The Oligarchs

Gusinsky’s dream was that a carpet of NTV-Plus receivers would spread across the Russian landscape, linking millions of viewers with his satellite. But the dream was inexorably linked with the fate of the Russian economy. Gusinsky gambled that a new middle class would take hold, including millions of families who would want—and could afford—to pay $299 for the satellite dish to receive around-the-clock movies, sports, news, children’s programming, and other channels that he hoped to offer them someday. Both technically and financially, Gusinsky’s expansion goals were extraordinarily ambitious. The satellite was controlled from a new ground station Gusinsky built outside Moscow. He planned a sprawling new production facility for NTV. He was making three hundred hours a year of television soap operas. Just five years after starting NTV, he already thought of himself as one of Europe’s largest media companies. He was trying to cover three different levels of television in Russia all at once: by satellite, direct to people’s homes, with NTV-Plus; by traditional terrestrial signal, from a broadcasting tower, with his flagship NTV channel; and with TNT, the fledgling affiliate network that was beginning to snake across Russia’s regions.

But the August 17, 1998, ruble crash came at the worst possible moment for Gusinsky. The first shock wave of devaluation prompted the nascent middle class to reduce all discretionary spending—for restaurants, for electronics, and for entertainment. For Gusinsky, the result was like a slow-motion car wreck; the disaster took some time to sink in, but it was inevitable. NTV-Plus had reached 180,000 subscribers at the end of 1998, but a year later it had only 109,000. The original plan had been for half a million or more. Even worse, many of Gusinsky’s current subscribers could not afford to pay their bills. Then the television advertising market collapsed in late 1998 in a way that was particularly painful for Gusinsky. The devaluation made imported products suddenly more expensive, and imports were the mainstay of his advertising—commercials pushing American toothpaste and Japanese electronics. After August 17, NTV advertising revenues fell by two-thirds.²

Gusinsky scaled back. He scrubbed plans for the expanded NTV studios, gave up his dream to build movie theaters, and abandoned hope of floating the company’s stock on Wall Street, the most important part of his expansion strategy. “The crisis came and everything died,” he told me a few years later. Gusinsky was a victim of bad timing, outsized dreams, and a sudden reversal in the fortunes of his longed-for middle class. He was a product of his own impulsive expansion in the early years. His philosophy had been, Build it and they will come. The whole satellite business had been based on European and Asian models in which the first five years were investment intensive. Profits came later, in the seventh or eighth year. Gusinsky had not yet made it to the profit years. Now, like a tide, the money flows changed direction; Gusinsky’s costs were high and his revenues dwindled. He would have to pay off the expensive satellite, for which he still owed $123.7 million to the Export-Import Bank of the United States, without the expected profits. “What is a business, particularly one you have built?” Gusinsky asked me, rhetorically, looking back on his plight. “It is like a bicycle racer who races very fast. He leans forward and pedals so fast . . . because if he doesn’t keep pedaling, he’ll fall down and break his head and hands. You have to run fast if you want to be first.”

Gusinsky fell. The economic crisis was like a patch of gravel that caused his bike to skid out from under him. The satellite turned out to be a financial albatross. Igor Malashenko, the NTV president, asserted later that it was Gusinsky’s single biggest business mistake. He and others close to Gusinsky saw the satellite as a symbol of Gusinsky’s early style—to dream the impossible dream and hope it would come true. In this case, the economy tumbled and the dream was no longer viable. Gusinsky didn’t shift his vision fast enough.

“My partners said to me that I was a fool for trying to build an empire,” Gusinsky said. They wanted Gusinsky to set aside his profits as a cushion rather than plow them back into the business. Gusinsky told them the satellite was the best way to deliver television in a country with decrepit infrastructure. He told me he invested $1.2 billion in retained earnings and loans into NTV-Plus. But he didn’t count on the ruble crash. “The mistake was, we thought Russia was stable enough to invest in the business, and growth.”³

Gusinsky wasn’t alone in his troubles after the crash. Berezovsky, still anxious to play the role of wheeler-dealer, was threatened with arrest and political exile by an openly hostile prime minister, Yevgeny Primakov. Khodorkovsky, failing to pay off his loans, waged a dirty campaign to get rid of his Western creditors and minority shareholders. Smolensky’s bank closed and he slipped out of public view. Luzhkov weathered the economic crisis, and for a while he was considered a potential successor to Yeltsin. But his political aspirations were quickly, and crudely, destroyed. The happy days were over.

For the oligarchs, events took a particularly ominous turn in late autumn. The Russian people were resentful and confused by the economic collapse, and a search for scapegoats began. There were plenty of potential targets. A poll taken in Moscow two weeks after the crash showed that Viktor Chernomyrdin, Boris Yeltsin, and Sergei Kiriyenko were the first three names mentioned when people were asked, Who is to blame? Then came the oligarchs, bankers, and financiers, followed by parliament, the reformers, and the Central Bank.⁴

But the most ominous threats came from an outspoken Communist extremist in parliament, Albert Makashov, a crude, vengeful man who had been jailed in 1993 for his part in an armed attempt to storm the Ostankino television station during Yeltsin’s violent confrontation with parliament. As far back as 1996, the tycoons had feared an anti-Semitic backlash; now Makashov tried to ignite it. On November 11, he attacked Berezovsky. “Don’t behave as a Yid,” he said, using a slur for Jew. “Give this country, this nation . . . a billion or two of your green money and this nation will calm down.” Communist leader Gennady Zyuganov refused to denounce Makashov in public, saying that it was enough that Makashov had received an internal party reprimand. Then Zyuganov joined the attacks on the Jewish bankers, reviving anti-Semitic rhetoric of the Soviet era. “Our people are not blind,” Zyuganov said. “They cannot turn a blind eye to the aggressive, destructive role of Zionist capital in ruining Russia’s economy and plundering her property owned by all. There is a growing understanding among the people that the origin of all the current troubles is the criminal course of an antipeople, supranational oligarchy that seized power.”⁵

After a while it became evident that Makashov and Zyuganov were out of touch. Their attempt to incite hatred seemed menacing in the aftermath of the ruble collapse, but within a few months it disappeared, and the public did not take up their battle cry against the Jewish bankers. Anti-Semitism remained a latent force in some parts of Russian society, and the oligarchs were unpopular in many quarters, but the spark did not ignite. Perhaps anti-Semitism was fading since it no longer had the official backing of the state; or perhaps the urge to survive in hard times was stronger than the urge to hate.

What hurt the oligarchs was not public opinion but internecine battles with outside investors, with each other, and with the Kremlin. In the two and a half years after the ruble crash, the oligarchs fought costly, self-destructive conflicts motivated by a raw hunger for power and greed. This chapter is the story of four of those conflicts. It does not mark the end of the oligarchs, but it does mark the sunset of the roaring 1990s and the Yeltsin epoch in which they played such a prominent role.

Hard times meant hardball, and Mikhail Khodorkovsky was a master of the game. When he first won Yukos, Khodorkovsky sent three hundred of his best security men to Siberia to physically take over the company’s wells and refineries, according to a former Menatep official. Oil towns like Nefteyugansk were notoriously filled with gangsters who sucked money out of the industry. Khodorkovsky paid special attention to the accountants and financial controllers at his new properties. “He personally went to every single financial controller and head accountant in all the daughter companies and said, ‘This is who you work for now, don’t screw around,’” the former Menatep official told me. The rules of this game were winner take all.⁶

After the crash, Khodorkovsky took a scorched earth approach to his Western creditors and minority shareholders. He wanted to shake them from his tail and reclaim ownership of all, or at least most, of Yukos. When the ninety-day moratorium had expired, Menatep defaulted on the $236 million loan from Daiwa of Japan, West Merchant of Germany, and Standard Chartered of London, for which Menatep had pledged about 30 percent of the shares in Yukos as collateral.⁷

At the time, Khodorkovsky was also nose to nose in an increasingly tense confrontation with Dart, the minority shareholder in the Yukos extraction subsidiaries. For more than a year, Dart, a reclusive billionaire, seethed as Khodorkovsky drained away the value of his investments. Now Khodorkovsky was ready for war. He didn’t need to coddle investors any longer because Russia had the world’s worst credit rating as a country, and the Western lenders would not be back for a while. Khodorkovsky struck against both his Western creditors and his minority shareholders by hijacking the oil company away from them. Even more audaciously, he tried to take it out of Russia altogether.

In the early turbulent years of his banking career, Khodorkovsky built an offshore financial network. Menatep branched out to offshore havens in Switzerland, Gibraltar, the Caribbean, and other secretive locations where hundreds of millions of dollars could easily be hidden. When he obtained Yukos, Khodorkovsky moved his money into this offshore financial network. This was a common practice in the oil industry; oil was one of the most surefire methods to move wealth out of Russia. Whenever Yukos oil left Russia for abroad, it was sold through offshore trading companies that Khodorkovsky controlled. The oil wealth then accumulated outside Russia, avoiding taxes and other risks inside the country. The offshore network was an ever rotating menu of odd names and places. One key component, for a while, was Jurby Lake Ltd. on the Isle of Man, a well-known offshore tax haven in the United Kingdom. Jurby Lake was a group of oil trading companies that handled the Yukos exports and then deposited the earnings to other select companies controlled by Khodorkovsky and his partners, according to documents describing the structure and a former Menatep official who spoke to me about it. Menatep Bank had its own web of offshore links, such as Menatep Ltd. Gibraltar and Menatep Finance SA of Switzerland. Moreover, Khodorkovsky in 1994 purchased 20 percent of Valmet Group, a Geneva-based global investment management company with offices in Gibraltar, Cyprus, the Isle of Man, and other financial centers catering to clients who wanted to avoid taxes and detection.⁸

Khodorkovsky’s far-reaching offshore network was typical for Russian big business. All the other oligarchs—indeed, thousands of Russian businessmen—did the same thing, although many on a scale less grand. Every month, by very rough calculations, up to $2 billion slipped out of Russia in wire transfers, phony import-export documents, oil shipments, and other means. The leakage was known as capital flight, and it became one of Russia’s most debilitating sicknesses in the 1990s. Over the decade, perhaps $100 to $150 billion flowed out of Russia, money that was needed for investment at home, to rebuild factories and start businesses. Instead, Russian capital found its way to overseas bank accounts, real estate, luxury resorts, and offshore tax havens. The money was on the run for many reasons: to hide it from taxes, shareholders, investors, and creditors; to conceal the pillage of natural resources or stripped factory assets; or just to skirt political and economic upheaval.

Sadly, capital flight was a sickness that no one in the Russian elite was willing to cure. A midlevel banker once told me that getting capital out of the country was so easy because no one wanted to stop it. Although Russia had some Central Bank rules against exporting capital, they were widely ignored and almost never enforced. Too many people benefited by the leakage—politicians, tycoons, and even small-time factory directors who stashed their rake-off abroad.⁹ Stopping capital flight really meant changing the entire operating system of the country, creating a stable, rule-of-law state, and that task was too big for Yeltsin and his generation in the first decade of post-Soviet Russia. Occasionally the Russian government machine would rouse itself to attempt halfhearted police state methods to stanch the leakage. Departing airport passengers were asked by Customs Service officers to open their wallets to show how much cash they were carrying out of Russia. I saw this happen many times at Sheremetyevo Airport as I waited impatiently in line. It was a pathetic and silly exercise, when everyone knew that $1 billion could fly out by wire transfers, undetected. Capital flight did not have a departure gate.

Stunning evidence of the full extent of the phenomenon of capital flight came in the aftermath of the ruble crash when it was disclosed that the Russian Central Bank had sent billions of dollars out of the country through a tiny offshore company, the Financial Management Company in Jersey, a favorite tax haven in the United Kingdom. The full story of this obscure company, FIMACO, was never disclosed, but the obvious message was that even the government was taking advantage of offshore havens. If the Central Bank, paragon of stability, guardian of Russia’s treasure, could divert its currency reserves to a tiny offshore company, then there was no telling what others might dare.¹⁰

To wrest Yukos out of the grip of its creditors and minority shareholders, Khodorkovsky created an elaborate plan to move the oil company offshore. A complex transfer of shares would scatter Yukos and its daughter companies to the winds, making it impossible for others to find where he was hiding them. The plan was even more audacious than moving oil profits abroad. Khodorkovsky was taking the whole company offshore. The plan was to leave the minority shareholders and the Western creditors with an empty shell, while he took the company’s shares to small, remote islands in the Atlantic and Pacific Oceans.

Khodorkovsky began with a scheme to issue millions of new shares in the subsidiaries. The new shares would dilute the value of those held by Dart. Dart’s shares in the subsidiaries were relatively small—12.85 percent of Yuganskneftegaz, 12.3 percent of Samaraneftegaz, and 13 percent of Tomskneft, which gave him little leverage in how the companies were run. Even so, Khodorkovsky resorted to battleship tactics against Dart, just to make sure there was no question about victory. For example, at the time there were 40 million shares of Yuganskneftegaz outstanding. Khodorkovsky laid plans to issue 77.8 million new shares. This meant that Dart’s share of the overall company would drop from 12.85 percent to less than 5 percent. The story was the same with the other subsidiaries. For Samaraneftegaz, Khodorkovsky planned to add 67.4 million shares to the existing 37.6 million. At Tomskneft, he planned to add 135 million shares to the existing 45 million. In short, Dart’s holdings were becoming the incredible shrinking oil company. This onerous tactic was the same as the transfer pricing that had originally drawn Dart’s anger in 1998. Hundreds of millions of dollars were at stake.¹¹

For his next sleight of hand, Khodorkovsky decided to sell all these millions of new shares in the oil extraction subsidiaries to obscure, distant offshore companies. For example, Yuganskneftegaz shares would be sold to Asbury International Inc. of the Bahamas, Rennington International Associates Ltd. of Ireland, Thornton Services Ltd. of the Isle of Man, and Brahma Ltd. of the Isle of Man. Who were these mysterious new buyers? Khodorkovsky-affiliated shell companies, most probably. Khodorkovsky could not admit that he controlled these offshore companies, since the whole gambit would be illegal under Russian law, but he was surely not selling his oil company to strangers.¹²

In yet another brazen twist, Khodorkovsky proposed that the additional millions of shares would be purchased not with cash but with veksels, or promissory notes, issued by the other Yukos extraction subsidiaries. How the mysterious buyers would obtain the veksels in the first place is just one of the many mysteries about Khodorkovsky’s plan that I could never fathom. The whole transaction was a circular, deceptive paper chase: one company issues millions of new shares, sells them to distant offshore companies, and collects a promissory note for the shares. The loser was going to be Dart.

To ratify the share dilution gambit, three emergency shareholder meetings, one for each oil extraction subsidiary, were called on March 16, 23, and 30, 1999. The meetings were held at a palatial prerevolutionary castle in the center of Moscow at 5 Kolpachny Lane, once a Komsomol building and later Menatep headquarters. Outside the gate, shareholders of Yuganskneftegaz presented their papers to a clerk for admittance. Some were allowed to enter, but one of Dart’s representatives, John J. Papesh, was not. He asked for a pass but was refused. He was presented with a court order signed by a provincial judge just a few days earlier. The order froze Dart’s shares on a technicality. Papesh was left out in the cold. Inside the meeting, the 77 million new shares were quickly issued, dramatically shrinking Dart’s holding. “This is the Russian version of theft in the executive suite,” Papesh fumed afterward. “It is red-collar crime.” The huge share emissions were approved at the other two meetings as well. An even more bizarre dodge occurred in June at a subsequent scheduled meeting of Tomskneft shareholders. When the minority shareholders arrived at 5 Kolpachny Lane, they saw a sign saying the meeting had been moved to a small town south of Moscow, and it would start in two hours. They jumped in their car and raced off; the address turned out to be an old building under reconstruction. Inside, up a makeshift stairway without handrails, they found a room with seven chairs, a table, and two copies of the meeting agenda. The construction workers said the “meeting” had concluded twenty minutes earlier. They were out of luck.

Yet the battle was not over. When it came to business in offshore zones, Dart was no neophyte, being heir to a $3 billion fortune created when his father and grandfather invented a way to mass-produce foam cups. Dart renounced his U.S. citizenship to become a citizen of Belize, a tiny country known as an offshore tax haven. He was a hard-nosed player in global investments, once facing down the government of Brazil over a bond issue, and he was prepared for tough battles with Khodorkovsky. In the early 1990s, Dart sunk hundreds of millions of dollars into Russia during mass privatization, buying up stakes in many of the oil extraction companies and other properties. Like many other foreign investors, he was a speculator, buying low and hoping to sell high.¹³ While Dart sought profit, Khodorkovsky, who bought Yukos cheaply in loans for shares, did not want Dart’s profit to come out of his own pocket. He wanted Dart to go away. A collision was inevitable.

The two magnates had been thrown together in a shotgun wedding: Dart as minority shareholder in the extraction subsidiaries and Khodorkovsky as the winner of the Yukos holding company. It was always expected that, sooner or later, they would have to settle. But first they were making war. Each side threw lawyers, public relations companies, and private detectives into the battle. Yukos issued statements calling Dart a “green mailer” (someone who practices pressure tactics in hopes of reaping a fat profit) and a “vulture.” Dart said Khodorkovsky was “looting” the subsidiaries.

When Dart got wind of Khodorkovsky’s offshore gambit with the Yukos subsidiaries, he began to chase the shares around the globe. Dart’s lawyers filed suit in such offshore jurisdictions as the Marshall Islands, the British Virgin Islands, and the Isle of Man to try and stop Khodorkovsky. In a remarkable piece of detective work, Dart lawyers and private investigators compiled a dense, complex flow chart, showing what they believed to be Khodorkovsky’s far-flung corporate structure. The chart was a jungle of arrows and boxes illustrating shell companies, ownership ties, and share transfers stretching from Cyprus in the Mediterranean to Nuie in the Pacific Ocean. Across the bottom it included, in small boxes marked with a star, the names and locations of offshore zones that Khodorkovsky intended to use as the new “home” base for his oil subsidiaries. The chart, while impressive in its detail, was still not complete; in fact, Khodorkovsky’s offshore empire stretched even further than the document suggested. For example, the chart did not mention the Jurby Lake structure of oilexporting companies.

While fighting Dart with one hand, Khodorkovsky tried to shake off Western creditors with the other. The three banks that had loaned Khodorkovsky’s Bank Menatep $236 million could, under terms of the deal, claim a total of about 30 percent of Yukos when Menatep defaulted on the loan. The 30 percent was a sizable chunk of the oil company. If Khodorkovsky relinquished it, he could, at some point in the future, be vulnerable to losing control of Yukos. This he did not want to do, at any cost.

Khodorkovsky’s game with the banks was partly psychological warfare. If he made a strong enough case that he was not going to pay back the money, he calculated, maybe the Westerners would eventually give up and just write off the debt as a loss at the end of the fiscal year. This was not an unreasonable expectation: the big Western banks and investment funds knew there were huge risks in emerging markets like Russia. They had reaped fortunes in the last few years as the Russian stock market skyrocketed. So what if they had a bad year? They might try and squeeze the debtor a little, but they knew they had little leverage inside Russia because the courts were weak. The Western banks had both a limited attention span and a diffuse chain of command. The managers were not making decisions with their own money; it was other people’s money. They would not suffer just because of some bad loans in Russia. But Khodorkovsky, by contrast, had everything at stake. He was playing for his own survival. He used ruthless tactics to make sure his foes got the point. He took the Yukos-owned shares in the oil-extraction subsidiaries and sent them offshore along with the new, diluted shares. (This action only came to light when one of the small minority shareholders looked at the register, the book in which share ownership is recorded.) The bottom line was that the banks were being left with 30 percent of an empty shell. Daiwa Europe Ltd., which held about 13 percent of Yukos, issued a statement expressing concern that its assets would be “irretrievably lost.”¹⁴ That was putting it mildly.

James Fenkner, the Troika Dialog analyst I had met during the boom years, wrote a note to clients about Khodorkovsky’s gambit entitled “How to Steal an Oil Company.” Fenkner told me he was stunned at Khodorkovsky’s nerve. “It’s incredibly brazen,” Fenkner said. “A couple of years ago, people said Russian managers will steal, but only a little and it will improve over time. What this case shows is that it is all or nothing. It’s kind of shocking. The second-largest oil company in Russia is no longer held under Russia’s jurisdiction.”

Perhaps no one in Moscow watched these developments with more foreboding than Dmitri Vasiliev, the chairman of the Russian Federal Securities Commission. The lively, diminutive Vasiliev, who was Anatoly Chubais’s deputy during mass privatization, had argued that the greatest mistake in Russian capitalism was the failure to build institutions that would create rules and laws to regulate the market after the first wave of reforms. His own Securities Commission was an example—its enforcement powers were extremely weak. I often thought of Vasiliev as the referee at a soccer match, blowing his whistle and waving his arms around wildly as the big, muscular players ran roughshod over anything in their way and ignored him. Vasiliev was a small hero of Russian capitalism at a time when it needed a big hero. He believed in the rules and tried to make them stick, but he was overwhelmed by a system that operated on a level that was beyond the official rules.

Vasiliev chose his fights very carefully. He was especially fearful of the tycoons because they could strike back against him personally. Investigating the tycoons was risky and sometimes impossible. For example, a truck carrying 607 boxes of Menatep Bank documents mysteriously plunged into the Dubna River on May 24, 1999.¹⁵ That was how things were done in Russia, a state where the rule of law had yet to be established and enforcing the securities law was a distant dream. Vasiliev held a long talk with Chubais about the best way to investigate one of the oligarchs. For tactical reasons, Vasiliev liked to strike first and settle later. But it could be risky to take the oligarchs by surprise; they had legions of spies, guards, and guns. Chubais urged Vasiliev to be more cautious. Better to warn the sleeping bear before you poke him in the eye, Chubais suggested.

Vasiliev scored an important victory in 1998 in his first test case, forcing Vladimir Potanin and Boris Jordan to back down from a planned dilution of minority shareholders in the oil company Sidanco. ¹⁶ At the time, Vasiliev raised concerns about a similar share dilution at Yukos, but he told me later that including Yukos was a tactic to show that he was not picking on Potanin alone. Vasiliev recalled that he got a written pledge in 1998 from Yukos that they would follow the rules. But in early 1999, after the ruble crash, investors’ complaints, chiefly from Dart, continued to pile up about Yukos.

In the spring Khodorkovsky launched his brazen plan to hijack the entire oil company. Vasiliev announced in April that he would conduct a full-fledged investigation into whether Yukos had violated minority shareholder rights. It was a risk he had to take, but how? At first, he tried to get the minority shareholders to do the hard work—he loudly and publicly insisted they should go to the courts. Dart did so and was able to persuade six courts in offshore zones to temporarily block the share transfers. At the Securities Commission, Vasiliev had little real power and only one option: to decide whether to formally register, or approve, the millions of new shares that were being issued. The only legal grounds for rejecting the shares would be a determination that the offshore havens were in fact controlled by Khodorkovsky; then the issuance of the shares might be illegal. But penetrating the offshore havens was way beyond Vasiliev’s ability. The commission had a small budget and could not send lawyers globe-trotting in search of the elusive Yukos shares.

In the next few weeks, Khodorkovsky sent a message to Vasiliev: Get out of my way! A vice president of the oil company warned him privately, in a personal meeting, that Yukos would do everything it could to block the Federal Securities Commission. Yukos was a big oil company backed up by a powerful oligarch, and the Securities Commission was a weak agency. Vasiliev took the threat seriously, recalling what Chubais had said about going on the attack against the tycoons.

Vasiliev had precious few weapons at his disposal. His feeling of helplessness was deepened by a problem within his own commission, unknown to all but a few people at the time. The Securities Commission had benefited from an $89 million loan by the World Bank to help Russia improve its capital markets. Vasiliev used some money from the project to pay for the commission’s press office and computers that allowed outsiders to read reports about its regulatory decisions on the Internet. The press office was run under a contract with Burson-Marsteller, a global public relations company. The key official at the public relations company was Mark D’Anastasio, managing director of the international development practice, who was based in Washington. D’Anastasio was a public relations man who specialized in building up a long-term image for his client. He told me that he had worked hard for several years to build a “squeaky-clean good guy” image abroad for Vasiliev. The goal of the World Bank program, which paid the bill for Burson-Marsteller’s work, was to improve “transparency” and to provide more “complete and reliable” information about companies in the stock market.¹⁷

But Vasiliev discovered in 1999 that D’Anastasio and Burson-Marsteller were also, at the same time, representing Yukos and Khodorkovsky, whom the commission was investigating. With the World Bank money, the PR company was supposedly building “transparency,” but with Yukos they were actively defending an oligarch who was hiding shares of an oil company in offshore zones. Vasiliev concluded that it was a direct conflict of interest. But Vasiliev was afraid to fire Burson-Marsteller because he desperately needed the press office and the computer support—he had little to work with as it was. If he threw out Burson-Marsteller, he told me, he probably would lose the badly needed World Bank money. “They had me by the throat,” he recalled.

D’Anastasio acknowledged to me later that he was representing both sides. After Vasiliev protested privately to him, the public relations company wrote a letter promising there would be no contact between the two clients. But in fact, D’Anastasio continued to deal with both of them. According to both Vasiliev and D’Anastasio, the public relations man at one point even proposed to Vasiliev that he might be an interlocutor with Yukos, a peacemaker. Furious, Vasiliev wondered what kind of peace would that be. How could he represent the interests of the regulator and the regulated at the same time?

When I asked D’Anastasio about the conflict of interest a few years later, he said it might have been a problem had the hostility continued for a long time, but he did not think it would go on. Besides, the rules in Russia were not as clear as rules in a developed market economy, he said. D’Anastasio also had his own preferences: he admired Khodorkovsky, whom he called “a figure of historic proportions.” Khodorkovsky complained frequently to D’Anastasio that Vasiliev was going too far. D’Anastasio agreed.¹⁸

In late June, as a result of a complaint from the trade association of stockbrokers, all trading in Yukos and the oil extraction companies was halted on Russia’s chief stock exchange, the Russian Trading System.¹⁹ This was a setback for Yukos, but Vasiliev admitted at a press conference on June 29 that his probe of Yukos was running into a brick wall. The securities commission lacked investigative powers—all it could do was ask for information. No one, not even the Russian government agencies, came forward with any answers or help for his investigation. The Fuel and Energy Ministry and the State Tax Service ignored his requests. Even so, Vasiliev insisted, “The investigation will not be stopped.” Then, on July 21, Vasiliev announced that he was turning the files over to the law enforcement authorities for a criminal investigation—the Interior Ministry, the Federal Tax Police, and the Federal Security Service. On the same day, Yukos fired back with an angry statement, accusing Vasiliev of taking sides with the “famous speculator” Kenneth Dart.²⁰ More pressure followed. On August 18, the Yukos vice president who had warned Vasiliev earlier that Yukos would fight him took action against Vasiliev. He quietly filed a complaint against Vasiliev in the general prosecutor’s office on the grounds of slander, based on the July 21 news conference. Under Russian law, slander was a criminal offense. I was appalled when I heard about this. I had been at the press conference, and it was clear that Vasiliev had not slandered Khodorkovsky or Yukos, since investigating the oil company was clearly part of his official responsibilities. But Vasiliev saw the criminal complaint for what it really was, a message. He would face interminable difficulties, interrogations, and who knows what else they could come up with. The prosecutor’s office was notoriously on the take. It was common at the time for all different kinds of law enforcement bodies to take bribes to frame someone in a dispute. I knew a young man involved in a commercial dispute who was framed; the police had planted a bomb in his trunk and then arrested him. In the lawless state, anything was possible. Poke the bear between the eyes, and you took enormous risks.

Rather than fight, a frustrated and discouraged Vasiliev resigned from the commission on October 17. “The system here doesn’t protect investors,” Vasiliev lamented. A few days before his departure, the Samaraneftegaz share dilution—the proposed issuance of 67 million new shares—came before the commission. Although the application was in order, Vasiliev said he voted against it on principle. “It was all legal, but from a moral point of view, I understood it was theft.” He was outnumbered. The commission voted its approval.²¹

Khodorkovsky defeated the creditors too. The three banks that loaned money to Khodorkovsky did not have infinite patience, and Khodorkovsky outlasted them. West Merchant, which had suffered heavy losses in the Russian crash, had originally loaned Khodorkovsky’s Menatep $135 million. According to one well-informed insider, Khodorkovsky went to Germany and told top officials of West LB, the parent bank, that he could not possibly pay back the Menatep debt because of the Russian economic crisis. Menatep Bank had collapsed in the crash. But one German bank official threw up his arms in exasperation, noting that Khodorkovsky’s oil company, Yukos, was still going strong. What did he mean, he could not pay them back?

But Khodorkovsky put on a very persuasive show, and the Western banks lost their nerve in dealing with the wily Russian. “Khodorkovsky said he was hard-hit,” said the insider at the German bank. “He got sympathy and understanding, when he should have been hit with a hammer.” As a result, rather than press Khodorkovsky to pay back the money, the German bank sold off the assets for $67.5 million, or half what the bank had originally loaned Khodorkovsky. A similar thing happened to Daiwa, the Japanese bank which had been part of the deal. Daiwa sold out its share for $40 million. The lenders had given up and taken a loss. Next, Khodorkovsky quietly bought back his shares at bargain-basement prices. Of the approximately 30 percent of Yukos he had pledged for the original $236 million loan, he managed to buy back 23.7 percent after the lenders threw in the towel.²² It was a good deal: his reward for defaulting on the loan was that Khodorkovsky got most of his shares back, and for less than half the cash he had originally borrowed.

Although Khodorkovsky told the German bank that he had been badly hurt by the crash, the condition of Yukos soon improved dramatically. Oil prices went back up, and Yukos amassed an estimated $2.8 billion in cash by the end of the year 2000. If the banks had been willing to wait a little longer, they might have recovered their $236 million loan. But the Western lenders proved to be weak-kneed. Khodorkovsky had tried to hijack the oil company out from under them.

The shattered landscape of the Russian economy left no one who had participated in the events of recent years unscathed—not Anatoly Chubais and the young reformers, not Boris Berezovsky and the oligarchs, not the ailing Boris Yeltsin. They were all tarnished by the upheaval; the Russian people, resentful and bewildered, regarded them with suspicion. The economic crisis left a political vacuum in its wake. The question of “continuity of power,” as Berezovsky had put it, remained unresolved. There was no obvious successor to Yeltsin.

While visiting London on September 30, Luzhkov hinted for the first time that he would run for president. Speaking to journalists at a press conference held at the Russian embassy, Luzhkov said he wanted to remain mayor for the time being. But, he added cautiously, “If I see that presidential hopefuls do not possess the necessary statesmanlike views to ensure Russia’s stability and progress, I will join the race.” On hearing these words, I immediately realized that Luzhkov had made the decision to run. Perhaps he had concluded that the other contenders had been crippled by the crash. Behind the scenes, Vladimir Yevtushenkov, chief of the Systema conglomerate, the most influential businessman in city affairs, encouraged Luzhkov in his ambition. Yevtushenkov was a prime mover behind the creation of Center TV, the channel of the Luzhkov empire, which could become a key building block for a presidential campaign. Although Center TV suffered from a miserably dull programming schedule, it quickly acquired some of the most modern broadcasting equipment and technology in the country and devoted generous hours of airtime to uncritical interviews of Luzhkov. Another sign of Luzhkov’s ambition was the formation of a political movement, Otechestvo (Fatherland), with Luzhkov at the head. Political consultants were being lined up. Yevtushenkov told me he believed Luzhkov could succeed by campaigning on the slogan that he would transform Russia as he had changed Moscow. “I believed that he had a chance, an historic chance, and he had to take advantage of it,” Yevtushenkov said.

Luzhkov considered running at a time when a great power vacuum opened up in Russian politics. Yeltsin was in ill health, his authority badly eroded by the economic crisis, and he had not handpicked a successor. The oligarchs, especially Berezovsky, were worried that the spoils they had won, the fantastic wealth and property, could be taken away. They worried that Luzhkov might saunter right into the Kremlin in the next election, given the lack of other alternatives, and impose his Moscow model on Russia. They did not like Luzhkov’s model, in which he was the boss and they were the supplicants. But the Kremlin—Yeltsin, his staff, and the oligarchs who were close to them—did not know what to do about the power vacuum. The months after the ruble crash found them insecure, paranoid, and at sea.

Luzhkov had weaknesses too. Running for president in Russia required a certain all-out competitive character, such as Yeltsin, who was a politician down to his very core and thought about power and politics all the time. Luzhkov was not this sort of politician. He saw himself as a khozyain who, to succeed, for tactical advantage, had to engage in politics. Luzhkov had tailored a system in Moscow to serve his own ends, a political machine that did not tolerate competition to his rule. He was acclaimed at the polls and praised in the newspapers. There is no doubt he was a genuinely popular figure, but his was a very protected life. Jumping into the national political scene meant that Luzhkov was stepping outside Moscow, leaving the playing field he controlled for new and uncertain territory.

Luzhkov attempted to make the leap, but his steps were plagued with difficulty from the very beginning. If he had thought about it, Luzhkov might have sought Yeltsin’s blessing or at least tried to steer clear of the erratic president and his inner circle. Instead, Luzhkov immediately pointed his guns at Yeltsin and opened fire, criticizing Yeltsin as unfit to remain president. When Yeltsin was reported by the Kremlin to be suffering from bronchitis at his country residence outside Moscow in October, Luzhkov said, “A short ailment is one thing, but if the man cannot work and fulfill his duties, then it is necessary to find the will and courage to say so.” Luzhkov and Yeltsin had been allies in the past—Yeltsin had picked Luzhkov out of the sea of bureaucrats during the perestroika years in Moscow; Luzhkov was on Yeltsin’s side in the 1993 confrontation with parliament; they had campaigned together in 1996. But now Luzhkov was plunging headlong into conflict not only with Yeltsin personally but with the president’s coterie, a group that included Berezovsky. It was a battle that would be far more destructive than Luzhkov realized. In a climate of uncertainty, the early months of 1999 brought a series of events that frightened Yeltsin’s inner circle, including Berezovsky. The result was that Luzhkov was put on the Kremlin enemies list. The people around Yeltsin decided to destroy Luzhkov’s chances of becoming Yeltsin’s successor.

In this period, Berezovsky was again thrown on the defensive, this time by Yevgeny Primakov, the prime minister. Primakov was an old warhorse of the late Soviet years. His economic policy in early 1999 was to hold the status quo, leading to a period of relative calm after the tumult of the crash. But Primakov was less reticent about Berezovsky. He actively went after the oligarch. After the Duma approved an amnesty freeing 94,000 prisoners, Primakov told a cabinet meeting on January 28, 1999, that “we are freeing up space for those who are about to be jailed—people who commit economic crimes.” Within days, prosecutors and gun-toting men in camouflage and black masks raided Berezovsky’s companies in Moscow, the Sibneft headquarters and Aeroflot. The message was unmistakable: Berezovsky was a target.

At the Sibneft building, the masked men seized boxes of materials from a small company, Atoll, which was reportedly a Berezovsky security service. One of Luzhkov’s most loyal newspapers, the popular broadsheet Moskovsky Komsomolets, said investigators believed Berezovsky used Atoll to spy on the Yeltsin family, including Yeltsin’s daughter Dyachenko. Berezovsky believed that Primakov had personally ordered the investigations and arrest warrants against him. Sometime later, Berezovsky went to see Primakov, who denied that he had harassed the oligarch. In a moment of high tension and drama in Primakov’s office, Berezovsky told me he took a document from his coat pocket and confronted Primakov with evidence that he had personally ordered the probe. According to Berezovsky, the former prime minister, Chernomyrdin, was also present at this moment and was so stunned and embarrassed that he got up from the table and left the room in a hurry. Chernomyrdin’s discomfit was understandable: Berezovsky had managed to obtain a copy of the prime minister’s own secret order.²⁴

On the same day as the raids against Sibneft, Yeltsin abruptly asked Skuratov to quit. A copy of the tape was leaked to state television. At first Skuratov agreed to quit but then changed his mind and decided to fight. In a desperate attempt to save himself, Skuratov began to publicize his half-finished investigations, including the probe into Kremlin building contracts. Skuratov was a contradictory and maddening figure whose hints of corruption were never followed by concrete prosecutions. Still, the mere mention of Skuratov and his investigation into Mabetex was enough to panic the Kremlin team.

The Skuratov affair, the raids on Berezovsky firms, the fallout from the ruble crash, Primakov’s vow to put the tycoons in jail, and the launch of Luzhkov’s presidential campaign all came in the same few months. In retrospect, a chain of events was set in motion. Skuratov threw out the dirt on the Kremlin family, alarming Yeltsin’s inner circle. Luzhkov picked up on the allegations, saying the prosecutor should be allowed to continue his investigations, which antagonized Yeltsin and his aides. Then, fighting back, Berezovsky and the Kremlin set out to wreck Luzhkov.²⁵

The Skuratov affair was followed by an arrest warrant issued by the prosecutor’s office on April 5 for Berezovsky on grounds that he had misused cash from Aeroflot foreign ticket sales. Berezovsky’s reply was that he “never worked a day at Aeroflot.” This was literally true, but beside the point. Berezovsky never needed to work at Aeroflot to rake off the company’s foreign currency earnings. The announcement was a major blow to Berezovsky, who was in France at the time. The raids, investigations, and arrest warrants were unprecedented for a man who had so often—and so effortlessly—strolled through the corridors of power. Berezovsky also lost his post as executive secretary of the Commonwealth of Independent States on March 4.

Luzhkov opposed Yeltsin’s impeachment, but he became more vocal in his attacks on the Yeltsin camp. Russia was not being run by Yeltsin, Luzhkov declared, but by a cabal, a “regime” in the Kremlin. His use of this word “regime” over and over again particularly riled the Yeltsin circle. Luzhkov singled out Berezovsky as part of the “regime,” along with Alexander Voloshin, a bearded, balding one-time railway worker and economist who had worked with Berezovsky during the All-Russian Automobile Alliance project. Voloshin, who entered the Kremlin as an economics specialist, rose to become Yeltsin’s chief of staff, succeeding Valentin Yumashev. Voloshin was a figure in the shadows who relished hardball tactics. Like Berezovsky, he was determined not to let Luzhkov become the next president of Russia. Berezovsky knew that if Luzhkov came to power, the tycoons could be at risk of having their property taken away. The rules of the game would be changed, and they would no longer run the country.

Berezovsky began to ponder how to attack Luzhkov. One of Berezovsky’s most effective spear carriers was Sergei Dorenko, the television commentator who had participated in the bankers’ war. With a husky voice, manly good looks, and a mischievous sense of showmanship, Dorenko was the television personality that politicians loved to hate. To a Westerner, Dorenko’s television style might seem crude, unpolished, even down-market, but time and again Dorenko scored in Russia as a television ringmaster who gleefully put the politicians in their place.

Berezovsky thought Dorenko was a magnificent talent. He told me that he first recalled seeing Dorenko on television after his Mercedes had been blown up. He was watching television and Dorenko was using a snide tone, saying another moneybags was hit by a bomb today, too bad. Berezovsky was not offended and called his secretary immediately. “Would you please find Dorenko?” he asked. “It seems to me he is a very talented guy.” He added, “I have never taken the content seriously. But the form that he creates, I take very seriously; I like it.”

Dorenko remembered that they met much later. When Berezovsky wanted to see him, Dorenko at first refused. “I said I was busy,” Dorenko told me. Berezovsky persisted. He showed up and waited in Dorenko’s outer office. And waited. This was Berezovsky’s trademark style: he was always willing to wait, never too humble. It was summer and there was sliced watermelon in the office. “My assistants were asking me what to do with Berezovsky; he sits there and doesn’t go away.” Dorenko added, “And I said I didn’t know. I said, ‘Give him some watermelon.’ He sat there for forty minutes eating watermelon and then went away.” Later they agreed to meet over lunch at a Japanese restaurant and found that there was a chemistry between them. Within an hour that day, Berezovsky signed up Dorenko for his ORT television channel.

Berezovsky was at work behind the scenes, trying to ease out Primakov. On May 12, 1999, Yeltsin fired Primakov. Yeltsin appeared to be increasingly remote and eccentric. He may have been jealous of Primakov’s popularity or persuaded that Primakov could not cope with the economy. Yeltsin replaced Primakov with Sergei Stepashin, a one-time interior minister with the demeanor of a loyal police captain. He was as obedient as a man could be but not strong-willed. One of Stepashin’s first acts was to announce that he would not prosecute Berezovsky.

Stepashin had hardly settled in when the Kremlin began discussing his dismissal. Berezovsky later recalled that Stepashin was viewed as “weak” by the Kremlin inner circle.²⁶ Stepashin was a legal expert, but he seemed paralyzed when it came to politics. Every day, support was draining away from Yeltsin and toward Luzhkov. The Kremlin circle decided they had to find someone else. They had to solve the problem of “continuity of power.” On August 10, Yeltsin fired Stepashin, the fourth premier Yeltsin had dumped in a year and a half. In Stepashin’s place, Yeltsin appointed Vladimir Putin, a spry man with cold eyes and sandy hair who was the little-known chief of the Federal Security Service. Putin was initially viewed as a caretaker, but he became much, much more.

Then came another bolt of alarming news for the Kremlin circle. Two of Berezovsky’s arch foes, Luzhkov and Primakov, were teaming up, announcing a political alliance, and setting their sights on the Kremlin. They were attracting support from key governors and mayors around the country, and when they made the announcement, it was clear they were becoming a force to be reckoned with. They had what is called momentum in American politics—a sense of inevitability hung over them. They were not very charismatic, but that didn’t matter. What counted was a perception that they would be heirs to the Kremlin. There wasn’t another obvious successor to Yeltsin. Luzhkov knew they were in trouble for just that reason. He sensed that the Kremlin staff was already gunning for them. There was “powerful pressure and opposition to formation of our bloc,” he said. “But we are not afraid of it. We are strong.”²⁷

The Kremlin inner circle was distressed. Three days after the Luzhkov-Primakov press conference, several Western journalists and I were invited to the Kremlin to speak to Voloshin, Yeltsin’s chief of staff. It was a rare opportunity to hear directly from the Yeltsin “family,” the embattled Kremlin circle that included Berezovsky, Voloshin, Dyachenko, and Yumashev. Voloshin, dressed casually on a Saturday, spoke very softly in a room of gleaming white marble. He was surprisingly candid. He made it clear that the Kremlin could not tolerate the thought of Primakov and Luzhkov becoming Yeltsin’s successors. Primakov was a wily old Soviet spy, he said. Luzhkov brought no more sympathy. “His surrounding is semicriminal,” he said. “It is not a secret to anyone. The whole of Russia is talking about it.” But he admitted that Luzhkov had achieved some results. “Of course Moscow could afford to build a lot of things, for example, the Ring Road. Luzhkov is known as a builder. He built a lot. Some economists calculated that the money that was spent on the road would be enough to pave it with silver—three or five centimeters thick!”

I left with a feeling the Kremlin was lashing out at Luzhkov because they lacked a successor to Yeltsin and didn’t know what to do. It was a hot, breezy August afternoon as I walked across the cobblestones of Red Square after the meeting—the autumn political season seemed distant, the intrigues and backbiting so senseless. I should have known that the clues from the Kremlin were not accidental. Berezovsky never rested. Only a few months before, thrown on the defensive by Primakov, he had been on the run from prosecutors and masked men breaking into his businesses. Now the compressed ball of energy was back—and preparing to strike.

Dorenko’s programs always included a bit of truth to keep his commentary plausible, but then he tried to twist the facts to make a point. Often Dorenko took his show to the absurd. To highlight Primakov’s ill health after his hip operation, Dorenko showed the gory details of surgeons cutting away at legs and thighs. “Oh, that was a piece of work!” Dorenko laughed at the memory. Another part of Dorenko’s power was the creative side of the show, presented with no apologies, no hesitation, and more than a little tabloid embellishment. Dorenko would have been perfectly in his element announcing a UFO sighting.

Throughout the autumn, Dorenko toyed with the powerful mayor of Moscow, not in a slugfest but in a teasing, wicked series of broadcasts that always portrayed the mayor in a terrible light. Dorenko waited for Luzhkov to react and then used the reaction to repeat the smear. “These programs weren’t done solely by me of course,” Dorenko commented facetiously. “Luzhkov and Primakov were helping me; the three of us were making those programs. We were working as a team.”

Putin, the new prime minister, was catapulted to leadership at this moment. Putin had an ultracool demeanor; a voter once remarked to me that Putin looked like a cheetah ready to strike. Putin blamed the bombings on Chechens, and, in the climate of fear, his public approval ratings skyrocketed as he prepared to launch a new large-scale military offensive in Chechnya. At the same time, Luzhkov saw his own political rating collapse, his city aflame and crazed with fear, and his reputation torn to shreds every Sunday on television. It all happened at once.

Dorenko was more interested in destroying Luzhkov than the brewing war in Chechnya. On October 17, Dorenko devoted most of his program to portraying Luzhkov as a hypocrite. Dorenko described how a hospital was rebuilt in the southern Russian city of Budyonovsk. The hospital was wrecked during a terrorist raid in the first Chechen war. Dorenko said Luzhkov took credit for rebuilding the hospital but never thanked the donor of the money. Dorenko repeated the point several times, saying Luzhkov hogged all the credit for the hospital. “Darlings!” Dorenko said, figuratively, to the Moscow mayor’s office. “What are you doing? Why don’t you just thank” the donor.²⁹

In the next segment Dorenko hinted at mysterious money transfers from Moscow to foreign banks. Dorenko noted recent articles in the New York Times about the Bank of New York channeling Russian money out of the country.³⁰ A document flashed on the screen: a bank transfer to the Bank of New York. Forty million dollars! Another! A third! No one who saw the show—myself included—could quite figure out what was going on, but Dorenko was all about form, not substance. He closed with a killer line impugning Luzhkov. “I suppose that Luzhkov is not going to share the details with the public,” he said, “but perhaps he will have to share the peculiarities of his economic activity with the investigating teams working on the theme of Russian money laundering in the Bank of New York.”

At the end of the show, Dorenko dropped another video bomb on Luzhkov’s head. He showed a series of fast-paced, alternating video clips. First, Luzhkov at the mayor’s office, attacking the Kremlin “regime,” and the ill Yeltsin; then Luzhkov at the climactic rally of the Yeltsin 1996 campaign, supporting Yeltsin. “I say, Russia, Yeltsin, freedom!” Luzhkov bellowed at the rally. “Russia, Yeltsin, victory!” The crowd roared. “Russia! Yeltsin! Our future!”

Luzhkov was stunned at the Dorenko show. He had been mayor of Moscow for more than five years and was the boss of his city. Luzhkov sputtered angry denunciations at Dorenko and took him to court for slander, a tactic that he had always used in Moscow politics. But it had not been very effective against Dorenko. “It’s madness,” Luzhkov said. “It’s a kind of psychotic attack, in the sense that it is usually mentally unstable people who do this sort of thing,” he declared.³¹ “It is shocking for Russia. It includes lies and slander, floods of dirt poured on politicians and statesmen.”³²

Luzhkov got so caught up in the Dorenko television torture chamber that he did not break out to make a case for himself. He never launched the one slogan that Yevtushenkov thought might be the basis for a presidential bid—that he could rebuild Russia. His wife, Yelena Baturina, told me at the time that “politics from my point of view is a very hard choice for Yuri Mikhailovich now. Politics doesn’t always use proper methods. He finds himself at a loss. He has a lot of principles, and very often his opponents do not have any at all.”³³ When I talked to Yevtushenkov, he also recalled that Luzhkov was not prepared for what hit him. “For long years,” he said, “Yuri Mikhailovich lived in an environment, in an atmosphere of being everybody’s favorite. And on a large scale, he was a sacred cow whom nobody dared criticize much.... He was not prepared, morally, for what would happen. He just wasn’t prepared.”

The relentless drumbeat of negative broadcasts took their toll on Luzhkov. Dorenko had enormous reach on ORT, since the signal covered the whole of Russia. In October, the Public Opinion Foundation, a leading private polling company that also worked for the Kremlin, reported that Luzhkov’s standing in the polls was beginning to collapse. It was common for presidential front-runners in a crowded field to have only 20 percent or slightly more in weekly polls. In January, 15 percent of those questioned said they would vote for Luzhkov as president. In October it had fallen to only 5 percent. The percentage of those saying they mistrusted Luzhkov went from 35 percent in late 1998 to 51 percent a year later.

Dorenko told me that the Tatum show fell into his lap. Ever since he began the on-air smear campaign, his office was deluged with people bringing him complaints about Luzhkov. “Dozens of people asked to meet with me and were bringing documents on Luzhkov,” he recalled. “And among all those people, a guy comes to me and tells me, ‘Look, two months ago I was in Florida and I taped an interview with some crazy American.... He is kind of disturbed.’” The crazy American claimed that Luzhkov was to blame for Tatum’s murder. The crazy American was about to become Dorenko’s video Gatling gun. Dorenko spoke to Berezovsky about how to cast the Tatum program for maximum effect to smear Luzhkov. Berezovsky suggested a convoluted, bizarre story line that involved the Federal Security Service. But he was careful to instruct that Putin, the former FSB head, be left out of the show.

Olson was then shown sitting in an enormous leather chair, a can of Dr Pepper™ on a stand next to him. Olson made a surprising claim that was difficult to believe: He was a Tatum friend who was the first to be called about the murder. “Paul, when he was shot, was still alive for several minutes after he was hit by the bullets. He was communicating a little bit with the bodyguards, the bodyguards were communicating with the office, the office was communicating to me. His last words to the office, to me, were: ‘Luzhkov is responsible, he did this to me.’”

Dorenko then plunged into a long, twisted narrative, following Berezovsky’s cues. The raw thrust of Dorenko’s point was to blame Luzhkov for the murder. The rest of the facts, conspiracies, and testimony passed in a blur. To top it off, Dorenko closed the evening with a piece attempting to link Luzhkov with the head of the Aum Shumriko, the Japanese sect that poisoned the Tokyo subway, and the Church of Scientology. No bit of guilt by association, no scrap of ammunition escaped Dorenko. It was all a show.

Berezovsky loved it. That autumn, he was campaigning for a seat in the Duma from Karachayevo-Cherkessia, an ethnically divided republic in southern Russia. Berezovsky was also actively organizing the new parliamentary party to support Putin. The gathering storm of a military offensive in Chechnya was highly popular, and Putin was riding a wave of acclaim. Berezovsky was also serving as kingmaker to Putin. He let Dorenko handle the assault on Luzhkov, a serious potential rival to Putin, who needed to be pushed out of the way.

At the end of the parliamentary campaign, Luzhkov, wounded and bitter, held one last rally in Moscow on the edge of Red Square at Vasilyevsky Slope. It was dark as the crowd gathered. In the background, St. Basil’s Cathedral was brightly illuminated by spotlights. The moment was filled with distress for Luzhkov. Near the same spot, three and a half years earlier, Luzhkov delivered his rousing endorsement of Yeltsin. Now he was reduced to shouting at Yeltsin, shouting in vain into the cold night air, shouting so his voice reverberated against the Kremlin walls just beyond. Luzhkov, wearing his trademark cap, rattled off his critique of the ruling powers, recalling the GKO pyramids, the ruble crash, mass privatization. “They are afraid of us!” he declared. “They are afraid of us because we say it is necessary to bring to justice all those who allowed this lawlessness, and this theft of the country’s property and money!” The crowd was wooden, mostly city workers and trade union supporters who were bused in and marched to their preassigned spot on the cobblestone slope. They left immediately after it was over. They carried placards such as “Dorenko Is Berezovsky’s Puppy,” and “Hands Off Our Mayor!” It seemed to me that Luzhkov made a huge mistake in devoting his final energy to shadowboxing with Dorenko. He could have run a powerful political campaign based on Moscow as a showcase city, but he never did. I wrote in my notebook that Luzhkov “is a khozyain at heart, who’s made some effort to be a politician, but he’s been mowed down by Dorenko and the rest, and he surely doesn’t know how to respond to it.” Luzhkov was still fuming about the “regime” at the end of the rally. He said bitterly, “We had to show those scoundrels that we are a real force, that we won’t give in. We had to show that we can stand up to a flood of lies and slander. We are against the ways in which the regime is starting to rule in the country.”

When I asked Luzhkov about the events of that autumn more than a year later, he was still furious. He blamed Yeltsin, Yeltsin’s inner circle, Berezovsky, and “parasitic capital.” When I suggested he had not fought back vigorously enough, Luzhkov grew quite animated. He recalled the lawsuits he filed and insisted that he had tried to respond. “Were we supposed to drive tanks in the direction of the Ostankino TV center?” he asked. “It is absolutely well-known that in all his episodes, Dorenko was slandering me, and he knows it. He received huge money from Berezovsky, a fee, huge money. By court decision he was ordered to pay $4,500. He is laughing at justice. We don’t have effective justice.”

The ruble crash hit all three television channels very hard, but Gusinsky was particularly vulnerable because his ambitions had once soared so high. For ORT, still 51 percent owned by the state but controlled by Berezovsky, the government provided a lifeline, a $100 million loan from a state bank. Kiselyov told me that NTV was anxious for a loan from the state as well. Even though the channel took pride in the fact it was outside control of the state, even though it freely criticized Yeltsin and the government, Kiselyov said NTV would have gladly accepted a government loan too, and went so far in these desperate times as to broach the idea. He believed the government had caused the crisis, so the government should help the television industry as a whole survive. The financial health of Gusinsky’s companies began to deteriorate. The Russian television advertising market fell 47.5 percent from 1998, and it was down 77 percent from precrash projections. ³⁵ Meanwhile, the cost of servicing his debts was large. The government remained silent about a loan. “So, ORT got a government loan of $100 million, and we got nothing,” Kiselyov said. “That was one of the most worrying things that happened to us.” NTV carried increasingly critical coverage of the Yeltsin circle—including unflattering reports about Voloshin, the chief of staff, who was depicted in one Kiselyov broadcast as Lenin. Viewers were clumsily reminded of Voloshin’s past working with Berezovsky on the AVVA scheme. The show was poorly produced and not very persuasive. The deposed prosecutor, Skuratov, who so infuriated the Kremlin, also got a generous amount of airtime on NTV to spread his charges against the Yeltsin family and inner circle.

In midsummer 1999, Gusinsky met with Voloshin. In this period, Gusinsky and Berezovsky were at loggerheads. There may have been other reasons, but the obvious source of tension was politics. Gusinsky was betting on Luzhkov, and Berezovsky was determined to destroy the mayor. At the time, the Kremlin still did not have a successor to Yeltsin. The problem of “continuity of power” remained. Voloshin had the coming election on his mind when he met Gusinsky.

At this point, Gusinsky might have pulled back and thus avoided a potentially catastrophic collision with Yeltsin and his team. He might have focused on building up his media empire and avoided taking sides in the coming campaign. But he did not take this route. He was an oligarch, and oligarchs played for the big stakes. They ruled the country. Remaining on the sidelines was not an option. Gusinsky pushed ahead—backing Luzhkov—and made a mistake that led to the destruction of all he had built.

Voloshin was not in the mood to help Gusinsky, and the Kremlin instead began to turn the screws on him. Voloshin accused Gusinsky of running up big debts to Gazprom and “resorting to the tried-andtested method of information racketeering,” pressuring the Kremlin for loans. Voloshin told Gusinsky to forget about any assistance from the government. “Since the management of the holding company and specifically NTV television channel have such an unfriendly attitude toward the authorities, it is not entirely clear why these authorities should be helping Media-Most resolve its problems,” Voloshin said.³⁷ Kiselyov, the popular television anchorman, later recalled the dialog with the Kremlin that summer in blunter terms. The Kremlin demanded NTV support for whoever was handpicked to be Yeltsin’s successor; little choice was offered. “Join us or rot in hell,” Kiselyov said they were told.³⁸

When the Chechen war reignited in August 1999, Gusinsky’s troubles deepened. A band of Chechen rebels led a cross-border incursion into neighboring Dagestan, an internal Russian republic that is a patchwork of nationalities. The attack came in a remote mountainous zone. The Chechens were led by Shamil Basayev, a bearded, ruthless Chechen warrior who had also, over the years, been on speaking terms with Berezovsky. Berezovsky said he warned the Kremlin that the incursion was coming. Despite the advance signals, the Kremlin did not make a serious attempt to stop it.³⁹

The fresh hostilities propelled Putin to prominence. He wasted no time ordering the Russian military to attack the Chechen rebels. His ratings went through the roof to levels of approval not seen since Yeltsin’s early days. As prime minister, he was also in the line of succession should Yeltsin resign or become incapacitated. He came out of nowhere in an atmosphere of fear and uncertainty, a time of hysteria, when thirteen-floor prefabricated concrete buildings in Moscow imploded violently and randomly in the middle of the night; sleeping children, mothers, and fathers were crushed instantly by a nightmare of falling stone, steel, and glass. Without any debate, with nary a critical question asked, the political environment was transformed from a vacuum to a one-man regime. With Putin, the Kremlin had solved the problem of “continuity of power” in one fell swoop. No one knew what Putin stood for or what he had done during his career as a KGB spy. He appeared to be standing up, decisively, to defend them against the Chechens, after Yeltsin’s years of weakness and vacillation. Putin embodied and articulated the Russian hatred for the Chechens. Putin vowed to wipe out the Chechens “in the outhouse.”

The onset of new hostilities put NTV outside the Kremlin circle, just as it had in the first war, but this time the circumstances were markedly different. In the first conflict, the Russian military made only lame efforts to control the flow of information, and journalists from NTV made their mark bringing home the gruesome, vivid images of battle that often contradicted the official version. But in late 1999, the Kremlin and the military attempted to bottle up the television channels. The scenes on television were not of combat but of Russian generals reading official statements. Battlefield information was strictly censored. In a major setback for Gusinsky, one of his first partners in NTV, Oleg Dobrodeyev, who championed the groundbreaking coverage of the first war in 1995, left the channel in a disagreement over how to cover the second war. This time Dobrodeyev was sympathetic to the army. “When you see everything with your own eyes,” he told Krasnaya Zvezda, the military newspaper, “when in real time the Defense Ministry generals are giving you information, you don’t have to ask anyone for anything else.”⁴⁰

The first Chechen war had become intensely unpopular at home, but the second offensive, carried out in an atmosphere of public fear after the Moscow explosions, was hugely popular. This too put Gusinsky and NTV in a difficult position; the public did not want to hear criticism of the war. Yet another difference was that NTV journalists did not have as much access to the Chechen side because of the threat of kidnapping. An NTV star correspondent, Yelena Masyuk, and two members of her crew had been ransomed from Chechen kidnappers in 1997. After this, many journalists had less sympathy for the Chechens. Still, NTV correspondents attempted to cover the war as best they could under extremely difficult conditions.

Berezovsky was hospitalized in the fall for hepatitis, but even from his hospital bed, he was in hyperspeed. He organized and bankrolled the creation of a new political party, Unity, which he hoped would later support Putin’s agenda in the State Duma, the lower house of parliament. For those who had watched the labored, difficult work of party building in Russia, the rise of Unity in such a short period was nothing short of stupendous, since the party had no discernible ideology, platform, or charismatic leaders—but it had Putin. His popularity, combined with Berezovsky’s money, was sufficient to win enough seats to make Unity the second largest bloc in the next parliament.⁴¹ Berezovsky simultaneously won his own seat from District 15 in Karachayevo-Cherkessia.⁴²

Berezovsky did more than anyone to set the stage for Putin to become the next leader of Russia, but the final act came from Yeltsin himself. Ailing and isolated, Yeltsin resigned on a snowy New Year’s Eve in 1999 and appointed Putin acting president. It was a surprise announcement delivered with a certain inevitability, given Yeltsin’s long absences and ill health. “Russia must enter the new millennium with new politicians, new faces, new intelligent, strong, and energetic people,” Yeltsin said in a television address. “And for those of us who have been in power for many years, we must go.”

Yeltsin had informed Putin that he would turn the reins over to him about two weeks earlier. Yeltsin told his family just that afternoon that he was stepping down. Moscow was amazingly calm. There had been weeks of speculation about some kind of techno-catastrophe as computer clocks turned over to the year 2000, and perhaps that was one reason for the quiet. On New Year’s Eve, I found people shopping and thinking of themselves and their families, and politics was simply drowned out. The streets were empty and fireworks split the air throughout the night.

What was worrisome that night was the speed and suddenness with which Putin was forced on Russia. When he was appointed acting president by Yeltsin, he had less than a year’s experience in leadership of the grinding, tortured machine that was Russia’s protodemocracy and newborn market economy. Former Soviet President Mikhail Gorbachev, who had been close to Primakov, spoke for many when he said, “Putin is holding on, thanks to his mystery. Mysterious appearance, mysterious glance, mysterious phrases. But it so happens the man opens his mouth and has nothing to say.”

Putin had previously thrived in closed worlds, spending seventeen years as a KGB agent and several years after that as a behind-the-scenes deputy to Anatoly Sobchak, the first elected mayor of St. Petersburg. Until handpicked by Yeltsin to be prime minister, Putin had never been a public figure. When he was named acting president, he had no idea what it was like to campaign for office. He had never been forced to deal with angry voters or critical news media. He agonized over giving interviews to the press. He found campaigns distasteful. “You have to be insincere and promise something that you cannot fulfill,” he said. “So you either have to be a fool who does not understand what you are promising or deliberately lie.” Oddly, Putin did not think there was an honest way—to make promises and try to fulfill them.

My own impression is that Putin knew, from his KGB years, that economic modernization was the only way forward for Russia, but he did not understand how to build a democracy, or even how it functioned. His own rapid rise to power offered him few, if any, useful lessons about democracy. He was elevated to the presidency on the updraft of a military campaign, while his chief opponents, Luzhkov and Primakov, were destroyed on television by his backroom team. He never had to go through the experience of being defeated at the polls. He never had to engage in real political competition. He rarely subjected himself to the give-and-take of press conferences and never took part in a debate.

During his five years as a Soviet KGB spy in East Germany, Putin missed the critically important political and economic upheavals in Moscow. He missed the period when journalists were considered beacons of freedom; he missed the triumph of public associations, like the human rights group Memorial, which became powerful forces for change in society; and he missed the early experiments in electoral politics such as the Congress of People’s Deputies. Putin simply missed the birth of civil society. When he became acting president, he was light-years away from the open, rambunctious media that Gusinsky had created. Putin was a closed man who did not see the need, for example, to explain himself to the public. He told journalists that he saw them as belonging to his “command,” an us-or-them, suspicious mentality. He paid lip service to freedom of speech, but his own view was entirely Soviet, that television should be an organ of the state.

Putin told Dorenko once that television shaped reality. “You understand,” Putin said, “there are certain cases when if you don’t tell about something, it didn’t happen.” Dorenko, who knew as well as anyone in Russia the power of television, said of Putin: “As a politician, he believes himself to be a product of television. And he thinks that only television can destroy him. Not newspapers—he is not afraid of newspapers because people don’t read newspapers.”

In Putin’s world, Gusinsky was a marked man. His television channel, with its open criticism of the Kremlin and Putin, ran counter to all of Putin’s instincts and desires. “He hates Gusinsky,” Dorenko told me. “First of all, he believed Gusinsky was working for Luzhkov and he wanted to take revenge. Second, with Luzhkov defeated, Putin thought Gusinsky had rebuilt himself to serve American political interests. And third, Gusinsky cannot be controlled. He is strong and not a Putin man. That is, Putin cannot stand beside anybody whose opinion differs from his own, especially publicly. You can try and argue with him privately; I have done that. But publicly you cannot.”

Gusinsky was a marked man in another way too. Putin, who was stationed by the KGB in Dresden during the Gorbachev period, not only missed the political upheaval in the late 1980s but also the wild, crazy economic explosion of the final Soviet years, the period of the cooperatives and early banks when Gusinsky, Berezovsky, Smolensky, and Khodorkovsky had all made their leap from the old system to the new one. Throughout most of the Yeltsin period, when the oligarchs were gaining power and influence, Putin’s perch was as a second-tier municipal official, then an obscure Kremlin aide, and finally head of the Security Service for one year. Rushed to the seat of power as Yeltsin’s successor, he took a suspicious view of the tycoons. When asked in a radio interview what the future held for the oligarchs, Putin said, if one meant “those people who fuse, or help fusion of power and capital—there will be no oligarchs of this kind as a class.”⁴³

At the time, this comment unleashed a torrent of speculation about what Putin really meant. My own view was that Putin understood full well the distortions that oligarchic capitalism had brought to Russia. That was not really the issue; the question was what Putin intended to do about it. Did he want to change the system? Many Westerners, especially those in the financial markets, rejoiced at Putin’s words because they believed he would carry out an assault on the system of opaque, dirty deals, clean up the mess, and make Russia safe for foreign investment. If Putin had really been serious about systemic change, about building a competitive, market-oriented, rule-of-law approach, then it would have been welcome news indeed.

But Putin did not begin with an assault on the system. He began with an attack on one of the oligarchs: Gusinsky. Starting soon after the March 2000 election, which Putin won, the Kremlin intensified a relentless campaign, through surrogates, to destroy Gusinsky’s media business and largely succeeded over the following year. Putin’s backroom team had already ruined Luzhkov’s presidential hopes. Then they turned on Gusinsky and, amazingly, they eventually turned on their own creator, Berezovsky. Putin’s approach to oligarchic capitalism during his first year was not to change the system. He just wanted to get control of it.

Gusinsky recalled with some pride how he had once taken the chairman of Gazprom, Rem Vyakhirev, to see the ground station that Gusinsky’s conglomerate, Media-Most, had built to operate the satellites for NTV-Plus. Ever since it bought 30 percent of NTV in 1996, Gazprom had been a friendly investor in the television company. Gazprom, a gargantuan, hidebound monopoly that operated by its own secretive methods, was a pillar of the Russian economy. The company earned billions of dollars from lucrative gas exports to Europe. It was a cushion of capital for Gusinsky after the 1996 election. Gazprom was there for Gusinsky again after he failed to float his shares on Wall Street. It agreed to guarantee a $211 million loan for Gusinsky through Credit Suisse First Boston and paid off the loan when Gusinsky could not. Gusinsky now had a debt to Gazprom. A deal was struck to boost Gazprom’s stake in the holding company, Media-Most, in exchange for paying off the debt. Under the terms, Gazprom would get 25 percent plus one share of Media-Most. Gazprom agreed to the deal, but details were still being worked out early in the year 2000, when Putin was elected.

A disturbing sign of trouble came in early May 2000. Gusinsky was negotiating to sell his Most Bank to a Central Bank subsidiary. The plan had been drawn up and was ready to be signed when the chairman of the Central Bank, Viktor Gerashchenko, received a phone call from the Kremlin. The caller was Putin’s chief of staff, Voloshin, and he told the central banker not to go ahead with the deal. According to several accounts I heard at the time, Gerashchenko told Voloshin to go to hell and hung up the phone.

On the morning of May 11, three minibuses of armed, masked men identifying themselves as tax police pulled up at the headquarters building of Gusinsky’s holding company, Media-Most, in the center of Moscow. The building was lavishly appointed by Russian standards, with fountains, marble floors, and a luxurious amphitheater. The raiders, wearing black masks with only their eyes showing and wielding semiautomatic rifles, ordered the employees to leave their offices and remain in the cafeteria while they searched the building. What were they searching for? Who were they? All day the authorities gave conflicting accounts: they were tax police; no, they were searching for bugging equipment; no, they were investigating Gusinsky’s debts. The raid was just the first hint of what was to come.

To Gusinsky’s surprise, Gazprom turned hostile. Gazprom appointed Alfred Kokh, the salty former privatization chief who had overseen loans for shares and Svyazinvest, to manage its share of Media-Most. Kokh was still angry at Gusinsky three years after the Svyazinvest fiasco. He knew Gusinsky was behind the disclosure that he had received the $100,000 book advance from a company linked to Potanin. He was still seething at the way Gusinsky had used his media to disclose the book advance. This was no casual decision by Gazprom; it was tantamount to putting Gusinsky’s most hateful enemy in charge of his business. I ran into Kokh during this period at his office in central Moscow. He was extremely agitated at something he had seen about himself on one of the proliferating Internet sites that carried kompromat from anonymous sources. Kokh invited me to look at the computer screen in his office. I don’t remember what it was that so agitated him, but I well remember his shouting that it was all Gusinsky’s fault. “Bandit!” he said over and over again of Gusinsky. The wounds of Svyazinvest still festered, and Kokh was in a position to extract his revenge.

On the day of the raid against his headquarters, Gusinsky flew back to Russia from a business trip to Israel. Speaking to reporters at the airport, he denounced the show of force as “political pressure.” Still, Gusinsky could not help but feel that he had been through all this before, when Korzhakov’s goons had chased his car into the center of Moscow in 1994. The Kremlin had pressured him then too, and he had been forced to flee the country for six months until things cooled down. But he survived that, and NTV had thrived. “History repeats itself somehow,” he said, rather philosophically. “If you remember 1994, all this has happened already.”

More worrisome was the changed attitude of Gazprom. The mammoth company was run like a private fiefdom in which Vyakhirev could do as he pleased. This worked to Gusinsky’s advantage from 1996 until 2000, when Gazprom was his ally. Gusinsky said that, as a major shareholder in NTV, “Gazprom never attempted to interfere.” Only a few months earlier, Vyakhirev agreed to take the larger share of Media-Most in exchange for the unpaid debt. It was a debt-for-equity swap, a transaction hardly unusual in the West. Gazprom was a “partner,” Gusinsky told me, “and I had no reason not to trust the deal.”

But after Putin took office, Gazprom was no longer willing to take Gusinsky’s equity. Gazprom demanded that Gusinsky pay cash, which the Kremlin knew Gusinsky did not have. Gusinsky said he believed that Vyakhirev was personally pressured by the Kremlin into the aboutface. Moreover, Gusinsky, who had wide contacts in the West, found it much harder to raise new capital abroad. The masked men raiding his offices had taken care of that. Just the news photos of a police investigation were enough to scare away investors. “You understand, investors are afraid of scandals,” Gusinsky told me. His attempts to borrow from abroad were effectively blocked by the Kremlin. Gusinsky, stubborn, emotional and vain, concluded that Putin was personally out to get him. “If the president of such a big country as Russia, who has internal problems, problems with governing, problems with Chechnya, problems with the government, finds time to call up Gerashchenko—I think it is clear who is dealing with Gazprom, and why.”⁴⁴

The next blow fell on Gusinsky personally. He openly criticized Putin. “The myth of Putin as a president who advocates reforms, democracy, free speech, and so on, is history now,” Gusinsky said defiantly the first week of June. “His real actions unmask him, revealing his true face, you know.”⁴⁵ A week later, Gusinsky was asked to come answer questions at the general prosecutor’s office. At issue was the origin of several bullets for a decorative pistol belonging to a Gusinsky aide that had been confiscated in the May 11 raid. For reasons that were not clear, Gusinsky was not alarmed by the summons and went to answer the questions without a lawyer, taking only a bodyguard. He was originally scheduled to answer questions at 2:00 P.M. but was delayed and arrived at 5:00 P.M. Then, at 6:15 P.M., his lawyers received a note from the prosecutor’s office that Gusinsky was under arrest. Later in the evening, the prosecutors announced that Gusinsky was being held as a suspect in an old fraud case involving privatization of a St. Petersburg television company, Russian Video. The whole arrest was carried out with haste; the original documents said that Gusinsky was to be taken to Lefortovo, the large federal prison, but instead he was thrown in Moscow’s most notorious prison, Butyrskaya, an overcrowded, eighteenth-century jail, and denied access to a lawyer.

Putin, who was on a state visit to Spain, pretended that he had no idea what was happening and claimed that he could not even get the general prosecutor, Vladimir Ustinov, on the telephone. But Putin displayed a surprisingly detailed knowledge of the case. He clearly had been briefed about Gusinsky’s financial plight. Putin claimed that Gusinsky had taken $1.3 billion in loans for Media-Most but “returned almost nothing,” including debts to Gazprom. “Several days ago Gusinsky did not pay back another $200 million loan,” Putin added, “and Gazprom again paid the outstanding debt. I wonder why Gazprom should spend money on this.” Putin’s words revealed the Kremlin’s crude tactics: to force Gusinsky to pay all his debts at once, effectively to bankrupt him.⁴⁶ Although Putin claimed he was not involved in Gusinsky’s arrest, it was a lie. He had his hands on the hangman’s noose now being strung around Gusinsky’s neck.

When he heard about the arrest, Sergei Dorenko grew angry. Dorenko had indirectly helped Putin come to power with his fifteen silver bullets, but he did not like what he saw unfolding. That evening, NTV was broadcasting an edition of its popular talk show, Glas Naroda (Vox Populi). The subject was Gusinsky’s arrest. The show was broadcast from an amphitheater-like studio and encouraged participation by a large audience. Dorenko was Berezovsky’s man, but he rushed to Gusinsky’s defense. Wearing jeans and a sweatshirt, Dorenko drove madly to the studio. Halfway there, his beeper went off. It was Kiselyov, inviting him to appear on the air immediately. Berezovsky called on his mobile phone, seeming a bit confused about what was happening. “Oh Borya!” Dorenko replied. “They are simply idiots!” he said of the arrest of Gusinsky. “And you know I am on my way to the studio.” Berezovsky was surprised but silent.

The show was filled with passion. Politicians, lawyers, and journalists from Gusinsky’s publications, and others who were just his friends, appeared with emotions flashing in their eyes, their anger searing and deep. The imprisonment of Gusinsky was nothing other than an assault on Russia’s fragile freedoms, they said, an arbitrary reversion to the old authoritarianism. “This is an action of threat and revenge,” said Andrei Cherkizov, an acerbic radio commentator on Gusinsky’s Echo of Moscow station. “It’s a threatening action—if you misbehave, this will happen to you also,” said Boris Nemtsov, the young reformer who was now a progressive member of parliament.

Dorenko was hardly a beacon of idealism when it came to defending a free press. He was a showman, and he had personally carried out a debilitating smear campaign against Luzhkov. But he had guts, and on this night he was not afraid to say what he saw happening. Dorenko’s comments were the most memorable of the entire evening. He declared that Putin had given the green light for the “robots” of the old regime, the security services, to return to the fore. Dorenko had disliked Primakov as a symbol of this old regime. Now, Dorenko realized, Putin was turning out to be just a continuation of the old school—arbitrary attacks, total control. Just six weeks after Putin had taken office, and at a time when he was still being hailed in the West as a young, post-Yeltsin remedy for Russia’s ailments, Dorenko punctured the image with just as much energy as he had smashed Luzhkov.

“We thought something happened over these last ten years,” he said, referring to the rise of Russian democracy since the collapse of the Soviet Union. “We thought that the old system broke over these ten years. We dumped the robots. They have been lying there. And they stirred and started moving again, as if they heard some music. They got up and started moving. Today the security structures throughout the whole country are taking a message from Putin’s rise to power.... They hear music that we do not hear, and they get up like zombies and walk. They surround us. And they will go far if there is silence.... We need to bash them over the head every day.”

Dorenko replied that was not the point. “You have sent a very important message to everyone in this country, to everyone,” Dorenko said. “To all the policemen, to all the FSB people. You told them to try and catch journalists, businessmen, and Jews. This is what you said. Because Gusinsky is a Jew connected with the press and a businessman. And now you can issue any kinds of decrees or laws, but people will know what you really want: to catch journalists, businessmen, and Jews.”⁴⁷

Gusinsky was formally charged with fraud and released late on Friday evening, June 16, on a pledge not to leave Moscow. A few days later, Gusinsky sat awkwardly in a chair on a pedestal for a live broadcast interview on Glas Naroda, questioned by his partner Kiselyov. Gusinsky was never an easy interview; his emotions seemed to creep up on him, and he would change his thoughts in midsentence. He was surrounded by sympathetic journalists, and he appeared uneasy as the center of attention. But he was very clear and lucid about Putin. The Russian president, he said, knew everything about his arrest and imprisonment. “More than that,” he added, “the decision was taken personally by Mr. President.” The Kremlin, Gusinsky declared, had divided the tycoons into “friends” and “foes,” and he was one of the foes. Gusinsky also acknowledged that the oligarchs had given the Kremlin plenty of reason to think they could command the news media—the 1996 campaign for Yeltsin was the precedent. “A very big and grave mistake,” Gusinsky said. “It was in 1996 that we gave birth to a small monster.... Today the authorities are really using the instruments that we presented to them in 1996.”⁴⁸

The next six weeks underscored that Putin was playing hardball. He wanted to break Gusinsky. The raids on Gusinsky’s corporate headquarters, the charges of fraud, and the jail episode were just the beginning of the end. The Kremlin intensified the pressure in June and July. The point man behind the scenes was Mikhail Lesin, founder of the advertising agency Video International, who had been named press minister by Putin. Lesin once did a flourishing business with Gusinsky. His advertising agency had been the exclusive broker for airtime on NTV, and both men prospered in the mid-1990s. But Video International pulled up stakes and terminated the relationship in late 1999. Soon thereafter, Lesin joined the campaign against Gusinsky. A close associate of Lesin told me that Lesin harbored personal animosity toward Gusinsky, feeling that he had never shown him enough respect. Lesin had quite willingly thrown himself into the attack on Gusinsky and was joined by Kokh.⁴⁹

A long, secret negotiation began between Gusinsky and his tormentors. Gusinsky was in a financially vulnerable position. In addition to the $211 million loan that Gazprom had guaranteed, the next loan, also guaranteed by Gazprom, of $262 million, was coming due in July 2001. The total debt of Gusinsky’s company to Gazprom was $473 million. In the old days, Gusinsky could count on strong television revenues to carry the burden of debt service, but after the ruble crash, his financial situation was strained.

In the talks, the Kremlin’s goal, working through Kokh and Lesin, was to wrest NTV away from Gusinsky, who was still facing criminal prosecution. Malashenko told me that Lesin presented Gusinsky with an ultimatum. If he sold the business to Gazprom, he could go free. The deal offered was this: $300 million in cash for the whole of Gusinsky’s empire, Media-Most and NTV, as well as forgiveness of the outstanding $473 million in debts. Gusinsky recalled that NTV alone had been valued at more than $1 billion overall when he was thinking of selling shares in New York before the crash—now they were offering him nickels and dimes for his company! Still, he felt pressured. He did not want to go back to jail and there were continuing raids against his companies. On July 7, investigators carted off more documents from NTV. Gusinsky later told me, “They said it more than once. There were constant threats to put me in jail cells with tubercular prisoners and people with AIDS.... I was indeed a hostage. When you have a gun to your head, you have two options: to meet the condition of the bandits or take a bullet in your head.”

On July 18 Gusinsky signed a written statement, secret at the time, witnessed by two of his lawyers. The statement said he was being forced against his will to sell his business, in exchange for a promise to drop the criminal charges and permission to go abroad. Gusinsky said Lesin, the press minister, was the one “forcing me to conclude this transaction.” Two days later, on July 20, again acting secretly, he signed the agreement to sell out for $300 million. A document attached to the sale called for the criminal charges against Gusinsky to be dropped.⁵⁰ A few days later, Putin returned from a summit meeting at Okinawa, where he had been lavishly praised by leaders of the Western industrial democracies. On July 27 Russian prosecutors abruptly and without explanation announced they were dropping all charges against Gusinsky. The secret agreement to sell out was not mentioned. Gusinsky immediately boarded his private jet and flew out of Russia to visit his family in Spain. He did not come back again.

Over the next several weeks, negotiations were quietly held in London to iron out the deal. But in September, Gusinsky was having second thoughts, even though some of his partners and his wife urged him to take the $300 million. Gusinsky said he felt that NTV was like a home he had grown up in, and he feared Putin wanted to turn it into a “brothel.” He decided not to sell out and tore up the deal. It was another turning point for Gusinsky, where he might have avoided more trouble. But he was still feeling the drive and ambition of an oligarch—he would not let them push him around.

I met Gusinsky one rainy September afternoon in London. He was defiant and energized. He wanted to resist the Kremlin and stand up for NTV, as he had successfully done under fire in 1995. His cellular telephone rang incessantly with calls from Moscow. His four top journalists and editors—Kiselyov, Sergei Parkhomenko of Itogi magazine, Mikhail Berger of the newspaper Sevodnya, and Alexei Venediktov of Echo of Moscow Radio—flew back and forth to London and Gusinsky’s home in Spain for conferences. Malashenko went to Soros seeking help. Soros told Malashenko that he had found an investor willing to take the risks: CNN founder Ted Turner. But all the wrangling came to naught. Putin wanted Gusinsky out, and Putin was stronger. The prosecutor issued new warrants for Gusinsky’s arrest through Interpol. Gusinsky was detained in Spain and twice jailed there, before the Spanish high court threw out the case, saying there was no evidence Gusinsky had committed a crime. Gusinsky’s executives, including Malashenko, fled Russia, fearing they would be arrested. Kiselyov fought on. In the year of pressure tactics, there were more than thirty raids by the prosecutor and other law enforcement agencies against Gusinsky’s businesses.

Putin was the driving force behind the entire affair, and he, as well as his backroom boys, were intent on victory. Kiselyov told me there were two groups around Putin helping crush Gusinsky. One was the “grudge” group—Lesin and Kokh, who had their own reasons for taking revenge on the oligarch. The other were the security services, Putin’s friends and power base. Ustinov, the general prosecutor, twice summoned Kiselyov for secret meetings at the headquarters of the prosecutor’s office. To avoid detection, Kiselyov was brought into the building in central Moscow in an unmarked car through a backdoor. Kiselyov thought the meetings were strange, and Ustinov stilted, as if he were talking to hidden microphones. Ustinov wanted to know what it would take to resolve the crisis. Kiselyov demanded that charges against Gusinsky be dropped. The talks came to nothing.

Gusinsky finally lost control of the television station in April. Gazprom, in a hastily assembled board meeting, got control of 25 percent plus one share and moved to seize control over NTV. The old management was removed. Kokh appointed a new general director, Boris Jordan, the young hustler who had been Potanin’s fast-talking partner in the Svyazinvest auction. Jordan had promised not to use force to take over the station, but at 4:00 A.M. on April 14 he arrived at NTV with his own security guards and assumed control. The arrival of Kokh and Jordan at NTV was met by hissing and moans from the staff. Kiselyov and many other journalists walked out. Gazprom also took control of Sevodnya, Gusinsky’s first newspaper, and closed it. Then came the news magazine Itogi. The magazine’s staff, arriving for work one morning, was ignominiously fired and locked out of their offices, including the founders, chief editor Parkhomenko, and his deputy, Masha Lipman.

For several years, Berezovsky had doggedly pursued his goal of maintaining the “continuity of power” after Yeltsin. He finally found his preferred successor to Yeltsin in Putin. With slavish coverage of ORT television, Berezovsky helped Putin get elected president for a four-year term on March 27, 2000. Once he had made the ultimate power play in delivering a new Russian president, I assumed Berezovsky would feel secure and powerful. I was wrong.

At first Berezovsky seemed to have little to worry about. He told me approvingly that Putin was loyal to his friends. To make the point, Berezovsky offered a personal anecdote. He said Putin, at some risk, had come to a birthday party for Berezovsky’s wife at the Logovaz Club during the time of tension with Primakov the previous spring. Putin was then head of the Federal Security Service, and it could not have been easy to show up at Berezovsky’s famous club. But Putin took the risk, Berezovsky boasted, to show that personal feelings of loyalty were above politics.

“I realize it would be very interesting for the public if Putin, after becoming the president, would jail Berezovsky,” the oligarch told me, referring to himself in the third person. We were sitting at the same large table at the Logovaz mansion where I had often talked with Berezovsky, although this time he seemed more serene than in the past. He took off his sport coat and savored red wine from a tall glass. “To be honest, I am not expecting this, neither tomorrow nor in the nearest future.” That was March 22, 2000.

Next, Berezovsky grew alarmed at Putin’s proposal for stronger Kremlin control over Russia’s independent-minded regional governors. In a major power play, Putin announced a plan to impose seven new unelected supergovernors on the existing eighty-nine regional chiefs. Five of the seven Putin appointees were former KGB men or military men. Putin also sought legislation allowing him to fire governors. Berezovsky saw it as an autocratic move. He liked the idea of a loose collection of independent governors, even though he realized that the Russian Federation under Yeltsin had become a crazy-quilt mix of both strong and weak regional powers, and that governors often defied the Kremlin. Berezovsky also knew governors were extremely important in decisions about heavy industry—such as aluminum and automobiles—and he clearly did not relish the thought of all power in the country being controlled by the Kremlin. Berezovsky, for example, had tried to play power broker in more than one Russian region and had succeeded in getting the former general Alexander Lebed elected in Krasnoyarsk.

Berezovsky made an appeal to Putin that the Russian Federation should be loosened, perhaps even turned into a confederation of more autonomous, independent states. But Putin was not listening. Putin did exactly the opposite of what Berezovsky recommended. They had a long talk, Berezovsky recalled, and he realized that his fears about Putin’s autocratic streak were well-founded. “He said he still believed that we had to build a liberal democratic state in Russia,” Berezovsky said later, “but we had to do it by force, because people were not ready for it.” He added, “Putin believes everything has to be governed from above, so it is necessary to concentrate power, concentrate the mass media, and to rule business.”

Berezovsky wrote Putin a lengthy private letter, but the Russian president brushed him aside. On May 30 Berezovsky publicly broke with Putin for the first time and issued an open letter attacking him. I spoke to him on that steamy afternoon at the Logovaz mansion, where he seemed frazzled. The serenity I had noticed in March was gone. Berezovsky accused Putin of “demolishing some democratic institutions” in moves that would “cheat” Russia’s voters of their elected local leaders and destroy the regional political elites. The criticism cannot have gone down very well with Putin. On July 17 Berezovsky surprised me again by resigning his seat in the State Duma, which he had held only six months. “I do not want to take part in this spectacle,” he told reporters, “I do not want to participate in Russia’s collapse and the establishment of an authoritarian regime.”

Putin erupted in anger at the news coverage. He said the oligarchs and their television channels had been destroying the state, and the army and navy too. Dorenko was ordered taken off the air immediately. Putin called Berezovsky to complain that ORT had compared the sunken submarine to the Chernobyl nuclear accident. Berezovsky suggested a meeting. Putin said fine. The next day, Berezovsky arrived at the Kremlin to find Voloshin waiting for him instead of Putin.

Putin stood up and left. Berezovsky went back to his office and dashed off a short letter to Putin. He wrote that Putin was committing the same mistakes over and over again, first by escalating the conflict in Chechnya, then by imposing his will on the governors, and finally in taking over the mass media. Berezovsky lamented that the president was trying to “find solutions to complex problems by simple means.” Putin was trying to become an autocrat. It wouldn’t work. He gave the letter to Voloshin.

When I saw Berezovsky a few months later in New York City, he recalled one final scene from his encounter with Putin. In their last conversation in the Kremlin, Putin had turned to him plaintively, fixing his cold stare on Berezovsky, the short, hyperactive man with the soft rat-a-tat voice who would wait on your doorstep for hours. Putin looked at him, the power broker extraordinaire who had, with his own hands and tireless ambition and dreams of great wealth, done more than anyone to shape the age of the oligarchs. Now their days of glory were over. New players were coming, new fortunes being made. And a new Russian leader sat in the Kremlin.