Death of a Dissident (10 page)

Chubais, despite his Davos speech, was still scrambling. His voucher program had privatized more than half of the economy, but in the form of a massive number of small and medium-size businesses. He had not yet touched the biggest companies: oil and gas, minerals, telecommunications, military industries. These enterprises were still operated by their former Soviet managers, many of whom were siphoning off funds through third-party sales outlets, laundering the proceeds or stashing them abroad in offshore tax havens.

The managers of these large state-owned enterprises were known collectively as “the director corps,” and they constituted a powerful lobby whose Kremlin advocate was Oleg Soskovets, a veteran of the Soviet military industry, who held the other first deputy prime minister portfolio and was Chubais’s chief rival in the Cabinet. Along with the Communists in the Duma, the director corps presented the principal obstacle to further privatization, as its members were
eager to reintegrate into a planned economy should the Communists return to power.

Chubais, who strove to make the Russian economy 100 percent private, felt that his time was running out, so at some point in mid-1995 he came up with an extraordinary strategy: the state should take its biggest industries and privatize them in one big push. Let capitalists take over these companies. Rather than deceitful managers skimming income, have the owners start paying corporate taxes. At best, the new owners could help Yeltsin fight off the Communist onslaught. At worst, let the Communists, should they win, try to renationalize private property.

But this time Chubais could no longer afford to give out privatization vouchers free to every Russian. He needed cash. At the time, state budget receipts were only $37 billion, whereas expenditures were $52 billion, generating nearly a 30 percent deficit. Oil exports at the price of $15 per barrel were not generating enough cash. Taxes were not collected, and salaries of state employees had to be paid. The war in Chechnya was costing more and more each month. Foreign investment trickled to a minimum. So he turned to the only place where one could find cash in the country: the emergent banking sector, where no Soviet holdovers existed. It was a 100 percent novel, privately owned industry that originated from scratch.

As Chubais himself later explained, “In 1996, I had a choice between the communists coming to power, or robber capitalism. I chose robber capitalism.”

Chubais handpicked a dozen bankers whom he knew would never cave in to the Communists and offered them some of the crown jewels of Russia: gas, minerals, and elements of the infrastructure industries, in exchange for all the cash they could raise. The government got loans from the banks secured by shares in the enterprises. If the loan was not returned on time, then the bank could auction the shares off—a pure formality, since the bank itself controlled the process.

The loans-for-shares auctions involved twelve enterprises in all: six oil companies, three factories, and three shipping companies. They garnered $1.1 billion for the government. The lucky robber
barons became some of the richest men on earth—assuming they could hold on to their assets after the elections.

As for Boris, he wasn’t initially planning to take part in the auctions, as he didn’t own a bank and didn’t have that kind of money. He also had the insatiable TV network hanging around his neck, which devoured all the profits from his automobile business. But among all the new oligarchs, he was the closest to the Kremlin, and so he figured out a way to turn his weakness into a strength: he explained to Chubais and Korzhakov, the two principals in the Kremlin, that in order to support ORT, he needed some sort of cash generator. After all, the state owned a 51 percent stake and should bear some responsibility for the unprofitable network. He got the go-ahead. An additional “auction” was hastily announced for a controlling stake in Sibneft, the Siberian oil company that was the seventh largest oil producer in the Russian Federation. Chubais’s economists valued it at a minimum of $100 million.

But Boris didn’t have $100 million. He could scrape up only about half that amount.

October 6, 1995: A bomb critically injures Anatoly Romanov, the Russian commander in Chechnya and one of the rare doves in the military, who was in the midst of peace negotiations with the rebels. The cease-fire that has been holding since June is shattered. Rumors abound that the attack on Romanov is the work of “the Party of War,” a cabal of top military and security mandarins unhappy about Yeltsin’s attempts to reach a negotiated settlement. The defense and interior ministers openly call for an all-out war
.

One day in the early fall, Boris called to invite me to The Club to discuss “an urgent matter.”

For most people in Moscow, The Club was a famous and mysterious place. A visit there was proof of one’s status. The quality of wine and the artistry of the chef were legendary. In the wake of the assassination attempt on Boris in 1994, the security was impressive,
including metal detectors, closed-circuit television monitors, an ID registry, and the presence of many attentive young men with the demeanor and habits of the old KGB Kremlin guards.

Over the bar, which also served as a waiting room, hung the first HDTV in Moscow. There was a white grand piano, played occasionally by one of Boris’s old friends, an elderly Jew in a white suit. In the corner stood a stuffed crocodile, for reasons unknown. Boris was always behind schedule, so his visitors usually had to wait. The atmosphere was supposed to help time pass pleasantly for his unending stream of visitors.

On any given day at The Club you could rub elbows with ministers and TV personalities, deputies of the Duma and top journalists, provincial governors and Western fund managers, as well as people no one knew, such as an unremarkable young man in a jeans suit who often sat in a corner: Sasha Litvinenko. Sasha and I saw each other at The Club several times before we were ever introduced.

This time I was rushed straight through the bar into Boris’s office via a small foyer, in the middle of which was a little burbling Baroque fountain.

“What do you think, would George be interested in an investment project of about $50 million?” Boris began before I even got in the door.

After the fiasco over the loan for ORT, it seemed pointless to go to Soros with another proposal like this, but before I had a chance to say a word Boris began throwing information at me. “This time, I don’t have an unprofitable television station but a real, profit-making oil company, vertically integrated, with an oil field, a refinery, and an export terminal—a crown jewel of the Soviet energy complex. We are gearing up for the auction and are just a bit short of cash. So I’d like to propose to George to go into this with me 50-50.”

“Wait a minute,” I objected. “They don’t allow foreigners into these auctions.”

“Not a problem,” exclaimed Boris. “A Russian legal entity is set up, with George having 50 percent minus one share. By world standards, the oil reserves here would be worth maybe $5 billion. Less the political risk, of course. Tell George he must agree. Here’s the
documentation package. This is really urgent. I could fly to New York at any minute.”

I carried the offer to New York and was surprised to discover that Soros was willing to consider it. He pondered it for two weeks. I watched him, making bets with myself: would he cross the line and join in the gold rush of robber capitalism?

George Soros does not hide the fact that he is made up of two personalities: a shrewd fund manager acting in the interests of his shareholders, and a social reformer who strives to change the world for the better. To avoid a conflict of interest, he prefers not to do business in those countries where he does philanthropy. But this was an opportunity of a lifetime.

In the end, he declined. “This package is worth nothing,” he said. “I’ll bet you a hundred to one that the Communists will win and cancel all these auctions. And my advice to Boris is this: he should not do it either. He is putting into this all he has got, and he will lose it all.”

Soros was not alone in this evaluation. Boris went around to all his Western and Eastern partners, from the bosses of Mercedes in Germany to the owners of Daewoo in Korea, but nobody wanted to buy into Sibneft. Everyone thought that Chubais’s gambit with dubious auctions would not last a month after Yeltsin’s departure, which seemed all but certain.

In the end, Boris did find a partner, an unknown oil trader named Roman (Roma) Abramovich. Roma was a shy, rosy-cheeked fellow of twenty-nine, slightly pudgy, who wore jeans and a sweater and who drove to The Club on a motorcycle. Where he got the $50 million no one knew.

“Let me introduce you,” said Boris one day at The Club when I returned with Soros’s rejection. “This is Roma, my new partner. He is very interested in philanthropy, and I think we need to put him on the board of the new foundation.”

Boris was talking about my latest project, the Russian Society for Science and Education, which I was trying to organize with donations from various budding oligarchs.

I started my spiel about the Gilded Age and the pillars of American
philanthropy. Roma listened politely, lowering his gaze and smiling shyly in response to Boris’s cooing that he was one of those young people Russia needed “to make it into a normal country.”

“Well, what do you think? A wonderful guy, we need more like him!” Boris enthused after Roma left without ever having said a word.

Boris would come to regret bitterly the day that he brought Roma into his circle: five years later, taken control of Sibneft and ORT, the shy young man would become the next gray eminence of the Kremlin and the richest man in Russia.

January 9-18, 1996: Chechen rebels led by the warlord Salman Raduyev attack the town of Kizlyar, Dagestan, inside the Russian border. They take with them 160 hostages but are encircled by Russian troops in the border village of Pervomaiskoye. Sasha Litvinenko, among other FSB men, is there, in the trenches with the regular army. After a weeklong siege, and several futile attempts to take the village, Russian commanders insist that there are “no hostages left” and launch an intensive bombardment, killing many hostages and some rebels. The next morning, Raduyev and the bulk of the rebels escape through Russian lines, taking twenty hostages back to Chechnya. Litvinenko is stunned by the army’s brutality
.

Davos, Switzerland, February 3, 1996

Vladimir Gusinsky, nicknamed “Goose,” answered the phone at his hotel room in Davos. When he heard the voice of his caller, he was speechless. It was his archenemy, Boris Berezovsky.

They were both attending the World Economic Forum of 1996.

“Volodya, don’t you think that we should let bygones be bygones, and sit down and talk?” Boris said.

A former theater director and a leader of Moscow’s Jewish community, Gusinsky, forty-three, was at one point considered the
wealthiest man in Russia—that is, before the loans-for-shares scheme created a new, richer breed of oligarchs. He owed his fortune to his friendship with Mayor Yuri Luzhkov. Goose’s Most-Bank was the principal depository of municipal funds. His real estate company snapped up the best properties made available in city-controlled privatizations. He also owned a newspaper, a weekly news magazine, a radio station, and NTV. The network loved to give the Kremlin headaches, attacking its policies day and night and mocking its officials on
Kukly
(The Puppets), the popular political satire program. In his political outlook, Goose, a bespectacled intellectual, was close to Grigory Yavlinsky, the left-of-center democratic politician and a friend of George Soros. Gusinsky did not like Yeltsin and he feared the cabal of military and state security types in the president’s circle.