The Oligarchs

5 This account is based on many interviews with Irina Makarova, who retraced the train ride with me on December 2, 1999. The train ride out of Kursky Station is also the setting for a book that was hugely popular among young people who, like Irina, had come of age in the 1970s era of stagnation. Venedict Erofeyev, a maverick, rebellious writer, captured the meaning of escape in Moskva-Petushki. The work was published in samizdat, books outlawed by the state but self-published, often as carbon copy manuscripts, and passed from hand to hand. Moskva-Putushki was a tragic, satirical work. Erofeyev was a rebel against the system. He wrote in slang-filled prose about the train ride from Kursky Station to his own town, Petushki, a paradise of jasmine and singing birds. Erofeyev drinks during the entire train ride to Petushki, and in a cruel parody he never reaches his paradise. He comes full circle back to Moscow and perishes. Erofeyev came across to Irina’s generation as the antisystem hero. Instead of the bold, optimistic, modern, utopian Soviet man who changes the future through supreme effort, he is capable of changing nothing and is just carried along. Ultimately, the system breaks its teeth on him because he does not care. He neither fears nor conforms; he drifts.

6 John Kenneth Galbraith, A History of Economics: The Past as the Present (London: Hamish Hamilton, 1987).

7 At the time Marx wrote, there was vivid evidence to support his views. The industrializing European economies imposed great hardships on workers and gave rise to huge inequalities between the rich and poor.

8 Alec Nove, An Economic History of the USSR, 1917–1991, 3d ed. (London: Penguin, 1992).

9 Vitaly Naishul, interview by author, October 7 and December 9, 1999. Naishul’s work, Drugaya Zhizn, or Another Life, is available in Russian at www.inme.ruand www.libertarium.ru. Among his many publications I found especially useful was The Supreme and Last Stage of Socialism (London: Center for Research into Communist Economies, 1991).

10 Moisei Eydelman, “Monopolized Statistics under a Totalitarian Regime,” in The Destruction of the Soviet Economic System: An Insiders’ History, ed. Michael Ellman and Vladimir Kontorovich (New York: Sharpe, 1998), p. 75.

11 Sergei Ermakov, a demographer and professor at the International Institute of Economics and Law, told me that information on mortality was kept secret well into Gorbachev’s glasnost reforms. Thus Soviet citizens were not told that their life expectancy was falling below that of Western Europeans. Ermakov said his own work was long confined to theoretical models. Ermakov, interview by author, November 27, 1999.

1 The lyrics were written by Alexander Galich.

2 Alexander Smolensky, interview by author, October 10, 1997, and August 30, 1999.

3 Eduard Krasnyansky, interview by author, September 2, 1999, and March 17, 2000.

4 This was a modest salary at the time. The Soviet ruble was not convertible. Its value in dollars is hard to measure because consumer goods were in such shortage that having money was often less important than having access to goods. In the late Soviet period, black market rates were about five rubles per dollar and rose by 1990 to between twenty and thirty rubles per dollar. After the Soviet Union collapsed, the ruble could be exchanged for dollars. Anders Åslund, Gorbachev’s Struggle for Economic Reform (Ithaca: Cornell University Press, 1991), p. 184.

5 Alex Goldfarb, interview by author, February 27, 2000, and May 27, 2000.

6 “Report, based on operational data, in regards to Stolichny Savings Bank,” undated, in Russian. I received this twelve-page law enforcement dossier on Smolensky in 1997 from the organization of a rival banker. Portions of it concerning Smolensky’s biography, including the 1981 arrest, I have confirmed from other sources and from Smolensky himself. However, some of it is unconfirmed and appears to be police speculation, which I have omitted. Smolensky claimed he reported to the construction brigade but did not serve out the term.

7 Timothy J. Colton, Moscow: Governing the Socialist Metropolis (Cambridge: Harvard University Press, Belknap Press, 1995), p. 494.

8 Mikhail Gorbachev, Memoirs (New York: Doubleday, 1995). Gorbachev recalls, “We felt that we could fix things, pull ourselves out of this hole by the old methods, and then begin significant reforms. This was probably a mistake that wasted time, but that was our thinking then” (p. 218).

9 Åslund, Gorbachev’s Struggle, p. 161.

10 Åslund, Gorbachev’s Struggle, pp. 167–181; Dimenico Mario Nuti, “The New Soviet Cooperatives: Advances and Limitations” (European University Institute, Florence, Italy, July 1988).

11 Viktor Loshak, interview by author, March 18, 1999.

12 Yelena Baturina, interview by author, August 23, 1999.

13 Alexander Panin, interview by author, March 11, 1999.

14 Joel S. Hellman, “Breaking the Bank: Bureaucrats and the Creation of Markets in a Transitional Economy” (Ph.D. diss., Columbia University, 1993).

15 Alexander Bekker, interview by author, October 3, 1997.

16 Hellman, “Breaking the Bank,” p. 150.

17 Ron Chernow, The Death of the Banker (New York: Vintage, 1997). Chernow’s major work on Morgan is The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance (New York: Touchstone, 1990).

18 Hellman, “Breaking the Bank,” p. 166.

19 Hellman, “Breaking the Bank,” p. 162.

20 Hellman, “Breaking the Bank,” p. 163.

21 Joel Hellman, interview by author, June 4, 1998.

22 “Offering Circular,” SBS-Agro, $250 million notes, July 18, 1987.

23 Anonymous source, interview by author, October 3, 1998.

24 Sergei Pluzhnikov, Sergei Sokolov, “Operation SBS,” Sovershenno Sekretno 6 (1999).

1 Yuri Luzhkov, We Are Your Children, Moscow (Moscow: Vagrius, 1996) in Russian. In English, revised as: Moscow Does Not Believe in Tears: Reflections of a Moscow Mayor, trans. Mark Davidov (Chicago: Martin, 1996).

2 Leon Aron, Yeltsin: A Revolutionary Life (New York: St. Martin’s, 2000), p. 153.

3 Alexander Vladislavlev, interview by author, April 15, 1999.

4 Vice Rector Vladimir Koshelev, interview by researcher Anne Nivat, April 28, 1999; and Rector Albert Vladimirov, interview by author, May 7, 1999, at the Russian State University of Oil and Gas in the name of I. M. Gubkin. Also, “Information for Entering Students in Moscow,” Gubkin Institute, 1954.

5 Luzhkov, interview by author, February 5, 2001. Luzhkov recalled that the meeting ended with a dramatic confrontation. The hall was emptied of the audience, so only the top managers remained. One by one, they roundly denounced Luzhkov. The party man suggested that he be fired. “I am ready to leave,” Luzhkov recalled saying. But he was not fired. He received a reprimand, still protesting that his idea was a good one.

6 Timothy J. Colton, “Understanding Yuri Luzhkov,” Problems of Post-Communism , September-October 1999, pp. 14–26.

7 Colton, “Understanding Yuri Luzhkov,” pp. 14–26.

8 Alexander Panin, interview by author, March 18, 1999, and April 9, 1999.

9 Yelena Baturina, interview by author, August 23, 1999.

10 Viktor Loshak, interview by author, March 18, 1999.

11 Yuri Bortsov, Yuri Luzhkov (Rostov-on-Don: Feniks, 1999), p. 148. The quotation originally appeared in Vechernaya Moskva, February 20–27, 1997.

12 David Remnick, “Hundreds of Co-Ops Lead a Soviet Revolution,” Washington Post, February 4, 1988, p. A25.

13 Luzhkov, Seventy-Two Hours of Agony (Moscow: Magisterium, 1991), pp. 79–80. In Russian.

14 Vladimir Bokser, interview by author, November 13, 1999.

15 Colton, Moscow, p. 615.

16 Francis X. Clines, New York Times, March 22, 1990, p. 1; April 16, 1999, p. 1.

17 James Blitz, “Moscow Is ‘Close to Catastrophe,’” London Sunday Times, May 27, 1990.

18 Benjamin B. Fischer, ed., At Cold War’s End: U.S. Intelligence on the Soviet Union and Eastern Europe, 1989–1991 (Washington: Central Intelligence Agency, 1999). See National Intelligence Estimate (NIE) 11–18–90, November 1990, “The Deepening Crisis in the USSR: Prospects for the Next Year.”

19 Vasily Shakhnovsky, interview by author, November 26, 1999.

20 Another popular perception at the time was that Popov was tolerant of corruption. Popov had once said that bureaucrats should list their preferred payoffs like items on a restaurant menu.

21 I am in debt to Margaret L. Paxson for this definition.

22 Mikhail Shneider, interview by author, March 26, 1999.

23 Gavriil Popov, interview by author, February 13, 1997.

24 Alexander Osovtsov, interview by author, March 29, 1999.

25 Michael Dobbs, “Soviet Price Hikes Draw Anger, Pessimism,” Washington Post, April 3, 1991, p. A19.

26 Elizabeth Shogren, “Reformer to Face Three Communists in Moscow Vote,” Los Angeles Times, June 6, 1991, p. 8.

27 Colton, Moscow, p. 651.

28 Luzhkov, Seventy-Two Hours, p. 38.

29 Alexei Venediktov, interview by author, August 28, 1999.

30 Luzhkov was appointed to a four-man commission that ran the Soviet economy in the final months before the Soviet Union collapsed. He appeared frequently on television, touring construction sites, bus stops, and food lines.

1 Nina Oding, interview by author, October 23, 1999.

2 For a description of the library at this time, I am indebted to Alexei Yurchak, letter to the author, June 9, 2000.

3 Grigory Glazkov, interview by author, December 1, 1999; and Yuri Yarmagaev, interview by author, October 22, 1999.

4 Anatoly Chubais, interview by author, May 13, 2000.

5 Obshchaya Gazeta, interview with Chubais, February 22–28, 1996. In Russian.

6 Igor Chubais, interview by author, May 25, 2000.

7 Vladimir Korabelnikov, interview by author, October 21, 1999.

8 Chubais résumé, provided by RAO Unified Energy Systems, October 25, 1999.

9 Sergei Vasiliev, interview by author, August 24, 1999.

10 Janos Kornai, Economics of Shortage (Amsterdam: North Holland, 1980).

11 Friedrich A. Hayek, The Road to Serfdom (Chicago: University of Chicago Press, 1944).

12 Friedrich A. Hayek, “The Use of Knowledge in Society,” American Economic Review, September 1945, pp. 519–530.

13 Gaidar’s thesis was entitled “Indicators for Evaluating Activity in Self-Financing Enterprises (Based on a Study of the Electrical Engineering Industry).”

14 Pyotr Aven, interview by author, October 22, 1999; July 11, 2000.

15 Yegor Gaidar, Days of Defeat and Victory (Seattle: University of Washington Press, 1999), p. 29. Originally published in Russian (Moscow: Vagrius, 1996).

16 Chubais, interview by author, February 20, 2001.

17 Gaidar recalled in his memoir that “I should point out I was right on the mark in casting Chubais in a key role.” He does not say which role. Nina Oding told me, “Chubais took the role of public relations. He was in PR because he knew how to talk about ideas, to simplify them, better than anyone. They didn’t think he would do privatization. They thought he would be entirely responsible for PR.”

18 Dmitriev told me that their institute, the Institute of Economics and Finance, held a treasure of economics works, a library from the Imperial Russian Central Bank with a large number of books about capitalism, some dating back to prerevolutionary days, which the authorities had never bothered to lock up. Dmitriev said he also read contemporary Western texts through a progressive supervisor who gave him access to the spetzkhran. Finally, Dmitriev pointed out that his institute emphasized systems analysis and mathematics, a more technical approach to economics that minimized ideology.

19 Naishul, Another Life.

20 This account of the seminar is based on my interviews with Naishul, Chubais, Glazkov, Gaidar, Dmitriev, and Dmitry Vasiliev.

21 Anatoly B. Chubais and Sergei A. Vasiliev, “Economic Reform and Structural Change in the USSR,” in Ten Years of Russian Economic Reform (London: Center for Research into Post-Communist Economies, 1999).

22 Sergei Belyaev, interview by author, October 18, 1999. Belyaev was then a member of the council and recalls that Chubais, “very sure of himself,” delivered a speech on how shock therapy could be applied to Russia.

1 Peter Slevin, then a reporter for the Miami Herald, gave the author notes from an interview with Khodorkovsky in the first week of August 1991 before the coup attempt. See also Slevin, “The New Soviet Up-and-Comers Trade Party Line for Bottom Lines,” Miami Herald, August 18, 1991.

2 Alexei Yurchak, letter to the author, February 17, 2000; Yurchak, interview by author, October 9, 1999, January 3, 2000. Yurchak’s doctoral dissertation, “The Cynical Reason of Late Socialism: Language, Ideology, and the Culture of the Last Soviet Generation” (Duke University, 1997) is a compelling work that I found immensely helpful.

3 Steven L. Solnick, Stealing the State: Control and Collapse in Soviet Institutions (Cambridge: Harvard University Press, 1998), p. 60. Chapter 4 describes the Komsomol’s troubles and collapse.

4 Earlier, the Komomsol had officially sponsored many youth activities such as concerts, and there had been a youth underground as well. But Komsomol’s role declined in Gorbachev’s years while the informal associations rapidly expanded.

5 Solnick, Stealing the State, p. 288 n. 168.

6 Olga Kryshtanovskaya, interview by author, November 3, 1999. According to Solnick and others, self-financing had another side: huge central budget accounts of the Komsomol were spirited away into private hands and commercial banks, including one, Finistbank, which was founded by funds from the Komsomol central committee. At the same time, the party and the KGB also transferred enormous riches to their own front companies and bank accounts, many overseas. The full extent of this process has never been revealed, but it was undoubtedly quite substantial.

7 Konstantin Zatulin, interview by author, March 22, 1999.

8 Alexander Khachaturov, interview by author, November 19, 1998.

9 Mikhail Khodorkovsky, interview by author, June 19, 2000.

10 Sheindlin recalled that Khodorkovsky was accompanied by Leonid Nevzlin, who later became a close associate. However, Nevzlin said he was not there. It could have been another Khodorkovsky associate. Sheindlin was also uncertain of the date.

11 Khodorkovsky gave a different account: “I found a group of young specialists in my institute who could make a special device to measure a high temperature in an alloy. After that, together with them, we found an institute that could order such work from us. It was the Institute of High Temperatures of the Academy of Science. And we asked them if they would like to order this work from us.” He said the answer was affirmative. (Khodorkovsky, interview by author). In his remarks to Igor Bunin in 1994, Khodorkovsky said his “first credit” was 164,000 rubles and that he used the money for investment. He told author Rose Brady that he “hired students to do research” for the Institute of High Temperature and, Brady says, the “job pulled in 169,000 rubles.” Rose Brady, Kapitalizm (New Haven: Yale University Press, 1999), p. 55.

12 According to the decision of the Komsomol central committee, local groups were “given an opportunity to determine for themselves a form of expenditure of Komsomol funds—in cash or noncash.” Komsomol i Molodezh’ Rossii (Moscow: Komsomol, 1990), p. 33. In Russian.

13 Although the Komsomol played a role in his success, Khodorkovsky expressed disdain for it. He told me he had been passed over for a higher-level job and had become disenchanted with the organization. “I had bad relations with the Komsomol,” he said.

14 The connection was his friend Sergei Monakhov, who was leader of the local Komsomol organization and remained a member of Khodorkovsky’s team.

15 Leonid Nevzlin, interview by author, March 16, 2000.

16 Andrei Gorodetsky, interview by author, November 24, 1998.

17 Peter Slevin, notes from interview with Khodorkovsky, August 1991, given to author.

18 Igor Bunin, Forty Stories of Success (Moscow: Center for Political Technology, 1994), pp. 169–178.

19 Slevin, notes from Khodorkovsky interview; and Slevin, “New Soviet Up-and-Comers.”

20 Yelena Baturina, who was then an assistant to Luzhkov, said that Khodorkovsky was refused because it was unclear whether one of the youth science centers could be turned into a purely commercial organization, a cooperative. But she added that there was great concern about mixing noncash and cash together, that it would do “big damage” to the Soviet economy. Baturina, interview by author, August 23, 1999, Moscow. Panin said that Luzhkov was so worried about this that he testified on the subject before parliament.

21 Igor Primakov, interview by author, December 11, 1999.

22 Anonymous source, interview by author.

23 Bunin, Forty Stories, p. 172.

24 Khodorkovsky, in the Bunin interview, gave a slightly different account of why he was pressed, saying it was the result of a new government rule that barred him from paying people in advance, upsetting the chain of cash conversions, trade, and payments. He did not say precisely when this took place.

25 Yulia Latynina, “Mikhail Khodorkovsky: Chemistry and Life: Unknown Pages from the Life of a Superoligarch,” Sovershenno Sekretno, August 1, 1999, pp. 3–5.

26 In his remarks to Slevin in 1991, Khodorkovsky offered a clue about the deal with Zhiltsotsbank. “We went to get a loan and we ended up paying them to write a set of rules for us,” he said.

27 The name was derived from the Russian acronym for Inter-branch Center for Scientific and Technological Programs.

28 Bunin, Forty Stories, p. 171.

29 Joel Hellman, interview by author, June 4, 1999.

30 Mikhail Berger, “Conversation with the President on Reform,” Izvestiya, July 28, 1990.

31 Daniel Sneider, “The Soviet Economy: Commercial Banking Is Off and Running,” Christian Science Monitor, December 31, 1991, p. 5.

32 Mikhail Khodorkovsky and Leonid Nevzlin, Chelovek c Rublyom (Moscow: Menatep-Inform, 1992).

33 Vladislav Surkov, interview by author, October 18, 1999. Surkov had become a top Kremlin political adviser by this time. He ended our interview saying he had to rush off to attend a meeting with Khodorkovsky and the Kremlin chief of staff.

34 Latynina, Sovershenno Sekretno.

35 Hellman, “Breaking the Bank.” Hellman wrote, “Several commercial banks maintained covert correspondent relations with foreign banks, well before they were granted a license to conduct hard currency operations. Menatep even set up affiliates in Budapest, Switzerland, and Gibraltar for transferring and maintaining hard currency accounts abroad for Soviet clients.” Hellman said his information was based on an interview with Alexander Golubovich, a vice president of Menatep (p. 163). He also said, “Though virtually all commercial banks were officially prohibited from dealing with hard currency, this restriction was routinely ignored. From the very beginning, commercial banks were engaged in a wide range of illegal hard currency transactions” (pp. 162–163).

36 Kathleen Day, “Riggs Had Ties to Firms in Probe,” Washington Post, September 18, 1999, p. E1.

37 Sneider, “Soviet Economy.”

38 Bunin, Forty Stories, p. 174.

39 Gaidar wrote in his memoir that the issue came up because two high-ranking former Soviet intelligence officials had written to Yeltsin about the matter, and Yeltsin asked Gaidar to look into it.

40 Fritz W. Ermarth, “Seeing Russia Plain: The Russian Crisis and American Intelligence,” National Interest, Spring 1999.

1 Leonid Boguslavsky, interview by author, April 26, 2000; May 16, 2000.

2 Vladimir Grodsky, interview by author, June 30, 2000.

3 Boris Berezovsky, interview, Novoye Russkoye Slovo (New York), March 11–12, 2000, pp. 10–11.

4 Boris Berezovsky, interview by author, March 22, 2000.

5 Alexander Oslon, interview by author, May 29, 2000. Oslon became one of Russia’s leading political pollsters: head of the Public Opinion Foundation.

6 Berezovsky’s publications include a candidate of science dissertation, “Dispatching by Vector Criteria of Queues of Requests in Computer Systems,” which he defended in 1975, when he was twenty-nine years old. In 1981 he cowrote Binary Relations in Multicriteria Optimization, with V. I. Borzenko and L. M. Kempner (Moscow: Nauka). In 1983 he defended a doctor of technical science dissertation, “Working Out the Theoretical Foundations for the Algorithimization of Preproject Decisionmaking and Its Application.” In 1984 he wrote, with A. V. Gnedin, Problem of the Best Choice (Moscow: Nauka). In 1989 he wrote, with Y. Barishnikov, Borzenko, and Kempner, Multicriteria Optimization: Mathematical Aspects (Moscow: Nauka). All these publications are in Russian.

7 Mark Levin, interview by author, June 9, 2000.

8 This kind of trade-off is described in Bolshaya Paika, by Yuli Dubov (Moscow: Vagrius, 2000) In Russian. The book is described by Dubov as fiction but appears to be a thinly disguised memoir of Berezovsky’s early years in business. On page 40, Dubov describes how the Berezovsky character helps a scientist at the institute buy his first car in exchange for reading a dissertation and agreeing to be the “opponent” at the defense.

9 Pyotr Aven, whose father, Oleg, was a founder and leading scientist at the institute, told me that many of the mathematicians whom Berezovsky brought into his laboratory were Jews who could not get work elsewhere.

10 Levin, interview by author.

11 Berezovsky’s final academic quest was to become a corresponding member of the Russian Academy of Sciences, which he achieved.

12 “Berezovsky: The Most Reliable System Is Me,” Obshchaya Gazeta, December 3–9, 1998, p. 8.

13 For connections, Avtovaz was a gold mine. Berezovsky used his svyazi there to get spare parts for friends. Berezovsky earned a respectable professor’s salary of five hundred rubles a month, but he was always scrounging for money, Grodsky recalled. “I just recall that Borya was used to borrowing money. And he always lacked money. He borrowed from me, from other colleagues. Borya spent a lot, and he never had enough money.”

14 The statistics are taken from a display on the history of the factory at the official museum in Togliatti.

15 Alexander Zibarev, a deputy director of the factory, told a reporter the Russian car market “is like a hungry dog; you throw it a new car and it gobbles it up.” New York Times, June 30, 1992, p. D2.

16 It may have helped Berezovsky that his mentor, and director of the institute, Alexander Trapeznikov, was a deputy head of the State Committee on Science and Technology. Still, it is not clear why the state committee would have paid such a large sum.

17 National Intelligence Estimate (NIE) 11–23–88, reprinted in Benjamin B. Fischer, ed., At Cold War’s End: U.S. Intelligence on the Soviet Union and Eastern Europe, 1989–1991 (Washington, D.C.: Central Intelligence Agency, 1999), p. 1.

18 Yuli Dubov, Bolshaya Paika (Moscow: Vagrius, 2000). The word paika here is prison slang for the ration an inmate receives in a prison or labor camp, when food is divided among members of a group. The title means “big piece,” and to explain it, Dubov refers to another author who wrote that “in a camp it’s not the small paika that gets you, but the big one.” The point is that you die not when you don’t have enough food but when you have more than others and they start envying you. Dubov’s comment that he painted what he saw was made in a Novaya Gazeta interview (February 28, 2000). I also interviewed Dubov about the book and Berezovsky’s early years on May 3, 2000. Many people I spoke with said Bolshaya Paika contains accurate descriptions of specific events, such as Berezovsky’s dealings with the factory. However, the book’s bias toward Berezovsky is plain—he is portrayed as a business genius.

19 Berezovsky later became the exclusive dealer for Mercedes in Russia. He told me how fascinated he was to discover German efficiency. The Germans planned six months in advance to stage a banquet to mark the opening of a dealership, and they carried out the plan. “I thought I had fallen into a crazy house,” Berezovsky told me, recalling the day that the Mercedes representative told him of the plan. “A half year beforehand,” he was given a card that said “this table and that table, these people are sitting here, how many sausages, how much beer. And everything went off exactly as they had planned it.” The example suggests how tumultuous life was in Russia at the time—six months’ time was considered an eternity.

20 Once Berezovsky recalled how he stopped at a German gas station and forgot to pay after fueling up. “I forgot!” he said. “And I drove off. I hear some kind of horrifying scream behind me. I look in the mirror and I see that a person is running after me and is screaming something in German. I stopped and right away understood what happened. That I hadn’t paid the money. “I go backward, drive up to the person, and he is screaming, ‘POLITSA! POLITSA! RUSSIAN!’ I don’t know what to do, now that I’m going to have to deal with the police. I don’t know how to stop him. He’s a grown, middle-aged man. And suddenly, you know, again, it’s that intuition, suddenly I realized that I could stop him only in one way. I started cursing at him. Really. With Russian curses. And he suddenly stopped. Was silent. He schlumped over like a dog with a tail between its legs and said, ‘Enough, enough.’ I went, paid my money, and drove away!”

21 Yuri Tselikov, interview by author, March 31, 2000.

22 Valery Ivanov, interview by my researcher Margaret Paxson, February 16, 2000. We were deeply saddened to learn Ivanov was murdered in Togliatti on April 29, 2002.

23 Anatoly Ivanov, interview by author, March 29, 2000.

24 By one account, there were four major criminal wars in Togliatti in the 1990s. Vladimir Ovchinsky described them in Moscow News, June 18–24, 2000. The first occurred when criminal groups took over businesses in the city in the late 1980s and began blackmailing citizens buying Zhigulis; they also took control of the assembly line. The first war climaxed with a fight involving seventy gang members near the Hotel Zhiguli. The second war was fought in 1994–1996; sixty-six people were killed. After the war the city and factory were divided into zones of influence controlled by powerful clans. A third criminal war broke out in 1996 and was followed by Operation Cyclone, an effort by the federal Interior Ministry to clean up the factory. “Avtovaz was literally in the hands of bandits,” Ovchinsky wrote. In the first half of the year 2000, the fourth war broke out: sixteen contract murders. Ovchinsky said 500 million rubles a year were being siphoned off by criminal groups in 1999. “One can conclude that Togliatti is still an epicenter of the Russian criminal world. The Mafia structures have an ability to imitate, adjust themselves, and live separately, apart from any economic or political transformations. The murder of leaders of criminal groups hardly influences the situation because new leaders appear.”

25 “Changes in the Free Delivery Price, on the Basis of Models Manufactured by VAZ,” a chart (in Russian).

26 Logovaz official price list as of January 1, 1993.

27 Exchange rate table, Central Bank of Russia.

28 “Volga Automobile Works, Descriptive Memorandum,” Bear Stearns, 1991.

29 Bolshaya Paika, p. 247.

1 Vladimir Gusinsky, interview by author, September 22, 2000.

2 Valery Belyakovich, interview by author, September 12, 2000.

3 J. A. E. Curtis, Manuscripts Don’t Burn: Mikhail Bulgakov, A Life in Letters and Dairies (London: Bloomsbury, 1991).

4 Alexander Minkin, interview by author, July 12, 2000.

5 Tatyana Volodina, actress, Tula Academic Drama Theater, telephone interview by author from Tula, September 27, 2000. Volodina provided details from the program of the performance. Also “Youth of an Oligarch,” Moscow News, July 4–10, 2000, p. 13.

6 Gusinsky later said of Bobkov, “When the Communists had a lot of clout, he helped us a lot because he had some influence over them.... Bobkov had considerable clout with old-timers in the Communist Party.... As for me, this is what I think happened. Dissidents were harassed by the state machine in which Bobkov used to be a cog. But I never fought the regime; I studied at the GITIS [state theater institute], an ideological institute of higher education, one might say. I was a person absolutely loyal to the authorities. It is another thing that I was an unruly character, and a Jew. I didn’t have much of a future then. You can condemn me as you like, but I, personally, don’t have the right to judge and punish Bobkov. Dissidents, fighters against that regime—they have various rights.” Obshchaya Gazeta, June 8–14, 2000, pp. 1–3.

7 Margery Kraus, interview by author, July 13, 2001; “U.S. Firm, Soviets Establish Joint Venture to Venture Jointly,” Associated Press, December 13, 1988.

8 Boris Khait, interview by author, September 14, 2000.

9 Yuri Schekochikhin, “Fear,” Literaturnaya Gazeta, June 10, 1992, p. 11.

10 Lloyd Grove, “Russky Business: The Mogul in Exile Who’s Got Moscow Up in Arms,” Washington Post, April 7, 1995, p. D1.

11 Oleg Dobrodeyev, interview by author, July 20, 2000.

12 Mikhail Leontiev, interview by author, July 4, 2000.

13 Sergei Zverev, interview by author, June 23, 2000.

14 Lee Hockstader, “Brave New World: Moscow Anchor Leads Bold, Bloody Experiment in Press Freedom,” Washington Post, March 29, 1995, p. B1.

15 Yevgeny Kiselyov, interview by author, August 2, 2000.

16 Igor Malashenko, interview by author, July 25, 2000.

17 Chrystia Freeland, Sale of the Century (New York: Crown Business, 2000), p. 155.

1 In his memoir, Gaidar recalls that he broke party taboos in the journal and wrote about such topics as inflation, unemployment, poverty, social stratification, the budget deficit, and military spending. Moreover, “we tried to explain to the ruling elite how ruinous its course was.” Yegor Gaidar, Days of Defeat and Victory (Seattle: University of Washington Press, 1999), p. 35. Gaidar hailed from a well-known family of the intelligentsia. His grandfather, Arkady Petrovich Gaidar, was author of famous Soviet-era children’s stories. His father, Timur, was a foreign correspondent for Pravda.

2 Boris Yeltsin, The Struggle for Russia (New York: Times Books, 1994), pp. 125–126.

3 Pyotr Aven, interview by author, July 11, 2000.

4 Mikhail Berger, interview by author, October 10, 2000.

5 Mikhail Dmitriev, interview by author, November 19, 1999.

6 Yeltsin had a similar conception. He recalled, “Gaidar’s ministers and Gaidar himself basically took this position with us: Your business is political leadership ; ours is economics. Don’t interfere with us as we do our work, and we won’t butt in on your exalted councils, your cunning behind-the-scenes intrigue, which we don’t understand anyway.” Yeltsin, Struggle for Russia, pp. 156–157.

7 Maxim Boycko [Boiko], Andrei Shleifer, and Robert Vishny, Privatizing Russia (Cambridge: MIT Press, 1995). According to the authors, who participated on the Chubais team, privatizers believed that “political influence over economic life was the fundamental cause of economic inefficiency, and that the principal objective of reform was, therefore, to depoliticize economic life” (pp. 10–11).

8 Yegor Gaidar, interview by author, September 29, 2000.

9 Chubais press conference, April 21, 1993.

10 Gaidar, Days, p. 129.

11 Gaidar, Days, p. 66.

12 Jeffery Sachs, Poland’s Jump to the Market Economy (Cambridge: MIT Press, 1993).

13 Gaidar, Days, p. 86.

14 Anatoly Chubais, ed., Privatizatzia Po-Rossiiski (Moscow: Vagrius, 1999), p. 20. In Russian.

15 Chubais interview, Literaturnaya Gazeta, October 12, 1994, p. 10.

16 Chubais, Privatizatzia, p. 28.

17 Chubais, Privatizatzia, pp. 29–31. The Kolo story was originally reported by the newspaper Kuranty in late February, and the scheme was also described by Berger in Izvestia. Chubais denounced the scheme at a press conference on February 28, 1992. See Francis X. Clines, “Russian to Fight Private Sell-offs by Ex-Officials,” New York Times, February 29, 1992, p. 5; and John-Thor Dahlburg, “Russia’s Neo-Capitalists Learning Art of Rip-Off,” Los Angeles Times, March 1, 1992, p. 1.

18 Dmitri Vasiliev, interview by author, September 16, 1999; November 20, 1999; and September 18, 2000.

19 Gaidar, interview by author, September 29, 2000; Chubais recollections from Privatizatzia . The auction was described by Fred Hiatt, “Russia Auctions Off State-owned Firms,” Washington Post, April 5, 1992, p. A1.

20 Gaidar, interview by author, September 29, 2000.

21 Gaidar, Days, p. 131

22 Vasiliev, interview by author.

23 Sachs had recommended Andrei Shleifer, a professor of economics at Harvard University. Along with Jonathan Hay, he played a key role in organizing Western help to support Chubais and Vasiliev. Among other activities, the Westerners helped design the Russian privatization vouchers, helped write the laws and decrees, and helped set up and carry out the great sell-off. Some criticism has subsequently been aimed at these efforts. The author acknowledges that this issue is beyond the scope of this book. However, the author believes it is mistaken to criticize the Westerners alone for what occurred in Russia. Many of the most fateful choices were made by the Russians, such as the decision to free prices, property, and trade before building the institutions of a free market. The Westerners often advised and encouraged them in the direction they took, but Yeltsin, Gaidar, and Chubais led the way.

24 Anatoly Chubais, interview by author, May 13, 2000.

25 Chubais, Privatizatzia, p. 34.

26 In the end there were three options. The first, proposed by Chubais, distributed 25 percent to the workers, who could then buy an additional 10 percent of the shares at 70 percent of the (low) book value of the enterprise, and management could buy 5 percent at the book value. This was effectively 40 percent to insiders. Option 2, proposed by the industrialists, allowed workers and managers to buy 51 percent of the enterprise at 1.7 times the book value. A third option for medium-sized companies allowed managers to buy up to 40 percent if employees agreed, but with restrictions. In the end, studies showed the overwhelming majority of enterprises were privatized using option 2, the one proposed by the factory directors. Anders Åslund, How Russia Became a Market Economy (Washington, DC: Brookings Institution, 1995), pp. 233–235.

27 There was a major debate within the privatization team on whether to model Russia’s privatization after the Czech or the Polish models, both of which were getting under way at the time. The Polish model involved large mutual funds in which people would obtain shares. The Czech variant was more open, using vouchers that people could dispose of as they wished. “From the political viewpoint, the signals coming from Poland and Czechoslovakia in 1992 made it clear that the Czechs were excited about privatization and involved with it, while the Poles were not. Choice made all the difference. Since popular involvement was deemed absolutely essential for the sustainability of Russian privatization, vouchers were a clear choice” (Boycko [Boiko], Shleifer, and Vishny, Privatizing Russia, p. 83).

28 Chubais made the claim at an August 21, 1992, press conference introducing the vouchers. He said he figured that the price of a secondhand Volga was only 2,000 or 3,000 rubles—this was the so-called residual price, after depreciation, which was sometimes used for selling off state property such as ten-year-old taxis to their drivers. It was not a real price. Since the face value of a voucher was 10,000 rubles, a voucher “could be sufficient to buy two or even three, and with luck even more Volga cars,” Chubais claimed. In fact, Chubais later acknowledged “errors” in his public relations pitch for vouchers. He said he was thinking at the time that a voucher might buy a share that would appreciate significantly. The two Volgas claim was one of Chubais’s biggest goofs and the butt of jokes for many years. Chubais, Privatizatzia, p. 191; Chubais press conference, August 21, 1992.

29 Celestine Bohlen, “Citizens of Russia to Be Given a Share of State’s Wealth,” New York Times, October 1, 1992, p. 1.

30 Chubais, Privatizatzia, p. 157.

31 Vasiliev, interview by author, November 20, 1999.

32 Paul Bograd, interview by author, March 26, 1999.

33 In Privatizatzia, Chubais recalled, “We had to make hundreds of thousands of people do something they had never done before. We had to fundamentally change their attitude to property.... I remember sitting with Gaidar at some regional meeting. There are, maybe, a thousand people in the audience. And I feel with my skin that we are like two Martians for them. Completely alien.... You had to adjust to their own way of thinking. You had to realize that you cannot make dozens of thousands of people all of a sudden understand the Martian language you are talking. You must speak their language” (pp. 144–145).

34 Boycko [Boiko], Shleifer, and Vishny, Privatizing Russia, p. 86.

35 Leonid Rozhetskin, interview by author, March 10, 1999.

36 Chubais, speech to the State Duma, April 12, 1994.

37 Chubais, Privatizatzia, p. 187.

38 Boycko [Boiko], Shleifer, and Vishny, Privatizing Russia, pp. 100–101.

39 Dmitry Vasiliev, press conference, July 13, 1999.

40 The voucher funds suffered from a crucial design error as well. Because Chubais and Vasiliev feared they could become too powerful, the funds were limited to owning 10 percent of any one company. This meant the funds were a weak voice in the boardrooms of the companies they owned. “The voucher funds failed because people feared they would become too powerful—and as a result we ended up with nothing,” one of the designers told me.

41 Hans-Joerg Rudloff, interview by author, September 7, 2000; November 10, 2000.

42 Boris Jordan, interview by author, October 1, 2000.

43 Rudloff, interview by author, November 10, 2000.

44 Steven Jennings, interview by author, March 3, 2000.

45 Chernomyrdin, press conference, Rossiiskie Vesti, December 16, 1992, p. 1.

46 Anders Åslund, “Why Has Russia’s Economic Transformation Been So Arduous ?” (paper delivered at the World Bank Annual Bank Conference on Development Economics, April 28–30, 1999); Åslund, “How Russia Became a Market Economy,” (Washington, DC: Brookings Institution, 1995), pp. 191–193.

47 Mikhail Berger, interview by author, October 10, 2000.

48 Arkady Yevstafiev, interview by author, March 7, 2000.

49 “Anatoly Chubais: Up to 80 percent of State Property for Vouchers,” Literaturnaya Gazeta, November 18, 1992, p. 10.

50 Chubais, interview by author, May 13, 2000.

51 Chubais, Privatizatzia, pp. 160–161.

52 I personally interviewed the intermediary, who asked to remain anonymous. When I asked Chubais about the contribution, he said, “Soros back then really played a positive role” but refused to discuss details.

53 Literaturnaya Gazeta, November 18, 1992, p. 10.

54 William Browder, interview by author, March 21, 2000.

55 Yulia Latynina, Sovershenno Sekretno, Moscow, August 1, 1999. Latynina added of Khodorkovsky’s buying binge: “No public funds would have been sufficient for so extensive a program, but, fortunately, a large part of the enterprises were purchased at investment competitions, at which the winner was the one that promised to invest more money in the enterprise. As a consequence of Menatep’s extreme attentiveness in regard to the government officials that organized the competition, and also to the ‘red directors’ in command of the enterprises, its promises were believed more often than those of others. Menatep was, generally, invariably courteous to the directors and would invariably toss them onto the garbage heap after the shares had been purchased.”

56 Boycko [Boiko], Shleifer, and Vishny, Privatizing Russia, pp. 109, 119.

57 Chrystia Freeland, Sale of the Century (New York: Crown Business, 2000).

58 “Sale of the Century,” Economist, May 14, 1994, p. 67. The article pointed out that the book value of Russian companies was fixed once, in January 1992, and was not adjusted even though Russian prices had risen 10,500 percent since then. The book value, which is based on the depreciated value of an enterprise’s capital stock and takes no account of property or intangible assets, was still being used as the basis for the voucher auctions. Jordan was quoted as saying that there were still big risks. “These are extraordinarily low asset values, but you must be careful about using the word cheap,” he said.

59 Chubais, interview by author, May 13, 2000.

1 Kadannikov interview, Profil, October 23, 2000, pp. 22–27. In Russian.

2 Bryan Brumley, “Factory Managers Back Privatization Plans, Criticize Financial Policy,” Associated Press, October 26, 1992. Kadannikov opened a one-day meeting with Gaidar and cabinet ministers in Togliatti, praising privatization but criticizing the Gaidar government on financial and tax issues.

3 Bella Zlatkis, interview by author, October 18, 2000.

4 International Monetary Fund, “International Financial Statistics,” quoted in Evolution of Monetary Policy Instruments in Russia, IMF Working Paper, December 1997, p. 17.

5 International Monetary Fund, Relative Price Convergence in Russia, IMF Working Paper, May 1995, p. 1.

6 Yegor Gaidar, Days of Defeat and Victory (Seattle: University of Washington Press, 1999), p. 80.

7 Yevgeny Myslovsky, Beware: Swindle Invest, A Guide for Law Enforcement Agencies (Moscow: Spas, 1996), p. 21.

8 Alexander Oslon, interview by author, May 29, 2000.

9 “Russian Car Alliance Starts Sales of Registered Stocks,” Business-Tass (Moscow), December 14, 1993.

10 The founders, according to Leonid Valdman, deputy general director of AVVA, were Avtovaz, 25 percent; Logovaz, 15 percent; Forus Holding, a Swiss firm of Berezovsky’s, 15 percent; the Russian Federal Property Fund, 15 percent; Obedinennie Bank (close to Berezovsky), 10 percent; Kuibyshevneft, an oil company, 10 percent; Samara Oblast administration, 5 percent; and Avtovazbank, 5 percent. The data accompanied a Valdman interview that was published November 4, 1994, in the magazine Kommersant Vlast.

11 “Car Consortium to Run Lottery,” Moscow Times, February 18, 1994.

12 Yuri Zektser, interview by author, October 30, 2000.

13 Avtovaz was privatized by option 2, which meant 51 percent for workers and managers, 27 percent in voucher auctions, and 22 percent in an investment tender.

14 Yuli Dubov, Bolshaya Paika (Moscow: Vagrius, 2000), pp. 247–275. Many details described by Dubov are corroborated by other evidence, including news reports and AVVA annual reports.

15 Translations of the MMM commercials are from my own tape. However, I benefited from a superb analysis of the MMM advertising campaign as soap opera in Consuming Russia: Popular Culture, Sex, and Society Since Gorbachev (Durham, N.C.: Duke University Press, 1999). See chapter 3, Eliot Borenstein, “Public Offerings, MMM, and the Marketing of Melodrama” (pp. 49–75).

16 James Meek, “Russian Investment Firms Head for the Rocks,” Guardian (London), April 28, 1994, p. 12.

17 Mary Darby, “In Ponzi We Trust,” Smithsonian Magazine, December 1998.

18 Mikhail Dubik, “MMM: Is Seeing Success Believing?” Moscow Times, May 19, 1994.

19 Carey Goldberg, “It’s Risky Business in Russia,” Los Angeles Times, June 9, 1994, p. 1.

20 Golubkov was played by an actor, Vladimir Permyakov, who related his own rags-to-riches story. “I came from Siberia and dragged out a miserable existence playing occasionally at a small Moscow theater. I had no money and very little hope to succeed as an actor, but my work with MMM turned everything around.” Mikhail Dubik, “Lyonya in the Flesh: A Tale of Rags to Riches,” Moscow Times, August 25, 1994.

21 Depositor’s information sheet, provided by Yevgeny Kovrov, director, Federal Fund for the Defense of the Rights of Depositors and Shareholders.

22 Goldberg, “Risky Business.”

23 Yevgeny Kovrov, interview by author, April 28, 2000.

24 Helen Womack, “Gamblers Push MMM’s Share Price Up Again,” Independent (London), July 29, 1994, p. 12.

25 Russia’s Itar-Tass news agency reported September 26, 2000, that investigators were still seeking Mavrodi’s whereabouts.

26 Goldberg, “Risky Business.”

27 Yevgeny Myslovsky, interview by author, October 10, 2000.

28 His comments were made on an NTV documentary, Independent Investigation, produced by Nilcolai Nikolayev, broadcast March 16, 2000.

29 Zektser, interview by author. He said AVVA had fulfilled the obligations of the investment tender, which called for $111 million to be invested in the factory by the end of 1995, but it is hard to see how AVVA accomplished this.

30 “Interview with the President of AO Avtovaz: V. Kadannikov,” Trud, November 2, 1994. In Russian.

31 “Information Report about the General Meeting of Shareholders of the AOO All-Russian Automobile Alliance,” Ekonomika i Zhizen, May 20, 1995. In Russian.

32 Kadannikov continued to mask the events years later. In an interview in April 2000, when asked whether he had used AVVA to seize Avtovaz, he replied, “I cannot quite understand why anybody would need a plant; why seize it? It’s hard work, low profit. And what’s the use in just making do with the turnover? You can do it for a couple of months, and then what?” He also blamed the government, saying it had “eaten up the people’s money very fast.” Vedomosti, April 5, 2000, p. A5.

33 Berezovsky interview, Moscow News, May 16, 1996.

34 Speculation finally came to an end in mid-1995 when the government and Central Bank announced a ruble-dollar “corridor” that limited currency movement and thus crimped the superprofits of traders.

35 Smolensky, interview by author, August 30, 1999.

36 Yegorov made the comments to the seventh congress of the Association of Russian Banks. “Chubais Tells Banks to Focus on Industry,” Moscow Times, April 23, 1997.

37 “Learning to Lend,” CentreInvest Securities, October 24, 1997, p 7.

38 Bank Menatep (Group), Independent Auditors Report, Arthur Andersen, 1995.

39 Former Menatep vice president, interview by author.

40 Vladimir Vinogradov, interview by author, June 28, 2000.

41 Yulia Latynina, “Mikhail Khodorkovsky: Chemistry and Life: Unknown Pages from the Life of a Superoligarch,” Sovershenno Sekretno, August 1, 1999, pp. 3–5.

42 Victor Huaco, interview by author, April 14, 1999.

43 “MMM Deflates Shares, Russia Weighs Action on Stock Scandal,” Agence France Press, July 29, 1994.

44 Grigory Satarov, a one-time adviser to Boris Yeltsin and president of INDEM, the Information for Democracy Fund, Mark Levin, an economics professor, and M. L. Tsirik, a graduate student, lay out this argument in their analytical study, “Russia and Corruption: Who Is Doing What to Whom?” prepared for the Council on Foreign and Defense Policy, Moscow, 1998. They concluded that among the most important reasons for corruption in the new Russia, aside from historical ones, were “the rapid transition to a new economic system that was not supported by the necessary legal base and legal culture; the absence during Soviet times of a normal legal system and the corresponding cultural tradition; the collapse of the party control system.”

45 “Diagnosis: Corruption: Is It Possible to Kill the Illness of Russia?” Vechernaya Moskva, October 18, 1999, p. 3. A roundtable discussion, in Russian.

1 Ryszard Kapuscinski, “The Temple and the Palace,” The New Yorker, May 23, 1994.

2 Vladimir Mokrousov and Valentina Mokrousova, interview by author, November 3, 2000. In another sign of his caution, Makrousov submitted the mock-up twinned with another, the St. Georges Cathedral.

3 Flore Martinant de Preneuf, “The Historical and Political Significance of the Reconstruction of the Cathedral of Christ the Savior in Moscow” (M.Phil. thesis, Oxford, 1997), an excellent recounting of how the cathedral was rebuilt in the early 1990s.

4 De Prenuef, “Historical,” p. 29.

5 Vasily Shakhnovsky, interview by author, November 26, 1999.

6 Mokrousova interview, November 3, 2000.

7 When I interviewed Luzhkov on February 5, 2001, he handed me a thirty-fourpage response to questions I had posed in advance. Of the cathedral, he said, “I always believed that the revival of Russia must not begin with demagoguery on macroeconomic subjects but with spiritual revival. I thought the restoration of the cathedral—barbarically destroyed—was a symbol of this revival.”

8 Andrei Zolotov Jr., “Resurrecting the Past,” Moscow Times, August 19, 2000, p. iv; Mikhail Ogorodnikov, interview by author, November 2, 2000. Ogorodnikov is spokesman for the Fund for the Restoration of the Cathedral of Christ the Savior.

9 De Preneuf. This story is attributed to an engineer-metalworker interviewed on the site.

10 Ogorodnikov interview. In his written answers to my questions about the Cathedral, Luzhkov said, “Investments in the construction of the cathedral are voluntary contributions. Do you really think that people would have invested so much money for construction of more down-to-earth projects?” He claimed neither the city nor the federal government suffered “losses” as a result of the reconstruction. The project created thousands of jobs and boosted Moscow tourism, he noted.

11 Larisa Piyasheva, interview by author, March 23, 1999.

12 Popov news conference, December 19, 1991.

13 Luzhkov, interview, Komsomolskaya Pravda, November 26, 1997.

14 Luzhkov, interview, Komsomolskaya Pravda.

15 Valery Simonov, “Moscow Does Not Believe in Rubles?” Komsomolskaya Pravda, November 24, 1993, p. 1.

16 Luzhkov, written answers.

17 Luzhkov, interview, Komsomolskaya Pravda.

18 Chubais press conference, March 23, 1994.

19 Yeltsin news conference, June 10, 1994.

20 John Lloyd, “Russian Investment ‘To Surge,’” Financial Times, July 5, 1994.

21 Andrei Shatalov, interview by author, February 14, 1997.

22 Luzhkov, interview by author, February 5, 2001.

23 Yaroslav Skvortsov, Kommersant Vlast, April 29, 1997.

24 Obid Jasinov, deputy general director, and other officials of Moscow Mechanized Construction no. 5, interview by author, February 12, 1997;“Moscow Construction: Together on the Path of Creation,” Moskovskaya Pravda, January 29, 1997, p. 9.

25 Mikhail Moskvin-Tarkhanov, interview by author, November 2, 2000.

26 Tatyana Tsyba, “Why Do the Russians So Dislike Moscovites?” Komsomolskaya Pravda, February 12, 1997.

27 Pavel Bunich, interview by author, February 18, 1997.

28 Lee Hockstader, “Moscow Is a Haven of Haves amid Russia’s Sea of Have-Nots,” Washington Post, December 27, 1996, p. A1.

29 Donald Jensen, “The Boss: How Yuri Luzhkov Runs Moscow,” Demokratizatsiya , Winter 2000, pp. 83–122.

30 Yegor Gaidar, “Why the Living Is Good in Moscow” (speech to the Moscow branch of the Democratic Choice of Russia Party, published in Moscow News, February 26, 1998); Gaidar press conference, February 6, 1998.

31 Luzhkov, written answers.

32 Vladimir Yevtushenkov, interview by author, April 9, 2000.

33 Yelena Baturina, interview by author, August 23, 1999.

34 Baturina interview.

35 Luzhkov, interview by author, February 5, 2001.

36 Baturina told me the Luzhniki contract was “my great luck and success,” since her firm went on to win dozens more such contracts in Moscow and other Russian cities, as well as abroad. The stadium was 49 percent owned by the city. Baturina said she won a tender for the seats with a low bid, but, just as important, she said she was the only bidder with the correct specifications to meet the European standards.

37 Yuri Minkovski, “The First Underground Shopping Mall in the Heart of Moscow,” Cost Engineering, February 1998, pp. 15–17. Cost Engineering is published by the American Association of Cost Engineers.

38 Natalya Shulyakovskaya, “Defining the Moscow Style,” Moscow Times Business Journal 2 (1998): 6. Dozens of these useless spires could be seen in Moscow atop new glass-and-steel office buildings.

39 Leonid Filatyev, head of the coordination group for decoration of the cathedral, interview by author, December 6, 2000. “Take, for instance, the text inscribed on the dome at the top,” he said. “How do you put the text in place so that it would exactly fit the length of the sphere? If you do it manually, it will take a long time. The computer can deal with this quickly and produce a print from which the painters can copy the drawing onto the wall. But the technique of painting was the original one from the nineteenth century.”

40 “Moscow Celebrates,” Time, September 8, 1997, p. 38.

41 Lee Hockstader, “Puttin’ on the Ritz in Russia,” Washington Post, August 3, 1995, p. 22.

42 Hockstader, “Moscow Is a Haven.”

43 A long battle against the propiska was carried out by Veronika Kutsillo, a journalist who wanted to live in Moscow. She had grown up in Kazakhstan. As a student at Moscow State University, she had a permit, but when she graduated and got a job at the newspaper Kommersant Daily, she needed another to live permanently in the capital and to buy an apartment. The Moscow police said they would only give her the permit if she paid the “fee” for city services, then set at five hundred times the minimum wage, or about $2,000. “In my view this was completely groundless,” Kutsillo told me. “They could not explain what the money was being taken for. They tried to explain it was for the metro, for using roads, movie theaters, and so forth. But any person who comes here pays to take the metro, pays for all of this.” Kutsillo wanted the permit because she did not want to live as a second-class citizen; she wanted to be legal. “What does it mean not to have a propiska?” she asked. “A person can’t get a license for a car without it, can’t register a car in their name, can’t go to the local health clinic, and you can’t even call an ambulance without huge problems. I couldn’t get married. If there are children, you can’t send them to school, to nursery school, and you can’t get a passport for travel abroad.” Kutsillo had read all the federal laws on residency, which were clear that the only restrictions on freedom of movement could be war or catastrophe. There was neither in Moscow. Kutsillo appeared before the Russian Constitution Court to present her case personally and won a major decision on April 4, 1996. The court declared that although requiring people to register was permissible, the process could not be used as a “foundation for limiting a person’s rights or freedoms.” The court declared that every citizen “has a right for free movement, a right to choose a place of residence,” and that paying a residency fee, as Moscow had required, “contradicts the right of citizens to freely choose a place of residence.” The city government quickly responded. The mayor’s press office issued a statement warning the news media not to portray Moscow as a “city without borders” or to say that people were free to come live in the city. The statement declared that “an endless inflow of people to reside here may be the end of Moscow, and this would be true for any other big city as well.” Luzhkov formally canceled the propiska. But the mayor decided to try and implement it by another means—to demand a fee, slightly lower than before, from anyone who purchased an apartment in the city. A top city official said at the time, “The ruling of the Constitutional Court is mandatory for Moscow, but the life of the city will be determined by its own rules.” Kutsillo had won a round, but the fight was not over. Two years later, on February 2, 1998, the Constitutional Court again upheld the principle of the Kutsillo case, that a city may register people only to “certify the act of the free expression of will of a citizen” to live there. The city cannot be “granting permission” or limiting where people choose to live, nor can it dictate how long a person can live in a particular place, the court said. Luzhkov’s defiance of the court was clearly irritating the justices. One of them, Vladimir Yaroslavtsev, read a statement to Kutsillo’s newspaper, Kommersant Daily, which had campaigned against the propiska, saying, “We would like to warn Luzhkov and other regional heads: there will be no closed cities!” Eventually, a fee was created, of a thousand dollars or more, for transfer of real estate, so that the cost of getting residence was built into the purchase price of an apartment. Although Kutsillo had won in principle, the great wall around Moscow remained.

44 Chrystia Freeland, “Moscow: Mayor Says Nyet to Foreign Words,” Financial Times, March 1, 1997.

45 Chrystia Freeland et al., “A Mayor with Attitude,” Financial Times, November 4, 1996, p. 22.

46 Luzhkov, written answers. He added: “I also deal a lot with the problems of corruption. And not just every day, but every morning and every evening, and sometimes at night. To my deep belief, the increased criminalization of the economy and of life is the consequence of the economic system that was built by our liberal reformers, one more consequence of privatization.” He also said, “In my view, the level of corruption in Moscow is relatively quite modest, by Russian standards.” Although the situation in Moscow is not ideal, Luzhkov argued, the enormous investment in Moscow would not have come had corruption actually been so severe.

47 Julia Rubin, “U.S. Businessman Slain amid Russian Rivalry,” Associated Press, November 28, 1996.

48 The U.S. embassy said the decision to revoke the visa was based on a provision of the law prohibiting entrance to “any alien who the Consular Officer or the Attorney General knows or has reason to believe seeks to enter the United States to engage solely, principally or incidentally in unlawful activity.” Dzhabrailov angrily replied, “This is a disgrace for America. Have they any proof of this?” Nick Allen, “U.S. Revokes Radisson TV Chief’s Visa,” Moscow Times, November 30, 1996.

49 In the March 26, 2000, election, Dzhabrailov took last place, receiving 78,498 votes out of 75 million cast. He later boasted about the result with a new set of billboard advertisements.

50 Alessandra Stanley, “The Power Broker,” New York Times Magazine, August 31, 1997, p. 44.

51 Luzhkov, written answers.

52 Andrew Kramer, “Detectives Fight Odds in Contract Hit Cases,” Moscow Times, November 27, 1996.

53 Vladimir Yevtushenkov, interview by author, April 9, 2000.

54 Gaidar, “Why the Living Is Good.”

55 Marina Rassafonova, “Yuri Luzhkov Failed to Defend His Honor and Dignity,” Kommersant Daily, May 20, 1998 ; Anna Ostapchuk, “Luzhkov Against Gaidar,” Moscow News, May 26, 1998 ; Alexander Fedorov, “Yuri Luzhkov Won in Court Claim to Yegor Gaidar,” Moskovska Pravda, October 29, 1998.

56 Ana Uzelac, “Police: Moscow Official Put $700K in Switzerland,” Moscow Times, November 25, 2000.

57 Adi Ignatius, “Mayor Yuri Luzhkov Leads a Capital City Rife with Corruption,” Wall Sreet Journal, February 13, 1995, p. 1.

58 Mark Whitehouse, “Moscow Mayor Steals Political Spotlight,” Wall Street Journal , May 20, 1999, p. 14.

59 Vladimir Yevtushenkov, interview by author, December 1, 1997; April 9, 2000. Yevtushenkov told me that, among his early business ventures, he helped Vladimir Vinogradov set up Inkombank, which became one of the largest commercial banks. My story on the rise of Systema appeared in the Washington Post, December 19, 1997, p. 1.

60 Natalya Shulyakovskaya, “A Family of Born Leaders,” Moscow Times, February 9, 1999.

61 Interfax Telecommunications Report, February 4–10, 1998. The old exchange was removed in 1998.

62 Matt Bivens, “The Meteoric Rise of Luzhkov’s System,” Moscow Times Business Review, February 1999, p. 11.

63 Russian law stipulates that any auction must have a minimum of two bidders. Yevtushenkov said there were several bidders in this tender, but according to newspaper reports there was only one besides the Moscow Committee on Science and Technology, and the second bidder also had ties to Systema.

64 Perhaps one reason for their secrecy was a provision in the deal, not apparent at the time, that eventually allowed Yevtushenkov to take control of the phone company. Once he satisfied the investment requirements in the initial tender, the provision granted Yevtushenkov the right to issue new shares in the telephone giant. The phone company issued 638,634 new shares in addition to the 1.2 million already outstanding. This had the effect of allowing him to take control, increasing Systema’s share to 59.9 percent of the voting shares of the phone company, a solid majority. When I heard about this provision in 1998, I was dumbfounded. I went back to the original 1995 fax I had received from the Moscow property committee describing the conditions of the tender. It said nothing about the right to issue new shares. The key provision in the privatization—which allowed Systema to bootstrap itself into control of Russia’s largest city phone company—had been kept out of the public eye. The biggest loser was Svyazinvest, the largely state-owned national telephone holding company, which went from owning 46.6 percent of voting shares in the Moscow phone company to 27.9 percent.

65 Speaking to diplomats, journalists, and businessmen March 4, 1999, Luzhkov said, “I can officially tell you that all those myths that are spread around have nothing to do with reality. As far as Systema is concerned, attention to it is very high today, but many have tried to view Systema as some sort of extra pocket of the Moscow government, or a spare pocket for the mayor who has some sort of political motivations before the elections. Drop all these thoughts. We work honestly. We are not using what you suggest. And the suggestions themselves—when we read them—speak only to the bad taste of those who make them.” Natalya Shulyakovskaya, “Luzhkov: I Don’t Funnel City Deals to Wife,” Moscow Times, March 5, 1999.

66 Alexei Ulyukaev, interview by author, October 31, 1997; Ulyukaev’s essay on Moscow published October 13, 1997 in Expert magazine; and an unpublished, undated paper by Ulyukaev, “The Moscow Mayor’s Appetite,” p. 38. The prospectus was for the city’s $500 million 1997 Eurobond.

67 Luzhkov press conference, March 10, 1995.

1 The location was renamed Lenin Hills in 1935 but is still known by many as Sparrow Hills.

2 Vasily Shakhnovsky, interview by author, November 26, 1999; December 18, 2000.

3 Shakhnovsky, interview by author, and Leonid Nevzlin, interview by author, March 16, 2000; Mikhail Khodorkovsky, interview by author, June 19, 2000; Vladimir Vinogradov, interview by author, June 28, 2000; Alexander Smolensky, interview by author, August 30, 1999.

4 Anonymous source, notes of conversation with participant in the club meetings.

5 Report of the Department for Public Relations of AO Logovaz, undated, but prepared for a meeting in summer 1994.

6 He told me he did not stay there long. Boris Berezovsky, interview by author, December 20, 1996.

7 This gang warfare is described by Paul Klebnikov in Godfather of the Kremlin: Boris Berezovsky and the Looting of Russia (New York: Harcourt, 2000). However, much about this conflict remains unknown. It is not clear to what extent Berezovsky was a victim or a cause of the gang violence. It later became evident, during the Russian war in Chechnya, that Berezovsky enjoyed excellent connections with the Chechens.

8 Berezovsky, interview by author, February 28, 2001.

9 Leonid Boguslavsky, interview by author, May 16, 2000.

10 Ellen Mickiewicz, Changing Channels: Television and the Struggle for Power in Russia (Oxford: Oxford University Press, 1997), p. 238.

11 Igor Malashenko, interview by author, July 25, 2000.

12 For the channel, this was supposedly an improvement. Alexander Yakovlev, then chairman of Ostankino, said that when Reklama Holding was formed, the channel’s revenues went from 5 billion rubles a month to 35 billion. Jean MacKenzie, “Listyev Killing Linked to TV Shakeup,” Moscow Times, March 3, 1995. A lengthy, unsigned story in the magazine Kommersant Weekly on March 28, 1995, said that Channel 1 received 16 billion rubles in the first half of 1994. After the creation of Reklama Holding, the amount rose to 104 billion in the second half. Still others said that Reklama Holding was simply centralizing the same process of ripping off Channel 1 that had been carried out by the independent producers.

13 Report of the Department for Public Relations of AO Logovaz.

14 Stephanie Baker-Said, “TV Advertising Sales, Ad Time Up in 1996,” Moscow Times, March 4, 1997, p. 3.

15 Berezovsky had both money and politics in mind. He was willing to take early losses in exchange for immediate political influence and big profits later. In our 1996 interview, Berezovsky told me that he invested in media for “influence on the political process. And at the same time, at the first stage, I understood it wasn’t going to give profits. I don’t want to talk about exact numbers, but I can say that ORT today is for me not a source of profits but a source of enormous expenditures.” However, he said it could be “made very profitable,” with the right investment. “These investments aren’t enough today. But already today it is possible to attract big money.” He summed up both reasons. “One is political: the protection of my interests. And the second reason: it is business.” He told me in 2001 that he lost control of ORT before ever realizing the big profits, but all of his hopes for political influence were fulfilled. “All the political tasks that I formulated for ORT were fulfilled.”

16 On March 27, 1998, Berezovsky told a group of journalists that Aven introduced him to Yumashev.

17 Alexander Korzhakov’s recollections are contained in his memoir, Boris Yeltsin: From Dawn to Sunset (Moscow: Interbook, 1997). Despite their once close relationship, Yeltsin and Korzhakov displayed great animosity toward each other after Korzhakov’s 1996 dismissal. In his memoir, Yeltsin said he had not read Korzhakov’s book, but “I am told it contains much untruth and sleaze. I decided not to read it because I couldn’t contain my revulsion.” He says Korzhakov was overpromoted and had “concentrated more power into his hands than he could handle.” Yeltsin said Korzhakov’s influence—appointing people in government, for example—is “entirely my fault.” Yeltsin, Midnight Diaries (New York: PublicAffairs, 2000), p. 69.

18 Korzhakov made this comment on the television program Sovershenno Sekretno, November 21, 1999.

19 Korzhakov, Boris Yeltsin, p. 283.

20 Berezovsky recalled in the meeting with reporters in 1998, “Earlier than others, we started thinking about what was going to happen in 1996, and together we lobbied the idea of creating ORT.”

21 The agreement between the new company, ORT, and Ostankino was published in Rossiiskaya Gazeta, February 16, 1995.

22 Berezovsky also gave Korzhakov power of attorney, turning all the shares over to Yeltsin in case there was any doubt about Berezovsky’s loyalty. But this appears to have been more a gambit to reassure Korzhakov than anything else. Korzhakov said at a November 30, 1998, press conference that he never showed the documents to Yeltsin. Details of the authorization were first published in “Yeltsin Is Shareholder,” Kommersant Daily, November 19, 1998.

23 Ivan Franko, “A Man Capable of Resolving Questions,” Kommersant Daily, November 2, 1996, p. 15.

24 Berezovsky, interview by author, February 28, 2001.

25 Text of Yeltsin’s remarks to Ostankino journalists, March 2, 1995, BBC Summary of World Broadcasts.

26 The killing was surrounded by a number of still unexplained events. I offer a summary here to give the reader a sense of the unanswered questions that followed the murder.

The day before the murder, February 28, Berezovsky met with a man he has identified as Nikolai Plekhanov, a member of an underworld gang. According to Berezovsky, he was told by police who came with Plekhanov that the gangster knew who had planted the bomb attack against Berezovsky the previous year, and that Plekhanov had once again been ordered to assassinate him. Berezovsky said he gave Plekhanov $100,000 that day, in the presence of the militiamen. Berezovsky also videotaped the encounter. The money was intended to forestall another assassination attempt, Berezovsky said.

Berezovsky then flew off to London on an official trip with Chernomyrdin. Upon hearing about Listyev’s murder, Berezovsky returned immediately by private jet to Moscow.

Two days after the murder, Berezovsky and one of the independent Channel 1 producers, Irena Lesnevskaya, recorded a videotaped appeal to Yeltsin. Berezovsky told me the tape was Lesnevskaya’s idea. They had sought a meeting with Yeltsin, but Korzhakov insisted they make the tape instead. The tape was recorded in Korzhakov’s office in the Kremlin. (Korzhakov said he never actually showed the tape to Yeltsin.) On the tape, they nervously pointed the finger at some vague, power-mad, spooky Moscow organization that included Gusinsky and Luzhkov. Lesnevskaya said, “I have no doubt that this logical scheme was built up by the Most group, by Mr. Gusinsky, Mr. Luzhkov, and the structure under him, a huge pyramid with islands; the former KGB came up with this [devious] plan to assassinate Vlad.” A twenty-three-minute segment of the Berezovsky-Lesnevskaya tape was played by Korzhakov at a Moscow press conference November 30, 1998; a longer version is reproduced in Klebnikov, Godfather.

On the tape with Lesnevskaya, Berezovsky also complained at length about a long standoff with armed antiriot police outside the Logovaz mansion in the aftermath of Listyev’s murder. They came wanting to search the club. Berezovsky refused to let them in but eventually, after phone calls to the general prosecutor (among others), agreed to be questioned. The investigators wanted a copy of the ORT charter, he said, and he gave it to them.

Three days after the killing, Berezovsky said, “I believe that reasons for the assassination of Vladislav Listyev are political, although many now speak about his commercial activities.” In 1999, Berezovsky went further and accused Korzhakov and his circle of responsibility for the killing. Berezovsky said that Listyev’s murder was linked to Korzhakov and former Federal Security Service director Mikhail Barsukov. The murder “was committed by this group of people,” he said. Berezovsky told me that he believes Korzhakov attempted to frame him for the Listyev murder.

Lisovsky’s offices were also searched after the murder. When I asked Lisovsky about it five and a half years later, he showed a flash of emotion and described bitter memories about what he called Listyev’s arrogance. Lisovsky claimed the murder stemmed from Listyev’s personal life or may have been an attempt to frame Lisovsky and others in the television business. “Naturally, this death made all of us who were members of the television community accomplices and witnesses,” Lisovsky said. Lisovsky, interview by author, December 15, 2000.

27 Anonymous source, interview by author.

28 Berzovsky, interview by author, February 28, 2001.

29 Franko, “Man.”

30 Julie Tolkacheva, “Moscow’s Capitalist Elite: Wealthy and Wary,” Moscow Times, July 22, 1994.

31 “Nikolai Glushkov: The Mass Media Should Know the Facts Earlier Than the Investigators,” Kommersant Daily, November 23, 2000, p. 1. This article is an interview with Glushkov.

32 Sergei Zverev, interview by author, June 23, 2000.

33 Vladimir Gusinsky, interview by author, September 22, 2000.

34 John Lloyd, “The General with a Hot Line to Yeltsin,” Financial Times, December 22, 1994, p. 3.

35 Korzhakov said in a 1999 television interview, “This was my decision, I did not let him out. I locked the plane and told Soskovyets, ‘On you go.’” Sovershenno Sekretno, November 21, 1999.

36 “The Snow Is Falling,” Rossiyskaya Gazeta, November 19, 1994.

37 Carlotta Gall and Thomas de Waal, Chechnya: Calamity in the Caucasus (New York: New York University Press, 1998). This book contains the best account of the origins of the war.

38 According to the account Gusinsky gave Chrystia Freeland in Sale of the Century , Rogozin also demanded that Gusinsky cough up some kompromat against Luzhkov.

39 Savostyanov was then head of the Moscow branch of the Federal Counterintelligence Service, which was a successor to the KGB and was later folded into the Federal Security Service (FSB), the main domestic federal security service.

40 Gusinsky, interview by author, September 22, 2000.

41 Yegveny Kiselyov, interview by author, August 2, 2000.

42 The Soviet war in Afghanistan, 1979–1989, had been hidden and propagandized.

43 Yuri Bogomolov, “News Battles Mirror ‘Hot War,’” Moscow News, January 13, 1995.

44 Mickiewicz, Changing Channels, p. 256.

1 Charles Ryan, interview by author, March 16, 1999; January 30, 2001.

2 The Russian government and Central Bank announced on August 24, 1995, that they would maintain the corridor, which had begun on July 5, until the end of the year. The outer limits were set at 4,300 and 4,900 rubles to the dollar. The ruble closed that day at 4,428 to the dollar. Chubais claimed that the first two months of the corridor had chilled speculation; before the limits were introduced, he said, about $1 billion a week was passing through exchange markets, which fell to $400 million.

3 The annual interest rates on these bonds was 262.9 percent in January 1995 and 236 percent in February, and it remained above 100 percent for eight months of that year, according to the Russian Central Bank, “Interest Rates in 1995,” available at www.cbr.ru/eng/statistics/creditst_statistics/print.asp/file=interestrates_95_e.htm .

4 Bank Menatep (Group) Independent Auditor’s Report, Arthur Andersen, International Accounting Methods, 1995.

5 Mikhail Khodorkovsky, interview by author, June 19, 2000.

6 Almanac of Russian Petroleum 1999 (New York: Energy Intelligence Group, 1999), p. 65.

7 Nat Moser and Peter Oppenheimer, “The Oil Industry: Structural Transformation and Corporate Governance,” in Brigitte Granville and Peter Oppenheimer, eds., Russia’s Post-Communist Economy (Oxford: Oxford University Press, 2001).

8 Khodorkovsky wrote an article in a Russian newspaper at the time describing the “radical changes” in the old state-run structure of the oil industry, and its needs for new investment credits. Mikhail Khodorkovsky, “Investment Activity Is Vital for Russia’s Fuel and Energy Sector,” Finansovye Izvestia, November 19, 1992, p. 7. Menatep Bank also announced in 1992 that it was seeking outside credits to help the oil industry. In 1992 Khodorkovsky told Thane Gustafson, a long-time specialist in Soviet and Russian energy issues, that he was providing credits to the oil industry. Thane Gustafson, Capitalism Russian-Style (Cambridge : Cambridge University Press, 1999), p. 121.

9 Priobskoye field, discovered in 1992, occupies an area of 5,466 square kilometers along the Ob River, one hundred kilometers west of Nefteyugansk, with about 4.5 billion barrels of oil. Yuganskneftegaz has a license for about 72 percent of the field, the Northern Territory, according to a Yukos press release, October 28, 1999, on passage of production-sharing legislation for the field.

10 Stephen O’Sullivan, Russian Oil: Financial Analysis, MC Securities Ltd., London, February 26, 1997; “Yuganskneftegaz,” MN-Fund, Moscow, undated; Annual Report, Yuganskneftegaz, May 1997.

11 Salomon Brothers, Yuganskneftegaz, June 25, 1996, p. 24.

12 One important reason why foreign investors bought stock in many of these oil extraction companies was availability. In the early 1990s it was not yet possible to buy shares in the big holding companies, which were just being created. Investors also thought the oil field extraction company stocks were cheap.

13 Dart bought other oil field stocks as well, but these two were the core of Yukos.

14 Alexei Mitrofanov, telephone interview by author, October 29, 1998.

15 Nina Yermakova and other teachers at School 58, interview by author, November 12, 1998.

16 Oleg Churilov, interview by author, March 1, 1999.

17 Oleg Klimov, interview by author, February 25, 1999.

18 Norilsk was a major player in global metals markets too. By 2001 Norilsk was producing 20 percent of the world’s nickel, 20 percent of the platinum, and 40 percent of the palladium, according to company estimates.

19 Dun & Bradstreet Russia, Unexim Group: Report on Financial-Industrial Group, updated May 1997; Thompson Bankwatch, Unexim Bank: Company Report, September 27, 1996; Uneximbank annual reports and publications. The $300 million is Potanin’s own estimate. The letter urging clients to join Potanin was quoted in Kommersant Weekly, June 1, 1992, and in Kommersant Daily, October 15, 1992, by reporter Dmitry Simonov, and again by Yaroslav Skvortsov and Mikhail Loginov in Kommersant Daily, November 16, 1995.

20 Thomson Bankwatch, Unexim Bank: Company Report, September 27, 1996. The bank’s assets reached $3 billion by the end of 1995.

21 Boris Jordan, interview by author, October 1, 2000; Steven Jennings, interview by author, March 3, 2000.

22 “Who Will Buy Russia?” Economist, September 9, 1995, p. 73.

23 Dmitri Vasiliev, interview by author, September 16, 1999.

24 Anatoly Chubais, ed., Privatizatzia Po-Rossiiski (Moscow: Vagrius, 1999), p. 183.

25 Sergei Belyaev, interview by author, October 18, 1999.

26 Chubais, interview by author, May 13, 2000.

27 Vladmir Potanin, interview by Patricia Kranz of Business Week, September 8, 1997. Her article on Potanin, “Russia’s Most Powerful Man,” appeared in Business Week, November 24, 1997.

28 Paul Bograd, interview by author, March 26, 1999.

29 Khodorkovsky, interview by author, June 19, 2000.

30 Gaidar, interview by author, September 29, 2000.

31 William Flemming, “Business-State Relations in Post-Soviet Russia: The Politics of Second Phase Privatization, 1995–1997” (M.Phil. thesis, Oxford University, 1998). I am indebted to Flemming for his excellent research and thoughtful assistance on loans for shares, especially the important link with the 1996 election.

32 Transition Report 1999 (London: European Bank for Reconstruction and Development), chap. 6, “Governance in Transition,” p. 115.

33 Chubais later acknowledged, after the auctions were nearly over, that allowing the auctioneer to bid on the properties was a mistake. “Not for legal but rather for ethical reasons it can be said we made a mistake here,” he told journalists December 15, 1995, promising it would not happen again. But in fact it did.

34 Alfred Kokh, The Selling of the Soviet Empire (New York: SPI, 1998), p. 121.

35 Alexander Vorobyev, “Amnesty’s Effect on Corruption Case Prosecution Noted,” Rossiyskaya Gazeta, January 18, 2000. Vorobyev was press secretary of the Interior Ministry unit, which investigated the deals and said the probe was dropped at the end of 1999 because of an amnesty statute approved by parliament.

36 The Khodorkovsky lieutenant told me this story.

37 The bankers, in a statement published November 26, accused Menatep of reneging on its earlier promised investments. They said Khodorkovsky won dozens of auctions with promises to invest $600 million in the factories that he took over but then failed to invest. “Practically not a single obligation was fulfilled by the bank,” the bankers declared, mentioning Khodorkovsky’s voracious appetite for factories: phosphates, aluminum, food, and steel, among others. Similar charges were made against Khodorkovsky in later years as well, that he scooped up companies at investment tenders without making the promised investments. Replying on December 10 in an interview published in Kommersant Daily, Khodorkovsky said he had not given absolute guarantees for the privatization tenders but instead had issued letters promising to make the other investments. A footnote in Menatep’s 1995 audit said the banking group “has participated throughout 1995 in investment tenders and loan-for-shares auctions which resulted in drawing comfort letters with an expected value of investments up to Rbm 1,047,359. The comfort letters do not contain any obligation.”

38 Chubais said in his December 15 press conference, “I wouldn’t like to offend anybody, but some banks are known to have chosen such tactics for themselves: they needed these auctions, in which they had no funds to take part, in order to raise a hue and cry over rejection of their applications and then, relying on those scandals, to try and negotiate with the winners in a bid to get their share. Unfortunately, these tactics are quite well known and some banks pursued them in exactly this way. Such things did happen.”

39 Menatep at the time held a 12 percent take in Smolensky’s bank, the audit shows.

40 Chrystia Freeland, “Bidders Claim Exclusion from Russian Oil Sell-off,” Financial Times, November 1, 1995, p. 3, and Freeland, “War of Words in the Reform Club: Protests are Growing over Russia’s Privatization Program,” Financial Times, December 2, 1995, p. 7.

41 Yuli Dubov, interview by author, May 3, 2000.

42 “Korzhakov Says Berezovsky Stole ORT,” Komsomolskaya Pravda, January 28, 1999.

43 Leonid Krutalov, “Alexander Korzhakov: Sleeping with the Enemy,” Moskovsky Komsomolets, November 3, 1999, p. 2.

44 Berezovsky, interview by author, February 28, 2001.

45 Berezovsky disclosed this in an interview published in Nezavisimaya Gazeta, February 3, 1998, p. 1.

46 Smolensky, who eschewed Russian industry, told me he knew of Potanin’s efforts to organize loans for shares, but he didn’t want any factories. He recalled that Potanin had organized meetings at his bank to choose the properties that would be included in loans for shares, but “I didn’t visit a single time.” However, he participated in raising the money for Berezovsky’s investment in Sibneft, which he said was not budget money from the state but “real money.”

47 Boiko’s comments were made in an interview in Kommersant Daily, March 14, 1995, p. 3.

48 “Russia’s Financial-Industrial Elite,” a cable by Waller, May 26, 1995; Waller, multiple interviews by author, 1996–2000.

49 Thomas E. Graham, interview by author, June 22, 2000. Graham said that he originally wrote the essay for publication by the Moscow Center of the Carnegie Endowment for International Peace, but the text languished there and was picked up by Tretyakov instead.

50 Gusinsky took no chances. He came back just as President Clinton was visiting for a summit with Yeltsin to celebrate the fiftieth anniversary of the end of World War II. Gusinsky figured that no one would cause trouble while the U.S. president was in town, and he was right.

1 Mikhail Berger, “Two Zyuganovs: One for West, One for Home?” Izvestiya, February 6, 1996, pp. 1–2; Berger, interview by author, January 17, 2001.

2 Anatoly Chubais, interview by author, May 13, 2000.

3 Arkady Yevstafiev, interview by author, March 7, 2000.

4 Chubais press conference, February 5, 1996.

5 Vladimir Gusinsky, interview by author, September 22, 2000.

6 Boris Berezovsky, interview by author, July 5, 1996.

7 Natalya Gevorkyan, “Young Russian Capital Helped the President Win the Election,” Kommersant Daily, June 17, 1997, p. 4.

8 George Soros, Open Society: Reforming Global Capitalism (New York: PublicAffairs, 2000), p. 242.

9 Berezovsky, interview by author, February 28, 2001.

10 Berger told me that the two men discussed hiring Chubais for the campaign at that moment.

11 Chubais discussed the $5 million arrangement with a group of reporters on December 2, 1997. Earlier news reports stated that Smolensky gave an interest-free, five-year loan to Chubais of 14 billion rubles, then worth about $3 million, which was paid over three installments in March 1996 to the Chubais fund. This may have been just part of the sum which the tycoons paid Chubais. The newspaper Izvestia published the story of the $3 million interest-free loan on July 1, 1997, and Smolensky told me a similar story in a 1997 interview. Chubais, without mentioning the precise total, also said in a response to Izvestia on July 5, 1997, that he had created the center. “The foundation indeed conducted financial activity: we received an interest-free loan—which is absolutely normal in relations between social organizations, of which the fund was one, and commercial structures, both for Russia and any democratic country.” Chubais said he paid 515 million rubles, or about $95,000, in taxes on his income of 1.7 billion rubles or $300,000 which he said was earned between his firing in January and his return to government service when appointed chief of Yeltsin’s administration after the election. “The major part came from my truly well paid lectures and consulting services and for my work in the Center for Protection of Private Property, from which I came to the presidential administration.” Interfax, January 21, 1997; Associated Press, “Lawmakers Accuse Chubais of Violating Civil Service Law,” February 5, 1997.

12 Chubais, interview by author, May 13, 2000.

13 Boris Yeltsin, Midnight Diaries (New York: PublicAffairs, 2000), p. 17

14 Lee Hockstader and David Hoffman, “Yeltsin Campaign Rose from Tears to Triumph,” Washington Post, July 7, 1996, p. 1.

15 Yevstafiev, interview by author, March 7, 2000.

16 Yeltsin, Midnight Diaries, p. 19

17 Berezovsky, interview by author, July 5, 1996.

18 Yeltsin, Midnight Diaries, p. 21

19 Alexander Oslon, interview by author, May 16, 1996.

20 Michael Kramer, “Rescuing Boris,” Time, July 15, 1996, p. 28.

21 Korzhakov, appearance on Sovershenno Sekretno, November 21, 1999.

22 Vladimir Chernov, “If Papa Hadn’t Become President,” interview of Dyachenko, Ogonyok, October 23, 2000, p. 5.

23 Gevorkyan, “Young Russian Capital.”

24 Anatoly Kulikov, “I Will Not Participate in Adventures,” interview, Nezavisimaya Gazeta, July 23, 1999, p. 8.

25 Chernov, “Papa.”

26 Karaganov, interview by author, November 9, 2000.

27 Yeltsin, Midnight Diaries, p. 25.

28 Yevgeny Kiselyov, President of All Russia, April 2000. Four-part NTV documentary.

29 Yeltsin, Midnight Diaries, p. 27.

30 Yavlinsky said Yeltsin once asked him to pull out before the first round. He refused. Kiselyov, President of All Russia.

31 Paul Bograd, “Summary of Electoral Strategy,” memo to Chubais, April 25, 1996; Bograd, “Second Round Strategy,” memo to Yevstafiev, May 7, 1996; Bograd, “The 30 Percent Target: A Strategy for an Electoral Majority Based upon Economic Reform, Democratic Principles, and Strong Leadership,” undated; Bograd, interview by author, March 26, 1999.

32 Mikhail Margelov, interview by author, November 2, 2000.

33 Alexei Levinson, interview by author, June 1996. Levinson is with the All-Russian Center for the Study of Public Opinion.

34 Hockstader, “Yeltsin Paying Top Ruble for Positive News Coverage,” Washington Post, June 30, 1996, p. 1. The European Institute for the Media in Dusseldorf, which monitored the Russian elections and came up with the estimates, also said it counted 300 positive references to Yeltsin compared to 150 for Zyuganov.

35 Vladimir Vinogradov, interview by author, June 28, 2000.

36 Plenty of crisp $100 bills were available at the time too. In the spring of 1996, the U.S. Treasury replaced the old $100 bill with a new one that was better protected against counterfeiting. A very large supply of the new bills—millions of dollars worth—was shipped to Russia and kept for a while in the U.S. embassy in Moscow before being swapped for the old bills through the Russian banking system. The United States carried out a public relations campaign in Russia to reassure people that the new bill was legal tender.

37 Kiselyov, President of All Russia.

38 The newspaper Novaya Gazeta published a lengthy article on the subject in March 2000, stating that it had thirty-seven pages of documents, including the list of oligarchs and their structures that paid for the Yeltsin campaign. The article contained many tantalizing conclusions, including a similar description of the scheme of reprocessing the MinFin bonds. However, I was told by an informed source that the article was not produced by the newspaper but was received from an outside source and published verbatim. The identity of the outside source is not known.

39 Konstantin Kagalovsky, “Corruption in Defense of Democracy,” Sevodnya, July 6, 1999, p. 1.

40 Victoria Clark, “Yeltsin’s Man Stills His Master’s Voice,” Observer, May 5, 1996, p. 20.

41 Korzhakov, Sovershenno Sekretno.

42 Streletsky claims his men carried out a secret operation, late at night on June 18, to open the safe in the office of German Kuznetsov, deputy finance minister for international financial settlements. It was room 2–17 in the Russian White House, headquarters of the Chernomyrdin government. Streletsky said he suspected the room was at the core of the Chubais campaign finance operation. According to Streletsky’s account, during the nighttime incursion, his men found $1.5 million in cash wrapped in plastic and blank forms for money transfers of $5 million each for printing services and advertising. The blanks showed that money was being transferred to the Bahamas and to Baltic divisions of American banks. The five blanks in the safe were numbers 19–23. If there were eighteen previous ones, he concluded, that meant a total of $115 million. Streletsky’s men bugged the room, he said, listening to everything from the floor above, hoping to catch whoever drew cash from the safe. Streletsky is not a neutral source. He was attempting to disrupt the Chubais team, and his account should be read in that light. It seems strange that the Kremlin’s own security service had to bug the government’s own building to gather information on Yeltsin’s own campaign operatives. Streletsky’s version of how the trap was set appeared in his book, Obscurantism (Moscow: Detektiv-Press, 1998).

43 Sergei Lisovsky, interview by author, December 15, 2000.

44 A tape of Lavrov’s comments was made public on June 26, 1999, by Viktor Ilyukhin, chairman of the Duma security committee, a Soviet-era prosecutor who was close to Korzhakov.

45 Sergei Zverev, interview by author, June 23, 2000.

46 Chubais said in an NTV interview that Barsukov at first reacted to the call “like an astonished child,” saying he did not even know Yevstafiev or Lisovsky. Hero of the Day, June 20, 1996.

47 Tape of Kiselyov bulletin; Christophe Beadufe, “Yeltsin Election Aides Arrested, Cancellation of Vote Feared,” Agence France Presse, June 20, 1996.

48 Yevgeny Kiselyov, interview by author, August 2, 2000.

49 The real source of the $538,850 was never determined. Yevstafiev said he did not touch the box. When I asked Lisovsky about it four years later, he said, “It is altogether unclear” if there was a box of money. I replied, “It’s not clear that there wasn’t.” Lisovsky retorted, “Let us stop here; that it’s unclear if there was, and unclear if there wasn’t.” In December 1996, the popular broadsheet newspaper Moskovsky Komsomolets, which is part of Luzhkov’s empire, published what it described as a transcript of a conversation between Chubais, Ilyushin, and a third man, identified as Sergei Krasavchenko. The conversation was supposedly secretly tape-recorded June 22 by the Russian “special services,” two days after the detention of Yevstafiev and Lisovsky.

Chubais expresses fear for the fate of his aides and suggests the documents in the case be hushed up. All three men called the transcript a fake, denying the meeting had taken place. The veracity of the transcript is not known. On April 7, 1997, the general prosecutor closed the investigation without finding out where the money came from. No one was charged with wrongdoing. An audit of the 1996 campaign said of the money: “There are no official documents confirming ownership of this sum by the federal budget or by a private or legal entity.” The money was turned over to the government on April 17, 1997.

50 Berezovsky addressed the issue November 17 on NTV. His explanation included the statement that “I simply exercised the right of any Jew to formalize my relations with Israel. You know, Israel is a unique country. Any Jew, wherever he lives, has the right to be a citizen of Israel.” He was describing the 1950 Law of Return: “Every Jew has the right to come to this country as an oleh” (a Jew immigrating to Israel) and that a visa for an oleh should be granted to “every Jew who has expressed his desire to settle in Israel.” Many Israeli Jews also retain citizenship in other countries.

51 Berezovsky’s desire for respect was severely dented by a highly critical article in Forbes, published in December 1996, headlined, “Godfather of the Kremlin?” He sued the magazine for libel in Britain. On March 6, 2003, prior to a trial, Forbes acknowledged in a British court that it did not have evidence to support some allegations in the article, and that “it was wrong to characterize Mr. Berezovsky as a mafia boss.” Berezovsky dropped the libel suit.

52 A later estimate was that Gazprom loaned Gusinsky $130 million and the debt was converted to equity, giving Gazprom the 30 percent share in NTV.

53 Andrei Richter, interview by author, October 1996.

1 Anatoly Chubais interview, New Times, December 1996.

2 Boris Yeltsin, Midnight Diaries (New York: PublicAffairs, 2000), p. 80.

3 Boris Nemtsov, interview by author, November 1995.

4 “Man of Power,” Chaubais interview, Obshchaya Gazeta, January 9–15, 1997, p. 9.

5 Dmitri Vasiliev, interview by author, September 16, 1999; November 20, 1999.

6 Nemtsov, interview by author, September 20, 1997.

7 Chubais recalled that on a visit to London, he and Nemtsov asked Prime Minister Tony Blair, “What do you think is better, Communism or bandit capitalism?” According to Chubais, Blair thought for a minute and said, “Bandit capitalism is better.” Chubais added, “Absolutely right. And then the question arises, Bandit capitalism or normal capitalism? When this dilemma arises, you have to solve it.” Chubais, remarks to reporters, December 2, 1997. Author’s transcript.

8 Chubais later gave what I thought was a cogent description of the three competing models of capitalism in the late 1990s in Russia. “Position of Berezovsky: businessmen must control the vlast” (a word that means the authorities, the political powers). “Luzhkov’s position: the vlast must control business.” The young reformers, he said, wanted to “separate business from vlast—separate ownership from vlast.” Chubais, remarks to reporters. Author’s transcript.

9 Chubais, interview by author, May 13, 2000. Chubais also said at the time: “Imagine a situation in which a person who has earned a lot of money, who regards himself as the master of the country, reasons as follows: I got the president elected, I got the government appointed, and now it is the time for me to collect my dividends. Such an attitude is repulsive and unacceptable to me.” Chubais, interview by V. Bazhenov, Argumenty & Fakty, November 20, 1997, p. 1.

10 Yeltsin, Midnight Diaries, p. 90.

11 Chubais, interview by author, May 13, 2000.

12 Steven Mufson and David Hoffman, “Russian Crash Shows Risks of Globalization; Speculators Ignored Economy’s Realities,” Washington Post, November 8, 1998, p. 1.

13 Anders Åslund, “Why Has Russia’s Economic Transformation Been So Arduous ?” (paper presented to the World Bank Annual Bank Conference on Development Economics, April 29–30, 1999). Åslund points out that another factor, in addition to Yeltsin’s reelection, was the 1996 agreement for a three-year extended fund facility with the International Monetary Fund. These loans were conditioned on performance benchmarks by Russia, which were often not met. The “soft” agreement, Åslund says, “convinced foreigners and Russians alike that Russia was too big—or too nuclear—to fail, and that anything goes in Russia” (p. 12).

14 James Fenkner, interview by author, September 26, 1998.

15 I have heard many stories about these abuses. They were nicely summarized by Mark Whitehouse in the Moscow Times, “Dirty Dealing,” April 7, 1998, p. 1.

16 Smolensky, interview by author, October 10, 1997; August 31, 1999.

17 Standard & Poor press release, July 14, 1997. The agency’s “speculative grade long-term counterparty rating” for SBS-Agro was single-B and the outlook was “plus/positive,” the best of the four banks rated.

18 Offering circular, SBS-Agro Finance B.V., prospectus, July 18, 1997.

19 Xavier Jordan, interview by author, July 1997; Jordan, telephone interview by author, October 6, 1997.

20 Had he been offered, Gusinsky confessed that he might have grabbed an oil company too. Gusinsky told me, “Had they invited me, it would have been a difficult decision for me to make. I think I would probably have participated if I had been invited.”

21 The magazine was published in association with Newsweek, which is owned by the Washington Post Company. Itogi was typical of Gusinsky’s start-ups: smart, entertaining and provocative. If you were exhausted from the political tedium all week long in the newspapers, you could look forward to reading Itogi, which was aimed at an intelligent, middle-class audience. Travel, leisure, and consumer goods were featured prominently, as well as thoughtful coverage of the arts.

22 Gusinsky had sought foreign investors for the stake, but it was still too early; he did not want to give up control, and they did not want to take the risks.

23 Alexei Mukhin, Special Services and Their Representatives in Russian Society (Moscow, 1999), pp. 35–36. Pamphlet. In Russian.

24 Gusinsky said the Italians wanted the stake, but “the military blocked the selling.” Chubais said, “Gusinsky was helping to convince the special services that were categorically against the auction.”

25 Gusinsky and Potanin confirmed this in October 1997 interviews, as did Andrei Trapeznikov, Chubais’s press secretary. Gusinsky, interview by author, October 15, 1997; Potanin, interview by author, October 14, 1997; Trapeznikov, telephone interview by author, October 25, 1997.

26 Igor Malashenko, interview by author, March 7, 1997.

27 Gusinsky, interview by author, September 22, 2000.

28 Jordan and Potanin announced on July 9 that they were merging Jordan’s Renaissance Capital with Potanin’s International Financial Company. The merger did not go through until after the Svyazinvest auction, but the two were already working closely together.

29 Jordan, interview by author, October 1, 2000.

30 Soros, interview by author, June 1997.

31 Jordan, interview by author, May 22, 1998. The story of the loan was first disclosed by Chrystia Freeland, “Soros ‘Lent Millions’ to Bail Out Kremlin,” Financial Times, March 5, 1998.

32 John Thornhill, “Robber Capitalism to Shareholder Rights: George Soros Has Overcome His Misgivings About Investing in Russia,” Financial Times, July 30, 1997, p. 38.

33 Subscription agreement, July 24, 1997: “Subscription Agreement. Deutsche Bank AG and Open Joint Stock Company and ‘United Export Import Bank’ and Renaissance Capital International Limited and Svyaz Finance Ltd. and Mustcom Limited and ICFI (Cyprus) Limited and The Investors and Renaissance Subscribers.” Draft, July 23, 1997, in possession of the author.

34 This investor, who asked to remain anonymous, told me he bought into both Potanin’s and Gusinsky’s investment consortiums for Svyazinvest—it was so hot he wanted to be certain of winning something.

35 Potanin’s strategy is described in official documents and internal memos on the deal, which I obtained from a potential investor.

36 Yeltsin, Midnight Diaries, p. 95.

37 Gusinsky, interview by author, October 15, 1997. Potanin also confirmed that discussions about a merger or deal took place beforehand. In Potanin’s version, “I proposed from the very beginning our participation in his consortium, where he is the leader. If we win together he can do whatever he wants.” But Gusinsky refused.

38 Potanin, interview by author, October 14, 1997.

39 George Soros, Open Society: Reforming Global Capitalism (New York: PublicAffairs, 2000), p. 259.

40 Chubais, remarks to reporters, December 2, 1997, author’s transcript.

41 Jordan’s Renaissance Capital contributed about $200 million of the offered price. But he had brought in outside investors for the consortium, and if they won the auction, he stood to reap about $39 million in commissions, according to internal memos. The commissions would be even higher if the winning bid was over $1.5 billion.

42 Credinstalt investment bank estimated at the time the average value for telecommunications companies in emerging markets was $2,500 per line. “State Nets $1.9 Bln from Svyazinvest Sale,” Moscow Times, July 26, 1997, p. 1.

43 Leonid Rozhetskin, interview by author, October 8, 1997; Sergei Zverev, interview by author, June 23, 2000.

44 Except where otherwise indicated, all quotations from broadcasts have been taken from verbatim transcripts.

45 Anton Zvyagilsky, “The Money Stank,” Sevodnya, July 28, 1997, p. 1.

46 The second sale of Norilsk, the last chapter in loans for shares, had come just ten days after Svyazinvest. Potanin sold it to himself, as expected.

47 The context for this scandal had been set earlier. Minkin disclosed on August 4, 1997, in Novaya Gazeta the transcript of a conversation between Nemtsov and the advertising mogul Lisovsky. Nemtsov was quoted as saying he was owed $100,000 for an autobiographical book, Provincial, and he wanted the money urgently in order to declare it on his disclosure form. The financial disclosure forms were Nemtsov’s own idea. Nemtsov says he is in a tight spot because Yeltsin is about to sign the decree requiring the disclosures, and he is afraid that if he leaves the money off his form, there will be criticism later. The public reaction to the disclosure was negative: $100,000 seemed like a huge sum for a book. Minkin’s story on Kokh appeared soon thereafter. “Kokh Left His Chair to Avoid Going to Jail,” Novaya Gazeta, August 18, 1997, p. 1.

48 Correspondent Yelena Masyuk and her NTV crew were kidnapped May 10, 1997, in Chechnya. They were released August 18 after Berezovsky paid a $1 million ransom.

49 Yeltsin, Midnight Diaries, p. 91.

50 Smolensky, interview by author, October 10, 1997.

51 The Yeltsin comments about Kokh and Potanin’s offer were disclosed that evening by Khodorkovsky in a television interview by Kiselyov. Hero of the Day, NTV, September 16, 1997.

52 Yeltsin, Midnight Diaries, pp. 88–101.

53 Soros, Open Society, p. 245.

54 “Berezovsky Backs Revocation of Visa for Financier Jordan,” Moscow Times, October 11, 1997.

55 Chrystia Freeland, Sale of the Century (New York: Crown Business, 2000), p. 288.

56 Kokh, interview by author, May 14, 2000. An investigation by the Moscow prosecutor was closed in December 1999 because the Duma passed a broad amnesty for minor offenses that precluded prosecution.

57 These included Yumashev, who was Yeltsin’s chief of staff, and later Alexander Voloshin, who succeeded him. Both had worked with or had been close to Berezovsky, not to mention Berezovsky’s ties to Dyachenko from the 1996 campaign onward.

58 Lisovsky, interview by author, December 15, 2000.

59 Chubais, remarks to reporters, December 2, 1997, author’s transcript.

60 Chubais, interview by V. Bazhenov, Argumenty & Fakty, November 20, 1997, p. 1.

61 Chubais, remarks to reporters, December 2, 1997, author’s transcript.

62 Chubais interview, Moskovsky Komsomolets, December 19, 1997, p. 2.

63 Yeltsin’s press secretary, Sergei Yastrzhembsky, said at the time that Yeltsin was taken to Barvikha, but later it was disclosed he had also been taken to the hospital where he had his heart operation.

1 Eric Kraus, interview by author, January 22, 2001.

2 In one sign of this expansion, Khodorkovsky was poised to gain full control of a giant Siberian oil field. In 1993 Amoco won an international tender for 50 percent of the huge Priobskoye field, which was then held by Yuganskneftegaz. When Khodorkovsky took over Yuganskneftegaz and its holding company, Yukos, in 1995, he proposed new terms. Amoco refused to accept the new terms and the deal was paralyzed for several years. In 1998 Amoco was merged into BP, and the joint company abandoned the Priobskoye field on March 19, 1999, after investing more than $100 million.

3 Andrei Sheatov, “Russian Oil Tycoon Plans to Place Among Ten World Oil Firms,” Itar-Tass dispatch from Khodorkovsky’s appearance before the Russian-American Business Council in Washington, October 23, 1997.

4 Yukos consolidated financial statements for the year ending December 31, 1997, published June 26, 1998, by Price Waterhouse; “Preliminary Information Memorandum,” Yukos Oil Corporation, Five-Year Export Secured Credit Facility, March 1998.

5 This practice, transfer pricing, was controversial yet widespread in the Russian oil industry at the time. According to analysts Nat Moser and Peter Oppenheimer, Yukos recorded an after-tax profit in 1996 of $91.5 million while the oil extraction companies Yuganskneftegaz and Samaraneftegaz lost $345 million. In 1996 Yuganskneftegaz lost $195 million alone through transfer pricing. Moser and Oppenheimer, “The Oil Industry: Structural Transformation and Corporate Governance,” in Brigitte Granville and Peter Oppenheimer, eds., Russia’s Post-Communist Economy (Oxford: Oxford University Press, 2001.)

6 Hunter of Arrowhead Enterprises Ltd., an investment company of Dart, made the “looting” comment to the Financial Times, March 11, 1998. Hunter further detailed the allegations in two letters to Jon S. Corzine, chairman and chief executive officer, Goldman Sachs, January 28 and February 17, 1998. The three banks replied perfunctorily that they could not disclose “any information” about the loan.

7 Nezavisimaya Gazeta, a broadsheet newspaper written for the intelligentsia,the first truly independent paper born in perestroika, fell on hard times in the mid-1990s. After an internal staff dispute, the paper locked its doors and stopped publishing. Editor Vitaly Tretyakov went to a tiny Greek island for a holiday. Berezovsky flew a helicopter to the island, flew him back to Moscow on a chartered plane, paid for guards to break open the doors, and took over as financial sponsor of the paper, which had virtually no advertising. Vitaly Tretyakov, interview by author, March 10, 1997.

8 Andrew Higgins, “Insufficient Funds: How a Russian Banker Outfoxed Creditors to Rebuild an Empire,” Wall Street Journal, October 4, 2000, p. 1.

9 Foreign liabilities of the Russian banking system—money raised abroad—rose from 11 percent to 17.5 percent of total liabilities during 1997. “Ruble Crisis Again,” Russian Economic Trends, June 1998.

10 Credit Suisse First Boston, in a research note on the merger, made a similar point: “In our view, the main benefits of the merger to the group are greater political clout and greater visibility. The combination of the political clout of Mr. Khodorkovsky and Mr. Berezovsky will make Yuksi a powerful lobbyist within Russia.”

11 Trud, March 4, 1998, p. 2.

12 Anatoly Chubais, “I Am Against the Board of Directors of Russia,” interview by Yevgenia Albats, Kommersant Daily, March 5, 1998, p. 1.

13 Alexander Budberg, “Chicago Boys Never Give Up,” Moskovsky Komsomolets, March 5, 1998, p. 2.

14 Nezavisimaya Gazeta, “Venal Newspaper, Venal Journalists, Venal Chief Editor !” March 8, 1998, p. 1.

15 Berezovsky said on Itogi (NTV) on March 22 that he suffered a broken spine and underwent surgery in Switzerland. He was discharged from the hospital March 13, 1998, but continued to undergo rehabilitation until returning to Moscow.

16 Boris Berezovsky, interview by author, February 28, 2001.

17 Vladimir Gusinsky, interview by author, June 7, 2001.

18 Berezovsky, interview by author, February 28, 2001.

19 Moscow News, February 26-March 4, 1998, pp. 1–4.

20 Sergei Karaganov, interview by author, November 9, 2000.

21 Itogi, March 22, 1998. Berezovsky later told me that when he taped the interview, he did not know Yeltsin would announce the decision to fire Chernomyrdin on Monday. Kiselyov, who conducted the interview, recalled that Berezovsky flew back to Switzerland for more back treatments—which he might not have done had he known Yeltsin was about to act.

22 Alessandra Stanley, “Shake-up in Russia: The Meaning; The Reformers Did It. No, Blame the Bankers,” New York Times, March 24, 1998, p. 8.

23 Kiriyenko was confirmed on April 24 in a secret ballot by a vote of 251 to 25 in the 450-member chamber.

24 Berezovsky said in an interview on NTV’s Hero of the Day, April 16, that Yeltsin had called him and they had had a “friendly and constructive conversation.”

25 Andrei Bagrov, “Yeltsin Threatens Berezovsky with Deportation,” Kommersant Daily, April 15, 1998, p. 1.

26 Andrei Piontkovsky, interview by author, May 1998.

27 Repeated attempts to fiddle with the currency led to panic and public distrust. The Soviet government decreed on January 22, 1991, that all fifty- and one hundred-ruble banknotes would have to be exchanged in three days in order to reduce the money supply, setting off a panic. Many people could not change their money in time. In 1993 Yeltsin’s government stumbled badly over a plan to force everyone to change their Soviet-era rubles into new Russian banknotes. In addition, hyperinflation during the early 1990s wiped out the savings of millions of people. And on “Black Tuesday,” October 11, 1994, the ruble plunged 27 percent against the dollar. The lesson many Russians took from this period was, Keep your money in dollars.

28 Chubais interview, Interfax-AiF, March 23–29, 1998, pp. 2–3.

29 Glifford G. Gaddy and Barry W. Ickes, “Russia’s Virtual Economy,” Foreign Affairs, September-October 1998, p. 53. This important article called attention to the powerful distortions caused by barter and nonpayments.

30 Tax dodging was endemic, in part because the taxes were punitive and the code unreformed. However, economist Al Breach pointed out an additional factor. In an economy that was awash in barter transactions—a factory would trade its refrigerators for a two-month supply of electricity or swap metal pipe for a truckload of socks—it was extremely difficult to collect taxes in cash. Breach calculated that cash made up only 60 percent of the tax revenues in 1997, and trying to extract more in the barter economy was like “trying to suck water out of a stone.” It was impossible in this environment to raise enough taxes to balance the budget, he said; the only thing to do was slash spending further, which is the one thing Russian politicians refused to do. Kiriyenko tried, but it was too late. Al Breach, Russia: Now a Competitive Exchange Rate—The Revival of the Real Economy, Global Economics Paper no. 22, Goldman Sachs, July 23, 1999. The problem of demonetization of the economy, the disappearance of cash, was severe and plagued enterprises as well as the government. Chubais said in Washington on July 21, 1998, that Unified Energy Systems, the electricity monopoly that he headed, collected only 14 percent of its payments in cash and 86 percent in barter, “which is awful.”

31 The IMF loans were supposed to be linked to conditions that Russia would make key reforms, but the conditions were often softened or bent when Russian reforms fell short. Between the admittance of Russian to the IMF on June 1, 1992, and September 1, 1998, the International Monetary Fund provided Russia with about $18.8 billion. The loans approved in approximate dollar terms were as follows: a standby arrangement, August 5,1992, to January 4, 1993, $1.1 billion; systemic transformation facility, July 6, 1993, to April 10, 1995, $2.9 billion; standby arrangements, April 11, 1995, to March 26, 1996, $6.8 billion; extended fund facility, March 26, 1996, to March 25, 1999, $10 billion (not including the rescue package approved by the IMF in 1998, which was only partially disbursed). Andrei Illarionov, director, Institute of Economic Analysis, testimony before the House Banking and Financial Services Committee, General Oversight and Investigations Subcommittee, September 10, 1998.

32 Gary Peach, “Pyramid Crash Began on Fool’s Day,” Moscow Times, August 17, 1999.

33 More than twenty regions issued their own bonds. One of the more bizarre debt schemes was the agro-bond, a short-term debt paper that represented restructured federal agricultural loans to the regions. By some estimates $830 million in these bonds was outstanding at 1998 precrash exchange rates, and 90 percent of them later went into default. Sujata Rao, Moscow Times, April 27, 1999, p. 15.

34 The Crisis of the Russian Financial System: Key Factors, Economic Policies, and Initial Results, Institute for the Economy in Transition, 2000, p. 26.

35 International Reserves in 1997, Central Bank of Russia.

36 Sergei Aleksashenko, Fight for the Ruble (Moscow: AlmaMater, 1999), p. 129.

37 “T-Bill Market Suffers Biggest Crisis in Its History,” Interfax, July 29, 1998.

38 Forwards Are Not the Way Forward, Troika Dialog Research, November 1998. An indication that the sum was higher came from Vinogradov, who told me he held $2.5 billion as of the August 17 crash. Reporting requirements for banks were skimpy, and information remains incomplete. The $9 billion estimate is from Surviving Devaluation, a research report by Brunswick Warburg, June 8, 1998, p. 9.

39 Budberg, “Chicago Boys.” Chubais recalled Luzhkov declaring that “the age of monetarism is over.” But Chubais answered that monetarism had worked. “The sole reason we can seriously talk about economic growth today is that it was preceded by six years of tough monetarism.” Monetarism generally refers to an economic policy in which the money supply is tightly restricted in order to control inflation. The ruble corridor was the mechanism for controlling the money supply, and it meant that the Central Bank dramatically reduced the massive subsidies and cheap credits issued in earlier years. This approach was never really understood by the Soviet-era red directors, who were accustomed to receiving enormous infusions of subsidies.

40 Illarionov later said he also watched the reserves as compared to the total foreign investment in Russian bonds: if all the overseas investors pulled out, would the Central Bank have enough currency to pay off the bonds? As of January 1, 1998, the bank held $12.9 billion in currency reserves and $4.8 billion in illiquid gold reserves. Foreigners held about $18 billion of outstanding Russian treasury bills.

41 Andrei Illarionov, interview by author, October 14, 1999.

42 Pyotr Aven, interview by author, October 22, 1999.

43 Chubais, interview by author, May 13, 2000.

44 Yuri Baturin et al, Epokha Yeltsina (The Yeltsin Epoch) (Moscow: Vagrius, 2001), pp. 727–750. This work is a collective memoir by a group of Yeltsin’s Kremlin aides.

45 Baturin et al., Epokha Yeltsina.

46 Bernie Sucher, interview by author, October 8 and 29, 1999.

47 The situation was never black and white, however. Some market participants also failed to see the devaluation coming until it was too late. Brunswick Warburg’s June 8 report stated, “We believe a collapse in the ruble can now be avoided.”

48 Illarionov, testimony before the House committee.

49 Augusto Lopez-Claros, interview by author, September 17, 1999; April 13, 2000.

50 Yeltsin, Midnight Diaries, p. 169.

51 Baturin et al., Epokha Yeltsina.

52 Malashenko, interview by author, July 25, 2000.

53 Chubais, interview by author, February 20, 2001; Bill Powell and Yevgenia Albats, “Summer of Discontent,” Newsweek, January 18, 1999; Chrystia Freeland, Sale of the Century (New York: Crown Business, 2000), pp. 308–309.

54 Berezovsky, interview by author, February 28, 2001.

55 Chubais, interview by author, February 20, 2001.

56 Grigory Glazkov, interview by author, December 1, 1999.

57 Itar-Tass, June 19, 1998.

58 Aleksashenko, Fight, pp. 169–171.

59 Joseph Kahn and Timothy O’Brien, “For Russia and Its U.S. Bankers, Match Wasn’t Made in Heaven,” New York Times, October 18, 1998, p. 1.

60 Baturin et al., Epokha Yeltsina; Charles Wyplosz and Ksenia Yudaeva, “The Costs of Debt Conversion: Russia and Mexico Compared,” Russian Economic Trends Quarterly, October-December, 1998; Homi Kharas, Brian Pinto, Sergei Ulatov, Lawrence H. Summers, and John Williamson, “An Analysis of Russia’s 1998 Meltdown: Fundamentals and Market Signals/Comments and Discussion,” Brookings Papers on Economic Activity, Brookings Institution, Washington, DC, 2001. The latter study concluded that Russia made a mistake taking on so much debt in the summer of 1998. The country took on $16 billion in external debt between June 1 and July 24, 1998. This, combined with the exposure of Russian banks, “was what triggered the August crisis,” the authors concluded.

61 Letter from Credit Lionnais S.A., Goldman Sachs International Bank, and Merrill Lynch Capital Markets Bank Ltd., to Dmitry Vasiliev, August 14, 1998.

62 Leonid Gozman, interview by author, October 27, 1999.

63 Illarionov told me that Sberbank was the largest player to withdraw from the GKO market in the two weeks before August 14, and he questioned whether the Central Bank had influenced this decision. Illarionov said he believed the Central Bank was playing political games, trying to undermine the Kiriyenko government, perhaps to deflect the blame for any crisis over a coming devaluation. The Central Bank in late July mysteriously froze the Finance Ministry accounts for several days, paralyzing its ability to make routine payments. Yeltsin had to intervene, according to the memoir by Baturin and colleagues. Dmitri Vasiliev, a frequent critic of the Central Bank, also mentioned this episode as an example of how the bank was playing a dangerous political game with the government. “It was a complete, 100 percent provocation,” Vasiliev said of the freeze on the accounts. “I think they wanted to either overturn the government or make the government do something—to have them be the first to do it.”

64 Baturin et al., Epokha Yeltsina.

65 Soros said he offered some ideas for a public-private fund but was overtaken by events. George Soros, Open Society: Reforming Global Capitalism (New York: PublicAffairs, 2000), pp. 247–250.

66 “Yeltsin Denies Plans to Devalue Ruble, Says Markets Under Control,” Interfax, August 14, 1998.

67 Aleksashenko, Fight, p. 199.

68 Yevgenia Albats, “Anatoly Chubais: We Await a Difficult Year and a Half or Two Years,” Kommersant Daily, September 8, 1998, p. 1.

69 Aven, interview by author, October 22, 1999.

70 Yeltsin, Midnight Diaries, p. 175.

71 Albats, “Anatoly Chubais.” Chubais read from the computer file to Albats in this interview. Chubais also addressed the issue of deception of investors. A devaluation or default on GKOs earlier in the year “would have been perceived in an extremely negative way around the world,” he said. “By not doing it back then, we demonstrated that the government was struggling to the end. It undertook all the possible thinkable and unthinkable efforts not to fail the expectations of our partners both inside the country and abroad.... Right, it did not work. Right, we failed. It was impossible to wait longer to take the decisions that were made on August 17. The abyss was next.” Chubais defended Yeltsin for lying about the coming devaluation on August 14. “This is exactly what needed to be said,” Chubais insisted. “Any sober-minded politician will tell you that unfortunately this is exactly how the authorities must behave in such extreme situations.... authorities have no right to announce in a difficult financial situation, ‘We don’t know if we are going to cope or not,’ [people] will start running away at once.” Chubais was then asked if the authorities have a right to lie. “In such a situation, it is the duty of the authorities to do it. They are o-b-l-i-g-e-d to. Hence now, the international financial institutions, despite everything we did to them—and we cheated them for $20 billion—there is an understanding that we had no other way out any longer, and had we done it the way suggested by Illarionov, they would have stopped doing business with us forever. That is, that catastrophe would have been the same as now, but any hope that investors would return would have been lost.” This remark caused a stir when the Los Angeles Times quoted Chubais as saying Russia had “conned” the IMF out of $20 billion. Chubais replied in a letter to the newspaper that he meant the $20 billion was “cheated” from foreign creditors by Russian banks taking advantage of the moratorium. Albats told me that Chubais in the interview was referring to foreign investors, not the IMF.

72 Chubais did not know how the IMF would react until a statement was released the morning of the decision, in which Camdessus reiterated the view that it was important for Russia to carry out reforms. He went on, “It is important that the international community as a whole, both public and private sectors, show solidarity for Russia at this difficult time.” Chubais was relieved.

73 Andrei Trapeznikov and Leonid Gozman, interview by author, August 20, 1998.

74 Vinogradov, interview by author, June 28, 2000.

75 Former Menatep Bank official who asked to remain anonymous.

76 Monthly consumer inflation shot up 38 percent in September, but the hyperinflation that some predicted would follow devaluation never appeared.

77 Organization of Economic Cooperation and Development, Russian Federation Report, March 2000, p. 44.

78 Natalya Gridneva, “Former Prime Minister Sergei Kiriyenko Tells All About Dismissal,” Kommersant Daily, January 19, 1999.

79 Berezovsky, interview by author, February 28, 2001.

80 “Resolving the Banking Crisis,” Russian Economic Trends, November 1998, pp. 1–8.

81 Dubinin press conference, September 7, 1998.

82 Dubinin press conference, September 7, 1998.

83 Jeanne Whalen, “SBS-Agro Chief Faces Fall of Empire,” Moscow Times, September 12, 1998.

84 Higgins, “Insufficient Funds.”

1 Vladimir Gusinsky, interview by author, May 4, 2001. Gusinsky also was proud of the fact that the satellite would make his television truly independent, as his signal would be outside the control of the state.

2 By one estimate, annual NTV revenues prior to the crash exceeded $100 million. Kommersant Vlast, January 27, 1998. The station was Russia’s most profitable major television broadcaster before the crash, but it suffered a net loss of $25 million in the following year. Chris Renaud, letter to the editor, Wall Street Journal Europe, April 30, 2001.

3 Gusinsky’s enterprise experienced other troubles as well. The global shift from analog to digital signals for satellite television came just as NTV-Plus was taking off. The Bonum-1 satellite was digital, but Gusinsky had trouble managing it. One NTV official told me that NTV-Plus went through five different managers in this period.

4 In late August, 936 Moscow residents were polled by the All-Russian Center for the Study of Public Opinion, one of Russia’s leading pollsters. The results were published in Moskovskaya Pravda on September 4, 1998. The question was: “Who in your opinion is guilty first of all for the present financial crisis in Russia ?” The former government of Chernomyrdin received 38 percent; Yeltsin, 36 percent; the government of Kiriyenko, 15 percent; oligarchs, bankers, and financiers, 9 percent; the State Duma, 8 percent; policies of the reformers-democrats, 8 percent; Central Bank (Sergei Dubinin), 6 percent; global financial crisis, 2 percent; foreign banks and financiers, 1 percent; those who do not pay taxes, 1 percent; others, 10 percent; difficult to say, 14 percent. (Respondents were allowed to choose more than one item, so the results exceed 100 percent.) A similar poll of 1,862 people nationwide taken at the same time showed that a far larger number of people in the nationwide sample—56 percent—blamed Yeltsin.

5 Zyuganov circulated an open letter including these remarks, Washington Post, December 25, 1998, p. A42.

6 In the summer of 1998, before the crash, workers in Nefteyugansk held a rally to denounce Yukos for months of unpaid wages. The rally was led by Mayor Vladimir Petrukhov. The mayor had sent telegrams to Yeltsin, Kiriyenko, and others in June denouncing Khodorkovsky and Yukos, saying they were “suffocating” the town. At the rally one protester held a sign reading “Bring Khodorkovsky to Justice.” On June 26, Petrukhov was shot and killed as he walked to work. The murderer was never found. Yukos said it had nothing to do with the crime.

7 West Merchant was a London-based subsidiary of West LB, a huge German bank based in Dusseldorf.

8 Kathleen Day, “Riggs Had Ties to Firms in Probe,” Washington Post, September 18, 1999, p. E1.

9 The reformers and liberals acknowledged that capital flight was a problem, but they took a classic free market view: that capital flight could only be stopped when the conditions were created inside Russia to attract capital into the country, namely, stability, rule of law, and protection of property rights. In theory they were right, but practically those conditions did not exist in the lawless, chaotic years of the 1990s. Waiting for the right conditions meant watching capital flee at a debilitating pace.

10 It is not unusual for countries to park their currency reserves abroad in safe securities or bonds of other countries. But it is highly unusual for a country to turn over its reserves to a small, little-known management company like this one. The Central Bank claimed it was trying to shield reserves from threat of legal seizure. However, Eric Kraus pointed out, “If you are going to shelter Central Bank assets, you don’t set up a Jersey shell company which any bright divorce lawyer could crack open in an afternoon.” Moreover, many of the transactions remain unexplained and look suspicious. For example, the Central Bank used the offshore shell company to make secret backdoor investments in high-yielding Russian government bonds known as GKOs, according to my own research and a letter from PricewaterhouseCoopers to Gerashchenko, August 4, 1999.

11 Dart was also angry at Khodorkovsky’s ridiculously low offer to buy out his shares. According to a worksheet from AB Image, a public relations agency representing Dart Management, Khodorkovsky offered to pay fifty-four cents a share. That valued Yuganskneftegaz at $22 million. However, the subsidiary’s annual production of 25 million tons of oil was worth $2 billion in global export prices at the time. Khodorkovsky offered thirty-two cents per share for Samaraneftegaz, or a valuation of the subsidiary at $11 million, when its annual production was worth $840 million on global markets. His offer was eleven cents per share for Tomskneft, for a valuation of $3.1 million, compared to annual production worth $640 million.

12 The Russian Joint Stock Company law had a provision on so-called interested party transactions. The idea was to avoid a conflict of interest in which the people who control decisions to sell assets or shares, the “interested party,” could sell the assets to themselves or companies they controlled. If Khodorkovsky controlled the offshore companies, then voting to sell the subsidiaries to them could break the law. However, enforcement was weak.

13 It is impossible to estimate what price Dart paid initially. Shares in Yuganskneftegaz, for example, traded from $5 a share at the outset in mid–1994 to as much as $40 a share when the market reached its peak later in the year, and later fell again to below $5 a share. Dart may have been one of the two or three largest private investors in Russia in the mid 1990s, although he was very secretive about his holdings.

14 Telephone statement by Daiwa Europe Ltd. to the author, undated.

15 Gleb Pyanikh, Kommersant Daily, May 29, 1999, p. 1.

16 One reason Potanin and Jordan were forced to back down was a public campaign against the dilution waged by William Browder, the successful fund manager, who had a $100 million stake in Sidanco and was furious at their plans to reduce his stake.

17 World Bank, Capital Development Project, Technical Annex, May 6, 1996, pp. 9, 28.

18 Mark D’Anastasio, interview by author, May 29, 2001. Burson-Marsteller’s work for Khodorkovsky included the use of press interviews to improve his image during a visit to the United States in the spring of 1999, just as Vasiliev was conducting his investigation. Khodorkovsky spoke for eight hours to a New York Times reporter on this trip. But the result was not what Khodorkovsky had intended. The article was not published until September, and it came just as new allegations about Russian money laundering were being raised. Timothy L. O’Brien, “Follow the Money, If You Can,” New York Times, September 5, 1999.

19 Alexei Tsyganok, vice president, Russian Trading System, letter to the author, November 16, 1999; National Association of Participants in the Stock Market, letter to the council of directors of the Russian Trading System, June 19, 1999.

20 Yukos, press release, July 21, 1999: “The position of Dmitry Vasiliev in the conflict of Yukos with the Dart group has become tendentious.”

21 The criminal case against Vasiliev was quietly dropped a month after his resignation.

22 “Yukos, Rising to the First Tier,” Credit Suisse First Boston (Europe) Ltd., March 8, 2001, p. 27.

23 Khodorkovsky later disclosed that two of the three lenders in the 1998 $500 million loan, Merrill Lynch and Goldman Sachs, had panicked after the crash and sold their paper for as little as eighteen cents on the dollar. They sold because they thought Yukos might default. Khodorkovsky said the two lost about $150 million “needlessly” (Khodorkovsky to reporters and editors at the Washington Post, May 18, 2000). Yukos later canceled all the planned share emissions and transfers to offshore zones—the threat had sufficed.

24 Berezovsky, interview by author, February 28, 2001.

25 Luzhkov said Skuratov had been subject to “blackmail” with the video, which he said was made a year earlier. The upper chamber of parliament, the Federation Council, was responsible for overseeing the prosecutor. When the matter arose, Luzhkov, a leading member of the chamber, joined his fellow regional leaders in voting to keep Skuratov on the job. Yeltsin was furious.

26 Berezovsky, comments to reporters and editors of the Washington Post, September 19, 2000.

27 As a precaution, Luzhkov requested, and won, approval from the city council to advance the date of the next mayoral election from June 2000 to December 1999. Luzhkov won reelection by 70 percent of the vote.

28 Some of the Berezovsky-Dorenko calls were published in the newspaper Novaya Gazeta on December 16, 1999. The newspaper often published materials from shady special services. Dorenko told me that the transcript was accurate but may have included several calls between him and Berezovsky as they planned the attack. Dorenko called the tycoon “Bor” instead of Boris, and Berezovsky called Dorenko “dear.” Berezovsky confirmed the accuracy of the transcripts and also said they may have been a compilation.

29 The donor was Behjget Pacolli, the Swiss businessman who was reportedly at the center of the Kremlin reconstruction scandal. Pacolli, whose firms restored the Kremlin halls, complained rather piously that he spent $870,000 to rebuild the hospital at Luzhkov’s request but never received so much as a thank-you note.

30 The New York Times reported in mid-August 1999 that U.S. investigators were probing a “money laundering” scheme in which billions of dollars was spirited out of Russia. In February 2000, a former bank vice president, Lucy Edwards, and her husband, Peter Berlin, pleaded guilty to running the scheme through a company, Benex International, that channeled money from Russia through the Bank of New York and on to other destinations. However, they were just couriers, and the people who ordered the money sent out of Russia were not identified. Most of it appeared to be capital flight: money avoiding taxes, duties, and risks inside Russia.

31 Komsomolskaya Pravda, October 5, 1999, p. 2.

32 Luzhkov interview, broadcast on TV6, a Moscow-based channel, October 31, 1999.

33 Yelena Baturina, interview by author, August 23, 1999.

34 Berezovsky, meeting with correspondents, November 26, 1999.

35 Renaud, letter to the editor.

36 Robyn Dixon, “Pushing the Boundaries of a Free Press; Russia: Media Tycoon’s Struggle with the Kremlin Is Seen as a Litmus Test of What President Putin Will Allow,” Los Angeles Times, June 1, 2000. Gusinsky repeated his version of the meeting at a briefing for correspondents, including the author, on June 2, 2000.

37 Andrei Vandenko, “The Kremlin Will Be Paying Back with Interest,” Komsomolskaya Pravda, August 3, 1999, pp. 3–5. Interview with Voloshin.

38 Susan B. Glasser and Peter Baker, “Kremlin Wages War of Nerves: TV Network Struggles with Outside Pressures and Internal Tension,” Washington Post, January 29, 2001, p. A13.

39 Berezovsky’s role in the onset of the Chechen hostilities has been the subject of much speculation. Berezovsky had good connections among some Chechen groups, but I think he was more of an intermediary than an instigator. The origins of the second war lie primarily in disorder inside Chechnya and weariness with the conflict in Moscow. The first factor, internal disorder, was caused by a split between Aslan Maskhadov, the Chechen president, and Basayev. Maskhadov, who had been Moscow’s interlocutor, lost control of the disparate Chechen fighting groups. The second factor was Kremlin indecision. Anton Surikov, a former Russian military intelligence officer who later became a staff director of a Russian parliamentary committee, told me Russian officials had indications that Basayev was planning something on the Dagestani border that summer. “It was not being hidden,” he said. “There was a certain panic here. There was a feeling of complete helplessness.” Likewise, Voloshin said in August, “The dates [of the Basayev assault] were definitely known several days before.” But, he added, the “area is hilly and difficult to guard. There are hundreds of different paths, plenty of canyons, mountain paths. There is no border, actually.... That is why it is not possible just to line up soldiers to guard the border.” Berezovsky told me that he began warning the Kremlin in May and June 1999 that Chechen commanders were telling him that things were getting out of control and “there may be trouble in Dagestan.” Berezovsky added, “I passed it all on to Stepashin, who was the prime minister then. I had a meeting with him and told him. He said, ‘Boris, don’t worry. We know everything, all is under control.’” Separately, Stepashin told me the planning for a crackdown on Chechnya was under way earlier in the year after a Russian Interior Ministry general was kidnapped. He said the Russian authorities had intelligence in June of a possible attack, and “we were planning to implement” a cordon around Chechnya “irrespective of Basayev’s assault.” Stepashin said he chaired a meeting of the Kremlin Security Council in July, and “we all came to the conclusion that there was a huge hole on our border that won’t be closed if we don’t [advance] to the Terek [River inside Chechnya]. It was a purely military decision.” Stepashin said that after his dismissal, Putin picked up the plans he had put in place and continued with them. Basayev’s reasons for staging the dramatic cross-border incursion, and his reading of how Russia would respond, are not clear. He declared at the time that he hoped to trigger an uprising in Dagestan, rallying support for the creation of an Islamic state. But it was a futile effort. The raid triggered alarms in Dagestan, which is a mosaic of ethnic groups, and many villages began arming themselves to fight the Chechens. Eventually Russian troops beat them back to the border, and Putin launched the larger offensive. Another unanswered question is who was responsible for the apartment house bombings that triggered the war. Putin and his government blamed Chechens. Inside Russia, some have speculated that the blasts were carried out by shadowy groups possibly linked to security services as a way to propel Putin to power. When Berezovsky was asked about this on September 19, 2000, during a meeting with Washington Post editors and reporters, he said that at first he could not believe the security services would have done it; he was sure it was the Chechens. But, he added, “I have more and more doubts that it was done by Chechens.”

40 “Oleg Dobrodeyev: The Army: These Are Our Brothers and Sons,” Krasnaya Zvezda, September 29, 1999. Dobrodeyev left NTV in January 2000 and was appointed head of the government-owned channel, RTR.

41 Berezovsky took credit for the creation of Unity in the May interview and again in a meeting with Washington Post reporters and editors, September 19, 2000.

42 As a member of parliament, Berezovsky would also enjoy automatic immunity from prosecution, unless revoked by a majority of the chamber. However, he denied running for this reason.

43 Radio Mayak, March 18, 2000.

44 Gusinsky, remarks to reporters at Media-Most headquarters building, June 2, 2000.

45 Gusinsky interview, Obshchaya Gazeta, June 8–14, 2000, pp. 1–3.

46 Putin and his representatives repeatedly used this $1.3 billion figure to suggest that Gusinsky owed all the money at once. In fact, the debts were spread out over the coming years, according to a schedule prepared by Gusinsky in July 2000. The $211 million CSFB loan guaranteed by Gazprom came due in March 2000. Then NTV had a $40 million loan from Gazprom bank due in November. A $262 million loan from CSFB to Media-Most was due in July 2001. A $223 million loan from the city of Moscow to Media-Most was due in February 2003, and a $40 million loan to Media-Most from Vneshtorg Bank in May 2003. The Gusinsky companies also had $222 million in loans from the state savings bank, Sberbank, which was collateralized by Russian government dollar-denominated bonds which, on maturity in 2003, will be $72.3 million in excess of the loans. By 2009 Gusinsky must pay off the $123.7 million balance on the U.S. ExIm Bank loan for the satellite. The Russian Finance Ministry also guaranteed a $32.5 million loan for purchase of a Russian satellite. Gusinsky and his top officials often said that although the company had large debts, it was growing rapidly and NTV was profitable before the 1998 crash.

SHADOWS AND SHORTAGES

ALEXANDER SMOLENSKY

YURI LUZHKOV

ANATOLY CHUBAIS

MIKHAIL KHODORKOVSKY

BORIS BEREZOVSKY

VLADIMIR GUSINSKY

UNLOCKING THE TREASURE

EASY MONEY

THE MAN WHO REBUILT MOSCOW

THE CLUB ON SPARROW HILL

THE EMBRACE OF WEALTH AND POWER

SAVING BORIS YELTSIN

THE BANKERS’ WAR

ROAR OF THE DRAGONS

HARDBALL AND SILVER BULLETS