the financial support to employees of the organized crime division. It was allegedly because of Berezovsky’s influence that Rushailo was appointed to replace Stepashin as MVD chief when the later became prime minister. Rushailo was thus referred to as “Berezovsky’s falcon.”⁷³

Of the two men, Patrushev carried by far the most weight. The FSB was a more powerful agency than the MVD, and Patrushev had a direct line to Putin. He could be counted on to implement Putin’s plans. But what were those plans? If the goal was to distract the Russian public from the mounting reports of Kremlin corruption and to enhance support for the new prime minister’s government, it was not achieved by the bombing in Buinaksk. Because the majority of the victims were not ethnic Russians, there was not the huge outrage in the country that would occur after the subsequent bombings. A second bomb—with explosives powerful enough “to turn the basic part of the city into dust”—had been set to go off that same night near a military hospital in Buinaksk. But it was unexpectedly discovered by local police and defused by military sappers. (As with the first bomb, the truck that transported the explosives from Chechnya had its contents examined by militia, in this case at more than one checkpoint, but was not detained.)⁷⁴ So in the end, the Buinaksk bombing was portrayed by the Russian media as just another episode in the continued fighting and violence in Dagestan. More earthshaking terrorist events would soon follow.