Being Opportunistic in the New Russia
Over the last thirty years, doing business in Russia has been very confusing, even as it has changed and evolved. In the beginning, following the fall of Communism and the breakup of the Soviet Union, business in Russia was uncharted territory. No one in Russia knew exactly what commerce really was—the only thing we all knew about commerce was that it had been punishable during the Soviet era. No one knew what would or would not be punishable now.
By contrast, those people who were crafty enough to do commerce even during the years of the Communist regime, either because they found ways around the system or because they were deeply connected to the government, were the first to profit in the New Russia. They had a head start, well-trained instincts, and no fear to act.
I was fortunate in that I spoke Russian and still had a dozen or so friends in Moscow, each of whom was eager to expand their business and to find a way to do business with the West and with Western brands (there were no reliable brands in the USSR in terms of quality goods and services).
In 1992, I returned to Georgia, and once there, I flew from Tbilisi to Moscow. In Moscow, I met with George Inasaridze, the son of my father’s best friend. We met at a hotel where he told me about his plans of building an export-import company. It was music to my ears as I was thinking about doing exactly that.
At this time, not only was it hard to make money in Russia, it was hard to get your money out of Russia and into a foreign currency as well. Import and export provided an opportunity to do just that.
As I was now living in the United States and he had no access to the American market, George suggested we team up. We were both very well connected in Moscow. His contacts could get us export licenses for any important commodity and could send me whatever Americans needed from Russia or Georgia, such as vodka and caviar. I would, in turn, send him goods that Russians wanted or needed. Most American brands were in desperate demand in Russia and in the former USSR.
He wasn’t talking about toothpaste. What he had in mind was exporting oil, gas, lumber—large-ticket items—and importing computers, cigarettes, and home and consumer products. A wide range of goods and services. It was the opportunity of a lifetime after seventy-five years of the Iron Curtain.
I trusted him. I joined George in his and his partners’ efforts to do global business through their Swiss company, Torola, which means “bird” in Georgian. The slogan of the company was “the Shortcut to the East.”
Doing business was not easy. Corruption was prevalent. Everyone was stealing. We wanted a brand identity that said we were different—and our differentiator was that we would do everything on a legitimate basis. That was really important. The confidence that we could, in fact, deliver was the key to everything. There were dozens of scam artists selling anything and everything American. We were legit.
At that time in Moscow, “Park Place” was the only American-style office building. It was on the outskirts of Moscow on the Leninsky Prospect (on the way to Moscow from the airport). It had been built by Westerners and had a pool, tennis courts, luxury supermarket, and its own garage. Torola had its headquarters there.
They were beautiful offices. Lovely. To this day, I still feel that was the best office I ever saw in Moscow. It was also valuable to have offices there because it seemed as if every foreign company wanting to do business in Russia had its offices there.
In the meantime, David Antelidze and Mamuka Mikashavidze, who were both associates of Torola in Georgia, had opened a bank called Tbilkombank. As we brought American brands to Georgia and sold American goods there and in Russia, the bank was established as the reliable place for foreign companies and for companies who wanted to do business with foreign companies. The bank proved itself trustworthy, reliable, and without corruption, and soon other business accounts followed. Suddenly this small bank in Georgia was an international bank with respected foreign investors.
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Let me explain how business was done in Russia in the 1990s and in the early 2000s. Everyone assumes that to be successful in business in Russia, you would either need government protection or to be in business with the government—which, in many cases, proved true.
If you were taking over or running a major government industry or facility, one that perhaps had been government-owned and government-run for decades, then yes, it was essential to have friends in government.
Those were large businesses that made a handful of people very, very wealthy. However, it was only a few businesses or industries—mostly oil, gas, metals, lumber, petrochemicals, heavy equipment, etc. The government no longer ran most businesses in Russia because it was simply incapable of doing so. Instead, the majority of business operated in the so-called “Gray Market.” So much so that, in a sense, the government was working for the gray market, not the other way around.
A great deal of business at that time was done with the help of intermediaries called “Krisha” in slang (or “roof” in translation). Krisha could be criminals but more often were persons with powerful government contacts. They were fixers who charged a fee to keep your business trouble-free or to find you profitable deals.
The Krisha came to do some of the jobs we associate in the United States with lobbyists, the major difference being that in the US there are laws and regulations governing lobbyists, while in Russia no one was certain what the rules were. Businesses followed nevpisanie zakoni (unwritten rules) that everyone in the business community was aware of but no one had written down.
Russia was a case of street-smart, savvy, and fierce people who were well-connected and opportunistic. People who had been in commerce illegally during the era of the Soviet Union were already skilled operators and enjoyed well-established networks. They had a tremendous advantage during that era. They were Kommersants or Deltsi, in slang—profiteers in close alliance with racketeers and smugglers.
These were the guys operating large industrial facilities with a special gift for cutting corners to deliver large profits. They lived like kings and flaunted their excessive wealth unafraid because of their Krishas or personal friends high up in the government, particularly in the Russian IRS (in Russia, the OBXSS).
There were also black market guys called “Speculanti.” These were the ones who could get you whatever you wanted: tickets to the Bolshoi Ballet or, for that matter, a Cadillac, a Jeep, or a helicopter—pretty much anything your imagination would desire. These fixers made money because they could deliver a unique, foreign product in high demand, a high-luxury product that would make one look cool and elevate your social status. And if to accomplish that they brought black market goods onto the gray market, they took that risk.
The black market was, at that time, as big as the Russian economy. It was very big and very powerful and quite sophisticated. To operate in the black market, you needed to pay off everyone in the chain, from the policeman to the customs officer to the local businesses to the top of the government, depending on how big your operation was.
The money always had to go to the persons in the top of the corruption chain. Otherwise, the next morning or soon after you failed to pay, the police would come and confiscate everything. If convicted, one could go to jail for twenty-five years.
The Kommersants, at that time, were often Jewish-Russian immigrants who’d been allowed to leave the country and had, for the most part, settled in Israel. They knew the system and seized opportunities for channeling goods and services from Europe, Israel, and the US.
Over time their businesses became legal. Some grew what they did into companies. Many did not because they had no understanding of running large companies. Others showed a great talent from the beginning for complex financial dealings and for running a business. They became very rich.
As these individuals accumulated enormous amounts of wealth, they made a smooth and legitimate transition into Western-style business operations with Western investors and partners. However, they never, ever abandoned the Soviet mentality of keeping the top contacts engaged and happy.
They earned their wealth. To operate a large-scale gray market business in Russia without hiccups, you needed to organize all aspects of the business from logistics to sales as well as securing the financial transactions and fees required. Doing so required very efficient strategies, tactics, and execution. And we are not talking about the strategies and tactics you learn at Harvard Business School. We are talking about the negotiating skills you develop on the streets and behind closed doors in Moscow; without them, having even the best contract is meaningless.
Gray market goods were those that found their way to consumers but were often neither authorized to be sold in Russia nor supplied directly from the manufacturer. Such items were often goods that had been diverted from European or even Asian markets.
The gray market was a very complex web of business predicated on the goods and services in deficit working for one goal and one goal only: to squeeze the most profits while the business lasted, while never failing to deliver and never losing trust from customers. This was sort of a hidden Amazon for the Russian (former Soviet) consumer.
The gray or black market was the underpinning for the establishment of Russian capitalism. Those that succeeded in these markets did so because they were very good at it. Were there criminal entities involved? They certainly attempted to be involved in whatever they could. It was a free-for-all, and lots of bad people were looking to make money however they could. And there was always a need for enforcers, people to provide protection and to collect payments.
If all of this sounds intriguing, shady, or fascinating, it was all of that and then some. It’s not like America hadn’t seen any of these elements, but it was different because this was the product of a collapsed Communist system; people were hungry, angry, and many of them desperate to strike and escape with whatever they were able to snatch.
My partners and I understood well how difficult it was to do business and how nimble you had to be to avoid getting entangled in the web of corruption—because once you got in, there was no way out of it. That’s why we developed the strategy of applying logic to the madness by focusing on foreign goods and resources that Russians wanted domestically. We became the gateway to these brands and goods.
At the time, this was an entirely new way of doing business. If you did it right, you were absolutely invaluable to the local businesses dreaming to get their hands on authentic foreign goods.
By acquiring rights to the Western goods in high demand, you could form a pretty efficient distribution structure where you had a vast network of retailers purchasing your goods and services without getting involved in any of the ground operations. We sold our goods through absolutely legitimate purchase and sales contracts as a foreign entity right at the pre-clearance warehouses.
As for goods we were exporting from Russia, we purchased them legitimately as a foreign company and sold them to our Western clients via a FOB mechanism, meaning that legitimate goods were delivered to the terminal in Europe or the United States and picked up by the buyer there. This eliminated the need for us to warehouse, transport, or transfer goods.
What we offered Russian companies was access to the Western market and reliable payments for domestic hard commodities. For large Western brands that had no on-the-ground operating interests in Russia, we offered sales and a new revenue stream. Our prices in Russia were unbeatable because we were buying original product directly from the source.
I spent a lot of time understanding how US businesses worked while my partners in Russia or Georgia understood the domestic market there as well as having a solid network in Switzerland. It was extremely rare at that time to have US and Swiss business networks, knowledge and command of the relevant foreign languages, and good legal counsel to structure contracts with Western companies.
We positioned ourselves as a Western company that understood local challenges and knew how to find solutions. The key ingredient we offered was providing a pathway for legitimate business. Doing so was, in and of itself, an insurance policy against local corruption. We no doubt could have had greater profits with less legitimate businesses, but the long-term risk was too high for us. We chose peace of mind over greed. However, what we did wasn’t easy; you needed strategy and discipline; you had to manage the clash of ideas, ideals, and, from time to time, utterly different ideologies.
My associates—Mamuka Mikashavidze, David Antelidze, and Gia Chavdia—formed a very successful financial services company in Switzerland that became a go-to company for many of the Russian elite to access lucrative investments abroad as well as keep their money safe.
We engaged this Swiss company in financial transactions related to the distribution contracts with US brands. Our network was well organized and extensive, ranging from the US to Switzerland to Russia to Georgia, and was growing fast. It sure was an exciting time. We were on the rise with many new business ideas and projects. Even bigger financial success seemed inevitable. Sadly, the honeymoon ended when the Russian default rocked Russia.
I remember I was having dinner at our New York apartment with David Antelidze when he got a call. The voice on the other end said, “It’s all over. We need to close the bank in Moscow.” David slammed his cell phone on the floor and looked at me with devastation and defeat. Words weren’t needed; I knew the tough times were here. I knew that a new, uncertain chapter in Russia’s history was about to be written. Two years later, Putin came to power and that same chapter is still being written today.
Yeltsin and his government had collapsed. Just before the Russian default, our good friend, after attending one of the private dinners with Yeltsin, told us that Yeltsin walked in heavily buzzed and sat down. The first words he said were “My friends, Mother Russia is dying.”
We knew things were getting out of control, but we never imagined the country would fail so spectacularly. David flew back to Moscow to salvage what he could.
Over the next several months, Mamuka Mikashavidze and I explored several different projects in Russia. It quickly became clear that conditions would need to stabilize further before we could do anything. Manufacturing facilities in Russia were bankrupt, and Russia’s worst nightmare came true; oil, which buttressed the Soviet economy, had fallen to eighteen dollars a barrel. These were difficult circumstances for any hope of recovery.
Of course, the chaos and despair in Russia did create great opportunities for a whole new group of characters, such as Boris Berezovsky. Berezovsky had a degree in applied mathematics, studied engineering, and conducted research on control and optimization theory about which he published many books and articles. Berezovsky first found wealth in the Soviet auto industry. In time, as privatization occurred, Berezovsky became a Russian oil magnate. Along with other Russian oligarchs, he bankrolled Yeltsin’s 1996 campaign for president. While Yeltsin was in office, he was called the Godfather of the Kremlin. However, once Putin assumed power, Berezovsky became a rival.
Back in early 2000, I met with Berezovsky in New York. He had already split from Putin and was living in London. One day his associate called my landline and asked that I see them for dinner, which was set in Manhattan at Nello’s, one of my favorite restaurants on Madison and Sixty-Third.
Berezovsky arrived with his associates and light security. After an enormously expensive dinner where we enjoyed some very expensive wines, vintage Chateau Margeaux and Petrus, I’d hate to admit who paid the bill.
During the dinner, he asked me to move closer to his corner. Nearly whispering, he looked straight into my eyes and told me, “You need to meet my friend Bardi, he’s from Tbilisi. We are not done with Russia. In no time I’ll be back there. Vova won’t last,” he said, referring to Putin. Berezovsky had revenge in his eyes.
However, I knew about Bardi, and as much as I thought Putin needed to face a strong challenger, I didn’t see Berezovsky or Bardi as a better alternative.
As Berezovsky spoke to me about his plans for a new revived Russia, I asked, “What about Georgia?”
Berezovsky answered, “I am working on that. Your motherland,” he said, “is the key to Russia.” At the time, Berezovsky was enmeshed in a lawsuit against Forbes for defamation. But once that was done (he was confident he would win), he told me he was going to Georgia.
It was a conversation that I will never forget. He was a beyond-powerful man of Russia’s nineties who was obsessed with getting his nearly absolute power back.
After dinner, Berezovsky wanted to go to one of New York’s hottest nightclubs, which a friend of mine then owned. So we went.
Berezovsky loved the club and the whole New York nightlife atmosphere. Excited, he talked to me loudly, shouting over the music blasting at the club. Berezovsky said he could use a partner like me in the US. He wanted to buy the Versace villa in Miami and build the most exceptional hotel and spa there.
Berezovsky was extremely smart, but I wasn’t interested in partnering with someone of such a high profile. I hoped that once his initial excitement died down, he would forget about the Versace villa and me. Well, he didn’t. He requested another meeting.
We went for dinner at a trendy Vietnamese restaurant where I told him, as much as I hated to disappoint him, given that I knew nothing about hotels or spas, I would have to pass on the opportunity. He nodded quietly, no words, just a thousand-mile stare. I couldn’t tell whether he was thinking, How dare he refuse me? or if he was considering how to better ensnare me. Who knows? No more words were said.
Berezovsky departed the next day. I went to our house in Litchfield, Connecticut, and while flipping TV channels with my family, I suddenly saw his image displayed on ABC’s Nightline, which was devoting a whole evening’s program to him. Berezovsky was described as one of the most powerful personages in Russia, really the first true oligarch, with an extensive and powerful criminal network. He was characterized as one of Putin’s most formidable opponents.
I was not the only businessperson at those dinners and evenings with Berezovsky, but suddenly I heard that people were saying that Berezovsky was my uncle or my godfather (he wasn’t either), and that he and I went way, way back—when in fact our acquaintance was recent and rather limited.
Berezovsky was one of the last standing Russian oligarchs of the late nineties who possessed both immense wealth and major political power, and who was both super intelligent and merciless. Once he left Russia, he was determined to be accepted in the West and did all sorts of deals—with none of the negative press I received for just one real estate deal with developer Donald J. Trump. Go figure.
Berezovsky died under suspicious circumstances in London in 2013.
A Short Window
In the early 1990s, most of my friends thought that we only had a short window of opportunity in Russia. The generally held belief was that, eventually, Communist hardliners would make a comeback and things in the Soviet Union would go right back to normal, under the Kremlin’s control while a new evil infrastructure took hold, arranged and stratified to benefit whoever was then running the show.
During that initial time, the InterContinental Hotel in Moscow was the center of all the action. Foreign businessmen congregated in the lobby. The InterContinental was still off-limits to non-foreigners, but I understood it could be deal central for me. I just needed a way to get inside to have meetings in the lobby. The doormen had been warned not to let in anyone who wasn’t truly a foreigner.
Now, as I mentioned earlier, I had served in the Soviet Internal Forces. And I knew that the Internal Security Services had offices in the same building as the InterContinental. And I still had friends who worked there.
What I did was have a friend meet me outside. He would handcuff me and then lead me inside, telling the doorman I had been detained for whatever reason and needed to be processed in their offices. Then, once in the elevator, the cuffs would be taken off, I would pay him twenty-five rubles for his trouble, and I would head to the InterContinental lobby.
This worked fine until the doorman recognized me and noticed that I was being detained a little too often. However, he understood that I must have friends in the security services, so he decided that I was okay and allowed me to bribe him directly for my entry. That was how you got your foot in the door there.
And let me tell you: it was worth it.
There were opportunities that came our way that turned out to be very lucrative. And others that were too good to be true. And some downright dangerous.
So, for example, I was sitting in the lobby with a German businessman. He was asking me in detail about doing business in Russia, the people I knew, my network, if I had to bribe anyone, and if so, how I was going about doing that.
My instincts have always served me well and they were screaming at me to tell him nothing about how we operated our business. I just shared general thoughts with him.
He smiled, saying, “It’s like the ocean of opportunity.” But, he said, “that ocean is shark-infested. And I’m afraid that if I dip my toe in the water, it will be bitten off!”
My English wasn’t great, so we spoke Russian. After a while, he said, “You know what, I’m very interested in talking to you more.” He claimed to have a huge business in Germany. He asked me if I could help him purchase substantial quantities of lumber and oil. At the same time, he wanted to provide agricultural and supermarket products for Russia. He asked me if I knew any lobbyists for large supermarket chains, by which he meant criminals providing protection for them.
After our meeting, I called my friend Sergei. I told him it sounded like a potentially great contact. But something about him bothered me. He claimed to be German and spoke Russian with a bad German accent but occasionally he used words that showed a much more sophisticated knowledge of Russian. I wasn’t sure we could trust him. I wondered if he really was a German. Something didn’t feel right.
Sergei told me his family was having a big gathering that night at their beautiful apartment in the heart of Moscow located on Ostrovsky Pereulok near Metro Krapotkinslaya, one of the oldest Metro stations. It is in the Khamovniki District, the “golden mile” that is Moscow’s most expensive residential area.
Ela and Sergei Sergeivhich Kiparisovs, Sergei’s parents, were part of Moscow’s elite as highly respected scientists. His father was a principal of Lomonosov University. Really well connected, Sergei and his friends grew up all over the world. The rumor was always that his parents had friends who were major KGB officers.
Soon after the dinner started, the doorbell rang. Sergei’s mother welcomed into the dining room a well-dressed man in his late forties whom I immediately recognized as the German I had met. He was seated at the other end of the table, but I turned away so he didn’t see me.
Once he started speaking in fluent Russian, I was in complete shock that my suspicions were confirmed.
I quickly whispered into Sergei’s ear, asking him who the man was. Sergei silently patted himself on the shoulders twice (which was the sign of someone being a ranking KGB officer, a “spook”). I became very concerned. My mind started racing immediately, circling back to my conversation with him. How much had I said to him? Did I tell him anything that could get me in trouble? He suddenly caught me looking at him. We nodded at each other quietly.
I told Sergei that I had an early flight to Tbilisi and I had to go. As I left, I saw the man I can only call “the German” watching me. I was afraid he would get up as well and race to confront me. But he didn’t and I never saw him again. Much to my relief.
My partners and I dodged a bullet. He was a certain ticket to arrest, imprisonment, or being forced to do the security services’ bidding.
Still, while at the InterContinental I did meet a real prospect, a very important executive from an oil company, which, in time, became Eni, the Italian oil conglomerate. We ended up doing a deal with him, and he became a very important client.
Now, you might wonder, what did my partners and I have to offer an experienced and sophisticated international oil conglomerate? Well, in essence, we could do what they could not. As an example, let’s say you have a contract for oil, but that oil is in Siberia at Novorossiysk. You have to get that oil to the Black Sea. There is only one pipeline to there, and you have to know the head of Novorossiysk’s oil terminal or your oil will never, ever end up there. The deal may be made in Moscow, but you need to go to Novorossiysk to make sure your oil gets transported.
The secret to success in these deals was in being able to manage the logistics down to every detail. Your Western client’s tanker could not sit idle. You needed to set and keep a schedule so that the oil tanker berthed at the right moment, the oil was unloaded successfully, and the tanker then left for its destination—all with military precision. Keeping the Western client happy was way more important than the size of the profit.
We had to learn to do swap deals, as they were called. In order to get access to the pipeline, you needed to reserve time, and the pipeline was booked way in advance and was nearly impossible to access. If you needed access sooner, then you needed to swap dates with the company that had guaranteed access when you needed it.
Beyond that, the purchase and sale of oil requires substantial funds, borrowed, loaned, and repaid. We needed serious and reliable banking and credit facilities. We made it so that all payments at that time were done in Switzerland.
A relationship of trust with the Swiss bankers was developed that led to having several other foreign clients, as well as issuing letters of credit, so we didn’t have to use our own money.
While this was going on, Moscow was in turmoil. Many of the families that had been powerful under the Soviet regime and their children, who were my contemporaries, found themselves unable to succeed in, much less cope with, the new environment. They couldn’t adjust because they had once had everything they didn’t have to do much for. Their parents were well connected, very powerful, and suddenly all of that was vaporized like it was never there. And there was a new playing field. No one needed them anymore.
In this lawless era, business was up for grabs. That was when the Russian Criminal Elements made their move.
When you’re asking about how business was done in Russia, the simplest answer is that business was done in a way that made money. No one really knew what was or wasn’t ethical. This was not New York, London, or Zurich, where rules had been established by years of doing business and a framework of laws and regulations. This was a newly born free society where the rules were made on the fly and nothing was guaranteed except that today’s rules would change tomorrow without any advance warning. Steve Miller’s “Take the Money and Run” would be an exact description of those times in Moscow.
Oddly, the old Soviet constitution was still in place, but no one knew what was Russian and what was Georgian. What was fair? What was ethical? In business, did the ends justify the means? No one knew, but everyone was trying to grab what they could while it was still there.
That is why you saw the rise of tough guys during the Yeltsin era. During the chaos of the Yeltsin years, the Thieves-in-Law threatened to take over all business in Russia.
The Thieves-in-Law
Earlier I mentioned Puso, one of the legendary bosses of the Thieves-in-Law, a real Soviet kingpin. Allow me to explain further. As you may know, while official Soviet society was under the rule of the Communist leaders, a parallel criminal society was forged inside the Soviet prisons: the Thieves-in-Law.
Thieves-in-Law was an elaborate code with its own rules, regulations, and hierarchy. There were criminal groups and bosses, and bosses of bosses. And then they too had bosses. The chain was long, but at the end it was all going to the top like a pyramid.
Otari Kvantrishvili was a Georgian organized crime boss who became the face of the Russian criminal world in the 1990s. Kvantrishvili was so powerful that he was chosen to mediate among warring criminals or rival gangs. His word was law.
He had many friends in high places, including some who were very popular with Yeltsin.
In the early 1990s, Kvantrishvili was in the process of becoming legitimate. A former champion wrestler, he had formed a political party, Athletes for Russia, and was considering running for office. He coached Dynamo, a wrestling team popular with the military. And he had become director of the Sports Academy, a company that was the agent for selling titanium, oil, cement, and other resources abroad that Boris Yeltsin himself had given freedom from taxes for a two-year period from 1993 to 1995.
When I went to Moscow in 1992, my friends met me and took me to his nightclub. It was called Manhattan Express. No one could get in, only the elite of that time.
This was the wildest nightclub I have ever seen in my life.
Otari Kvantrishvili was at this big table with a great amount of alcohol and an enormous amount of caviar. There was a group of around twenty people there, Russians, Georgians, Armenians, and some Russian Israelis. They were discussing how to divide up Moscow, who was going to get what.
Kvantrishvili was saying to one person, “You’re going to get billboards, because that’s good business.” To another, “You’re going to get real estate for this part of Moscow.” Moscow was huge, a city of twelve million people, so there was plenty to go around. Although Kvantrishvili was powerful, I realized then that there was a lot of hype to his power as well; not everything they were planning was going to actually happen.
I was introduced to Kvantrishvili. I was surprised, but he knew all about me. “So you are in America, right?” he said. “That’s good. We need one from America. That’s great that a Georgian is actually in New York, because I can never fucking go there. They don’t need me. I can never get out of here. So, maybe you should be my man in New York in the future.”
Let’s be clear: I had no intention of being his man in New York or anywhere else. I was going to have nothing to do with him. But that wasn’t something I could say to his face in the moment. Not only because it was supposed to be an honor to be his man, but also because he didn’t like being refused anything.
I didn’t know what to do: how to respond, how to decline his invitation. As luck would have it, I never had to.
On April 5, 1994, at 5:45 p.m. following his well-established routine, Kvantrishvili left the Krasnopresnensky Baths, surrounded by his bodyguards. However, a sniper perched in a building two hundred yards away fired three shots that ended Kvantrishvili’s life.
The gunman disappeared and no one ever definitively took credit for the murder.
Kvantrishvili’s funeral three days later was held at one of Moscow’s most famous cemeteries, Vagankovskoye. From accounts at the time, it seemed like all Moscow was in attendance. Actors, athletes, Olympians, and celebrities of all sorts.
There were more fancy foreign cars parked there than anyone had ever seen in all of Moscow.
Kvantrishvili’s death caused huge chaos in Moscow. There was no one to control the people who were out of control; no one to mediate among the criminals. The government couldn’t do it. And these guys were running businesses that were important to Russia.
So, business in Moscow changed again.
“Moscow Belongs to Us”
I went back to Moscow in 1994, when I needed to leave the US in order to get my green card. There was one beautiful hotel overlooking the Kremlin, the Kempinski. This had become the center for Russian and foreign dealmaking. And it was also, not coincidentally, the center of all KGB activity and that of other spy agencies.
When you were sitting in the Kempinski and talking business, you knew that Russian and other foreign agents were listening. American agents, too. Because everyone knew that Russia was in play. Don’t forget that Russia had tons of nuclear and chemical weapons. There were plenty of bad actors trying to get their hands on plutonium or other weapon systems. And because of these heightened concerns, there was a whole swath of deals and transactions and money made that the officials could no longer be bothered about.
And in this moment of opportunity in Russia, many became rich.
So, for example, when I visited Moscow in 1994, my friend Sergei Kiparisov and my other friend Sergei organized a dinner for me, Russian-style, taking over half a restaurant for us and our friends with a long table laden with caviar and bottles of vodka.
“Moscow belongs to us,” Sergei bragged (as he occasionally did when the vodka was speaking). “We own Russia. We make so much money, I really don’t know what to do with it.” I was impressed. At this time, I was mostly doing music in New York but had done my first few deals in Georgia and Russia.
“I’m starting a pharmacy chain,” Sergei explained. “Because we have the real estate already.” He wanted me to be a partner. “Maybe you can help me with American pharmaceuticals and over-the-counter products.” I told him it was a good idea but not for me. I didn’t have those relationships and wouldn’t know where to begin.
Sergei was fine with that. However, he asked me to follow him outside. There was something he wanted to show me.
I followed him out of the restaurant to the street where his driver/security person was waiting beside a large black car, one of the first Cadillac Escalades in Russia—because the bigger the person, the bigger the black car.
At this time in Russia, there were a lot of out-of-work former soldiers or KGB agents. Many got jobs as security people because they were licensed to carry guns and knew how to use them. They were also trained in threat assessment and improvising solutions when things went bad.
Sergei had two more cars also parked there. He asked me to get in the Escalade. When I did, I saw that the entire back seat was filled with cash. American dollars. There must have been $2 million there.
Sergei explained that the back seats of the other cars were also filled with cash. “We don’t trust the banks,” Sergei explained. What they did instead was bought these cars and filled them with cash, and then used them as their private safety deposit boxes, protected by their security men. And each time they made a lot of new money, they bought a new car. Sergei said he was now up to a fleet of a dozen cars.
“Instead of paying the bank’s fees, I’d rather buy a new car. I can sell them later,” Sergei said.
Was this really a secure way to hoard money? I can’t say. But it is an example of the creative solutions people had to come up with to be successful in the New Russia.
People who were successful needed to figure out what to do with their money. Many of them bought real estate. The wealthiest among them began to convert their cash into tangible assets and bought real estate in London, and cars, and yachts. Instead of paying taxes, they were paying for protection for their money and assets.
Putin
The first time I heard of Putin was from Anatoly Aleksandrovich Sobchak. Sobchak was a brilliant man. He was born in Siberia but studied at Leningrad State University and attended law school at Stavropol before returning to Leningrad State University to complete his PhD and teach law, eventually becoming Head of the Department of Common Law in Socialist Economics.
In 1989, during Perestroika, after election laws were changed to allow independent candidates, he was elected to the Congress of People’s Deputies of the Soviet Union, the highest state authority during the period of 1989 to 1991. During this time, as one of the few legislators with a deep background in law, he drafted much of Russia’s new laws and legislation, including its new constitution. He also was one of the founders and a cochairman of the InterRegional Deputies Group, along with the famous dissident scientist Andrei Sakharov and Boris Yeltsin. Together they worked to remove the Communist party from the ruling structure of Russia.
Sobchak was also appointed Chairman of the Parliamentary Commission to investigate the April 9 tragedy in Tbilisi. In traveling to Tbilisi and in the process of his committee’s investigation, he met several close family friends who even went to St. Petersburg to meet with him, which was a very big deal among our friends.
Georgia loved Sobchak because he criticized the Soviet forces for their behavior against the Georgian people. I still get this warm feeling when I say his name. I met his daughter, Ksenia, briefly at the Russian Easter event when I was in Moscow in 2005. She is a politician and has been a TV anchor and journalist. She is a smart and ambitious young woman who could well be the future of Russia.
It was during that time that I first heard of Putin. Turns out that when Sobchak was involved with Leningrad State University, he worked closely with then administrator of international affairs, a young man named Vladimir Putin.
Under Yeltsin, Sobchak was appointed to the Presidential Commission and was very involved in drafting a new constitution. Yeltsin also appointed a new head of the KGB: Putin.
In April 1990, Sobchak was elected to the St. Petersburg governing council, then became its leader, and then became St. Petersburg’s first independently elected Mayor. Between 1991 and 1996, Sobchak transformed St. Petersburg into a cultural magnet for tourists and upgraded every aspect of the city. Putin was his deputy mayor.
Once out of power, Sobchak was indicted on charges of corruption relating to the privatization of apartments held by him and his family members. Rather than face imprisonment, Sobchak fled to Paris, where he lived for two years until 1999, when Putin assumed power and struck down the charges against Sobchak. It was a vivid display of their close and unbreakable bond.
Sobchak returned to Russia to enthusiastically support Putin. In 2000, in the midst of a Putin election campaign, he went to Kalingrad where he died suddenly in what remains to this day suspicious circumstances. Two of his aides later died as well, all of which indicates possible poisoning. Putin attended the funeral and stood by Sobchak’s wife and daughters.
—
So, back to Putin. When he was head of the KGB under Yeltsin, we understood that the madness in Russia had to end. Clinton missed a historic opportunity to rescue Russia and forge a lasting partnership which could’ve guided Russia and Russians to a somewhat balanced capitalism and democracy.
Instead, chaos reigned. People were starving and they were starving for leadership. As much as the average Russian loves alcohol and vodka, Yeltsin was an excessive example of that. Even for them, he was too much. Things had to change.
I will never forget a conversation I had with Sergei. Sergei had this beautiful, beautiful apartment in Moscow from his father. It was in a monumental Old Russian Soviet building, quite solemn, and they had completely renovated the interior.
Sergei told me, “They’re bringing back Putin. He’s going to rule the country.” The reason was simple: “Because it’s impossible. We can’t do anything. Nothing’s guaranteed, nothing is permanent, nothing is insured. Everything is up for grabs every hour, every day.
“It’s really hard to live like that,” Sergei said. “I don’t trust anyone, and no one trusts me. This is terrible.” The mayhem in Russia had been very good for him. He had profited enormously from the chaos. But even he’d had enough.
Putin was also very smart in recognizing that the vast majority of the Russian populace had become nostalgic for elements of their lives under the Soviet Union—when there was law and order.
Take Sergei, for example. He was in a rare position of privilege. He could leave Russia and fly to the United States and spend an evening in Atlantic City gambling away $100,000. But despite the tremendous freedom he already enjoyed, he was more comfortable with someone like Putin.
The reason, he said, was because Russian pride was gone. “Before Westerners have eaten Russia up, we need somebody like him.”
This is what Americans and the rest of the Western world fail to understand: Putin didn’t really impose himself on Russia. Russia demanded to have a Putin.
Putin understood that his number one job was to restore Russian pride—in other words, to Make Russia Great Again.
—
When Putin first came to power, Russian businesspeople were enthusiastic believing he would introduce a market economy. Through my business partner, Mamuka Mikashavidze, I met several Russian businessmen who worked closely with Putin’s presidential campaign.
They believed in Putin. They were very smart: educated, cultured, and multilingual; they were master chess players and they thought the same of Putin. These were the caliber of people supporting Putin in the beginning.
They dressed in nice suits, nice ties, and they had great aspirations for the Russian economy. They saw America as a potential partner, not an enemy.
When I was in Moscow, they said to me, “Why don’t you take an office where we are? It will be a great office for you.”
“Where are you?” I said.
“We are at Number Three Red Square. Come here. We’ll do business.” I said sure, that would be a dream come true. The office looked out on the Red Square at the Kremlin across the street.
Having that address on a business card was something I never could have imagined. The building was next to the GUM department store.
Three Red Square was also former home to the offices of Putin’s election campaign. Putin had smart people working for him, but he needed smarter people to run the Russian economy. So Putin started making millionaires and billionaires out of the businessmen he trusted. Or the ones he once trusted.
So, for example, Three Red Square was managed by Sergei Pugachev, who is now in exile. They used to call him “Putin’s Banker.” In fact, he was part of Yeltsin’s inner circle and is sometimes credited with having suggested to Yeltsin that Putin succeed him.
At one point my partners and I wanted to buy the building, but to do so we needed to meet with Pugaschev. He was a Russian giant. A Rasputin with red hair and piercing eyes. We quickly understood that the deal was too risky and that the building, at some point, would revert to his ownership.
We decided against pursuing the deal. I was going back and forth from New York to Moscow working on a number of deals in Russia, especially deals in the energy sector—not in fossil fuels such as oil and gas. I had a bold plan to bring wind power, the energy of the future, to Russia.
But before that, I had a major deal fueled by that rarest of commodities, Star Power, powered by one of Hollywood’s brightest lights, Jennifer Lopez.
J-Lo Goes Moscow
The Georgian business community in the United States is not that big. We all know each other by name or by reputation. So, I was not that surprised when, in 2002, I received a call from Irakly “Ike” Kaveladze. He told me that he was working with the Crocus Group, a successful Russian Real Estate construction and development company. Its owner, Aras Agalarov, was in the States, Kaveladze said, and Agalarov would like to meet with me at their New Jersey offices.
Aras Agalarov was born in Baku, Azerbaijan, in 1955. Agalarov spent the greater part of his first thirty years in Baku, attending school and then working for Trade Union organizations, which led, in 1988, to a position at the All-Union Research Central Union of Trade Unions in Moscow. The following year he established Crocus International as a Soviet-American joint venture.
Emin Agalarov, Aras’s son, was born in 1979 in Baku but raised in Moscow. He attended high school in Switzerland and college in New York. In 2001 he was named Commercial Director of the Crocus Group.
Crocus International began life as an importer of premium luxury goods to Russia, and they were still in this business when our paths crossed in 2002. They were in the process of building shopping malls outside Moscow and intending to expand from there.
The Alagarovs had heard that I had success in bringing American brands to Russia and the former Soviet Union, and suggested we might collaborate—first, I helped him bring the legendary American musician George Benson to the Grand Opening of the Crocus City Mall, and secondly, he suggested that Crocus had the best real estate and retail locations, and we would bring retail brands there. It seemed like we might work well together.
When I eventually made a deal with Jennifer Lopez to launch her own fashion and retail brand in the former Soviet Union, we made a deal with the Agalarovs to have the first J-Lo Store in their Moscow mall. The deal was successfully launched at the Agalarov’s mall. We had hoped to bring the business and develop our own retail locations throughout Russia, Central Asia, and eventually Europe. Politics, however, got in the way.
The Ideologist
Our new offices on Romanov Lane eventually became the home of the J-Lo distribution operation. And the showroom was absolutely stunning, amazing. We set up the management and the sales team there. Buyers from stores throughout Russia and other former Soviet states would come to us to place orders.
The Agalarovs had one J-Lo store in their mall and the other one in the center of Moscow, but they wanted to control all J-Lo retail and distribution locations. Our team preferred to sell to individual retailers wherever they were—and we wanted to be able to launch our own stores.
Our idea was to own the commercial real estate ourselves. The way we were going to make the real estate more desirable or higher value was by putting celebrity retail shops in them, of which J-Lo was to be the first. We were working with a number of local banks, including the bank of St. Petersburg, to secure the financing.
Once again, we were making great progress in establishing American brands in the former Soviet Union and establishing legitimate businesses without corruption or criminal influence.
Unfortunately, what we couldn’t control were the politics—and, unfortunately, we found ourselves at the mercy of two competing national narratives and two large personalities: Saakashvili of Georgia and Putin of Russia.
As I mentioned earlier, Saakashvili became president of Georgia in 2004. I met Saakashvili in New York when he went there for the first time as president of Georgia. I believe my publicist, Melanie Bonvicino, and I were the first ones to put Saakashvili on American TV in a major interview with Charlie Rose, who was rocking the PBS channel then. Saakashvili brought a measure of stability to Georgia and immeasurable optimism to its citizens. By the time I ran into George again in 2004, he told me that there was a buoyant spirit in Tbilisi, and that Georgia was coming back stronger than ever. George believed that we would survive as a country and that a day would come soon when Georgians could be happy again. I chose to believe George.
Saakashvili spent his first few years rooting out corruption and cleaning house. Then, one day in 2006, he arrested five or six Russian spies. Without fully understanding that he was doing so, Saakashvili had sparked hostility between Russia and Georgia.
After the arrest of Russian spies, Putin said, “They’re not spies. This is sabotage. Return our citizens, or I want every Georgian out of Russia. Arrest them, take them in, and deport them.”
Suddenly, as Georgians, our whole operation in Russia came under scrutiny. Russia knew I had a company that had traded in oil and other commodities. Suddenly Russian authorities thought it strange that I was bringing an American star’s fashion to Russia. Was I a Georgian-American spy?
One day, our offices were visited by one of our retailers. A very friendly, gentle guy who had seemed perfectly nice. Then he offered us a loan if we needed one.
“No, thanks,” I said. “We’re okay.”
Then he said, “I know you also do business in renewable energy. There is an important professor here in Moscow that I know who is a genius in that, and he wants to meet you. You should meet him.”
I said the professor should feel free to visit us here in the offices whenever he wished.
“He’s not going to come here,” he said, “but it would be actually good for you to meet him. I think it will be necessary for you to meet him.” This was no longer a request. It was an order.
After he left, I called a friend, a Georgian lawyer who lived in Moscow. He recommended I go and said he would accompany me.
—
The professor’s offices were located in a building that was directly behind the infamous Lubyanka Prison, the former KGB headquarters (where, among others, Raoul Wallenberg was held).
The professor met us in a windowless conference room. He was an interesting-looking person who wore thick glasses. He was not so much intimidating as a slightly nervous personality. He began talking in this very friendly tone, but I had the feeling that at any moment he could pounce.
He was asking me about my businesses and my connections to Moscow. I assumed he thought I was some sort of American agent. Putin was about to have an election and they were suspicious as to why I would want to bring an American business to Moscow at just that moment. I told them I felt the time was right because Russia was going to open up to the West even more, and we wanted to be the first.
This went on for a while. Then he said, “Listen. You know, I understand you’re doing these things. But I know also this is not your real business. We’re doing many things in Russia,” he said. “We have this brand-new technology to turn natural gas into oil…” And then he added, “But you have to also know that your people will never win.”
“My people?” I said. “You mean Americans?”
“Yes. You are American,” he said. “You’re not Georgian anymore. I see that even when you are advocating for Georgia you are doing it for America—not Russia. I spent a lot of time in Seattle. I was just a biologic institute worker, you know what I mean?”
“No,” I said. “But why don’t you tell me?”
This was taking a much darker turn than I expected. My lawyer was shaking.
“I’m an ideologist,” the professor said. “That’s what I do. My ideologies are like the Gospel. Everyone who is important in Russia reads my books about Russian ideology and about what Russia is. How important Russia is to the world. That we’re sent by God.”
This was strange. But not as surprising as it sounds. In the early years following Communism, there was a void that needed to be filled, an ideological one, and even a religious one. Many people, even Solzhenitsyn who returned to Russia, sought to infuse the national character with a Russian identity and a Russian religious one. The Russian government knew that they, too, would need an ideology about Russia—with a religious dimension—to capture the hearts and minds of the Russian people.
The professor said, “I have spoken to God. And the first words he spoke were in Russian. You must know that Russia is the center of the universe.” I did not know if he was speaking metaphorically or literally. But there was great intensity and fervor to what he was saying.
“I’m going to give you my book, My Conversation with the Almighty,” he said. “What I discuss in this book is followed by the people running the country. They all listen to me.”
Then he became Dr. Evil again and said, “Your guys will never win. This election is going to be done right and proper.” He wanted me to admit I was working for the Americans and against the Russians. It seemed he wanted to crack me. I wasn’t sure anymore if I would ever be allowed to leave the room.
I decided right there and then that I would push back. That I would not be bullied. That I would stand up to him.
“You know who my grandfather was?” I said. “I actually carry his name, Giorgi. My grandfather was one of the best friends of Joseph Stalin. And Lavrentiy Beria. So don’t tell me about my people and your people. There are no my people and your people.
“My grandfather was the pride of the Soviet Union that you and your people destroyed. You have taken what Stalin and Beria did and wiped your ass with them. So don’t blame me for that.” He was taken aback by that.
But if our whole conversation was some sort of test, then I felt that, at that moment, I had passed. After that, the professor turned nice again and we spent that next hour talking history, philosophy, and religion. He was extremely knowledgeable about the history of religions, about Russian history, and even Georgian history. We talked a good bit about Queen Tamar (a celebrated twelfth-century ruler of Georgia). He had an amazing mind, an extremely high IQ no doubt. And I must admit I enjoyed our conversation.
He gave me a copy of his book. I read it later. It was crazy talk about Russian superiority. But crazy like a fox: intellectual and spiritual, but his religion was Russia. And what he was telling me was that Putin’s Russia wouldn’t be like Yeltsin’s. The days of alcoholic excess were over. From now on it would be focused ideology on restoring Russian pride and Russia as the world’s superpower.
Our conversation ended with him telling me that he was all for business in Russia. And then, abruptly, he stood and said, “Chaika is here. I have to go.”
Chaika was the attorney general of Russia, at that time one of the most feared men. And as we were leaving the building we saw him. That, too, was slightly intimidating.
It’s the strangest thing, but when you have gone through something intense, and that is potentially dangerous, personally and professionally, and come out the other side unharmed, you feel incredibly well—giddy, almost. That is how I felt after leaving the ideologist. The air I breathed seemed somehow fresher, everything smelled better. I had a goofy smile on my face, and I had to say to myself, “Maybe life is not so bad, not so bad.”
After that, things started to go well for me in Russia. A number of good things, seemingly unrelated, happened. I can only assume that it was no coincidence.
So, for example, positive articles about me appeared in the Russian press. On the front page, I was touted as an example of a Georgian who was bringing businesses to Russia, investing in Russia, and working with the Russians (as opposed to Georgia itself that was arresting innocent Russian citizens).
That lasted for a while. However, as the situation between Georgia and Russia got worse, so did my situation there. Every day there were reports of Georgians being made to leave Russia.
Putin himself came out and spoke out against Georgia and Georgians. And Putin seemed to have adopted the professor’s ideology: the Georgians were becoming Americans, and thus were Russia’s enemies.
Soon after, there was a radio report critiquing me and my business, not for bringing money into Russia but for taking money out of Russia (the radio report was based on an article by a journalist named Kashin who, three years later, would be beaten to near death).
The next day, no one showed up to work at our offices. I was sitting there wondering what to do, when CRACK! The door was busted down by three Russian security agents. They tossed my offices. I protested and one of them grabbed me by the neck and started strangling me.
They broke things and took papers and files away. My business visa was about to expire, and I doubted it would be renewed.
Soon after, I left Moscow.