ST PETERSBURG – On the south-western edge of St Petersburg, where the Gulf of Finland starts to join the Baltic Sea, a tangle of cranes and containers juts out across the elegant façades of the pre-Revolutionary palaces across the bay. On one small island, twisted heaps of scrap metal and piles of timber lie in wait for tankers, while across a channel the red-brick buildings that were once the customs house and the warehouses for the city’s finest pre-Revolutionary merchants somehow still stand, half-abandoned among the heavy machinery. Far out on the western edge, a concrete jetty leads to the place sometimes called the ‘Golden Gates’, a concrete sprawl of oil-storage facilities that mark St Petersburg’s most strategic outpost, the oil terminal that was the battleground for some of the 1990s’ most vicious bandit wars.
The archipelago of islands is home to St Petersburg’s sea port, and through its channels Russia’s tumultuous history has always run deep. When Peter the Great founded St Petersburg in the early eighteenth century, he did so in the hope that it would become Russia’s greatest sea port, a vital link between the vast country’s Eurasian land mass and the markets of the West. Thousands of serfs toiled and died to realise his vision of stately Baroque mansions and elegant canals rising out of the freezing and muddy marshes. St Petersburg was always intended as Russia’s ‘window on the West’, a port city that would drag the country kicking and screaming out of its medieval and Asiatic past, no matter what the cost.
Ships carrying cargoes of cloth, tea, silk and spices began to arrive in ever greater numbers from the colonial empires of the West, while Russia’s imperial riches of timber, furs, hemp and potash steamed out. St Petersburg’s merchants and noblemen thrived, but as the city’s population exploded, its workers were among the world’s most downtrodden. Dockers hauled cargoes on and off the ships on their backs, unprotected from the ice and bitter winds that gripped the port for half of the year. When Vladimir Lenin gathered the city’s workers to overthrow the rule of the provisional government in 1917, the dockers were foremost among them. When the city, by then named Leningrad, came under blockade by the Nazis during the Second World War, the sea port was on the front line of the heart-rending struggles to survive starvation and bombs.
And when Russia juddered out of its third revolution of the twentieth century, the St Petersburg sea port again had a defining role to play. It became the ground zero for an alliance between the KGB and organised crime that was to expand its influence across Russia, and later into Western markets and institutions too. It was the starting point for the business alliances of the city’s deputy mayor, Vladimir Putin, who worked closely with the organised-crime leader who ran it, and the oil trader who gained a monopoly on exports through its oil terminal. The relationships forged then, through an elaborate web of barter and export deals, became a model for how Putin’s Russia would be run.
In the early nineties, the port was one of the darkest places in a city riven by gangland shootings and violent battles for cash. ‘The story of the sea port is a very criminal and dirty story,’ said one former senior official in the St Petersburg city council.[1] ‘The port was totally criminalised. There was a lot of shooting,’ according to a former member of the biggest local crime gang, the Tambov group.[2]
The group who eventually took it over were part of a nexus of organised-crime and KGB men that came to rule the roost in St Petersburg in the nineties, and Vladimir Putin was at the centre of it. If in Moscow the forces of the KGB had stayed largely in the shadows, in St Petersburg they were much more visible. St Petersburg’s economy was far smaller than Moscow’s, the battle for cash much more vicious, and the mayor’s office had tentacles extending into most businesses. The main reason for the potency of the KGB’s reach in St Petersburg was that mayor Anatoly Sobchak had little interest in the day-to-day running of the city. He left it to Putin, who ran the foreign-relations committee, which oversaw all trade and much of the rest of the city’s business, and to his other deputy, Vladimir Yakovlev, who was in charge of the city’s economic affairs.
Sobchak and his deputies moved the mayor’s office from the Marinsky Palace, where St Petersburg’s democrat-run city council had its seat, to the warren-like offices of the Smolny Institute, from which the Communist Party had run the city since the days of Lenin’s takeover. The legacy they inherited was desperate. The city’s coffers were empty. There was no cash to pay for imports, and the shop shelves were fast emptying. Domestic food production was in a parlous state. Grain was left to rot at the roadside by inefficient state collective farms, while a series of bad harvests made things even worse. They not only had to deal with the food crisis, but also with an explosion of crime. In the chaos of the Soviet collapse, the institutions of power appeared to be melting away. Organised-crime groups moved in to fill the vacuum, running protection rackets extorting local businesses and taking over trade.
From his office behind the stately columns and fading façade of the Smolny Institute, Sobchak seemed incapable of dealing with the deteriorating situation. He was a convincing and powerful orator who prided himself on his appearance, but his relations with what remained of the city’s law enforcement were fraught. ‘Sobchak was a moron,’ said one former senior KGB officer who worked for a time with Putin in St Petersburg. ‘He wanted to wear the sharpest suits, and he could give speeches for hours on end. He loved all the attributes of power, and his wife wanted to live like an aristocrat. He liked to travel in limousines, but someone needed to work. Who was going to clean the shit from the streets and deal with the bandits?’
Few in law enforcement would even take Sobchak’s calls. ‘The former chairman of the St Petersburg KGB would not even go into a room with him,’ the former KGB officer said. ‘If you tried to explain to him how security worked, it would be the same as explaining nuclear physics. But with Putin, you could explain. You could say, “Volodya, there is this situation and there is this one.” And when he had to phone up the police to sort out situations, for him they would not put down the phone.’
So Sobchak came to rely on Putin, who had maintained a network of connections with the top of the city’s KGB: his former mentor in the Leningrad KGB’s feared dissident-fighting Fifth Directorate, Viktor Cherkesov, was the new head of St Petersburg’s FSB, the KGB’s successor agency. Putin became the point man for dealing with law enforcement. He ‘was someone who could phone someone and say, “We have to do something, otherwise there’s going to be a nightmare,”’ the former KGB officer said. ‘He could agree with a general who before had handled special forces, who could tell him how to handle something and maybe provide back-up. They were people with connections. The system had collapsed, but part of it had remained.’[3]
What emerged out of the chaos and collapse – and Sobchak’s ineffectiveness – was an alliance between Putin, his KGB allies and organised crime that sought to run much of the city’s economy for their own benefit. Instead of seeking to impose order for the good of the city’s population, the only order they imposed was mostly for themselves. Above all, the collapse meant opportunity for their own enrichment – and, in particular for Putin and his allies in the KGB, for the creation of a strategic slush fund that was to preserve their networks and secure their position for years to come. The slush fund had its roots in the barter schemes of KGB-run friendly firms. Later they extended to the sea port, and then to the oil terminal itself. Running through it all was St Petersburg’s Tambov organised-crime group. It was a business, according to one former local FSB officer, that consisted of ‘murder and raiding’: ‘The arms of the Tambov group were covered in blood.’[4]
*
It was near the end of 1991 when Marina Salye first noticed something was wrong. The firebrand democrat, who at one point had rivalled Sobchak as St Petersburg’s democratic leader, had been tasked by the head of the city council to find ways out of the food crisis. A doughty geologist in her mid-fifties with soft greying hair and shadows sunk deep under determined eyes, Salye was relentless. That autumn, she’d successfully pushed for the city to introduce a system of ration cards. It was the first time food had been rationed since the terrible days of starvation of the Leningrad blockade.[5] She’d now decided to push for a barter scheme that would allow the city to exchange raw materials for imports of food. It seemed the only way out of the impasse. A system had already been set up on a federal level to deal with the crisis that was facing the entire country. The Moscow government had begun issuing quotas that allowed the export of set quantities of natural resources held by state-owned enterprises, such as oil products, metals and timber, in exchange for food. But as Salye began to push the mayor’s office to apply for the export quotas for St Petersburg, she got wind of rumours that Putin’s foreign-relations committee had already been granted them. ‘What quotas? Where are the quotas? Officially no one knew anything,’ she later told an interviewer.[6] When she tried to extract more information from the mayor’s office, no one answered her letters. The scheme, she found out, had been under way since at least the beginning of December, and no one had been informed.[7] The biggest problem of all was that the expected food imports were nowhere to be found. As the city entered the new year, it had only one month’s worth of food reserves left.[8]
Salye launched a parliamentary inquiry demanding information on the deals.[9] When Putin eventually bowed to demands and addressed the city council, pale-eyed and defiant, he turned up with just two pages of notes, and told the MPs that everything else was a commercial secret.[10] What he told parliament differed greatly from the documents Salye was eventually able to retrieve from the State Customs Committee and other officials as she ramped up her investigation.[11]
By the time she’d pieced everything together, it had become clear that Putin’s committee had handed out more than $95 million in export licences to an obscure web of front companies, while virtually none of the food imports expected in return had arrived.[12] A further $900 million worth of export quotas had been granted by the federal government, including one for $717 million worth of aluminium.[13] It was impossible to tell whether Putin had gone ahead and handed out the additional $900 million in quotas to other firms which also disappeared with the proceeds, as Salye had been unable to access any further documentation. But she suspected that he had.[14]
As Salye and her deputies dug through the paperwork, the scandal seemed to grow. State customs officials and St Petersburg’s representative from the foreign trade ministry had written to Putin complaining that he’d issued the export licences in violation of laws governing such barter deals.[15] An expert opinion commissioned by Salye’s committee warned that the companies involved were so obscure they could disappear with the proceeds from the sales overnight.[16] Most of them were to receive mind-blowing commissions for their services: 25 to 50 per cent of the value of the deals, instead of the usual 3 or 4 per cent.[17] A handful of the contracts appeared to allow the companies to purchase raw materials for far less than the market price. One quota awarded by Putin allowed for an outfit created just two months before the scheme took off to acquire 13,997 kilograms of rare-earth metals for two thousand times less than the global market price, enabling it to reap vast profits when it sold it all on world markets.[18]
The scheme Salye had uncovered was almost identical to the practices deployed by KGB joint ventures in the dying days of the Soviet Union, which had led to a flood of raw materials being siphoned out of the country from state-owned enterprises at the low internal Soviet price, while the profits from the subsequent sales at much higher world prices remained in bank accounts abroad. In those days, any outfit that wanted to export raw materials had to receive a special licence to do so from the ministry of foreign trade, whose ranks were mostly manned by associates of the KGB. When the Russian government launched a series of barter schemes intended to staunch the looming humanitarian crisis following the Soviet collapse, the deals followed a similar route. But Putin had special permission to award his own quotas, licences and contracts for the city’s so-called oil-for-food deals, bypassing the need to agree each one with the ministry.[19] He’d been granted this by the minister for foreign trade himself, Pyotr Aven, the same bespectacled economist who’d worked closely on reforms with Gaidar in the early eighties, and who then protected Putin when the oil-for-food deals came under scrutiny.
One of the contracts Putin handed out was to a Soviet-Finnish joint venture called Sfinks, which at the end of December 1991 was awarded a quota to trade diesel fuel, cement and fertiliser in exchange for 200,000 tonnes of livestock grain.[20] Another was a Soviet-German entity named Tamigo, given a licence to trade five hundred tonnes of copper in return for supplies of sugar and cooking oil.[21] Dzhikop, the outfit that was awarded the contract to acquire 13,997 kilograms of rare-earth metals for two thousand times below the market price,[22] was co-run by the brother of one of Putin’s university classmates who shared Putin’s love for martial arts.[23] Another recipient of diesel oil quotas was a firm called Interkommerts, run by Gennady Miroshnik, a convicted criminal who’d participated in a scheme that siphoned 20 million Deutschmarks from funds earmarked for the relocation of the Soviet Union’s armed forces from East Germany.[24] Later, Putin’s wife Lyudmilla told a friend that Interkommerts was linked to East Germans her husband met in Dresden.[25]
The barter deals ‘were handed out to his friends,’ said Alexander Belyayev, the then head of the St Petersburg city council who oversaw Salye’s investigation.[26] ‘They had to be given to people Putin trusted. There was no legal tender process then, so it was clear they would be given to people he knew personally, to people he could control. For the oil-product sales, this was mostly connected to Kirishi. They were near monopolists. This was Timchenko, Katkov, Malov.’[27]
The men Putin was apparently handing the deals to appeared to represent far more than a network of friends. One of them, Gennady Timchenko, was a spry man with a charming smile who was fluent in German and English, with a smattering of French. He and his partners, Andrei Katkov and Yevgeny Malov, had set up the Kirishineftekhimexport oil trader when Gorbachev first loosened trade in 1987, granting seventy organisations, including the Kirishi oil refinery near Leningrad, the right to trade outside the Soviet monopoly.[28] All Katkov and Malov had done at their previous posts in the Soviet foreign trade ministry was stamp and file papers for export deals, and they leapt at the chance to enter into their own business. Timchenko appeared to be a different matter. His official biography said he’d worked as a senior engineer at the foreign trade ministry. But according to three people familiar with the matter, he’d taken a very different route. He’d studied German together with Putin at the KGB’s Red Banner Academy before Putin was sent to Dresden and Timchenko to Vienna and Zürich,[29] where, two former senior officers for the Russian foreign-intelligence service said, he had worked as an undercover agent in Soviet trade organisations.[30] It’s possible, according to a third former officer speaking to Russian newspaper Vedomosti, that he was sent there to handle bank accounts funding the KGB’s networks of illegals.[31] ‘I don’t rule out that Timchenko knew Putin then,’ one of the former officers archly told me.[32] Timchenko has repeatedly denied any connection to the KGB, saying any such connection is untrue. A senior Russian banker with ties to the security services also indicated he had links to Putin during his Dresden days.[33]
While Timchenko has also previously denied that his Kirishineftekhimexport had ever been involved in the scandal-racked oil-for-food deals, adding later that all his firm’s activities were ‘transparent and legitimate’, one of Timchenko’s former partners told me his firm had participated, as did two other associates. They insisted that all the food they’d been tasked with importing had been delivered to St Petersburg.[34] But overall, the scheme ended disastrously: only a tiny fraction of the food due to be imported had ever turned up. Instead, Salye suspected, KGB networks were being preserved. Salye told a friend she felt her inquiry had uncovered ‘the tip of an iceberg’.[35] What lay beneath, she believed, was a huge structure that had its origins in the foreign slush funds of the KGB, the networks of which the scheme was designed to maintain.
Salye, it turns out, was probably right.
*
‘Salye was a fool! This all happened. But this is absolutely normal trading operations. How can you explain this to a menopausal woman like that!’[36] It was May 2013, more than twenty years since the scheme was set up, and Felipe Turover, a former senior officer for the foreign-intelligence directorate of the KGB, was telling for the first time the story of how he helped Putin set up the St Petersburg oil-for-food scheme.
We were sitting in the sun on the terrace of a café in Boadillo del Monte, a sleepy market town in the hills near Madrid. The scheme that had been publicly presented in the early nineties as a mechanism to bring in vitally needed imports of food, Turover claimed, actually had a different purpose. It was never really intended that the food would arrive. There were much bigger problems to deal with: ‘All this bullshit about the report of Marina Salye. This was absolutely beside the point. The situation was one of total collapse. There was an absolute lack of federal finance for projects, and Moscow only drank and stole. In order for everything not to collapse, we had to do something. It was like a ship without a captain, and when you try to turn the wheel it falls off. This was what it was like. If we had not started work, then St Petersburg would have drowned in shit.’
Built like a bodybuilder, with a shaved head and dark glasses, Turover had a demonic laugh and a treasure trove of stories about the Soviet collapse. He was from the elite of the Soviet foreign-intelligence service. His father had taught languages at the KGB Red Banner Academy, and served as a translator to Leonid Brezhnev; Giulio Andreotti, the long-serving Italian prime minister, was among his friends. In Soviet times Turover had worked closely with Vladimir Osintsev, the legendary komitetchik who headed the so-called ‘Party Technology’ division of the Central Committee’s International Department, running black operations and illegals deep into countries where the Communist Party was banned. In the chaos that followed the Soviet collapse, Turover had been charged with finding ways to pay debts owed to the ‘friendly firms’ at the heart of the clandestine financing schemes of the KGB and Party influence operations abroad – many of which also supplied crucial equipment, including for energy infrastructure, to the Soviet Union at a marked-up price.
The problem was that when the USSR collapsed, Russia had agreed to take on all the foreign debts of the former Soviet republics in exchange for their foreign property, and had then promptly pronounced itself bankrupt. An international moratorium had been announced on all Russia’s foreign debts. Turover, who needed to bypass this in order to pay the friendly firms without anyone finding out, claimed that the barter schemes were in fact set up as a way to do so. Eventually he’d set up a channel for payments through a small Swiss bank in Lugano, documents show. ‘We could not say we paid someone and did not pay Philip Morris,’ he said. ‘This was not a small matter. For some things we needed to pay right away. If we did not pay for equipment for nuclear power plants, then we would have a catastrophe. When the country stopped existing, everyone had stopped supplies.’
Turover had been sent to St Petersburg, he said, to help Putin set up his own scheme to pay off debts to some of the friendly firms. One of them, he claimed, was an Italian outfit called Casa Grande del Favore, which he said was one of a handful of engineering firms capable of the delicate operations required for repairs of the sewerage system that criss-crossed St Petersburg’s myriad of canals: ‘We had to pay, because without completion of the work St Petersburg would be covered to the tops of its cupolas in crap.’ He’d advised Putin to set up the oil-for-food scheme, he said, because ‘We needed to have operative instruments to be able to pay someone off fast.’[37]
Turover was essentially admitting that from the start the scheme had been intended not to bring in imports of food, but to create a hard-currency slush fund for the city. But without any oversight, there was no way of telling whether any of the funds were actually used to pay off the debts to the friendly firms, or whether they were in fact funnelled to networks of KGB agents still operating abroad. Turover claimed that there was no other way to operate, because the Russian state bank in charge of foreign operations, Vneshekonombank, was in a state of collapse. All of its accounts had been frozen January 1 1992, when the Russian government announced it had run out of funds. ‘It was a pure necessity,’ said Turover. ‘It was not possible to pay the expenditures of the city any other way.’[38] Any hard-currency accounts officially connected to City Hall would be frozen, along with the other accounts impounded under the Soviet bankruptcy: ‘If they’d kept it on the accounts of the city, it would mean the same thing as keeping the cash in VEB. But if you had funds somewhere in foreign accounts, in Liechtenstein, then you could pay immediately.’[39]
Russia’s central bank had used the same reasoning when it tried to explain away a scandal that emerged later in the nineties, when it emerged that it had transferred tens of billions of the country’s hard-currency reserves through a small offshore firm in Jersey named Fimaco, which had been established in November 1990, shortly after Ivashko ordered the creation of the ‘invisible Party economy’. The secret transfers through Fimaco, the Russian central bank chief later argued, had been necessary to protect the funds from being seized after the Soviet Union pronounced itself bankrupt, and to pay off the foreign debts of the Soviet international banking network.[40]
But there was zero oversight over any of the transactions, and rather than paying down debts, many suspected most of the money was used to fund the foreign networks of the KGB. In many ways, the central bank’s Fimaco operations and Putin’s oil-for-food scheme were cut from the same cloth. They looked to be part of the black cash of the Russian regime, and were so lacking in transparency that they could just as easily be used as the personal slush funds of the officials running Russia. Turover insisted that Putin never stole from the slush funds he helped create through the oil-for-food scheme. ‘But he spent money, of course. Of course he spent some of the money, and somehow managed this money, because he needed to travel, to pay for hotels, and he probably needed to eat as well.’[41]
In essence, what had been created was what in Russian criminal parlance is called an ‘obschak’, a common cash pot or slush fund for a criminal gang. It was a model based on handing out riches to a tightly controlled network of close allies, where the lines between what was to be used for strategic operations and what was for personal use were always conveniently blurred. This model became the basis for the kleptocracy of the Putin regime, and later its influence operations too – and it was based on the clandestine networks and payments systems of the KGB.
As for Salye, she was sidelined as a political figure. Sobchak blocked any further investigation of his young protégé’s oil-for-food deals. In the mid-nineties she moved to Moscow, where her voice was drowned out in the capital’s political din. On the eve of Putin’s election as president, however, she resurfaced to publish the first in-depth investigative article on the deals, titling it ‘V. Putin – The President of a Corrupt Oligarchy!’ Although her findings created a furore among liberals, they had little impact nationwide. Soon after the election she withdrew to the depths of the countryside near the border with Finland, miles down a boneshaking road from the nearest town. Only a handful of journalists made the journey to interview her there. But the scheme, and her investigation of it, remained her abiding obsession till the day she died, just weeks after Putin began his third term in 2012. She knew she’d glimpsed the true nature of his regime in those deals.[42]
The KGB men who took over St Petersburg with Putin were far more commercially minded than the generation that had gone before. Though they mourned the collapse of the Soviet empire, many in the younger, middle echelon of the security services like Putin had fast embraced the tenets of capitalism and rejected the dogma of the Communist Party. For this new generation, it had been Communism that failed the empire, leaving them high and dry in Afghanistan and abandoning them in East Germany. ‘They saw Communism as having betrayed them,’ said Andrei Illarionov, the former presidential economic adviser to Putin.[43] They were the product of the operations the KGB launched in the final years of Soviet rule to create networks of foreign firms. The secrecy surrounding these activities meant that from the beginning, the methods of the KGB men of the eighties resembled money-laundering operations.
Once the oil-for-food scheme was done, Putin’s allies began to move in on the sea port, which initially together with the oil terminal and a fleet of ships was part of a vast state holding company known as the Leningrad Baltic Sea Fleet, or BMP. For the St Petersburg KGB men, the BMP had long been a strategic asset and the story of how Putin’s people took it over is inextricably bound up with the forging of an alliance between Putin’s City Hall and the city’s most notorious organised-crime group, the Tambov group. In Soviet times, the KGB had manned the fleet’s ships as trade aides to the captains.[44] They knew intimately its trade routes, its cargoes, the contraband and the money to be made. In its heyday, hundreds of ships had set out from Leningrad carrying oil products, metals and grain, while others arrived from as far away as South America carrying fruit, sugar and smuggled goods, vital for underground operations and cash. In those days, the BMP represented the city’s most strategic cash flow. Even in 1991, the year of the Soviet collapse, its net profits were in the hundreds of millions of dollars.[45] It was not only the owner of nearly two hundred passenger and cargo ships, it also controlled the entire Leningrad sea port, including its oil terminal, as well as the neighbouring ports in Vyborg and Kaliningrad. It was the key to the city’s wealth.
The man who ran the Baltic Sea Fleet at the time of Yeltsin’s revolution, Viktor Kharchenko, was an avowed liberal who under Gorbachev’s perestroika reforms had won the government’s permission to carve out the company as his own fiefdom. Square-jawed and built like a tank, Kharchenko had become increasingly independent. He’d risen from a childhood spent in an orphanage to become one of the city’s most revered businessmen. In 1990, under his watch, the BMP became an enterprise he rented from the state, which kept 50 per cent of its profits for reinvestment.[46] He’d grown close to Yeltsin, and when the Communist regime collapsed in the wake of the failed August putsch, he unceremoniously kicked all the KGB men out of the fleet.[47]
Kharchenko was carving out a separate power base just at the time the St Petersburg KGB men most urgently wanted to keep control of the cash flow. In the chaos of the Soviet collapse, and with organised-crime groups also trying to get a piece of the port and the oil terminal, it took over a year for them to exact their revenge.
One of the first moves was made quietly. Late one evening in February 1993, Viktor Kharchenko was returning home from a meeting with Yeltsin in Moscow when police stopped the Red Arrow train he was travelling on just outside St Petersburg. He was hauled off the train, charged with siphoning $37,000 out of the Baltic Sea Fleet, and jailed.[48]
Kharchenko was released on bail four months later, but he was removed from his post in charge of the BMP. The St Petersburg KGB men installed their own director, sold off the fleet of ships one by one and transferred them to a myriad of offshore companies. In the process, one of the BMP’s directors was shot dead.[49] ‘It was a real raider attack,’ said one of Kharchenko’s associates. ‘They sold off the ships for nothing. Everything disappeared. They siphoned everything out of the country.’[50]
Kharchenko’s former associates still fear to speak of what happened back then, or about who was behind the attack. But the footprints of the local KGB men were everywhere. ‘They needed to clean their boots and eat,’ said one. ‘They didn’t pay attention to anyone. They just took BMP and looted it.’[51]
The raid was a foretaste of operations that were to come later. The KGB men had bent St Petersburg’s law enforcement to their will to take over the city’s most important trading link. Kharchenko had been removed as BMP chief at a crucial moment. At the same time, the port and the oil terminal were being carved out from the Baltic Sea Fleet into separate entities, and privatised by Putin’s City Hall. ‘They pulled out the harbour walls from BMP,’ said a former Kharchenko associate.[52]
As City Hall began to privatise part of its stake in the sea port, Ilya Traber, an alleged St Petersburg mobster later named by Spanish prosecutors as an associate of the Tambov organised-crime group, was quick off the mark.[53] His men bought up shares from the port’s workers, who’d received them as vouchers, as soon as the sell-off began. The process was violent. ‘There were huge violations in the privatisation of the port. But all this was covered up,’ said a former Traber associate.[54] From the beginning, Traber seemed to have an inside track. On paper, the state retained a 49 per cent stake in the port: 20 per cent through the federal property ministry, and 29 per cent through St Petersburg’s City Hall. But a clerk at the City Hall Property Department somehow lost the City Hall voting rights to the 29 per cent stake through a ‘mistaken’ stroke of a pen, leaving Traber and his associates free to do as they wished.[55]
‘The raider takeover would not have happened without help from the mayor’s office,’ said a former city FSB officer.[56] After a series of violent struggles, Traber, who’d become the quintessential intermediary between the St Petersburg KGB men and the Tambov group, established control over the oil terminal too.[57] He’d first arrived in Leningrad in the early eighties, as an ex-officer from the Soviet nuclear submarine fleet. A squat and burly man with a thick neck and close-set eyes, he’d washed up at a city-centre bar named Zhiguli,[58] a favourite haunt of Leningrad’s street thugs and budding black marketeers. Traber worked there as a barman and administrator, and in the bar’s dark reaches he began to trade in hard currency, and then in the city’s rich collection of tsarist-era antiques. He soon cornered the market, earning himself the nickname ‘Antikvar’. By the end of the eighties he was moving his business out of the black market and into the light, setting up the city’s finest antiques store on Nevsky Prospekt. There he established ties with St Petersburg’s newly-elected mayor Anatoly Sobchak and his wife Lyudmilla Narusova, who became frequent customers, forging a close friendship with Traber that was to last long after Sobchak’s time in office.[59]
Traber had always worked closely with the city’s KGB, without whose assistance it wouldn’t have been possible for him to smuggle antiques. ‘It was clear he had deep ties with the city’s law enforcement,’ said a former senior official from the city parliament.[60] He was also ‘in business with the Tambov group’, said a former FSB officer who worked in the St Petersburg contraband division.[61]
At that time, the Tambov was becoming the city’s most powerful organised-crime group. Its leader, Vladimir Kumarin, had served time in jail in 1991 following a violent battle with another of the city’s mafia groups. After he emerged from prison, with the help of Putin, Traber and his men, the Tambov began taking control of St Petersburg’s entire fuel and energy business. The battles with rival gangs continued: in 1994, Kumarin lost one of his arms in a bomb attack. By that time, however, he was creating the St Petersburg Fuel Company, or PTK, which became the city’s monopoly domestic oil distributor, while Ilya Traber was taking over control of the sea port and the oil terminal on the Tambov’s behalf.[62] (Later, Spanish prosecutors described Traber as a co-owner with Kumarin of PTK.[63]) Kumarin became so powerful that he was known as St Petersburg’s ‘night governor’. In essence, he was the dark side of City Hall.
Putin seemed to be central to these manoeuvrings, the point man providing logistical support from the mayor’s office. Together with his trusted deputy Igor Sechin, who towered over a lectern in an anteroom outside Putin’s office vetting all who entered, he was the one who issued the licences that allowed Traber to control the port and the oil terminal. He was the one who granted Kumarin’s PTK an exclusive contract to supply fuel for the city’s ambulances, buses, taxis and police cars.[64] The first sign of his cooperation with the Tambov group came late in the summer of 1992, when his Foreign Relations Committee registered a Russo–German joint venture, the St Petersburg Immobilien Aktiengesellschaft, or SPAG, for investing in the city’s real-estate business. Much later, German prosecutors would allege that SPAG was a vehicle for laundering illicit funds for the Tambov group, as well as for a Colombian drugs cartel.[65] During his stint as St Petersburg’s deputy mayor, Putin served on SPAG’s advisory board. The Kremlin said this was no more than one of many such ‘honorary’ positions he held as deputy mayor. But one of SPAG’s co-founders said he met Putin five or six times to discuss SPAG’s St Petersburg business.
For Gennady Timchenko, the alleged former KGB operative who’d apparently known Putin since their days studying spycraft together at the Red Banner Academy, gaining access to the oil terminal had also always been key. He prided himself on his powers of persuasion and, in later interviews, he’d often explain his success with a nod and a wink about his ability to sell anything to anyone.[66] Since childhood he’d been part of the Soviet elite. His father held a senior rank in the armed forces, and he spent some of his early years in East Germany. His knowledge of German helped secure him a job in Soviet foreign trade and, according to former associates, propelled him into the ranks of the KGB, where he allegedly worked undercover as a trade representative in Vienna and Switzerland. Through his connections he forged a partnership with a former senior KGB officer, Andrei Pannikov, a thick-set man with a broad grin and hands as big as dinner plates. Pannikov had studied offshore finance at the Soviet Trade Institute, and then, with the blessing of the KGB’s foreign-intelligence chief Leonid Shebarshin, set up the first joint venture to be licensed to export oil products outside the Soviet monopoly.[67] Timchenko’s Kirishineftekhimexport oil trader formed a partnership with Pannikov’s Urals Trading – and for a time, from 1990, Timchenko headed Urals’ branch in Finland. According to a report by French intelligence, the company had initially been set up by the KGB in the eighties as part of a network of firms to transfer assets for the Communist Party[68] – a claim Timchenko denied.
Even with all their connections, for at least two years Timchenko and Pannikov were unable to gain access to the St Petersburg oil terminal.[69] Not only was it part of Kharchenko’s fiefdom, but as the power of the Soviet Union fractured, it became a vicious battleground for the city’s warring criminal groups. The oil trader Timchenko co-founded had ready access to supplies as the in-house trading arm of the nearby Kirishi refinery, part of the Surgutneftegaz oil company. But without access to the St Petersburg terminal, it was forced to export its oil by rail to neighbouring ports in Estonia or Finland, a much costlier route.[70]
Gaining control of exports through the St Petersburg terminal became so important that Timchenko turned to Putin for assistance. In January 1992, together with Pannikov’s Urals Trading, Timchenko set up a joint venture with Putin’s Foreign Relations Committee called ‘Golden Gates’.[71] They aimed to bypass the existing terminal, beset by rival gangs and under Kharchenko’s ultimate control, and raise Western financing to build a new, upgraded terminal.[72]
This was the first time the ties between Putin and Timchenko had emerged into the open. For almost a year, Putin led discussions with France’s BNP Paribas on a credit facility for the new oil terminal, backed by exports through Urals Trading.[73] But the talks fell apart when one of the key negotiators, a former KGB officer operating in Paris named Mikhail Gandorin, died just before the loan was to be approved.[74] ‘It looked like he’d been given something,’ one former Timchenko partner involved in the process said. ‘He called me two days before he died, and he couldn’t speak.’[75] That summer another member of the Golden Gates group, Sergei Shutov, was threatened and told to stay away from the project.
The project was under severe attack, with St Petersburg’s mafia groups, including the Tambov, battling each other to gain control of revenues from the existing terminal. The pressure mounted to such a degree that, according to two senior Western bankers, Putin sent his two young daughters away to Germany for their safety.[76] There is no indication Timchenko had any involvement in the violent struggles that accompanied Traber’s takeover of the port and oil terminal. But eventually, instead of building a new terminal, the way was opened for him to win a monopoly on exports through the existing terminal.[77]
One former Traber associate, a former Timchenko partner and a former KGB associate claimed Timchenko would only have been able to gain such a monopoly through forging some kind of working relationship with Traber. ‘Traber always had good relations with Timchenko,’ said one of Traber’s former associates. ‘The monopoly Timchenko won on exports would only have been possible through such ties.’[78] ‘If you need to ship oil and the port is full of bandits, then you need to agree,’ said a former senior KGB officer who worked with Putin in the nineties. ‘There was no way to go through without their agreement.’[79]
Lawyers for Timchenko said the relationship was no more than a ‘commercial, arm’s-length’ one, while any suggestion Timchenko had any involvement with organised crime, corruption or any other improper or illegal activity in St Petersburg, whether ‘via Mr Traber or in any other way’, was false and libellous. In 2011, a Timchenko representative told Russia’s Novaya Gazeta Timchenko was acquainted with the co-owner of Traber in the sea port and oil terminal, Dmitry Skigin, but the two men had not engaged in any joint business projects.[80]
At the same time, Timchenko was drawing on a network of KGB-linked foreign bankers to finance his trading operations. First, there was Dresdner Bank, headed in St Petersburg by one of Putin’s former Stasi comrades, Matthias Warnig, who’d worked with him in Dresden as part of a KGB cell.[81] Then there was Andrei Akimov, who’d worked with Yevgeny Primakov at the Institute of World Economy before becoming the youngest head of the Soviet foreign bank in Vienna, where, in the year before the Soviet fall, he set up his own private venture, IMAG, which provided financing to Timchenko.[82]
All the while, Putin assisted, issuing the licences allowing Timchenko to use the oil-storage facilities at Traber’s sea port, and helping facilitate supply arrangements between Timchenko’s Kirishineftekhimexport and Kumarin’s PTK.[83] Kumarin, meanwhile, joined the board of both outfits’ supplier, the Kirishi oil refinery.[84]
‘It was all very well organised,’ said Maxim Freidzon, co-owner of another oil trader in the city. ‘Putin and his guys ensured support from City Hall. Because of his KGB past, he could help with the logistical organisation. It was all one team.’[85]
The alliance that was forged then took KGB traditions from before the Soviet collapse and put them to a still more commercial use. ‘As far as I remember, the symbiosis between the bandits and the KGB had always existed,’ said Freidzon. ‘The KGB had worked with the bandits in the currency markets and in prostitution rings. They were sources of information. It was a natural symbiosis: neither of them had any moral limits. The bandits were like the infantry for them. They would take all the risks.’[86]
Putin’s interest in St Petersburg’s sea port and oil terminal often seemed more direct than that of a state official responsible for the city’s share. The alliance he built with Ilya Traber and his men troubled even visiting businessmen. When one was brought in to help arrange financing for the port, he was whisked from the city’s Pulkovo airport straight to Traber’s lair in an armoured car, accompanied by police and Traber’s guards. On arrival at the high-gated compound in a back street, he was escorted past armed guards and snarling German shepherds. After passing through several rooms adorned with icons, he arrived at an inner chamber where Traber was waiting, wearing a tracksuit bottom and slippers, a thick chain with a huge gold cross around his neck – the uniform of the city’s bandits. The businessman was left in no doubt about whom he was meeting. ‘It was like in the movies,’ he said. ‘My heart stopped when I saw him.’[87]
The scene was far from what he had expected when he was invited by an official from City Hall to assist with financing the port. But after a tense discussion with Traber, he received the nod of approval. The next day he was taken to more salubrious surroundings: the downtown law offices of one of Traber’s business partners, Boris Sharikov, on one of St Petersburg’s most picturesque canals. Also at the meeting was a former KGB officer who’d become another of Traber’s partners, as well as Putin and the City Hall property chief Mikhail Manevich, and a smooth-talking thirtysomething named Dmitry Skigin, who the businessman was to learn owned the port jointly with Traber. Skigin was the acceptable face of the port, a mild-mannered geek, fluent in the language of international finance, a disciplined businessman who went mountain climbing in his spare time and spoke English and French. His father Eduard was close to Putin, according to Monaco intelligence.[88] But according to two of Skigin’s former business partners, he was also a front for another St Petersburg crime boss, a pugnacious former boxer named Sergei Vasilyev, with whom Traber had agreed a fragile peace for joint control of the port, and later for its oil terminal.[89]
The alliance St Petersburg’s administration forged with the Tambov group became embedded deep in the city’s infrastructure. With the help of Putin’s men in City Hall, the sea port become a major hub for smuggling drugs from Colombia into Western Europe, former senior KGB officer Yury Shvets later testified to a London court. One of Putin’s closest allies in the St Petersburg security services, Viktor Ivanov, had assisted the Tambov group in taking over the sea port, while Putin provided protection from the mayor’s office, he said.[90] (Ivanov strenuously denied the claim, but other signs emerged that the St Petersburg port was a vital channel for drug trafficking.[91])
Control of the port became so strategic that when, in 1997, the Property Department chief Mikhail Manevich sought to return the voting rights City Hall had lost to its 29 per cent stake during its privatisation, he was shot dead by a sniper as he drove to work.[92]
‘Manevich was pushing for it all to be returned to the state,’ said a former Traber associate. ‘The leverage that he had was that he could refuse to extend the licence for the long-term rent of the port including the oil terminal. And for this he paid with his life.’[93] Vyacheslav Shevchenko, a former member of the St Petersburg parliament and a close Manevich ally, reportedly testified to the police murder inquiry that in the final days of his life Manevich had been deeply troubled by the situation at the port: ‘On his request, I went twice to the port and spoke with the head of the port. I made a proposal that the English insurance company Lloyds should come to analyse the port’s financial situation. A week later, two of Traber’s bandits visited me and told me if I went to the port again my head would be cut off with an axe.’[94]
Traber refused to comment for this book, saying the allegations were ‘fantasy and slander’.[95] Just three months after Manevich’s murder, the port’s shareholders agreed to extend a new long-term management contract for the port to a new Traber company, OBIP, owned by a Liechtenstein foundation called Nasdor Incorporated.[96] Later, the only person who ever dared to speak out publicly about the looting of the Baltic Sea Fleet was the city’s mayor at the time it occurred, Anatoly Sobchak. Long after he had stepped down he wrote a newspaper article in which, for the first and only time, he publicly criticised the actions of the city’s post-Soviet KGB. ‘The prosecutors, the FSB and the policemen who took part in this should be charged with abusing their position and for causing the country enormous loss.’ he wrote.[97] Four months later he was dead. ‘I fear this was what cost Sobchak his life,’ said an associate of Kharchenko.[98]
In the eyes of Putin’s KGB allies, the alliances they forged then were necessary as the only way to restore some degree of control in the chaos of the Soviet collapse. The organised-crime groups were the infantrymen they needed to help control the masses, the men on the street – as well as in the prisons, according to one of Putin’s associates then. This was a typical KGB practice, forged in the Soviet past, when Putin for instance had run illegals through East Germany. ‘They worked with people. This is what they did,’ said a former KGB officer who worked with them. ‘Imagine you need to calm down a bunch of alpha males. If you can’t shoot them, this is terribly difficult work.’[99] But the argument that they needed to do this if they were to bring order was only a self-justification behind the power grab. The oil-for-food scheme had also been set up ostensibly to save the city – whether to bring in food or to pay down debts. But all it had achieved was to create a network of black cash to preserve the power and the networks of the KGB.
In the skein of these relationships, another thread led to one of the structures set up for the Communist Party’s ‘invisible economy’ in the final days of its rule. This was Bank Rossiya, a small St Petersburg bank which was one more key intermediary in some of the oil-for-food barter deals. Like many of the institutions and firms set up by the Party in the dying days of the regime, when the August 1991 putsch failed and the Soviet Communist Party was banned, control of Bank Rossiya passed noiselessly into the hands of representatives of the KGB. Its new shareholders included a senior KGB officer and two KGB-connected physicists who specialised in rare-earth metals, materials so rare, and so strategic, that trade in them could only be handled by members of the KGB.
When the senior KGB officer Vladimir Yakunin returned to Leningrad in February 1991, a year after Putin, from a posting undercover at the United Nations in New York, he was shocked by the conditions that greeted him. He had come from a comfortable residence in New York to the grime of a working-class area of Leningrad, where the street lamps rarely shone and his wife would return home from the shops in tears because the only thing on the shelves was pickled cucumbers. ‘In essence, the country that had sent me to work abroad, and in which I grew up and where my children were born, had ceased to exist,’ he said. ‘So too had the values – the social and moral values – which were the fundamental basis for any society. The entire country had descended into a certain darkness.’
It seemed to him that everything he’d once believed in had collapsed: ‘We were brought up in the spirit of loyalty to the Party and to the people. We really did believe we were doing something useful for our country and for our people.’ But like many in the foreign-intelligence services, he’d long been able to see that the Party leadership was failing: ‘There was no one who knew how to deal with the growing problems … The gap between reality and ideological dogma led to deep distrust in the country’s leaders.’[100]
Although the loss of empire and the loss of the decades-long Cold War hit men like Yakunin hard, he was among those who moved fast to embrace Russia’s new capitalism. And while he said he hankered for the days of certainty, for the morality and values that he believed lay at the foundation of Communism, that did not stop him from leaping into business before the Soviet Union had even collapsed, to pocket vast amounts of cash both for himself and, more importantly, to help preserve the networks of the KGB.
For four years after the Soviet collapse, Yakunin remained an officer in the security services, never resigning his post. Although he insisted that he hadn’t been taking orders, he admitted that the aim of his and his partners’ business activities was partly to preserve what they could: ‘We needed to redirect ourselves. We needed to create commercial enterprises that would earn money … We were all part of this process. The traditions of communication and cooperation remained.’
Yakunin joined forces with associates from St Petersburg’s prestigious Ioffe Institute for Technology and Physics, where he’d worked overseeing the institute’s international connections before being sent to New York. Among them was Yury Kovalchuk, then thirty-nine and a leading physicist of his day. Kovalchuk had a high forehead and a hawk-like gaze, and he worked closely with Andrei Fursenko; both of them were deputies in the Ioffe Institute’s work on sensitive semiconductor technologies deployed in laser and satellite systems. This was an area at the heart of the KGB’s special interest, in which all manner of smuggling schemes had been deployed to bypass embargoes and steal technology from the West (Yakunin was believed to have worked on technology smuggling when he served undercover in New York). Their expertise landed Yakunin, Kovalchuk and Fursenko a lucrative assignment: a deal to sell a batch of rare-earth metals, including rare and strategic isotopes used in the aerospace and military industries, and in semiconductor technology.[101] They were given the deal by a senior general in the KGB, said Yakunin. Once they’d pulled it off, one of the joint ventures they’d created, Temp, landed 24 million roubles in profits.[102] It was a huge sum in those days, and it helped them take over Bank Rossiya.
The three men had set up a string of such joint ventures in the final months before the Soviet collapse, as the KGB stepped up preparations for the transition to a market economy, and they’d already been working closely with Bank Rossiya. In the aftermath of the failed August coup, said Yakunin, they had briefly feared that they might go out of business when their accounts in Bank Rossiya were frozen, along with the rest of the property of the Communist Party. But their connections, and the cash they made in the rare-earth metals deal, saved them. High-ups in the local Party and the KGB gave them the nod to take over Bank Rossiya and bring it back to life. ‘We were people who were well-known in the party structures of the city of Leningrad,’ said Yakunin. ‘We had many contacts, and people trusted us. We were allowed to take a controlling stake in Bank Rossiya precisely because these people trusted and respected us.’[103]
From the beginning, Bank Rossiya had been strategically connected to the foreign-relations committee run by Putin. Its offices were in the Smolny Institute, which had become the city’s mayor’s headquarters, and it began to play a key role in the creation of the obschak, the common cash pot for Putin’s men. The city’s KGB-connected businessmen, including Yakunin, Kovalchuk and Fursenko, almost religiously continued to follow the prescriptions of the KGB laid out in the twilight years of the Communist regime, when trade was to be ordered through joint ventures with foreign entities. All joint ventures were set up on the approval of Putin’s committee, and most were directed to open accounts with Bank Rossiya. In one instance, millions of dollars were siphoned from the city budget through Bank Rossiya’s accounts into a network of such companies linked to Putin’s men. The cash had been funnelled through a fund known as Twentieth Trust. At one point the scheme had threatened to embroil Putin in a criminal case. Like many of the slush funds created by Putin’s men, the money had gone towards strategic needs such as funding election campaigns, and also for personal acquisitions such as luxury properties in Finland and Spain for city officials.[104]
As Putin and his KGB men became more secure in their control of the city’s economy, they began to dream their own bourgeois dreams. One transfer in particular paid for a five-star hotel trip for Putin and the head of Twentieth Trust to Finland, where they met an architect from the St Petersburg government and most likely discussed plans for the building of a group of dachas, according to a senior police officer who investigated the case.[105] ‘Soviet people always have a dream to have a dacha,’ said a Putin associate from then.[106] ‘The understanding was that it was not just important to have a good piece of land, but also to have the right neighbours.’
The patch Putin chose to while away his weekends in peace and tranquillity was far down a highway snaking north from St Petersburg through the forests and lakes of Karelia. Near the border with Finland, an unsignposted road led to a snug group of wooden houses on the shores of the Komsomolskoye lake, renowned for its excellent fishing. Before Putin moved in, the road had been no more than a dirt track. But soon after the new inhabitants arrived it was asphalted over, and lights were installed.
The villagers who’d lived peacefully for generations on the coveted stretch of land on the lakeshore saw new, more powerful electrical lines installed, though none of the power reached their homes. Instead they were asked, one by one, to move away, and were either given money to leave or provided with new ready-built houses further inland. Their powerful new neighbours built imposing Finnish-style chalets on vast tracts of land. They formed a group that became known as the Ozero dacha cooperative, and took over the lakeshore, from which their former neighbours were cut off by a high new fence. When the newcomers had parties, the old inhabitants could only watch the festivities and fireworks from afar. They knew not to object. ‘My mother told me a simple thing: don’t fight the strong and don’t sue the rich,’ said one of them.[107] The only inhabitant who tried to fight lost every stage of her trial.
The men who moved to Lake Komsomolskoye with Putin were the blue blood of his KGB acquaintances. Mostly shareholders of Bank Rossiya, they included Yakunin, Fursenko and Kovalchuk. All of them had been connected to Putin since even before the St Petersburg days. ‘These were people who were close to Putin from before,’ said one former Putin associate.[108] ‘They hadn’t got there because of their work or their knowledge – but just because they were old friends.’
This was a principle that was later expanded across the entire country. After Putin became president, he and his allies from the Ozero dacha group began to capture strategic sectors of the economy, creating a tight-knit network of loyal lieutenants – trusted custodians – who took control of the country’s biggest cash flows and excluded everyone else. Bank Rossiya was to form the core of the financial empire behind this group, and it was to spread its tentacles throughout Russia, and deep into the West too.
Those who’d worked with Putin at the sea port and the oil terminal also followed him when he vaulted to power. Timchenko was prime among them, first in the shadows working, according to two former associates, as an unofficial adviser, and then becoming the nation’s biggest oil trader. The men who ran the St Petersburg sea port under Traber’s watch were to take the first senior positions in Gazprom, the state gas giant, as Putin began to take over the country’s biggest and most strategic assets. Then, when Putin made his first moves to take back the nation’s oil industry from Western-leaning oligarchs like Mikhail Khodorkovsky, Timchenko and Akimov were part of the core group who benefited.
But in those days in the nineties, when they were just starting out, it was difficult to imagine that they would ever make it so far. The members of the Ozero dacha cooperative kept themselves to themselves, rarely speaking to the former neighbours who they’d moved away from the shores of the lake. But after Putin moved to Moscow, the weekend visits became rare. The houses they’d built were left empty, like ghosts on the edge of the lake. ‘It became too small for them here. They had absolutely different opportunities in Moscow,’ said one of the neighbours.[109]
*
When Putin was suddenly appointed to a senior position in the Kremlin in Moscow in the summer of 1996, one of the senior KGB generals who’d watched closely over his St Petersburg career pronounced himself satisfied with him. ‘He began his career as an official from zero,’ the general, Gennady Belik, later told a reporter. ‘Of course he made mistakes. The issues for him were absolutely new … The only people who don’t make mistakes are the ones that don’t do anything. But by the end of his activities in St Petersburg, Vladimir Vladimirovich had grown a great deal.’[110]
Belik was a veteran of the KGB’s foreign-intelligence service, and in St Petersburg he’d overseen a network of firms trading in rare-earth metals. He’d been a mentor of sorts to Putin as he managed the city’s economy, while according to one close ally Putin also stayed in touch with former KGB chairman Vladimir Kryuchkov.[111] But although Putin’s men had dominated much of the city’s economy, the amounts of cash they were dealing with in St Petersburg were minuscule compared to what the young Western-leaning tycoons like Khodorkovsky were taking over in Moscow. They were far away from the action as the new oligarchs of the Yeltsin era began to carve up the country’s industrial wealth. For many of the St Petersburg KGB men, what was going on in Moscow represented the collapse of the Russian state. Vladimir Yakunin, for one, saw the country as being seized by a cabal of corrupt members of the Party elite and by men like Khodorkovsky who he called ‘criminals’.[112] The KGB men saw Yeltsin as a drunken buffoon, a mid-ranking Communist Party official who danced to the tune of the West and who was now handing over the country’s strategic enterprises for a song to a corrupt gang of rapacious businessmen. ‘People had given their lives. They’d served honestly and put their lives at risk. But all they got was a finger up their ass from a drunk bastard who by the way was no better than a local Communist Party leader,’ said a former KGB officer who worked with Putin in St Petersburg.[113]
Though it seemed far from likely then, Putin’s move to Moscow was the first step towards changing that equation. His promotion had happened at a moment when he should in fact have been down and out. In the summer of 1996, Anatoly Sobchak had just lost his campaign for re-election as St Petersburg’s mayor. Putin, as his campaign manager, had been partly responsible. Sobchak lost by a whisker: by 1.2 per cent – the equivalent, his widow Lyudmilla Narusova later said, of the occupants of one large apartment building. Whispers circulated that Sobchak’s defeat had been organised by Yeltsin, who wanted him out, as the flamboyant and charismatic Sobchak could have posed a challenge to Yeltsin’s own battle for re-election as president a few months later. Narusova was convinced of that: ‘He’d become too independent. Yeltsin saw him as his competitor, and therefore the order was given that the elections were to be a farce.’[114] Before the campaign had even begun, Sobchak was targeted by a criminal investigation over bribery allegations. Many believed it was part of a dirty tricks campaign by the old-guard security men surrounding Yeltsin.[115]
The allegations undoubtedly impacted the outcome of the election, and Putin resigned from the St Petersburg administration immediately after the loss. Kremlin spin doctors telling the official story of Putin’s career have always stressed his loyalty to Sobchak in stepping down, and the risk he took in facing unemployment because of his principles. But in fact he was out of work for less than a month before he was invited to Moscow, initially to take up a prestigious position as a deputy head of the Kremlin administration. He had been helped along the way by Alexei Bolshakov, a dinosaur from the Leningrad defence establishment and most likely from the KGB, who’d somehow become Yeltsin’s deputy prime minister.
Although Putin’s appointment was unexpectedly blocked by Anatoly Chubais, the Western-leaning privatisation tsar who’d become Yeltsin’s new chief of staff, he was not abandoned. Instead, he was asked to head the Kremlin’s fabled foreign property department, which had inherited all the Soviet Union’s vast overseas holdings after the collapse – the stately trade and diplomatic missions, the network of arms bases and other military installations, clandestine or otherwise. Though it was an empire in which much had already gone unaccounted for, it represented a strategic core of the nation’s imperial wealth, and for Putin this was a prestigious promotion indeed.
It was the beginning of a dizzying rise. Within seven months of his move to Moscow, Putin was promoted further still. First, he was made head of the Control Department, a core institute of Kremlin power, where he was charged with making sure the president’s orders were carried out across the nation’s unruly regions. ‘They didn’t just take Putin from the street,’ said one close ally. ‘He was known in Moscow as an adviser to Sobchak, as an influential person in St Petersburg … I think this transfer was planned.’[116] Then, a year later, he was promoted to become the Kremlin’s first deputy chief of staff in charge of the regions, the third most powerful role in the Kremlin after the president. After just three months in that role he was appointed to head the FSB, the successor agency to the KGB, for the whole of Russia. He was only a lieutenant colonel at the time, and it was unheard of for anyone other than a general to head the FSB. The FSB generals were said to be aghast, but Putin’s allies insisted that his status as first deputy chief of staff gave him a rank equivalent to a general. It was just that it was in civilian terms, they said.[117]
Yeltsin’s son-in-law Valentin Yumashev, a good-natured former journalist who’d risen to become Yeltsin’s chief of staff, insisted that Putin’s miraculous rise was down to his outstanding qualities. ‘Among my deputies, he was one of the strongest,’ he told me. ‘He always worked brilliantly. He formulated his views exactly. He would analyse the situation exactly. I was always happy I had such a deputy.’[118] But for others who had known him in St Petersburg, Putin’s elevation was taking on a surreal quality. Some of his former associates questioned whether he was being propelled by the KGB generals who’d mentored his career from the beginning. ‘You could make the case that he’d first been given the task to infiltrate the democratic community through his work with Sobchak,’ said one. When Sobchak had become surplus to requirements, had Putin played a role in helping make sure he lost? ‘It’s totally possible that Putin was following the orders of the Kremlin, and that when he completed this task he entered the Kremlin and became so important,’ said the former associate. ‘If you suppose this was a special operation to liquidate Sobchak as a contender, then everything becomes clear.’[119] But others argued that Sobchak had become increasingly controversial in St Petersburg in any case, mainly due to what many saw as his arrogance. It hadn’t taken much to make his bid for re-election touch and go.
However he got there, once Putin assumed his role as director of the FSB, he soon began to clean up the stains from his St Petersburg past. One of his greatest enemies from those days was Yury Shutov, a former Sobchak deputy who’d clashed with Putin and had been collecting compromising material on him – on the oil-for-food deals, on the privatisations of the city’s assets and on his ties to the Tambov group. Soon after Putin’s appointment, Shutov was arrested at gunpoint. He’d long been a deeply controversial figure and rumours of his ties to the St Petersburg underworld ran deep. But once Putin became FSB chief, the suspicions turned into legal charges. He was charged with ordering four contract killings and attempting two others. Though he was briefly freed by a local court which ruled that there was no legal basis for a criminal case, Shutov was swiftly arrested again, and dispatched to Russia’s toughest penal colony, known as the Beliy Lebed, or White Swan, in Perm, in the depths of Siberia. He never emerged from it. The material he’d gathered on Putin’s ties to Tambov simply disappeared, said Andrei Korchagin, a former city official who had known Shutov well: ‘He was Russia’s first and only real political prisoner.’[120]
An even more disturbing omen came just four months after Putin’s appointment as FSB chief. Galina Starovoitova, the same stout and tweedy human rights activist with soft brown hair who Putin had approached for work after his return from Dresden to Leningrad, was shot dead at the entrance to her apartment building late one evening in November 1998. She was by then St Petersburg’s leading democrat, its most vocal crusader against corruption. The whole city was in mourning after her death, the nation in shock. Many commentators linked her killing to tension surrounding elections to the local parliament that were to be held the following month. But one of Starovoitova’s former aides, Ruslan Linkov, who was with her at the time of the shooting but somehow escaped with his life, believed she was killed because of her corruption investigations.[121] One of her closest friends, Valeria Novodvorskaya, another leading democrat, was convinced the St Petersburg security men had ordered her murder: ‘They were clearly behind the scenes. They held the hand of the killers.’[122] A former partner of Ilya Traber said the biggest threat to Starovoitova could have come from the St Petersburg siloviki who controlled the sea port, the fleet and the oil terminal: ‘She had a dossier on the group of people who controlled the oil business in St Petersburg. Traber told me about this. He said, “Why the hell did she start looking into the oil business?” This is why she was killed.’[123] Later, a former FSB officer who’d investigated her death told me he suspected it was indeed Tambov that organised it: ‘We understood that we would not be able to get anywhere with the case.’[124]
The events that accompanied Putin’s rise were ominous. But the country was hurtling towards another financial crisis, and the warning signs, it appeared, were not noticed by anyone. Yeltsin’s health was failing, and if at least one account is to be believed, the generals of the KGB were preparing to return. One evening in Moscow, soon after a financial crash that obliterated the Russian economy in August 1998, a small group of KGB officers and one American gathered for a private dinner. Among them were the former KGB chief Vladimir Kryuchkov; Robert Eringer, a former security chief for Monaco who’d dabbled as an informant for the FBI; and Igor Prelin, an aide to Kryuchkov and one of Putin’s senior lecturers at the Red Banner spy institute. According to Eringer, Prelin told the other guests that soon the KGB would return to power: ‘He said, “We know someone. You’ve never heard of him. We’re not going to tell you who it is, but he’s one of us, and when he’s president we’re back.”’[125]