The Godfather of the Kremlin: Boris Berezovsky and the Looting of Russia

The Great Mob War

This chapter details the “Great Mob War” in early post-Soviet Russia, a period of intense violence and criminalization driven by economic liberalization and widespread corruption, where organized crime became deeply intertwined with business and government.

The Shootout at the Kazakhstan Cinema

• The 1993 shoot-out involving Boris Berezovsky’s Logovaz dealership highlighted how emerging Russian businessmen relied on organized crime for “protection” in a chaotic, lawless environment.
• Berezovsky, a software designer turned car dealer, used Chechen gangs as his “krysha” (roof/protection) in the highly criminalized auto market.
• The shoot-out occurred when a rival gang attempted to move onto Berezovsky’s turf, demonstrating the violent competition for control over lucrative businesses.
• Law enforcement officials noted that victims in contract killings were often involved in “unclear relationships” with the very people who targeted them, indicating deep criminal ties.

The Chechens

• Chechen gangsters rapidly established dominance in Moscow’s criminal underworld in the late 1980s and early 1990s, leveraging their brutality, clannishness, and connections to a semi-independent Chechnya.
• Chechen gangs quickly took control of businesses like luxury stores, the Southern Port (a hub for auto sales), casinos, hotels, and financial markets in Moscow.
• Chechnya, operating in a legal gray zone, became a hub for international narcotics smuggling and a base for criminal operations, with profits sent back to the republic.
• The Chechen government released thousands of criminals, many of whom became part of the government or maintained ties with Moscow gangs, benefiting from Russian subsidies and lack of law enforcement.

Thieves Professing the Code

• The traditional Russian criminal underworld, governed by “thieves-professing-the-code,” initially struggled against the Chechens but eventually formed alliances, with figures like “the Jap” and Otari Kvantrishvili (“Otarik”) playing key roles.
• “Thieves-professing-the-code” (vor v zakone) were traditional criminal bosses, often from ethnic minorities, who mediated disputes and controlled rackets.
• Boris Berezovsky’s partner, Badri Patarkatsishvili, a Georgian with family ties to the underworld, served as his emissary to organized-crime groups for protection.
• Vyacheslav Ivankov (“the Jap”), a notorious “thief-professing-the-code,” was prematurely released from prison in 1991, possibly to counter rising Chechen influence, and later established a criminal network in the US.
• Otari Kvantrishvili (“Otarik”), an “authority” in the underworld and a visible entrepreneur/philanthropist, managed the Jap’s interests in Russia and networked between criminal groups, often funding his charitable foundations with illicit gains.

The Cherry Casino

• The proliferation of casinos and luxury goods symbolized the new, highly criminalized Russian economy, where mobsters openly flaunted their wealth and connections, often with direct links to legitimate businesses and political figures.
• Moscow’s new ruling class, including gangsters, openly displayed wealth through expensive cars and frequented lavish establishments like the Chechen-controlled Cherry Casino.
• The “Great Chechen Bank Fraud” (1992-93), a massive check-kiting scheme involving corrupted Central Bank officials, organized-crime groups, and commercial banks, embezzled hundreds of millions to billions of dollars.
• The Cherry Casino’s ownership, including Oleg Boiko’s Olbi holding company (whose chairman also led former PM Gaidar’s political party), exemplified the deep entanglement of crime, business, and political elites.

Superpower of Crime

• Russia rapidly became a “superpower of crime” due to the collapse of government authority, widespread corruption, and the inability of law enforcement and the judicial system to combat organized crime effectively.
• President Yeltsin and the MVD acknowledged that a vast percentage of Russian businesses and banks were linked to organized crime, which posed a major national security threat.
• Economic liberalization, coupled with government corruption, a crushing tax code, and a non-existent legal system, forced new businesses into the black market and reliance on mob enforcers.
• The military and security services (KGB/FSB) were deeply corrupted, with demobilized soldiers and special forces members often joining organized crime groups, and nuclear weapons components appearing on the black market.
• Top government officials colluded with gangsters, creating an “oligarchy” where the “top and the bottom unite,” as described by parliamentary leader Grigory Yavlinsky.

The Bombing of Logovaz

• The mob war escalated with targeted assassinations and bombings, including an attempt on Berezovsky’s life, highlighting the extreme violence used to settle business rivalries and turf disputes among powerful criminal groups.
• Berezovsky survived a car bombing in June 1994 that killed his driver and severely wounded his bodyguard, an event Yeltsin declared the “most powerful explosion in Moscow that year.”
• Police investigations into the Logovaz bombing revealed “unclear relations” between Berezovsky and Sylvester (Sergei Timofeyev), the Solntsevo Brotherhood boss, involving an unpaid promissory note from Sylvester’s bank.
• The assassination of Otari Kvantrishvili by a sniper in April 1994, and later Sylvester himself in September 1994 (by a car bomb), marked pivotal moments in the mob war, with Sylvester’s death leading to a cessation of attacks on Logovaz.

The Invasion of Chechnya

• The First Chechen War (1994) was intrinsically linked to the Moscow mob war, serving as a larger-scale “gangster turf war” driven by corrupt relationships, control over lucrative oil smuggling, and a desire to cover up military corruption.
• Chechen organized-crime groups in Moscow sent profits back to Chechnya, which was a key transit point for narcotics and a hub for oil smuggling, with the Chechen government appropriating and exporting Russian oil with the connivance of Russian officials.
• Corrupt Russian army commanders and security services armed and trained Chechen militias; the decision to invade Chechnya was partly motivated by the Russian government’s desire to punish Chechen President Dudayev for not sharing spoils and to cover up massive military corruption.
• The invasion was poorly executed, resulting in horrific bloodshed and widespread corruption, including commanders accepting bribes and selling weapons to Chechen opponents.
• A devastating Chechen terrorist attack in Budyonnovsk (June 1995), led by former Moscow “businessman” Shamil Basayev, resulted in a hostage crisis and a Russian government-agreed cease-fire, demonstrating the Chechens’ capability to strike deep into Russia.

The End of the Oldtimers

• The “Great Mob War” eventually burned itself out, with both Chechen and traditional Slavic gangs largely destroying each other, allowing Russia’s new businessmen (oligarchs) to consolidate power and establish new “principles of coexistence.”
• Many traditional gangster bosses were killed, imprisoned, or retreated into the shadows, while Chechen bosses also tactfully withdrew.
• Russia’s new businessmen, who had previously worked closely with and paid “underworld tax” to these gangs, became powerful enough to largely sideline the old mobsters.
• First Deputy Prime Minister Anatoly Chubais stated that oligarchs “adopted certain principles of coexistence,” including abstaining from contract killings, to end the violence, reflecting a shift in power dynamics.
• This period of anarchy, marked by bombings, assassinations, and deep collusion between top government officials and criminals, was ironically enabled by Gorbachev’s liberal reforms, which freed criminals and allowed the establishment of gangster-business empires often sponsored by Soviet establishment pillars like the KGB.

The Collapse of the Old Regime

Gorbachevs Reform

• Mikhail Gorbachev’s reforms, intended to revitalize the Soviet Union, ultimately failed due to a combination of economic pressures and unintended consequences, leading to the country’s decline.
• Economic modernization efforts were undermined by falling oil prices, the costly Afghan war, and the Chernobyl disaster, resulting in declining growth and consumer shortages.
• Political reforms like glasnost and perestroika introduced freedoms but also inadvertently allowed provincial leaders and enterprise directors to prioritize self-enrichment, weakening central control.

Vodka

• Gorbachev’s anti-alcohol campaign, a social reform, backfired catastrophically, creating a vast black market, poisoning citizens, and bankrupting the state while simultaneously fostering Russia’s first criminal capital.
• The policy led to widespread public discontent and the proliferation of illicit, often dangerous, bootleg vodka, with local officials often complicit.
• The state lost a quarter of its budget revenue from the alcohol monopoly, transferring immense profits to the black market and organized crime.
• This new criminal capital began to corrupt government institutions at all levels, further eroding state authority.

The Ruble Overhang

• The Soviet government’s attempt to quell public discontent by increasing wages without corresponding economic growth led to a massive “ruble overhang” of involuntary savings, which, combined with falling revenues, created latent inflation and an unresolved economic crisis.
• A ballooning budget deficit, caused by declining oil and vodka revenues and increased social spending, was financed by printing money, leading to consumer goods shortages rather than overt inflation due to price controls.
• This “ruble overhang” represented huge amounts of unspendable cash held by the population, posing a threat of hyperinflation if prices were liberalized.
• Gorbachev failed to implement proposed solutions, such as the 500-Day Plan (which advocated privatization and bond issuance), partly due to conservative Communist Party opposition, exacerbating the crisis.

Boris Berezovsky Goes into Business

• Amidst the Soviet Union’s deepening crisis, Boris Berezovsky, a prominent scientist, transitioned into business, establishing his first commercial venture by leveraging his elite connections and adapting to the new, corrupt economic landscape.
• Berezovsky recognized the failure of Gorbachev’s reforms and the emerging opportunities in the black market and private sector.
• In 1989, he co-founded Logovaz, initially for computer programming for the auto giant Avtovaz, but quickly shifted its focus to selling Avtovaz automobiles.
• His strategy involved attaching himself to a major state enterprise and using a joint venture structure to gain tax advantages and transfer profits abroad, foreshadowing his future wealth-building methods.

The KGBs New Mission

• As the Soviet Union neared collapse, the KGB and Communist Party secretly orchestrated a massive capital flight operation, transferring billions of dollars of Party funds into a network of captive private companies, thereby creating a new class of “authorized millionaires” and infiltrating the emerging democratic and business movements.
• The KGB, through its International Department, set up offshore banks and commercial enterprises to launder Party funds, often by selling commodities below market value.
• The KGB’s Fifth Chief Directorate, traditionally focused on political surveillance, shifted to infiltrating democratic movements and overseeing new private businesses.
• A secret memo outlined a strategy to use Party treasury earnings to acquire shares in companies and banks, ensuring the nomenklatura’s continued influence and wealth, with former KGB agents staffing these operations.

The Lausanne Connection

• Berezovsky expanded his business by partnering with the Swiss commodities trading firm André & Cie., establishing a sophisticated international financial network that allowed him to engage in capital flight and extract wealth from Russian enterprises through crony capitalism.
• Berezovsky sought a foreign partner with expertise in global commodity trading and discreet international money management, leading him to André & Cie. in Lausanne.
• Logovaz was reincorporated with André’s Swiss subsidiary, Anros S.A., as a formal joint venture, but Berezovsky and his Russian partners, including top Avtovaz managers, secretly held nearly all the shares.
• This structure enabled Berezovsky to establish an international financial network with shell companies and tax shelters, facilitating the siphoning of cash flow from major Russian enterprises like Avtovaz.

The Putsch

• The August 1991 putsch, an attempted coup by Communist hardliners against Gorbachev, failed due to Boris Yeltsin’s leadership and military defiance, leading to the final collapse of the KGB and the formal end of Communist Party rule.
• Hardliners attempted to seize power, holding Gorbachev captive, amidst widespread dissatisfaction and economic turmoil.
• Boris Yeltsin rallied democratic forces at the White House, and crucial military units refused to obey orders to suppress the resistance, leading to the coup’s swift failure.
• The failed putsch resulted in the dismantling of the KGB, with many officers transitioning into private “mini-KGBs,” and the Communist Party losing its institutional power.

Death in the Courtyard

• The fall of Soviet Communism was marked by the suspicious death of Nikolai Kruchina, the Communist Party’s property controller, which effectively buried the secrets of the Party’s vast hidden wealth and facilitated the rise of Russia’s new entrepreneurs.
• Days after the August Putsch, Nikolai Kruchina, who managed the Communist Party’s property and funds, died under suspicious circumstances, officially by “jumping” from his office window.
• Kruchina’s death ensured that the location and details of the Central Committee and KGB’s hidden billions, transferred to commercial enterprises, would remain secret.
• This event cleared the way for Russia’s new entrepreneurs, who had often benefited from these hidden funds, to operate without fear of accountability for the Party’s stolen assets.

Traders Paradise

• This chapter details how the chaotic dissolution of the Soviet Union and subsequent “shock therapy” economic reforms led to widespread corruption, the rise of robber-capitalist fortunes, and a devastating decline in the Russian economy and society.

The Decision to Dissolve the Soviet Union

• The dissolution of the Soviet Union by Yeltsin and leaders of other Slavic republics was unconstitutional and antidemocratic, leading to the fragmentation of the centralized state into nationalistic, often anticapitalistic, republics.
• Yeltsin, Kravchuk, and Shushkevich abolished the Soviet Union on December 8, 1991, despite a prior nationwide referendum where 76% of citizens voted to preserve it.
• The dissolution fragmented the once rigidly centralized state into fifteen republics, creating new borders that devastated Russia geographically and economically.
• The gross domestic product in most former Soviet republics plummeted, with critics arguing that Yeltsin’s ministers failed to retain a unified free market and distribution system.

Gaidars Reform

• Yegor Gaidar’s “shock therapy” reforms, particularly the rapid freeing of prices, were implemented to address a disintegrating socialist economic system but resulted in hyperinflation and a dramatic decline in the Russian economy and living standards.
• Gaidar argued the socialist system was disintegrating and the only alternative to state violence was immediate market reforms to make money valuable.
• On January 2, 1992, prices were freed, leading to hyperinflation that wiped out generations of Russian savings and caused a severe GDP plummet throughout the 1990s.
• Critics like Grigory Yavlinsky argued that the rapid price liberalization was a mistake, as it ignored the need for institutional reforms like rule of law, a viable parliament, and a functional civil society, allowing predatory monopolies to emerge.

Alisa

• The chaos created by Gaidar’s reforms allowed new trading companies like Alisa, often linked to former KGB officials and operating with questionable legality, to thrive by exploiting the breakdown of the planned economy.
• Alisa, co-founded by German Sterligov and effectively controlled by Artyom Tarasov, quickly became a top trading company, dealing in strategic materials from Soviet stockpiles.
• Alisa operated with a private security agency composed of former KGB commandos, highlighting the lawless environment of early post-Soviet business.
• The company was linked to a KGB general and financed by Stolichny Bank, which was connected to Boris Berezovsky, indicating deep ties to the old nomenklatura and emerging oligarchs.
• Alisa’s success was short-lived as authorities cracked down on windfall trading profits, leading to its disbandment and accusations of bribery and illegal activities against its associates.

Dealing in Ladas

• The Avtovaz auto company, a key part of Berezovsky’s emerging empire, became a nexus of corruption where independent dealers, often linked to criminal gangs, exploited the system to make enormous profits while the automaker itself sank into debt.
• An opaque financial network, Forus Services S.A., was established by Berezovsky, Avtovaz’s finance director, and a Swiss trader to run financing transactions and funnel kickbacks.
• Avtovaz sold cars to dealers like Logovaz (Berezovsky’s company) at a loss or on credit, allowing dealers to sell for high cash profits and delay payments, effectively using Avtovaz’s capital.
• The dealership network was highly criminalized, with managers bribed, dealers paying tribute to gangs, and law enforcement officials investigating corruption often assassinated.
• Berezovsky’s “reexport” scheme involved selling cars domestically under export contracts, allowing him to receive foreign currency at lower prices and longer grace periods, further enriching his companies at Avtovaz’s expense.

“We Dismantled Everything”

• The hasty dismantling of the state monopoly on foreign trade by Gaidar’s team, coupled with the government’s continued control over domestic commodity prices, created a “license for private traders” to siphon off Russia’s natural resource wealth and accumulate vast fortunes through illicit schemes.
• The efficient Soviet Ministry of Foreign Trade was abolished, leading to a 40% drop in official exports and government revenues.
• A double price system persisted for key export commodities (low domestic, high world market), allowing private traders to buy cheaply in Russia and sell abroad for immense profits.
• Schemes involved enterprise directors establishing offshore trading companies to sell products at a fraction of world price, depositing profits in personal foreign bank accounts, and then seeking state credits for their “cash-flow shortages.”
• Capital flight from Russia was estimated at $15-20 billion annually, facilitated by false invoicing, offshore tax havens (like Cyprus due to an old tax treaty), and widespread bribery of officials.

“We must Tighten Our Belts”

• Despite the failure of Gaidar’s reforms and the appointment of a new prime minister, Viktor Chernomyrdin, the government’s economic policy continued to rely on inflation to destroy savings and lower living standards, reflecting a “Bolshevik” approach to building capitalism.
• Chernomyrdin, a former Soviet industrial manager, replaced Gaidar, but his team, including economic adviser Yevgeny Yasin, continued similar policies.
• Yasin advocated using inflation to “realign the economic balance” by dramatically lowering real wages and destroying the population’s savings, effectively forcing people to “tighten their belts.”
• Critics like Grigory Yavlinsky condemned the reformers’ “heartless and cruel” approach, accusing them of believing that Russia’s existing society needed to be “wiped out” to build something new, using “Bolshevik methods” where the aim justifies the means.

The Death of a Nation

• The combined effects of Gaidar’s “shock therapy” and the looting of national wealth led to a catastrophic decline in Russia’s economy, social fabric, and demographics, plunging millions into poverty and causing a public health crisis and population shrinkage unprecedented in peacetime.
• Over 100 million people were plunged into poverty, and Russia’s natural resource wealth was looted, depriving the state of revenue for essential services.
• Russia’s GDP shrank by approximately 50% in four years, and its per capita income fell below countries like Peru, leading to the disintegration of scientific and cultural institutions.
• Demographic statistics showed a catastrophe: male mortality rates rose 53%, life expectancy plummeted, and “excess deaths” between 1992-1998 reached an estimated 3 million, surpassing World War I losses.
• The public health system collapsed, leading to outbreaks of diseases like diphtheria and drug-resistant TB, an explosion of STDs and HIV, and a dramatic increase in alcohol-related deaths and violent crime.
• Birth rates declined sharply, and child abandonment reached catastrophic levels, with over a million abandoned children by the end of the 1990s, many ending up in abusive state orphanages.

Selling the Country for Vouchers

This chapter argues that Russia’s post-Soviet transition, particularly its mass privatization, was fundamentally corrupted by a venal political elite and opportunistic oligarchs, leading to the systematic undervaluation and appropriation of state assets for personal gain, while ordinary citizens were largely defrauded.

A Friend of the Family

• The inner circle around President Boris Yeltsin became deeply corrupt, with key figures leveraging their proximity to power for personal enrichment, creating an environment where figures like Boris Berezovsky could rise by exploiting these connections.
• Boris Berezovsky gained significant influence by cultivating a friendship with the Yeltsin family and becoming an intimate member of the presidential circle.
• President Yeltsin’s declining health, heavy drinking, and disengagement from state affairs created a power vacuum and allowed corruption to flourish among his entourage.
• High-ranking officials, including security chief General Korzhakov, Finance Minister Boris Fyodorov, and privatization chief Anatoly Chubais, were implicated in various scandals involving embezzlement, bribery, and unethical financial dealings.
• Berezovsky cemented his position by arranging the publication of Yeltsin’s memoir, Notes of a President, allegedly channeling millions into Yeltsin’s personal accounts, partly from embezzled state funds, and using this access to lobby for privatization projects.

Blasting Away the Parliament

• To clear the path for his radical economic reforms, President Yeltsin violently dissolved the Russian parliament, consolidating absolute power and eliminating a key constitutional obstacle to his agenda.
• Yeltsin faced strong opposition from a parliament hostile to his economic policies and threatening impeachment, leading to a constitutional crisis.
• Vice President Aleksandr Rutskoi, initially a Yeltsin ally, publicly exposed widespread corruption within Yeltsin’s government, further intensifying the political standoff.
• In September 1993, Yeltsin unconstitutionally dissolved parliament, culminating in a violent confrontation where tanks shelled the White House, resulting in numerous casualties.
• A new constitution, approved in a controversial referendum, granted the president immense powers, effectively rendering the newly elected parliament (Duma) largely subservient.

Anatoly Chubais Privatizes Russia

• Anatoly Chubais’s rapid, voucher-based privatization program, intended to create a broad base of property owners, instead led to the massive undervaluation and sale of Russia’s most valuable state assets at extremely low prices, primarily benefiting well-connected insiders.
• Chubais, with Western advisory support, rapidly privatized over half of Russian industry within two years, mailing privatization vouchers to every citizen.
• The program failed to create a middle class because most impoverished citizens sold their vouchers for minimal cash (around $7), valuing Russia’s vast industrial wealth at a mere $5 billion.
• Critics argued that privatization should have been gradual, focused on smaller enterprises, and conducted for real money to foster genuine ownership and economic development.
• The simultaneous privatization of Russia’s largest and most profitable export-oriented companies (oil, gas, metals) flooded the market, leading to drastically low prices and widespread criminality.
• The implicit value of Russian industry through vouchers was set at $100 billion, but inflation and devaluation reduced its real value to $5 billion by the time vouchers could be used, allowing insiders to acquire valuable assets at bargain prices.
• Example: Major industrial giants like Gazprom, valued at $250 million in voucher auctions, were later valued at over $40 billion on the Russian stock market, illustrating the immense undervaluation.

The Ultimate Emerging Market

• The voucher privatization process was systematically manipulated by opportunistic individuals and companies, who used illicit methods, including bribery and rigged auctions, to accumulate vast wealth from undervalued state assets, while ordinary citizens were often defrauded by pyramid schemes.
• Mikhail Kharshan’s First Voucher Investment Fund became the largest mutual fund by using bribes and old KGB connections to sell shares through post offices and rig company auctions.
• Alfa Capital, another major player, acquired stakes in numerous companies at extremely low prices, exploiting the primitive Russian market and outmaneuvering foreign investors.
• The Russian stock market was characterized by violence and fraud, with mutual funds often operating as pyramid schemes that defrauded millions of ordinary Russians of their remaining cash savings.
• Example: The MMM pyramid scheme, led by Sergei Mavrodi, promised exorbitant returns and attracted millions of investors before collapsing, with the government failing to intervene effectively.

The Peoples Car

• Boris Berezovsky orchestrated the “Avva” investment scheme, a fraudulent “people’s car” project that served as a vehicle to extract interest-free capital from ordinary Russians and consolidate his control over Avtovaz, further demonstrating the corrupt intertwining of business and political power.
• Berezovsky mastered “virtual privatization,” gaining control of companies by controlling cash flow rather than acquiring majority stakes.
• The Avva project, promoted as a joint venture with GM to build a “people’s car” and supported by Yeltsin with tax breaks, sold certificates to over 100,000 Russians, raising $50 million.
• The Avva project was a sham; GM withdrew due to corruption, financing failed, and the certificates became worthless, with investors losing their money.
• For Berezovsky, Avva was a success, providing interest-free capital and reinforcing his control over Avtovaz through a network of interlocking companies.
• Berezovsky’s status as Yeltsin’s favored businessman granted him protection from General Korzhakov, who helped him accumulate assets, derail investigations, and attack business rivals, illustrating the deep corruption at the highest levels of power.

The Listyev Murder

The Clearest Illustration of Corruption in Russia

• The nascent Russian market economy was fundamentally corrupt, with commercial success dependent on political influence, prompting figures like Berezovsky to seek control over key institutions like television for power.
• Commercial success in Russia was tied to political connections, with businessmen needing “roofs” from gangsters or top government officials.
• Berezovsky aimed to control Channel 1, Russia’s only nationwide TV network, to gain political influence and manipulate public opinion.
• Channel 1 was plagued by corruption, losing millions annually while government funds were embezzled and advertising revenues siphoned off by private companies, notably Sergei Lisovsky’s.

The Enemy

• Vladimir Gusinsky, a rival media magnate and owner of NTV, emerged as Berezovsky’s archrival, having built a significant media empire and a powerful security apparatus with the backing of Moscow Mayor Yuri Luzhkov.
• Gusinsky, owner of Most Bank and NTV (Russia’s first independent TV network), was Berezovsky’s primary competitor, often mirroring Berezovsky’s business moves.
• Gusinsky’s patron, Moscow Mayor Yuri Luzhkov, effectively managed the city and supported the Most Group’s growth into a large conglomerate.
• Gusinsky maintained a formidable private security service, comprising around 1,000 men, including former top KGB officials, highlighting his power and need for protection.

Faces in the Snow!

• Berezovsky allegedly attempted to convince General Korzhakov to assassinate Gusinsky, portraying him as a threat to Yeltsin, which led to Yeltsin ordering Korzhakov to “deal with” Gusinsky, resulting in a dramatic security operation.
• Korzhakov claimed Berezovsky repeatedly requested Gusinsky’s “termination,” framing Gusinsky as a mortal danger to President Yeltsin.
• Berezovsky lobbied Yeltsin’s daughter, Tanya Dyachenko, to convince the president of Gusinsky’s dangerous nature.
• Yeltsin, influenced by Berezovsky, ordered Korzhakov to take action against Gusinsky, leading to a “demonstrative observation” of Gusinsky’s motorcade.
• Masked SBP men besieged Most Group headquarters, detaining Gusinsky’s security personnel at gunpoint in an incident known as “Faces in the Snow!”

Assassination

• Vlad Listyev, the popular TV host and general director of ORT, challenged the lucrative advertising monopoly held by Lisovsky and Berezovsky, a move that preceded his assassination.
• Listyev initiated the privatization of Channel 1 and was appointed ORT’s general director, while Berezovsky gained control of the network through a technically illegal privatization process.
• Listyev sought to end the advertising monopoly controlled by Lisovsky and Berezovsky’s Advertising-Holding by imposing a temporary moratorium on all advertising.
• Listyev reportedly received death threats from Lisovsky, and police reports suggested Berezovsky’s aide, Badri, had sought a contract for Listyev’s assassination.

Moscow is Ruled by Scum

• Following Listyev’s murder, Berezovsky, facing imminent arrest, leveraged his political connections and a videotaped appeal to President Yeltsin to deflect suspicion onto Gusinsky and Luzhkov, framing the investigation as a political conspiracy against Yeltsin.
• Berezovsky prevented his arrest by using political patrons and recorded a videotaped appeal with Irina Lesnevskaya to Yeltsin.
• In the appeal, Lesnevskaya accused Gusinsky, Luzhkov, and the former KGB of orchestrating Listyev’s murder as a “coup d’état” against Yeltsin, claiming the police investigation was manipulated to frame Berezovsky.
• Berezovsky’s alibi for a $100,000 payment to a gangster was problematic, as his own witnesses were implicated in the alleged conspiracy.
• Berezovsky’s political defense, appealing to Yeltsin’s fear of enemies, led to the dismissal of lead investigators and the cessation of inquiries into Logovaz and Berezovsky.

Berezovsky Becomes a Media Mogul

• The investigation into Listyev’s murder remained unresolved, while Berezovsky and Lisovsky solidified their control over ORT’s advertising, allowing Berezovsky to expand his media empire and emerge as a dominant oligarch who influenced national policy.
• The Listyev murder investigation was mishandled, with prosecutors fired and leads unpursued, ultimately remaining unsolved.
• After Listyev’s death, Lisovsky’s new company gained monopoly control over ORT’s advertising, and Berezovsky consolidated his control over the network.
• Berezovsky expanded his media empire to include other TV channels, magazines, and newspapers, using them to influence Russian politics and promote his agenda.
• Berezovsky emerged as a “supreme oligarch,” dictating national policy and using his media holdings to attack rivals and support his political interests.

Privatizing the Profits of Aeroflot

“Our Interest Here is Clear”

• Boris Berezovsky’s “privatization of profits” model involved gaining control of state enterprises’ cash flow through co-opted management and intermediaries, allowing for capital accumulation without direct property ownership.
  • Berezovsky outlined a three-stage privatization: profits, then property, then debts, emphasizing that controlling cash flow was more crucial than equity ownership.
  • This model was honed with Avtovaz (buying cars cheaply, selling abroad at markup) and ORT (controlling advertising revenue) before being applied to Aeroflot.
  • Berezovsky aimed for management control of Aeroflot to “privatize” its profits, despite the airline being partly state-owned.
  • Example: In late 1995, Aeroflot’s general director, Vladimir Tikhonov, was replaced by Yevgeny Shaposhnikov, a military marshal with no business experience, while key financial positions were filled by Berezovsky’s Logovaz associates.

Andava

• Andava S.A., a Swiss financial company secretly owned by Berezovsky and his partner Nikolai Glushkov, was established as Aeroflot’s foreign treasury center to centralize and divert the airline’s international revenues.
  • Andava’s role was kept secret, not appearing in Aeroflot’s annual reports, despite its purported function of rationalizing financial operations.
  • The company was owned by Berezovsky and Glushkov, not Aeroflot, creating a direct conflict of interest.
  • Andava was initially intended for Berezovsky’s Avva investment scheme and then Avtovaz, before becoming Aeroflot’s treasury center after Avtovaz broke free from Berezovsky’s control.
  • In May 1996, Aeroflot’s foreign offices were ordered to remit up to 80% of their foreign currency revenues to Andava, with the money allegedly collected for Yeltsin’s election campaign but kept by Berezovsky.

Yeltsins SoninLaw

• Berezovsky leveraged political connections, including President Yeltsin’s son-in-law, to secure a critical Central Bank license for Andava, formalizing its operations despite initial legal ambiguities and Central Bank hesitation.
  • After questioning Andava’s operations, Aeroflot’s general director Shaposhnikov was replaced by Valery Okulov, Yeltsin’s son-in-law, in March 1997.
  • Within two months of Okulov’s appointment, the Central Bank granted Aeroflot an exemption from Russia’s currency-repatriation rules, a decision Berezovsky lobbied for directly with the Central Bank chairman.
  • Andava had operated for over a year without this formal license, despite Russian law requiring the repatriation of export revenues.

The Dublin Connection

• The Aeroflot case became a detailed example of how Russian enterprises were looted through a complex web of offshore intermediaries, exorbitant fees, and short-term loan schemes, leading to massive capital flight and the airline’s financial distress.
  • Andava managed Aeroflot’s foreign currency profits, with much of it diverted through “usurious interest payments” to Berezovsky’s financial companies.
  • Forus Services S.A., another Berezovsky-owned company, acted as an intermediary for syndicated loans and handled Aeroflot’s overflight payments, with a significant portion of these funds becoming unaccounted for.
  • A chain of intermediaries, including FOK (United Finance Company) and Grangeland Holdings Ltd. (a shell company in Dublin), was used to pay Aeroflot’s foreign bills, charging “penalties” and interest rates as high as 95% in hard currency.
  • These schemes resulted in Aeroflot reporting significant losses ($82 million in 1996, $93 million in 1997) despite substantial foreign currency revenues and government subsidies, leading to severe liquidity problems.
  • By 1999, Russian and Swiss authorities launched criminal investigations, freezing Andava and Forus accounts, leading to the ousting of Berezovsky’s managers from Aeroflot and the suspension of Andava’s contract.

The Race for Oil

This chapter details how Russian oligarchs, particularly Boris Berezovsky and Vagit Alekperov, consolidated immense wealth and power by seizing control of Russia’s vast oil resources through corrupt privatization schemes like the “loans-for-shares” auctions, often with the complicity of government officials and at the expense of the state.

“The Meaning of Life is Expansion”

• In 1995, while Russia faced national decline, Boris Berezovsky rapidly expanded his personal empire, acquiring key state assets like Channel 1 and Aeroflot, driven by a philosophy of “expansion.”
• Berezovsky’s most significant triumph that year was turning his attention to the oil industry, the lifeblood of the Russian economy.

The Russian Rockefeller

• Following the collapse of Communism, Russia’s vast oil wealth, previously state-controlled, became available for privatization, attracting both multinational corporations and ambitious Russian businessmen.
• Vagit Alekperov, a former Soviet oil official, emerged as a dominant figure, creating Lukoil, Russia’s first integrated oil company, by consolidating immense oil and gas reserves.
• Alekperov skillfully outmaneuvered Western oil companies, leveraging political connections and strategic partnerships to secure Lukoil’s stake in lucrative projects like the Baku oil consortium and the Tenghiz field.
• Alekperov maintained control through a mix of shrewd business tactics, including giving cheap Lukoil stock to influential officials and using gifts like executive jets to secure political favors.

Dead Man in the River

• Berezovsky sought to become an oil magnate, targeting Rosneft, the state-owned oil company, which held Russia’s remaining major unprivatized oil properties.
• In 1995, Berezovsky and Roman Abramovich devised a plan to create a new company, Sibneft, by separating Rosneft’s best assets (Noyabrskneftegaz and the Omsk Refinery), which Berezovsky viewed as a financial vehicle for other investments.
• Berezovsky secured political support for Sibneft’s creation by lobbying high-ranking officials, including Prime Minister Chernomyrdin, offering favorable TV coverage and funding for his political party.
• Obstacles to Sibneft’s formation were removed through suspicious means, including the mysterious drowning of the Omsk Refinery’s director and the arrest of a rival oil trader, clearing the path for Berezovsky and Abramovich.

Loans for Shares

• The “loans-for-shares” scheme, proposed by bankers Boris Jordan and Vladimir Potanin, allowed leading Russian banks to lend the cash-strapped government $2 billion, collateralized by stakes in major industrial companies, which the banks intended to acquire cheaply.
• Russian banking titans aimed to become industrial empire-builders, using profits from handling major exporters’ accounts to buy equity in these companies at a fraction of their market value.
• The selection of winners for the loans-for-shares auctions was a result of backroom dealings and “horse-trading” among a select group of businessmen and government officials.
• President Yeltsin’s daughter, Tatyana Dyachenko, played a pivotal role in advancing the interests of favored oligarchs like Berezovsky, influencing who won and lost in the privatization process.

The Sibneft Auction

• Berezovsky’s acquisition of a 51% stake in Sibneft through the loans-for-shares auction was a prime example of the scheme’s corruption, with a starting price of $100 million for a company later valued at $5 billion.
• The auction was rigged, as a rival bid from Inkom Bank was mysteriously withdrawn, allowing Berezovsky’s front company (NFK) to win by bidding only slightly above the starting price.
• Inkom Bank, which protested the rigged auctions, subsequently faced official harassment and was discredited, illustrating the consequences of challenging the established oligarchic network.
• Berezovsky acquired Sibneft at an implied market capitalization of less than $200 million, which soared to $5 billion within two years despite no significant operational changes, revealing the vast undervaluation and corrupt nature of the sale.

“Government should Represent the Interests of Business”

• The loans-for-shares auctions were a disaster for the Russian state, as assets were sold at absurdly low prices, foreign bidders were excluded, and the government lost significant revenue-generating capacity.
• The funds used by oligarchs to purchase these equity stakes often originated from the government itself, through preferential loans, deposits, and access to lucrative bond markets, highlighting a cycle of state-enabled enrichment.
• The auctions served a Machiavellian purpose for the Yeltsin regime: by locking oligarchs into supporting Yeltsin’s reelection campaign (as full legal control was contingent on his victory), the government and the oligarchs became “partners in crime.”
• This strategy sacrificed national interests for the benefit of a few crony capitalists, ultimately contributing to the collapse of the state financial system in 1998.

The Black Treasury of the Yeltsin Campaign

Davos

• In early 1996, with Boris Yeltsin’s re-election prospects looking dire, powerful Russian oligarchs at the World Economic Forum in Davos united to prevent a Communist victory and ensure Yeltsin’s success.
• Yeltsin’s approval ratings were critically low (5-8%), and Communist candidate Gennady Zyuganov was leading the polls, alarming the global business and political community.
• Oligarchs like Boris Berezovsky and Vladimir Gusinsky, despite their intense rivalry, agreed to form a united front to prevent a return to a state-run economy.
• Anatoly Chubais, the architect of Russia’s privatization, was recruited by Berezovsky to manage Yeltsin’s campaign, valued for his administrative skills, loyalty to the new elite, and Western support.

“We will not Give Up Power”

• Despite Yeltsin’s poor health and low popularity, his initial campaign was managed by a conservative faction within his administration that favored authoritarian tactics, including the possibility of canceling the elections.
• Yeltsin announced his re-election bid in February 1996, appearing physically weak and facing widespread public discontent over corruption and poverty.
• The official campaign, led by First Deputy Prime Minister Oleg Soskovets and General Korzhakov, relied on using state authority and fear to secure votes, even discussing banning the Communist Party and postponing elections.

The Gathering at Logovaz House

• A group of Russia’s most influential businessmen, “The Group of 13,” publicly called for political compromise to prevent civil war, while secretly formulating a strategy to ensure Yeltsin’s electoral victory.
• In mid-April, thirteen top businessmen drafted a public petition warning against national division and proposing political compromise, interpreted as a call to suspend the constitution.
• The letter’s underlying threat was that businessmen possessed the resources to influence politicians, implying they would not permit a return to a state-run economy.
• This public appeal was a strategic maneuver; Berezovsky and his colleagues had been meeting for months to devise a strategy for Yeltsin’s victory, viewing it as a “battle for our blood interests.”

Tanya

• Yeltsin’s daughter, Tanya Dyachenko, became a pivotal figure in the new campaign team, providing a direct and trusted channel to the president and consolidating the Berezovsky-Chubais group’s control over the campaign.
• Yeltsin, bolstered by oligarch support, decided against postponing elections and formed a new staff, with Chubais effectively becoming the campaign’s chief, heading the “analytical group.”
• Tanya’s involvement, proposed by Valentin Yumashev and supported by Berezovsky, ensured rapid decision-making and direct communication with the president, bypassing traditional channels.
• Her presence in the Berezovsky-Chubais group led to the demise of the conservative Soskovets-Korzhakov campaign staff.

“An Insignificant Sum”

• The Yeltsin campaign was financed through a vast, illegal “black treasury” of laundered government funds and secret contributions from oligarchs, far exceeding legal spending limits and involving widespread embezzlement.
• The campaign mobilized virtually the entire government apparatus and state-owned media, despite laws prohibiting official participation, and spent an estimated $1-2 billion, compared to the legal limit of $3 million.
• Funds were sourced from secret contributions by Russian banks and financial-industrial groups, then dumped into a slush fund managed by Berezovsky, with no proper accounting.
• This scheme recycled government funds, with oligarchs receiving privatization windfalls and the opportunity to skim the campaign treasury in exchange for their “donations.”
• A taped conversation between General Korzhakov and Prime Minister Chernomyrdin revealed their awareness of the massive embezzlement of campaign funds.

Coins to the People

• Yeltsin’s campaign employed populist gestures, strategic “victories,” and sophisticated media manipulation, funded by state resources, to project an image of vitality and statesmanship and sway public opinion.
• Yeltsin made numerous promises of back wages and pensions, funded by foreign currency reserves and a $10.2 billion IMF credit, which rapidly disappeared.
• The campaign highlighted “victories” such as the assassination of Chechen rebel leader Jokhar Dudayev and a union agreement with Belarus to boost Yeltsin’s image as a strong leader.
• American-trained Russian advertising men produced sophisticated propaganda, including “soft sell” TV spots featuring ordinary Russians endorsing Yeltsin, while state-controlled media provided overwhelmingly positive coverage of the president and attacked opponents.
• Journalists and media owners were bribed to run flattering pieces about Yeltsin, with large payments going to TV bosses, including Berezovsky’s ORT.

The National Sports Fund

• A power struggle erupted within the Yeltsin court as Boris Berezovsky sought to remove his former patron, General Korzhakov, by exposing corruption related to the National Sports Fund (NSF).
• Berezovsky, no longer needing Korzhakov’s direct channel to Yeltsin due to Tanya Dyachenko’s involvement, aimed to eliminate Korzhakov as a “nuisance.”
• Berezovsky revealed to Tanya the highly lucrative and corrupt operations of the NSF, which amassed $1.8 billion in profits through duty-free imports and tax evasion.
• Fyodorov, the NSF president, delivered $10 million in cash from NSF funds to Chubais for the campaign, angering Korzhakov, who believed the money belonged to the state and demanded its return.

Scare Tactics

• The Yeltsin campaign utilized aggressive scare tactics, portraying a Communist victory as an impending catastrophe, to manipulate public opinion and ensure Yeltsin’s re-election.
• The campaign focused on negative messaging, airing documentaries about past Communist horrors and distributing posters warning that a Zyuganov victory would lead to famine and civil war.
• On June 10, the Group of 13 published a second open letter, explicitly endorsing Yeltsin and predicting “catastrophe” within months if the Communists implemented their economic program.
• A Moscow metro bombing on June 11 was immediately blamed by the Yeltsin campaign on Communist extremists, reinforcing calls for “civic peace and stability.”

Recruiting General Lebed

• The Yeltsin campaign strategically recruited General Aleksandr Lebed, a popular law-and-order candidate, to siphon votes from the Communists and consolidate support for Yeltsin, ultimately appointing him to a key security role.
• Lebed, a charismatic former paratroop commander, appealed to a segment of the electorate seeking order and stability, particularly those inclined to vote Communist.
• Berezovsky and his business associates financially backed Lebed’s campaign, significantly boosting his visibility and popularity, which helped pull votes away from Zyuganov.
• After the first round of elections, where Lebed surprisingly received 15% of the vote, Yeltsin appointed him national security adviser and secretary of the Security Council.
• Lebed’s appointment led to the dismissal of Defense Minister Pavel Grachev, signaling the Berezovsky-Chubais camp’s move against the “conservative” faction of Korzhakov, Barsukov, and Soskovets.

A Box of Cash

• General Korzhakov’s SBP attempted to expose the Yeltsin campaign’s illegal financing by seizing a box of cash from campaign aides, leading to a direct confrontation with the Berezovsky-Chubais faction.
• SBP officers, investigating the campaign’s “black treasury,” found $1.5 million in cash and evidence of transfers to offshore companies in the office of German Kuznetsov, a deputy finance minister and key manager of the slush fund.
• On June 19, two top Yeltsin campaign aides, Arkady Yevstafyev (Chubais’s aide) and Sergei Lisovsky (Berezovsky’s partner), were arrested leaving the White House with a cardboard box containing $500,000 in cash.
• The SBP viewed this as definitive proof of massive fraud and embezzlement by the Berezovsky-Chubais campaign team.

Fyodorov Escapes Death

• Concurrently with the cash box arrests, an assassination attempt on Boris Fyodorov, the former NSF president, was used by the Berezovsky-Chubais camp to discredit Korzhakov and secure his dismissal.
• On the same night as the arrests, Fyodorov narrowly survived an assassination attempt outside his home, which Chubais publicly blamed on General Korzhakov, leveraging their known conflict over NSF funds.
• Colonel Streletsky believed the attack was a staged “clever ploy” by Berezovsky to discredit Korzhakov, using Fyodorov’s prior accusations against Korzhakov (recorded on tape) as a basis.
• The incident, combined with the “box of cash” scandal, provided significant leverage for the Berezovsky-Chubais faction to remove Korzhakov and his allies.

“Either They Shut Up or Ill Throw Them in Prison”

• The Berezovsky-Chubais camp successfully orchestrated the dismissal of Korzhakov and his allies by framing the “box of cash” incident as a coup attempt, while simultaneously working to suppress the investigation into the campaign’s illegal finances.
• Tanya Dyachenko immediately demanded the release of the arrested aides, and a late-night meeting of the Berezovsky-Chubais group decided to publicize the scandal as a coup d’état attempt by Korzhakov and the FSB-KGB.
• On June 20, President Yeltsin appeared on TV to announce the firing of Korzhakov, Barsukov, and Soskovets, with the Western and Russian press largely accepting Chubais’s narrative of a coup attempt.
• A secretly taped conversation between Chubais and his campaign managers revealed their intent to “bury” the documentary evidence of illegal cash transfers and prevent the prosecution of the arrested aides until after the election.
• Subsequent investigations confirmed the authenticity of the tapes and the fact that the arrested aides had purloined cash, but the charges were eventually dropped due to decriminalization of foreign currency operations and inability to identify the legal owner of the funds.
• Conclusion: Despite the evidence of widespread illegal financing and manipulation, Western observers concluded the election was “generally free and fair,” and Yeltsin won his second term with 54% of the votes.

Oligarchy

Party Town

• Moscow in 1996 was a chaotic “party town” for expats and “New Russians,” characterized by immense wealth-making opportunities, a lack of social order, and pervasive organized crime, which often targeted profitable sectors and individuals.
• A large expat community and “New Russians” enjoyed lavish, lawless lifestyles, making quick money in Russia’s booming securities market.
• Life was dangerous, with organized crime deeply embedded, leading to assassinations of entrepreneurs like Paul Tatum and officials like Valentin Sych of the Russian Hockey Federation.
• Gangsters exploited profitable ventures, including sports and government-decreed foreign trade rights for charities, leading to further violence and murders.
• The “New Russians” elite, a small minority, increasingly viewed Moscow as a place for exploitation and sought relaxation and lavish living abroad, distancing themselves from the impoverished majority.

Berezovsky is Appointed to the Government

• Following Yeltsin’s severe post-election health crisis, his inner circle and allied oligarchs consolidated power, leading to a government based on personal greed and “payback” for election support, while an outsider like General Lebed struggled against the entrenched corruption.
• Yeltsin’s collapse after the 1996 election led to his aides, particularly Anatoly Chubais, taking charge and rewarding oligarchs with state assets and privileges (e.g., Onexim Bank, Norilsk Nickel, SBS-Agro).
• Liberal leader Grigory Yavlinsky described this new system as corporatist, oligarchic, and based on monopolized property rights and semicriminal relationships.
• General Aleksandr Lebed, a populist outsider appointed to the Security Council, ended the Chechen war but was fired for “insubordination” after clashing with the corrupt system and its powerful figures.
• Boris Berezovsky was appointed deputy secretary of the Security Council, a powerful but vaguely defined post, despite controversy over his Israeli citizenship and accusations of past misdeeds.

Trading Hostages

• Berezovsky used his government role to manage relations with Chechnya, publicly positioning himself as a humanitarian negotiator for hostage releases, but was accused by General Lebed and Chechen President Maskhadov of financing kidnappers and using the crises to further his business interests and discredit Chechnya.
• Berezovsky claimed his role was to restore Chechnya’s economy, but General Lebed alleged Berezovsky had prior business interests in the region and profited from the chaos.
• Berezovsky gained public acclaim for negotiating hostage releases, including Russian policemen and NTV journalists, using these events to bolster his image as a statesman.
• Chechen President Aslan Maskhadov struggled against independent militias and criminal gangs who profited from kidnappings, which became a valuable commodity.
• Maskhadov and Lebed accused Berezovsky of paying ransoms and maintaining close ties with Chechen warlords and fundamentalists, effectively acting as a “banker for the Chechen kidnappers,” as evidenced by intercepted phone calls.
• Berezovsky’s public boasts about “donating” aid for hostage releases undermined official policy and, according to Maskhadov, encouraged further kidnappings, ultimately leading to the murder of four British telecommunications workers and the isolation of Chechnya.

“This was a Comedy and It Remains a Comedy”

• Berezovsky continued to pursue his commercial interests while in government, most notably securing full ownership of the Sibneft oil company through a second round of loans-for-shares auctions that were deliberately rigged to ensure the original oligarchic “winners” formally acquired the assets at minimal cost.
• Berezovsky actively lobbied for his business projects (e.g., Andava-Aeroflot, Promstroi Bank) despite his government position.
• The second round of loans-for-shares auctions allowed oligarchs to convert their collateral holdings into full ownership of prime state assets, with bids typically just above the starting price.
• Berezovsky’s team used deceptive tactics, such as false addresses and disqualifying rival bids on technicalities, to ensure his financial vehicles (NFK and FNK) won the Sibneft auction.
• Alfred Kokh, head of the State Property Committee, acknowledged the “comedy” of the process, where oligarchs, having indebted the enterprises to their own banks, effectively sold the assets to themselves.

New Rules of the Game

• President Yeltsin, seeking to improve his legacy, attempted to curb crony capitalism by appointing reformers like Anatoly Chubais and Boris Nemtsov, leading to a direct confrontation with the oligarchs, particularly Berezovsky, over the future of Russia’s economic system.
• Yeltsin, after recovering from surgery, sought to shift Russia away from “oligarchic capitalism” towards a more equitable “people’s capitalism,” appointing Chubais and Nemtsov to lead this effort.
• Oligarchs, including Berezovsky, resisted these reforms, arguing they had “hired” the government and new rules could not be suddenly imposed.
• Berezovsky faced significant business setbacks as Chubais and Nemtsov blocked his attempts to gain control of Gazprom and Svyazinvest.
• The Svyazinvest auction became a battleground, with Berezovsky and Gusinsky threatening a “media war” against rival Vladimir Potanin and later orchestrating a scandal over a “book advance” (bribe) to Alfred Kokh.
• The conflict escalated to violence, including the assassination of Chubais’s colleague Mikhail Manevich, leading to Berezovsky’s dismissal from the Security Council.
• Chubais’s own reputation was damaged by revelations of similar “book advances” received by him and other reformers, which Berezovsky used to undermine his authority.

Yuksi

• The ongoing conflict between the Chubais-Potanin and Berezovsky factions extended to the oil industry, where Berezovsky attempted to merge Sibneft with Yukos to form “Yuksi,” a strategic move to reduce his direct involvement in oil management and consolidate anti-Chubais oligarchic power, but the merger ultimately failed due to internal resistance.
• Berezovsky and his partner Roman Abramovich managed Sibneft through “privatization of profits,” using intermediaries like Runicom to delay payments and provide interest-free loans, benefiting themselves at the expense of outside shareholders.
• Berezovsky, primarily a corporate raider, sought to merge Sibneft with Yukos to create “Yuksi,” aiming to reduce his exposure to the oil business and unite key anti-Chubais oligarchs.
• The proposed Yuksi merger, initially announced with fanfare, collapsed after five months due to Roman Abramovich’s resistance, as he demanded a higher price and preferred to retain his controlling stake and lucrative oil-trading contracts.

The Financial Crash

• Russia’s economy spiraled towards collapse in 1998 due to unsustainable government finances, particularly the GKO pyramid scheme, which oligarchs exploited. Prime Minister Kiriyenko’s attempts to impose fiscal discipline and make oligarchs pay taxes were met with fierce resistance, media attacks, and financed protests, culminating in the GKO collapse and a devastating financial crisis.
• By early 1998, Russia faced economic disaster due to unpaid wages and precarious government finances, leading Yeltsin to replace Chernomyrdin and Chubais with reformer Sergei Kiriyenko.
• Berezovsky and other oligarchs, using their media networks, actively undermined Kiriyenko’s administration, financing miners’ strikes and portraying the government as ineffectual for resisting their demands.
• The government’s GKO (T-bill) market, designed by Chubais, had become a pyramid scheme, offering astronomical yields to Russian banks (including Berezovsky-linked SBS-Agro) and bankrupting the government.
• Kiriyenko refused oligarchs’ demands for bailouts and insisted they pay taxes, leading to a crisis of confidence as banks began unloading GKOs.
• Anatoly Chubais was recalled to secure a $23 billion IMF loan, but admitted to misleading foreign creditors, and the initial $5 billion installment quickly disappeared into well-connected Russian banks.
• On August 17, 1998, the GKO pyramid collapsed, leading to a massive ruble devaluation, suspension of government securities, and a moratorium on foreign currency commitments, causing huge losses for investors and destroying ordinary Russians’ savings.
• The crash marked the failure of post-Communist economic reform; Yeltsin fired Kiriyenko, and after parliamentary opposition blocked Chernomyrdin, appointed Yevgeny Primakov as Prime Minister.

Vladimir Putin Takes Power

Eavesdropping on the President

• Primakov’s government, by stabilizing the economy and shifting power, threatened crony capitalists like Berezovsky, leading to a decline in his influence and the government’s move against him.
• Primakov’s administration stabilized the ruble and reduced inflation, shifting political power to the prime minister and Duma, who were hostile to crony capitalism.
• Berezovsky’s influence on the Yeltsin family weakened, and his private intelligence agency, Atoll, was implicated in spying on the family.
• Leaked phone intercepts, possibly from Atoll, prompted the Primakov government to initiate action against Berezovsky.

Arrest Warrant

• The Primakov government launched a crackdown on organized crime and corruption, targeting Berezovsky’s empire both domestically and internationally, leading to an arrest warrant for him.
• Primakov’s government began a concerted effort against organized crime and corruption, investigating figures linked to the Yeltsin entourage.
• Berezovsky’s businesses (Sibneft, Aeroflot-linked firms, ORT) were raided, and his intelligence agency, Atoll, was shut down.
• International money-laundering investigations in the U.S. (Bank of New York) and Switzerland also targeted Berezovsky and his associates.
• Yeltsin dismissed Berezovsky, and an arrest warrant was issued for Berezovsky and Nikolai Glushkov on charges of “illegal business activities” and “money-laundering,” though Berezovsky temporarily evaded arrest through political maneuvering.

Berezovsky Triumphant

• Berezovsky successfully orchestrated Primakov’s dismissal and installed loyalists, including Vladimir Putin, into key government positions, reasserting his control over the Kremlin’s power dynamics.
• Yeltsin, influenced by his entourage, dismissed Primakov due to concerns over corruption investigations and Primakov’s foreign policy stance.
• Stepashin, who had previously protected Berezovsky, replaced Primakov as prime minister, a move Berezovsky claimed as a personal victory.
• Berezovsky placed allies like Nikolai Aksyonenko and Aleksandr Voloshin in crucial government roles to ensure his interests were protected.
• Stepashin’s failure to fully derail investigations against Berezovsky led to his dismissal, and Vladimir Putin, head of the FSB-KGB, was appointed prime minister.

Vladimir Putins Rise

• Vladimir Putin, a former KGB officer with a reputation for loyalty and severity, was strategically elevated by the Yeltsin clan to protect their interests and secure the presidential succession.
• Putin’s career included KGB service in East Germany and deputy mayor of Leningrad, where he managed foreign relations and privatization.
• Berezovsky facilitated Putin’s appointment as head of the FSB in July 1998, viewing him as a loyal figure to replace a perceived threat.
• Putin demonstrated loyalty by initiating an investigation into Prosecutor-General Yuri Skuratov, who was probing Kremlin corruption, leading to Skuratov’s public discrediting.
• The Yeltsin clan designated Putin as Yeltsin’s heir, confident he would safeguard them from future prosecution.

The Second Chechen War

• The Second Chechen War, ignited by Chechen incursions and apartment bombings, was leveraged by the Kremlin and Berezovsky to generate nationalist support for Putin, ensuring his electoral success and consolidating power.
• Berezovsky had previously emphasized his role in managing Chechnya and warned of escalating conflict, using it as a political tool.
• Chechen incursions into Dagestan in August 1999 provided Russia with a pretext for military action.
• Chechen President Maskhadov accused Berezovsky and other oligarchs of financing Chechen extremists, suggesting a deliberate strategy by the Kremlin to fuel conflict for political gain.
• A series of apartment bombings in Russian cities in September 1999, officially blamed on Chechens, dramatically boosted Putin’s popularity and public support for the war.
• Suspicions arose that the bombings were orchestrated by Russian elements, possibly Berezovsky or maverick members of Putin’s camp, to create a war pretext and secure Putin’s political future.
• The conflict quickly escalated into an all-out war, characterized by initial targeting of moderate Chechen areas and a brutal siege of Grozny.

Aluminum Magnates

• Under the new Putin administration, Berezovsky expanded his economic empire by acquiring controlling stakes in Russia’s largest aluminum smelters, previously held by the Trans-World Group, consolidating his power and challenging rivals.
• In late 1999, Berezovsky and his partners acquired controlling stakes in Russia’s three largest aluminum smelters, taking over two-thirds of the national industry.
• These smelters were previously controlled by the Trans-World Group, a company with alleged organized-crime ties and political protection.
• Trans-World’s Russian partner, Lev Chorny, faced pressure from new tax policies and the arrest of an ally, leading him to partner with Berezovsky for political protection.
• Berezovsky’s move into aluminum also served to undermine his rival, Anatoly Chubais, and his Siberian Aluminum company.

Legal Immunity

• The Chechen War and Berezovsky’s media manipulation propelled the pro-Kremlin Unity party and Putin to electoral victory, enabling Berezovsky and his allies to secure parliamentary immunity and solidify the Yeltsin clan’s protection.
• The Chechen War fueled nationalism, boosting the pro-Kremlin Unity party and diminishing opposition parties in the 1999 parliamentary elections.
• Berezovsky’s ORT network actively promoted Putin and the war while attacking opposition figures, significantly influencing election results.
• Berezovsky and his partner Roman Abramovich won Duma seats, gaining parliamentary immunity from prosecution, a common tactic for criminals in Russia.
• Yeltsin’s abrupt resignation on December 31, 1999, handed power to Putin and moved up the presidential election, a cynical move to capitalize on Putin’s popularity and the opposition’s disarray.
• Putin immediately granted Yeltsin and his family immunity from criminal prosecution, fulfilling the Yeltsin clan’s primary objective.

Epilogue

• Boris Berezovsky’s most destructive legacy was hijacking the Russian state for private interests, leading to a kleptocracy that produced no new wealth, corrupted existing enterprises, and ultimately failed Russia. This failure was compounded by a flawed understanding of capitalism and democracy by both Russian reformers and Western policymakers, who overlooked the essential preconditions of a healthy state and society.
• Berezovsky and other crony capitalists produced no benefit to Russia, instead taking over existing, well-endowed enterprises (e.g., TV network ORT, oil giant Sibneft, Aeroflot) which then stagnated or declined under his control, demonstrating his incompetence as a business manager.
• While a poor businessman, Berezovsky was a master of political intrigue, leveraging his position in Yeltsin’s inner circle and ties with organized crime to control government officials, mastermind presidential campaigns, and outmaneuver opponents.
• The Yeltsin era was characterized by a “kleptocracy” where organized crime was at the core of the state, leading to “unmitigated failure” for the Russian people and discrediting concepts like privatization (“grab-it-ization”) and democracy (“shitocracy”).
• The “American model” of free markets and private ownership failed in Russia because Western policy makers and Russian reformers neglected the need for a “healthy state” and “healthy society” as essential preconditions for civilization.
• A healthy state requires a good legal code, equality before the law, sound finances for public goods, and an uncorrupted government that protects the weak, unlike the USSR which was powerful but not healthy due to its destruction of independent institutions.
• A healthy society is defined by strong values, civic responsibility, and honest work, all of which were eroded by the Communist regime and further declined under Yeltsin, leading to pervasive nihilism and a populace of “subjects, not citizens.”
• Russian businessmen, influenced by Communist propaganda, falsely equated their “bandit capitalism” (looting the state) with American “robber barons,” who, despite flaws, built industries and created wealth.
• The West, particularly the Clinton Administration, contributed to Russia’s failure by playing a “double game,” ignoring evidence of the Yeltsin regime’s corruption and actively supporting Yeltsin in the 1996 elections to preserve an image of foreign policy success.
• Berezovsky’s era left Russia ravaged and destroyed, with Vladimir Putin inheriting the difficult task of rebuilding and confronting the legacy of corruption and crony capitalism.