Londongrad: From Russia with Cash; The Inside Story of the Oligarchs

The President’s first target was Vladimir Gusinsky, who had made money in the early days of perestroika by promising extravagant rates of return on investors’ money and was one of the first of the dynamic young wheeler-dealers to build a fortune off the back of the transition to capitalism. He also built a substantial media empire, including the first private national television network, NTV, a daily newspaper, Sevodny, and had a part stake in the fledgling liberal radio station Ekho Moskvy - all under the umbrella of the conglomerate Media-Most. He was the nearest the Russians had to a Rupert Murdoch.

Gusinsky was somewhat unique among the oligarchs in that he could at least claim that his empire had not been mostly acquired from the state. Nevertheless, he ruthlessly exploited the business loopholes of the time and was a master at manipulating government loans, concessions, and regulations by taking advantage of political contacts in order to gain state finance. Gusinsky denied anything untoward, but ended up with state loans of close to half a billion dollars, which he used to support a supercharged lifestyle.

By the late 1990s, his media empire had brought him considerable power as well as enormous political influence. It was not to last, however. On 11 May 2000, six weeks before Putin’s dramatic ultimatum to the oligarchs gathered in the Kremlin cabinet room, masked police armed with machine guns raided the offices of Gusinsky’s Media-Most. Then, in June, Gusinsky was arrested and charged with fraud and imprisoned. Gunning for his first oligarch suited Putin’s wider political strategy but the thin-skinned President was also taking revenge for the way in which he believed Gusinsky had used his influence to oppose him, and for the biased way Putin felt his television channel had earlier attacked his policy on Chechnya.

The charges were dropped and Gusinsky was released after he agreed to sell Media-Most to the state gas and oil group Gazprom for $300 million. In August 2000 he fled to his sumptuous villa in Sotogrande, southern Spain. Visitors to the villa had even included Putin and his wife. Following later attempts to persuade Spain to extradite Gusinsky, he left for Greece before settling in Israel, where he has joint nationality. He was merely the first of a long line of Russian exiles under Putin’s reign.

The President’s next target was his former friend and the man who had helped him in his rise to power - Boris Berezovsky. Even before Putin became President, the storm clouds had been gathering over the ‘boss of bosses’. He was out of favour at the Kremlin, politically isolated, and deeply unpopular. Although he had always insisted the collapse was not his fault, ordinary Russians had not forgotten the failure of the ‘people’s car’ in which thousands had lost their savings.

Nevertheless, Berezovsky always saw himself as a buccaneering capitalist, a catalyst who had helped to transform Russia. ‘We were true heroes,’ he told Frontline in October 2003. ‘Because of us, Russia was put on a new course.’ He admitted that the oligarchs had made mistakes in their business practices during a ‘murky time’, but added, ‘We didn’t break any laws, but if you call giving bribes a crime, then all oligarchs were criminals.’

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Public animosity was the least of Berezovsky’s problems. In early 1999, following months of threats, the Prosecutor-General, Yuri Skuratov, visited Prime Minister Primakov in January 1999 and said, ‘I am going to start a criminal case against Boris Berezovsky.’ Primakov asked him on what grounds and he replied, ‘In connection with the fact that Berezovsky is hiding Aeroflot’s money in Swiss banks.’

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Over the following weeks the police raided more than twenty offices and apartments in Moscow with connections to Berezovsky. The Moscow-based American Forbes journalist Paul Klebnikov, in 2004 the victim of a contract killing in Moscow, witnessed the first raid - on the headquarters of oil giant Sibneft - from his room in the Hotel Baltschug:

‘Suddenly, three white vans screeched up to the building [Sibneft’s headquarters] across the street. A dozen men in face masks, camouflage uniforms, and automatic rifles jumped out. Then, accompanied by other men in brown leather jackets, carrying briefcases and video cameras, they entered the building.’

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This being Russia, the investigation would not run smoothly. On the day of the first raids Skuratov resigned - officially because of ‘ill health’. He had been admitted to a Kremlin hospital on the previous day with a ‘bad heart’. But when his resignation was later rejected by the Duma, he stated that he was not in fact ill and was reinstated. The somewhat botched effort to oust Skuratov was typical of the manoeuvrings and internal jostling that characterized Russian politics at the time.

By now, however, the investigation had gathered momentum and continued under a special prosecutor, Nikolai Volkov. The alleged fraud was that millions had been siphoned off from Aeroflot, the airline Berezovsky had controlled since 1994, and into Swiss bank accounts in violation of Russian foreign exchange rules. Volkov claimed that his team’s examination of the company’s books uncovered a Byzantine network of companies by which Aeroflot’s funds were rerouted. Once Volkov started to look into things, a computer printout appeared behind his desk, a jumble of arrows and boxes that at first glance resembled a map of the human genome. In fact, it was a sketch of how Aeroflot funds were allegedly routed through a complex network of Russian and foreign companies in countries including Belgium, Cyprus, Germany, Lithuania, Panama, Syria, and Switzerland.

The two companies claimed to be at the heart of the fraud were Andava and Forus, both Swiss-registered financial service companies based in Lausanne with only a handful of staff.

Forus - or ‘for us’ as prosecutors nicknamed it - was set up in 1992 to facilitate Western finance for Berezovsky’s companies. When Aeroflot acquired its Boeings and Airbuses, for example, Forus arranged short-term loans to make the down payments. The company also handled Aeroflot’s revenues from foreign airlines, which paid to operate in Russia or fly over Russian airspace. These charges amounted to almost $100 million a year.

Andava was formed in 1994, the day after a 49 per cent stake in Aeroflot was privatized, and its main role was to handle the airline’s foreign ticket sales, essentially its lucrative overseas earnings.

On 6 April 1999 the Prosecutor-General issued the former Kremlin insider with an arrest warrant. It alleged that Berezovsky had siphoned off $250 million of Aeroflot money through Andava. Berezovsky, who was in France, responded conspicuously by holding a press conference at a Paris hotel. He insisted that the charges were baseless and politically motivated. ‘The time when the country is run by people with naked behinds is past us’, he said. Berezovsky has repeatedly denied the Aeroflot accusations, claiming that Andava and Forus performed legitimate business services for the airline and that any misappropriation was done by the KGB. He argued that when he acquired Aeroflot, he discovered that the KGB had been using the airline as a cash cow, siphoning off the airline’s revenues into offshore accounts to finance international spying operations. He said that he had merely closed these accounts and channelled all foreign revenue through Andava in Switzerland.

Three days later Russian Interior Minister Sergei Stepashin announced that if Berezovsky returned to Russia and spoke to prosecutors, he would not be arrested. ‘Berezovsky will arrive in Russia, present his explanations, and this, I hope, will be the end of the incident,’ he said.

A week later Berezovsky returned to Moscow, visited the Prosecutor-General’s office and was questioned for four hours. He was released after the interview and told his own television crews, ‘The case against me was instigated by the Prime Minister in violation of the law’. On 26 April 1999 Berezovsky was formally charged and barred from leaving Moscow while prosecutors investigated the case.

On 1 July 1999 Swiss police raided the Lausanne-based offices of Andava and Forus in response to requests by Skuratov. The Swiss investigation was led by Carla Del Ponte, the Swiss prosecutor who had uncovered connections between the Italian drug trade and Swiss money launderers in the late 1980s and had, as a result, been targeted for assassination by the Italian mafia. She later became Chief Prosecutor of the International War Crimes Tribunal in The Hague.

Then, out of the blue, on 4 November 1999 the Russian Prosecutor-General’s office terminated its investigation. But although things seemed to have gone quiet, the case was far from over.

The threat of prosecution still hung over Berezovsky’s head and the highly public controversy would haunt him for years to come, even though he strenuously protested his innocence. In mid-July 2000, however, he received some good news: PricewaterhouseCoopers announced that it had investigated Forus’s transactions with Aeroflot - on Forus’s behalf - and had found no evidence that funds were being illegally transferred. But while the investigation seemed to go quiet for several years, the Russian authorities later tried to extradite Berezovsky from London to Moscow. It was all to no avail: the extradition application failed and Berezovsky did not return to Russia. Eventually, on 28 November 2007, a Russian court convicted and sentenced Berezovsky - in absentia - to six years in jail. From his new base in London, he dismissed the conviction as ‘trumped up’ and ‘politically motivated’.

Berezovsky’s business dealings have always been subject to controversy. One person who fell out badly with Berezovsky over his business methods was George Soros. The two had once been friends and Soros had considered financing a number of the oligarch’s deals in the 1990s. But by 2000, the ‘love affair had turned sour’, according to Alex Goldfarb, one of Berezovsky’s closest allies. Soros once told Goldfarb, ‘Your friend is an evil genius. He destroyed Russia single-handedly.’ Berezovsky retorted, ‘Soros lost money because the “young reformers” fooled him…And then he tried to convince the West - out of spite - that the oligarchs were evil and should not be allowed to control the beast.’

Business for Berezovsky was a vehicle for bringing in the wealth to finance his real interest: indulging in political intrigue. He was easily bored by the detail of entrepreneurship and left that to others. At a conference in Moscow in 2000 Ian Hague, manager of the emerging markets Firebird Fund, which invested heavily in Russia, asked Berezovsky directly,‘Could you explain how it is that every time you’ve been involved with a company, its capitalization has run down to zero?’ Berezovsky countered that the value of just about all Russian companies had fallen because of political uncertainty, adding later that each of the companies with which he had been connected had actually improved its performance.

Although events were moving against him, Berezovsky retained enough powerful contacts to get himself elected to the Duma in December 1999 as a deputy for Karachayevo-Cherkessia, a small republic close to Chechnya. This carried the additional advantage of providing immunity from prosecution. Although he may still have hoped to reattach himself to Putin’s coat-tails, it is also likely that, despite their apparent closeness, Berezovsky had by now started to have doubts about Putin. Years later he would admit to having second thoughts about Putin as President, but put them to one side.

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In the ruthless, cut-throat world of Kremlin politics alliances rarely survived for long and Berezovsky was fast losing friends. Desperate for political intelligence, in October 1999 he even asked Roman Abramovich to attend Putin’s birthday celebrations in St Petersburg. Abramovich did so and reported back to his mentor, ‘You sent me to spy on spies but I found no spies there. Normal crowd, his age, wearing denim, someone playing guitar. No KGB types around whatsoever.’

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Berezovsky had every reason to feel nervous about Putin. While both men had once been friends and Berezovsky had thrown his political weight, money, and television channel behind Putin’s successful bid for the presidency, within weeks of his succession, the two alpha males were at war.

There were fierce political differences: Putin was vigorously prosecuting the Chechen war, while Berezovsky argued that a military solution was not possible and openly called for peace talks. They also had very different visions for the future of Russia: Berezovsky advocated a liberal, economic, pro-Western approach that would have kept the oligarchs and himself at the centre of power and with access to contracts. Putin preferred a central role for the state. He was more interested in modernizing Russia than in democratizing it. ‘The stronger the state, the freer the individual,’ he wrote in an open letter to the Russian people before becoming President.

From the moment Putin became President, Berezovsky embarked on a series of politically reckless acts. Such bravado was typical of the man but it was also his undoing. When Gusinsky was arrested, Berezovsky was shocked. He had not expected Putin to go so far. Two weeks later a furious Berezovsky fired off an open letter attacking what he saw as Putin’s authoritarism. This was triggered, too, by Putin’s intention to exert greater central control over Russia’s regional authorities. Quoting Aristotle and the Russian poet Osip Mandelstam, who had died in one of Stalin’s gulags, the letter was the first public declaration of their emerging differences. Berezovsky was even more outspoken in a television interview on ORT: ‘All the decrees, all the laws proposed by Putin are directed at again enslaving people.’

Berezovsky was incensed by the way that Gusinsky had been forced to sell up and go into exile. Although the media baron was a former rival, and the two had become bitter opponents, Gusinsky’s fate intensified Berezovsky’s deepening doubts about Putin. In interviews he denounced Putin and compared his policy of centralizing state power to the human rights abuses of Chile’s General Pinochet. The next month he resigned his seat in the Duma, thereby losing his immunity from prosecution. He had been elected only six months earlier. ‘I do not want to take part in this spectacle,’ he said. ‘I do not want to participate in Russia’s collapse and the establishment of an authoritarian regime.’

(#litres_trial_promo) He also declared that he intended to create a new opposition party to take on Putin directly.

A fired-up Berezovsky dismissed dire warnings from his inner circle. His old friend Alex Goldfarb told him, ‘Boris, if you go down this road, I predict in a year’s time you will be an exile…or worse, sitting in jail…For Putin, the substance does not matter - as long as he sees you as one of his gang. But if you go against him publicly, you will cast yourself out of his pack.’

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The feud finally reached a critical state over the way Berezovsky used his media empire. In 1994 Berezovsky, in partnership with Badri Patarkatsishvili, had been awarded a 49 per cent stake in the television station ORT, broadcaster of Channel One. Under Patarkatsishvili’s leadership, ORT was instrumental in the campaign that saw Yeltsin re-elected in 1996, and the company was handsomely rewarded. By late 1998, Berezovsky and Patarkatsishvili had increased their holdings in ORT. Channel One, the nation’s most popular television station, has an audience coverage of 98 per cent across Russia. As well as ORT, Berezovsky also owned the major weekly business newspaper Kommersant and the popular daily Nezavisimaya Gazeta. By 2000, he was, with Gusinsky, one of Russia’s most powerful media tycoons.

Patarkatsishvili was Berezovsky’s closest friend and by far his most important business partner. They were like brothers. Known as ‘the Enforcer’ in Berezovsky’s inner circle, Patarkatsishvili implemented all his most commercial controversial schemes. A smart, strategic businessman, it was always he who found the money.

Badri Patarkatsishvili was born in October 1955 to a family of Jewish Georgians in Tbilisi. Quiet, unassuming, erudite, and an authentic Zionist, Badri, which means ‘son of a little man’, was different in many ways from his best friend. For Berezovsky, his Jewishness suited him and provided business and political opportunities. For Badri, it defined him and he was heavily involved in Israeli charities. Also, in contrast to his confidant, Badri always preferred living in the shadows and shunned the spotlight most of his life. He hated politics and media attention and it was out of character when he later rose to become a key figure in Georgia’s own fevered politics.

Bright and ambitious, Badri’s first job was in a Georgian textile factory, where he rose to become Deputy Director of the plant. After the collapse of the Soviet Union, the factory was privatized at Badri’s initiative and became the private company Maudi Manufacturing, which he took over.

During the 1990s, Badri became co-owner of almost all of Berezovsky’s companies and held executive positions. This is how they worked: Berezovsky generated a huge number of ideas and then Badri decided if they were feasible and profitable. ‘Badri made Boris all his money,’ a former associate who knows both well explained. ‘Badri was his business mentor. Without him, Boris would be nothing and nowhere. He would still be a second-hand car dealer…Boris is incapable of closing a deal and seeing things through. He does not have the patience or the concentration. He is also very bad at judging people. But Badri is the real thing. He checks out the financial details and makes it happen. They had a symbiotic relationship and complemented each other. Badri was his only true business partner. They were very, very close.’

According to Aleksander Korzhakov, former head of the Presidential Security Service: ‘The official position of Badri at that time was Deputy Chairman of the board of directors of LogoVaz. In fact, his responsibility was to ensure the repayment of debts and to provide protection against gangsters.

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Badri’s earliest collaboration with Berezovsky was in 1990 when he became Regional Director for the Caucasus of Berezovsky’s car distribution company LogoVaz. In 1992 he became Deputy Chairman and was awarded a 3.5 per cent share in the company. A year later he moved from Georgia to Russia, first to the town of Lyubertsy, then to a flat in Moscow. Otari Kvantrishvili, the boss of a Georgian organized crime group in Russia (and killed by rivals in 1994), used his connections with Russian authorities to arrange Badri’s residence visas in Lyubertsy and Moscow.

At ORT Badri and Berezovsky soon crossed swords with Vladislav Listyev, one of the country’s most popular television presenters. A charismatic figure, he was appointed by Berezovsky as the new Managing Director, but they fell out over an attempt by Listyev to end the advertising monopoly. The broadcaster believed that the advertising companies were being run by organized crime, which was bringing them millions in revenue, but his decision to take on the mafia cost him his life. On 1 March 1995, a few weeks after taking over as manager, he was shot dead outside his home. Badri was arrested on suspicion of the murder but was later released. However, suspicions over his involvement never disappeared, though he always maintained that the FSB tried to frame him for the killing.

In the summer of 2000 Putin was growing increasingly impatient with the way that Berezovsky and Badri were using ORT and their media empire as a blunt instrument to destabilize his regime. This came to a head in August when a nuclearpowered submarine, the Kursk, sank, killing all 118 crew. ORT television news broadcast interviews with the wives and sisters of the submariners who attacked Putin for handling the incident ineptly. Putin, meanwhile, was on holiday in the Black Sea and was seen jet-skiing while ORT transmitted footage of perilous, icy waters and distraught families. Putin’s refusal to cut his holiday short turned the tragedy into a major political and public relations disaster.

Furious, Putin blamed Channel One’s owner, Berezovsky, for the negative coverage and telephoned him to complain. Berezovsky suggested a meeting, to which Putin agreed. But when Berezovsky arrived the next day, he was greeted not by Putin but by Alexander Voloshin, the shadowy, reclusive head of staff. Voloshin had once advised Berezovsky during his political cultivation of Yeltsin but now, as head of the presidential office, he issued a stark warning to his former friend, ‘You have two weeks to sell back your shares in ORT or you will suffer the same fate as Gusinsky.’ Berezovsky refused and demanded a meeting with Putin personally.

Three days later Berezovsky was summoned to meet the President at the Kremlin. It was a heated exchange, with the two denouncing each other face to face. A clearly tense Putin first listened to Berezovsky as he mounted a defence of ORT’s coverage. According to Berezovsky, the President then coldly repeated the threats made by Voloshin and made his own position only too clear: ‘You are starting a fight against me. Your channel is interviewing prostitutes who say they are wives and sisters.’

Berezovsky replied that they were genuine relations and that they had already granted interviews to the state TV company but, as these were not broadcast, they approached ORT.

The President was unimpressed: ‘I want the state to control ORT.’