Читать книгу Putin’s People - Catherine Belton - Страница 12

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‘What we’ve discussed is how the darkest forces never give up. The French Revolution, the Soviet one, all the others, appear first as a liberating struggle. But they soon morph into military dictatorship. The early heroes look like idiots, the thugs show their true faces, and the cycle (which isn’t what revolution means) is complete.’

Christian Michel

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MOSCOW, August 25 1991 – It was late in the evening when Nikolai Kruchina trudged wearily through the door to his flat in the closely-guarded compound for the Party elite. Just four days before, on August 21, the attempted coup by Communist hard-liners seeking to preserve Soviet power had collapsed in failure. And now, the institutions Kruchina had served for most of his life were being dismantled in front of his eyes. The evening before, he’d held a series of high-level meetings with the powerful boss of the Central Committee’s International Department, Valentin Falin, and he seemed exhausted.[1] The KGB watchman outside his home noticed his downcast gaze, his clear reluctance to talk.[2]

The changes in those four short days had come thick and fast. First, the pro-democratic Russian leader Boris Yeltsin had signed a decree, broadcast live, suspending the Soviet Communist Party and ending its decades of rule. Yeltsin’s defiant stance against the hard-line leaders of the attempted coup had put him firmly in the ascendant. He now by far eclipsed Gorbachev, who stood timidly to the side of the podium as Yeltsin addressed the Russian parliament. Arguing that the Communist Party was to blame for the illegal coup, Yeltsin ordered that the sprawling, warren-like headquarters of the Party’s Central Committee on Moscow’s Old Square be immediately sealed. Filed in hundreds of its rooms were the secrets of the Soviet Union’s vast financial empire, a network that spanned thousands of administrative buildings, hotels, dachas and sanatoriums, as well as the Party’s hard-currency bank accounts and untold hundreds, perhaps thousands, of foreign firms set up as joint ventures in the dying days of the regime. Through these bank accounts and other connected firms, the strategic operations of the Communist Party abroad – and those of allied political parties – had been funded. It was the engine room of the Soviet struggle for supremacy against the West. This was the empire Kruchina had administered as the chief of the Communist Party’s property department since 1983. Its sudden sealing felt like a symbol of all that was lost.

Kruchina’s wife turned in early that night, leaving her husband alone, she believed, to spend the night sleeping on the couch. But early the next morning she was awoken by a knock on her door. It was the KGB watchman. Her husband, she was told, had fallen to his death from the window of their seventh-floor flat.[3]

There were no apparent signs of disturbance, and the watchman said he’d discovered a crumpled note lying on the pavement next to Kruchina’s body. ‘I’m not a conspirator,’ it said. ‘But I’m a coward. Please tell the Soviet people this.’[4] The KGB immediately declared his death a suicide. But to this day, no one knows what exactly happened – or if they do, they are not willing to tell. Those who were at the centre of events in those days, like Viktor Gerashchenko, then the head of the Soviet state bank, prefer to limit their explanations to a Delphic ‘He fell.’[5] Others like Nikolai Leonov, then the powerful head of the KGB’s analytical department, insist that Kruchina was a victim of a ‘deep depression’ that set in at the empire’s collapse.[6]

A little over a month later, the same thing happened to Kruchina’s predecessor as property department chief. On the evening of October 6, Georgy Pavlov fell to his death from the window of his flat. His death, at the age of eighty-one, was also recorded as a suicide. Eleven days after Pavlov’s death, another high-ranking member of the Party’s financial machine fell to his death from his balcony. This time it was the American Section chief of the Communist Party’s international department, Dmitry Lissovolik. Again, it was recorded as a suicide.

What linked the three men was an intimate knowledge of the secret financing systems of the Communist Party at the time the KGB was preparing for the transition to a market economy under Gorbachev’s perestroika reforms. The property department Kruchina and Pavlov oversaw had been understood to have a value of $9 billion.[7] Western experts estimated its foreign holdings at many times more.[8] But in the first few days after the Communist Party’s collapse, Russia’s new rulers were bewildered to discover that the Party’s coffers were nearly empty. Rumours abounded that officials, overseen by Kruchina, had siphoned billions of roubles and other currencies through foreign joint ventures hastily set up in the final years of the regime.[9] Russian prosecutors, originally ordered by Yeltsin to investigate the Communist Party for its role in the August coup attempt, were soon redirected to investigate what had happened to the Party funds.

Although Yeltsin ordered the offices of the Central Committee on Old Square to be sealed, Valentin Falin, the head of the committee’s International Department, which oversaw the funding of foreign operations, immediately ordered his subordinates to start destroying documents.[10] What lay in the archives could provide a roadmap to the crimes of the Communist regime and, most importantly of all, to the cash that had been stashed away.

The most top-secret operations had been run out of Room 516, which had housed the International Department’s special section for ‘Party technology’. It was headed by Vladimir Osintsev, a specialist in black operations, who ran Communist Party influence campaigns to sow discord in countries where the existence of the Party was illegal, such as El Salvador, Turkey, South Africa and Chile. When the Russian prosecutors finally entered this room months later, in October 1991, reams of shredded files were found in ribbons across the floor. But signs of the lengths Party operatives had gone to run sleeper agents under deep cover remained. The prosecutors found piles of foreign passports and stamps from many different countries, heaps of other blank travel documents, and official stamps and visas waiting to be forged. There was a huge photo album filled with pictures of people of all types and races, a selection of wigs and beards, and even rubber moulds for faking fingerprints.[11]

One of the International Department’s employees, Anatoly Smirnov, had rebelled, and smuggled out what he could.[12] The top-secret documents he managed to extract included details of hundreds of millions of dollars in payments to Communist-linked parties abroad. One such document, dated December 5 1989, showed an order for the Soviet state bank to transfer $22 million directly to Falin for the Party’s International Fund for left-wing organisations.[13] Another, dated June 20 1987, ordered Gosbank, the central bank of the USSR, to transfer $1 million to the Party’s curator for international affairs to provide the French Communist Party with additional funds.[14] The physical transfer of the money to France was to be organised by the KGB.

To Smirnov, the fact that the Party was regularly dipping into state coffers to fund its political and influence operations abroad meant that ‘a crime was being committed against our people’.[15] For him, this was a red line. It was against Soviet law. The Party’s operations should have been funded from the donations it collected from members, not from state coffers.[16]

The Russian prosecutors calculated that more than $200 million had been transferred out of the Soviet Union to fund Communist-linked parties in the USSR’s final decade of existence; Smirnov put the total at many times more.[17] The sums transferred by more surreptitious means, for more clandestine activities, remained unknown.

But as the team of prosecutors trawled through what remained of the Central Committee’s archive, they began to find documents that cast light on the myriad of unofficial, secret schemes via which billions of dollars more in funds seemed to have been siphoned out. One such scheme involved what the Soviets called ‘friendly’ firms. These were the crony companies at the heart of the vast system of black-market operations that kept the eastern bloc afloat. Many of them were involved in the smuggling of embargoed technology. They included the string of front companies the East German trade official Alexander Schalck-Golodkowski deployed across East Germany, Austria, Switzerland and Liechtenstein. Others were involved in selling much-needed equipment to the Soviet oil, nuclear power and manufacturing industries at prices that were inflated many times over, while the profits were used to fund the activities of the Communist Party and other leftist movements in Italy, France, Spain, the UK and elsewhere.[18]

The money the CPSU would send directly to fund Communist Parties’ activities was nothing compared to the amounts sent via the friendly firms, said Antonio Fallico, a senior Italian banker with close ties to the top of the Soviet elite, and later to the Putin regime too. The official donations the Italian Communist Party received annually from the Soviet Union were ‘only about $15–20 million. This is not even money.’ The real funding, he said, came from the intermediaries. ‘All Italian firms who wanted to do business in the Soviet Union had to pay money to these firms … This was a colossal flow of money.’[19] A list of forty-five such ‘friendly firms’ was disclosed by prosecutors rooting through the archives. Among the mostly obscure import-export firms was at least one well-known name: Robert Maxwell’s Pergamon Press, a vast publishing house that had long been a channel for the sale of Soviet science books to the West.[20] Just days before the list was published, the body of the controversial former Labour MP and media tycoon had been found floating in the Atlantic Ocean not far from his yacht.

Other companies working with the Soviet regime that stayed off the radar included titans of European industry such as Fiat, Merloni, Olivetti, Siemens and Thyssen, according to a former KGB operative who worked closely with Putin in the nineties, and another businessman who worked in these ‘friendly firms’ during Soviet times. This businessman, who would speak only on condition of anonymity, said his firm had supplied military goods under the guise of medical equipment: ‘The medical equipment – it was a façade. Behind it, the firm produced very serious military equipment. It was the same with Siemens and with ThyssenKrupp. All of them were providing dual-use equipment to the Soviets. These friendly firms were not just fronts, the way things operate now. It was major European companies.’[21]

The network of friendly firms was not only involved in imports. According to one former aide to Gorbachev, some of them were engaged in barter operations that had been under way since the 1970s under Brezhnev.[22] The state oil-export monopoly Soyuznefteexport had, for instance, engaged in an elaborate scheme to barter oil for embargoed goods. It had first delivered oil via traders to vast storage reservoirs in Finland, where the oil’s origins were disguised before a web of intermediaries sold it on in exchange for embargoed technology and other goods, according to a former Soyuznefteexport associate. Fertiliser exports, too, had long been part of these schemes.

For the Russian prosecutors trying to investigate the Party’s finances, the traces of these schemes presented the biggest red flag. Untold fortunes in oil, metals, cotton, chemicals and arms had been transported out of the Soviet Union, either through barter schemes or export deals, and sold at knockdown prices to the intermediary friendly firms in the West. Under the export deals, the friendly firms would buy the raw materials at the Soviet internal price, which was fixed low under the rules of the planned economy, enabling them to reap vast profits when they sold them on at world market prices: the global oil price, for example, was almost ten times higher than the internal Soviet price in those days.[23] They could then stash the funds away into a web of accounts in friendly banks in Europe, such as Switzerland’s Banco del Gottardo, and tax havens in Cyprus, Liechtenstein, Panama, Hong Kong and the British Channel Islands. The fortunes they made could be deployed for the activities of the Communist Party abroad, for active measures to destabilise the West. Most importantly of all, the entire process was overseen by the KGB, whose associates manned the friendly firms and controlled much of the Soviet trade ministry. ‘The friendly firms sold what they had acquired for global prices. The profit was never returned to the Soviet Union,’ wrote the prosecutor general tasked with overseeing the investigation, Valentin Stepankov. ‘All contact with the friendly firms was carried out by the KGB.’[24]

The siphoning of commodities had rapidly accelerated in the final years of the Soviet regime. Later, the one-time head of economic analysis for Soviet military intelligence, Vitaly Shlykov, claimed that a large part of the Soviet Union’s huge military stockpiles of raw materials – literal mountains of aluminium, copper, steel, titanium and other metals – that had been intended to keep the Soviet military machine running for decades to come, were fast dwindling by the time of the Soviet collapse.[25] Prosecutors, however, found only scraps of information. The raw-materials deals had left barely any trace.

But as they searched the debris and destruction, the reams of shredded paper on the floor, the prosecutors found one vital document, which looked as if it might provide a partial key to what happened in the twilight years of the Communist regime. It was a memo, dated August 23 1990, signed by Gorbachev’s deputy general secretary Vladimir Ivashko, and it ordered the creation of an ‘invisible economy’ for the Communist Party.[26] The top Party leadership had evidently recognised that it urgently needed to create a network of firms and joint ventures that would protect and hide the Party’s financial interests as Gorbachev’s reforms sent the country hurtling into chaos. The Party was to invest its hard-currency resources into the capital of international firms operated by ‘friends’. The funds and business associations would have ‘minimum visible links’.

An even more telltale document was found in Nikolai Kruchina’s apartment. When investigators arrived after he had plunged to his death, they found a file lying on his desk. Inside were documents that pointed to a potentially vast network of proxies managing funds for the regime.[27] One of the documents they reportedly found had spaces left blank for the name, Party number and signature of the Party member signing up to become a trusted proxy, a doverennoye litso, or custodian of the Party’s funds and property.

‘I _________ CPSU member since _____, Party number _____, with the following confirm my conscious and voluntary decision to become a trusted custodian of the Party and to carry out the tasks set for me by the Party at any post in any situation, without disclosing my membership of the institute of trusted custodians.

I pledge to preserve and carefully deploy in the interests of the Party the financial and material resources entrusted to me, and I guarantee the return of these resources at the first demand. Everything I earn as a result of economic activities with the Party’s funds I recognise as the Party’s property, and guarantee its transfer at any time and any place.

I pledge to observe the strict confidentiality of this information, and to carry out the orders of the Party, given to me by the individuals authorised to do so.

Signature of CPSU member _________________

Signature of the person taking on the duty _______________’[28]

The prosecutors scrambled to unravel what this document might mean. Few of the Party leadership and other members of the Party elite they questioned would reveal anything. Most claimed that they had been unaware of any such schemes. But the prosecutors’ team struck lucky when they came across Leonid Veselovsky, a former colonel in the foreign-intelligence directorate of the KGB. Fearing a wave of repressions, Veselovsky spoke openly of how he’d been one of a number of top KGB foreign-intelligence operatives drafted in to help manage and hide the Party’s property and wealth.[29] The foreign-intelligence officers were brought in for their knowledge of how Western financial systems worked. They reported to Kruchina, the property department chief, as well as to Vladimir Kryuchkov, the KGB chief, and Filip Bobkov, then the first deputy head of the KGB, and Vladimir Ivashko, the treasurer of the Central Committee.

Veselovsky, a specialist in international economics, had been transferred from his post in Portugal in November 1990 to work on the plan to create an ‘invisible economy’ for the Party’s wealth. It was he who proposed the system of ‘trusted custodians’, or doverenniye litsa, who would hold and manage funds on the Party’s behalf. He’d prepared a series of notes for Kruchina with proposals for disguising the Party funds to protect them from confiscation. These included investing them in charitable or social funds, or anonymously in stocks and shares. The process was to be led by the KGB.

‘On the one hand this will ensure a stable income independent of the future position of the Party. And on the other, these shares can be sold at any moment through stock exchanges and then transferred to other spheres to disguise the Party’s participation while retaining control,’ he wrote. ‘In order to conduct such measures there needs to be an urgent selection of trusted custodians who can carry out separate points of the programme. It could be possible to create a system of secret Party members who will ensure the Party’s existence under any conditions of these extreme times.’[30]

In another note, he suggested the creation of a network of companies and joint ventures, including brokerages and trading firms, in tax havens such as Switzerland, where the shareholders would be the ‘trusted custodians’.[31]

Just as the Stasi had begun preparing, transferring funds into a network of front companies before the fall, the KGB was readying the Party for regime change, fully aware that its monopoly on power was becoming ever more precarious. To some operatives of the foreign-intelligence network drafted in to work on the scheme, when they received the orders from Kryuchkov to start creating private companies it was a clear signal that the game was up for the Communist regime. ‘As soon as this happened, I understood it was the end,’ said Yury Shvets, a senior officer in the KGB’s Washington station until 1987.[32]

But when, after the botched coup attempt of August 1991, the Soviet Communist Party was suddenly no more, it was not at all clear what had happened to the structures created to preserve its wealth, or who was in charge of them. For the Russian prosecutors investigating, the documents left behind in the archives and in Kruchina’s flat provided only the faint outlines of the network. The figures and cogs in the schemes, the trusted proxies, the doverenniye litsa managing the funds, the network of companies, joint ventures and brokerages were hidden.[33] When later questioned about the documents, former members of the Politburo insisted that the collapse had come so swiftly and unexpectedly that no one had had time to implement Ivashko’s plans for the ‘invisible economy’.[34] But the prosecutors found plenty of signs that the project had been at least partially activated, and was long under way – and that it appeared to be led by the foreign-intelligence arm of the KGB.

Veselovsky’s career was just one indication. Two weeks before the August coup attempt he had resigned his position and headed for Switzerland, where he took up a post at a trading firm named Seabeco that was the epitome of a KGB-backed ‘friendly firm’,[35] and that had sold vast amounts of raw materials from the Soviet Union. It was headed by a Soviet émigré named Boris Birshtein, who in the seventies had gone first to Israel and then to Canada, where he set up a string of joint ventures, including one with a leading light of Soviet foreign intelligence.[36] The KGB appeared to have its fingerprints all over Seabeco’s rise. ‘None of this could have happened without the patronage of the KGB,’ said Shvets.

When questioned, former KGB chief Vladimir Kryuchkov admitted that the trading firm had been created as a channel for the Communist Party’s funds. But he insisted again that the plans had never been implemented – there’d been no time before the collapse of the regime.[37] But telltale signs emerged of Seabeco’s continued association with the KGB. A taped telephone conversation between a Seabeco associate and a Russian foreign-intelligence chief was leaked, in which the two men openly discussed the trading network they’d set up.[38] This Seabeco associate, Dmitry Yakubovsky, went public with claims that Seabeco had received tens of millions of dollars to finance KGB operations in Europe.[39]

Any remaining chance the prosecutors might have of following the money trail, however, seemed to evaporate completely when Veselovsky disappeared from his post in Switzerland without a trace. Without adequate funding and only a scanty paper trail, the prosecutors soon ran into a brick wall. Inside Russia, they’d been able to trace the transfer of billions of roubles from Kruchina’s property department to more than a hundred Party firms and commercial banks.[40] But their attempts to recover any of it were simply stonewalled.[41]

The new Yeltsin government seemed to have little interest in finding any of the funds amid the chaos of the Soviet collapse. For one brief moment that seemed to change, when Yegor Gaidar, Yeltsin’s round-faced new reformist prime minister, announced with great fanfare that the government had hired Kroll, a top international investigations firm, to hunt down the Party cash. But, a $1.5 million contract and a year scouring the globe for the missing Party funds later, Kroll appeared to have made even less progress than the prosecutors had. Apparently, there was nothing to report. ‘They didn’t find anything,’ said Pyotr Aven, the government minister whose initiative it was to bring in Kroll in the first place. ‘They found nothing more than the accounts of a handful of top-level bureaucrats. They had no more than half a million dollars on the accounts.’[42]

The problem was, it seemed, that the government did not want the funds to be found. The reason Kroll came back largely empty-handed was that it received no assistance from the Russian government at all. The firm had been blocked from working with the Russian prosecutors. ‘The Russian government was not interested in us finding anything, so we did not,’ said Tommy Helsby, a former Kroll chairman who worked on the probe.[43] ‘All the government wanted to do was use our name in a press conference.’ It only wanted to give the impression that a real search was under way.

The task was made more difficult by the fact that, rather than through straightforward bank transfers, much of the wealth of the Soviet Union appeared to have been transferred, via friendly firms like Seabeco through the raw materials trade. Another big operator in these trades, said Helsby, was the controversial Geneva-based Glencore founder, commodities trader Marc Rich.[44]

The KGB foreign-intelligence operatives who had been behind the creation of the scheme now held the keys to the hidden wealth. ‘At the end, when the Soviet Union collapsed, when the music stopped, these KGB men were the men who knew where the money was,’ said Helsby. ‘But by then they were the employees of a non-existent Soviet state.’

Some of them, however, stayed on; fragments of the KGB’s foreign-intelligence networks were being preserved. Behind the scenes, amid the chaos, ‘some of them continued to manage money for the KGB’, Helsby said.

The night Nikolai Kruchina plunged to his death was the night the Communist Party’s wealth was transferred to a new elite – and part of it had gone to the foreign-intelligence operatives of the KGB. Some of the cash had already undoubtedly been stolen, squirrelled away by top Party bosses and organised crime. But the foreign-intelligence operatives were the men who controlled the accounts when Yeltsin signed the Soviet Communist Party into history. Kruchina may have been grappling with the despairing realisation that the men who handled the funds were no longer under his control. Equally, he may have been sent to his death by those same men, to make sure he could never tell.

‘Kruchina was most probably frightened that he could be asked where all the property had gone,’ said Pavel Voshchanov, a former spokesperson for Yeltsin and a journalist who spent many years investigating the Party’s stolen wealth. ‘Kruchina gave the orders, but now he didn’t know where it all was. The state was being destroyed. The KGB was being destroyed. And already no one knew where these KGB guys were – and who they were.’[45]

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The story of the prosecutors’ search for the missing Party wealth was fast forgotten in the tumult of the collapse. But what the prosecutors found then was a blueprint for everything that was to come later. The smuggling schemes, the friendly firms and the trusted custodians became the model on which the Putin regime and its influence operations would be run. The fact was that parts of the KGB foreign-intelligence elite had begun preparing for a market transition ever since former KGB chief Yury Andropov became Soviet leader in 1982. In the early eighties a handful of Soviet economists had begun to quietly discuss the need for a move to the market, whispering in the privacy of their kitchens about the chronic inefficiencies of the Soviet economy and publishing underground treatises on the need for reform. At the same time, there was a growing realisation among a tight-knit group within the intelligence elite that the Soviet economy was in a death spiral, that it was impossible to maintain the empire of the eastern bloc, let alone run broader influence and disruption campaigns in South America, the Middle East and Africa, and in the West. ‘If you want to have a policy of being a great empire you should be able to spend a huge amount of money,’ said one person who worked closely with reform-minded foreign-intelligence chiefs in those days.[46] ‘It was not within our means to compete with the US. It was very costly and very difficult, impossible perhaps.’ Even before progressive elements within the KGB began tentatively preparing for a possible transition in East Germany, they’d been pushing for sweeping reform in the Soviet Union itself.

The Soviet economy was being drained of resources by the push to build up military production and compete with the West at the expense of everything else. The Communist state was, in theory, succeeding in delivering its socialist vow of providing all workers with free education and healthcare. But in practice the planned economy simply didn’t work. Instead there was a corrupted system under which the ordinary people the Communist state was supposed to protect lived largely in poverty. The Communist state could access plenty of natural resources for corrupt trading schemes, but it was failing to develop light industry to produce competitive consumer goods. There was no private ownership, or even any understanding of what profit was. Instead, the government handed down production quotas to each and every enterprise, controlled all earnings and fixed prices for everything. There was no motivation for anyone, and the system just didn’t work. Consumer goods prices were fixed at incredibly low levels, but because of this there were acute shortages of everything – from bread, sausages and other foodstuffs, to cars, televisions, refrigerators and even apartments. The shortages meant queues and rationing, sometimes for months on end. Informal connections and payoffs to officials were often the only way to jump weeks-long queues for the most basic necessities – for shoe repairs, for a hospital bed, for coffins and funeral rites. The overweening power of the Soviet bureaucracy had built corruption deep into the system, while under these conditions the black market flourished.[47]

In the late sixties black marketeers, known as tsekhoviki, began to set up underground factories in which spare parts and materials siphoned from the state-owned plants were used to produce goods outside the regulated economy. Such activities could result in jail sentences of ten years or more, but increasingly these factories’ output was becoming the only way to make up for at least some of the shortages of the Soviet planned system. Hard-currency speculators would trawl the halls of the Soviet Intourist hotels, risking prison to buy dollars from visiting foreign tourists at an exchange rate far more advantageous to the tourist than the fixed Soviet one. It was a good deal for the speculators, too. In the system of Soviet shortages, anyone with access to hard currency was king. Dollars would gain you access to the well-stocked Bereyozki shops reserved for the Soviet elite, where the shelves were crammed with the quality foodstuffs and other luxuries of the West. It would enable you to buy Western clothing, Western pop music, anything produced outside the stagnating and dreary Soviet economy – all of which could then be sold on for vast profits. The shortages in the Soviet economy ran so deep that, according to the former KGB foreign-intelligence operative Yury Shvets, everyone was for sale. Factory directors fiddled the books to give materials to the black marketeers in return for a cut of the profits. Law-enforcement officials turned a blind eye to the currency speculators marauding through Soviet hotels in return for bribes and access to the hotel buffet.[48] And at the top of the pyramid, ever since the seventies, the Party elite had been taking a cut of the smuggling and trading schemes. All of it undermined any efforts to improve production. ‘The Soviet Union could not even make a pair of tights or shoes,’ said Shvets. ‘Prostitutes would give themselves for one night for one stocking, and then the next night for the other. It was a nightmare.’[49]

It was the members of the security service’s foreign intelligence who saw most clearly that the system had to change. They were the ones who could travel and could see how the market economy operated in the West, how the socialist system was failing to keep up with the technological progress of the Western world. Among them was a legendary Soviet military-intelligence chief, Mikhail Milshtein, a strapping, Kojak-bald man with thick bushy eyebrows who’d served for decades in the US and then returned to Moscow to head the intelligence department at the Soviet military academy. In the seventies he moved to the Institute for the USA and Canada, a think tank that worked closely with Falin’s influential International Department, where he was among those working on ways to engineer a rapprochement with the West. In the halls of the institute, an elegant pre-Revolutionary building tucked away down a narrow, leafy street behind Moscow’s main thoroughfares, Milshtein worked with other associates of the Soviet foreign-intelligence elite on disarmament proposals. He forged close ties with the former US secretary of state Henry Kissinger as he sought ways out of what he called ‘a vicious circle’ of standoff with the West.[50]

Across town, deep in the southern suburbs of the city, in a dark and sprawling seventies-era tower block, a group of economists at the Institute for World Economy and International Relations, known as IMEMO, began working on reforms that would start to relax the Soviet state’s monopoly on the economy. Among them was Rair Simonyan, a bright young economist in his early thirties who was the son of a high-ranking Soviet military-intelligence general. He worked closely with his deputy Andrei Akimov, a foreign-intelligence operative who would later be sent to head the Soviet Union’s bank in Vienna, and subsequently became one of the most important financiers behind Vladimir Putin’s regime. Simonyan made research trips to East Germany, where he saw clearly how far behind the Soviet economy lagged. ‘It was a different world,’ he said.[51]

As early as 1979, Simonyan had worked on a reform that would bring foreign capital into the Soviet economy through the creation of joint ventures between foreign and Soviet businesses. It was a bold measure that would erode the Soviet monopoly on all foreign trade, and it was immediately vetoed by the institute’s director. But when a new director was appointed under Andropov in 1983, ‘an absolutely different life’ began, recalled Simonyan. The new director was Alexander Yakovlev, a former ambassador to Canada who would become a mentor to Gorbachev and the godfather of his perestroika reforms. Simonyan worked closely too with Yevgeny Primakov, a mandarin-like foreign-intelligence operative who’d worked many years in the Middle East under cover as a correspondent for the Soviet newspaper Pravda, forging close ties with Saddam Hussein in Iraq and other leaders in the Soviet patronage system there. Throughout the seventies, Primakov worked at IMEMO, cooperating closely with Milshtein at the US Institute for the USA and Canada, and took over as director of IMEMO when Yakovlev was promoted to the Politburo. He was now heading one of the main nests for the progressives in foreign intelligence. IMEMO became an engine room for the perestroika reforms.

Under Andropov, a new generation of economists was being educated. The twentysomething Yegor Gaidar discussed far-reaching market reforms that he believed were crucial to the survival of the Soviet bloc with the equally youthful Pyotr Aven. Both of them worked at another key research institute in the early eighties, the All Soviet Institute for Systems Research, and both of them were from the heart of the Soviet elite. Aven’s father had been one of the country’s most respected academics, while Gaidar’s had worked under cover of being a correspondent for Pravda in Cuba, where he rose to the rank of admiral. Fidel Castro and Che Guevara visited him in his home, and his son grew up surrounded by high-ranking Soviet generals. Both Gaidar and Aven were to play leading roles in the market reforms of the new Russia. ‘All the market reformers who later came to prominence – from Gorbachev to the young reformers – were brought up in institutions created by Andropov,’ said Vladimir Yakunin, a close Putin ally from the KGB and later a senior Russian official. ‘The first market reforms were mapped out at these institutions.’[52]

Once Andropov had taken over as leader, progressive factions in the KGB, led by the foreign-intelligence directorate and the economic-crime directorate, began to experiment with the creation of a new class of entrepreneurs who would operate outside the confines of the Soviet planned economy. They began with the black marketeers, the tsekhoviki. ‘The real perestroika started under Andropov,’ said Christian Michel, a financial manager who for more than a decade handled funds for the Soviet and then the Russian regimes. ‘The message was given out to turn a blind eye to the black market. He knew the country was otherwise headed for mass starvation.’[53] ‘There was a conscious creation of a black market,’ agreed Anton Surikov, a former senior Russian military-intelligence operative. ‘It was impossible to work in the black market without KGB connections and without protection from the KGB. Without them, no shadow business was possible.’[54]

What had begun as corruption within the system became a KGB-cultivated petri dish for the future market economy, and a stopgap measure to fill the shortages of the command economy. The black marketeers were mostly from the Soviet Union’s ethnic minorities. Often they had very little choice, their careers having been blocked due to the prejudices of the Party elite. ‘The only people who went into it were the people who had no prospects in the normal Soviet system, the ones who had hit a glass ceiling and could go no further,’ said Michel. ‘These were the ethnic minorities: the Georgians, the Chechens, the Jews.’

The black-market experiments also marked the beginning of a sudden acceleration in the transfer of the Soviet Union’s vast wealth through KGB-associated friendly firms. This was the beginning of the looting of the Soviet state. It was also the beginning of what became a mutually beneficial alliance between the KGB and organised crime that stretched through Boris Birshtein’s Seabeco in Switzerland, an outfit named Nordex in Vienna, and to New York through a metals trader named Mikhail Cherney and his Brooklyn-based associate Sam Kislin. Birshtein and the owner of Nordex, Grigory Luchansky, were Soviet émigrés recruited by the KGB to transfer state and Party wealth on the eve of the Soviet collapse, the Swiss intelligence service later said.[55] Later, Birshtein and Kislin were to become part of a network funnelling money from the former Soviet Union into America, including – indirectly – into the business empire of Donald Trump.

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While Putin was in Dresden, the KGB progressives in Moscow were beginning the second stage of their market experiment. They began to cultivate and create their own entrepreneurs from the ranks of the Communist youth league, the Komsomol.

Their eyes soon fell on Mikhail Khodorkovsky, an intensely driven young Muscovite in his early twenties who’d risen to become a deputy chief of his local Komsomol. Khodorkovsky was escaping from a childhood spent in a communal apartment in the north of Moscow where he learned from an early age the dangers of falling through the cracks of Soviet society. The other family who shared his parents’ two-room apartment were a clear demonstration to him of many of the things that could go wrong in life: the father was a half-crazed Bolshevik who would wander through the flat without his trousers, scaring Khodorkovsky’s mother; the son was a drunk,[56] and the daughter a member of ‘the world’s oldest profession’, according to one of Khodorkovsky’s former partners. ‘The whole atmosphere there firmly propelled him to follow Lenin’s principle of “Learn, learn and learn again”. He understood that if you did not try hard and work hard in life you weren’t going to get anywhere.’[57] By the time Khodorkovsky was a teenager his family had moved out of the shared flat, but its atmosphere left a lasting imprint. His parents were engineers, and Khodorkovsky began work at the age of fourteen, earning extra cash by sweeping the yard after school.[58] When we met many years later, after he had experienced a meteoric rise and an equally dizzying fall, he told me his ambition in life back then was to become the director of a Soviet factory, but that he feared his father’s Jewish ethnicity would hold him back.[59]

In those days Khodorkovsky looked like a thick-necked street hustler, dressed in jeans and a denim jacket, with thick glasses and a dark moustache. But his intense focus helped propel him to the top of the local Komsomol, where he started out organising discos for the students at the Mendeleyev Institute for Chemical Science. He demonstrated such entrepreneurial flair that he was soon invited by the top of the Moscow city Komsomol to run an ambitious new initiative called ‘scientific youth centres’, known as NTTMs, which were to act as intermediaries for Moscow’s top scientific research institutes, finding ways to turn research into cash and providing computer programming. They were also to be given access to a potentially vast source of funds, known as beznalichiye. In the Soviet Union’s skewed Alice-in-Wonderland planned economy, profits meant nothing, and everything – from the cost of materials to the price of the finished product – was determined by state planners. All the state enterprises had to do was rigorously follow the annual plan for production handed down by the state. As a result, the plants weren’t meant to hold any more cash in their accounts than what they needed to pay wages. What they held instead were accounting units called beznalichiye, or non-cash. Real cash was in such short supply as a result that one real rouble could be worth ten times as much as a beznalichiye rouble.[60]

Soviet law forbade any enterprise from exchanging the non-cash units for real cash. But under Gorbachev’s reforms, the NTTMs were to be given permission to swap the beznalichiye for real cash simply by moving the funds from one account to another. This unlocked huge amounts of capital, and generated enormous profits. By then Khodorkovsky had teamed up with a cybernetics graduate, Leonid Nevzlin, a smooth-talking political animal with intense green eyes and a debonair air, and Vladimir Dubov, an employee of Moscow’s Institute of High Temperatures. They were given a helping hand from the top. Dubov’s place of employment was one of the Soviet Union’s most secretive research institutes, a gigantic scientific complex deeply involved in research for laser weapons and the Star Wars race. Its head, Alexander Sheindlin, granted the team access to 170,000 roubles in beznalichiye, worth nearly two million roubles in real cash. He didn’t even ask what they would do with the money.[61]

Khodorkovsky and his partners moved into the vanguard of a new movement created by Gorbachev’s perestroika reforms, forming one of the country’s first ‘cooperatives’, essentially the Soviet Union’s first privately-owned businesses. Groundbreaking laws passed in 1987 allowed private businesses to be set up in the parts of the economy where shortages were most acutely felt – consumer goods, shoe repairs and laundry services. A year later the laws were extended to allow entrepreneurs into the Soviet Union’s most lucrative business, the trade of raw materials. Khodorkovsky and his team put the beznalichiye from the Institute of High Temperatures to extremely profitable use, exchanging it for hard currency earned by state timber exporters, and then using the money to import computers. Their actions, however, were still partly directed from on high. The Soviet economy was in dire need of Western technology, its computer systems were lagging far behind. But the Western embargo on high-tech goods made the import of computers a difficult process. Khodorkovsky and his partners needed to use the secret trading channels set up by the KGB.[62]

‘The new generation of businessmen did not appear from nowhere,’ said Thomas Graham, a former senior director for Russia on the US National Security Council. ‘They had people who were helping them. There were certain elements in the Soviet government and in the first directorate of the KGB who had a sense of how the Western world worked and understood the need to change.’[63]

‘Gorbachev was pushing it. It was official policy,’ said Christian Michel, who by 1989 had become a money manager for Khodorkovsky’s new wealth. ‘There were two directorates of the KGB that were specifically interested in this. One was the directorate for the black market and economic crimes. And the second was the foreign-intelligence department, because they understood better than the rest of the Politburo what was happening, and because they had access to a lot of money. They wanted a better return on what they had, so they gave it to people like Khodorkovsky and said, “Go and play.”’[64]

When we met, Khodorkovsky insisted that he was unaware he was part of any KGB experiment. He claimed that he was too young, too obsessed by his bid to succeed to notice that he may have been part of a broader plan. But for years, he said, his activities seemed to him only a job, and it was only in 1993 that he realised the business he ran could be considered his own. All the while, he’d received instructions: ‘They asked, “Could you supply computers here, could you supply computers there? Could you do this, could you do that?” They had the right to issue orders. But always they asked.’[65] (He would not, however, say who these masters were.)

Hundreds of young businessmen began to set up cooperatives. Most of them sought to import computers or trade in consumer goods. But the most successful of them, the ones who entered the raw-materials trade or went into banking, were the ones with the most powerful connections. One such black marketeer from the Komsomol was Mikhail Fridman, an exceptionally bright and ambitious twentysomething with a round face and a pugnacious air who’d essentially been barred from attending Moscow’s best universities due to unofficial anti-Semitic quotas. He’d studied instead at the Moscow Steel and Alloy Institute. After he graduated, instead of focusing on his dead-end job as an engineer at Moscow’s Elektrostal plant, he hawked tickets to the Bolshoi theatre at black-market rates to unsuspecting tourists, reaping dollars to barter goods, always cooperating with the KGB to keep them onside.[66] With friends he created another of the first cooperatives, Alfa Foto, which first washed windows, then imported computers, and then became one of the very few operators allowed to expand into the commodities trade. The outfit was renamed Alfa-Eko, and sank roots deep into Switzerland as one of the very first Soviet–Swiss joint ventures. None of this could have happened without the patronage of the KGB. ‘It was all under Soviet control,’ said a former government official who knew Fridman’s operations well.[67]

The KGB sought to keep tight control over commodity exports, but after the 1988 law was passed allowing cooperatives to participate in trade, its task became ever more difficult. The directors of state enterprises joined the goldrush, creating their own cooperatives to export the huge stores of raw materials – aluminium, steel, copper and fertilisers – held by the plants they ran. They were taking over industrial cash flows, privatising their companies from the inside out before anyone had ever mentioned the word privatisation. Though the KGB attempted to maintain its grip over the most strategic commodities – oil in particular – parts of the raw-materials trade were rapidly becoming a free-for-all. Gorbachev’s reforms had let the genie out of the bottle. The Soviet state was being looted, and most importantly, the power the Communist Party held over the economy – and the country itself – was being eroded fast.

A little-noticed line in the law on cooperatives allowed for the creation of financial or credit businesses – in other words, the creation of banks. Khodorkovsky was among the first to pay attention. He’d gone to a local branch of the Soviet state housing bank, Zhilsotsbank, to ask for a loan for his cooperative, and was told he could be granted one, but only if he created a bank first. Once again, he received a friendly helping hand from on high. Zhilsotsbank agreed to become one of the founders of his bank, eventually registered as Menatep Bank, and the head of the Institute of High Temperatures joined its board. Khodorkovsky contributed capital from the NTTM profits, and soon began making himself loans to fund his computer-import business. Then he found a loophole that allowed him into an even more lucrative trade: the exchange of hard currency. It was now that his business really took off. He could change roubles for dollars at the official fixed state price of sixty-five kopecks to the dollar, and then sell computers at a price worth forty roubles to the dollar.[68] The profits were enormous. The Soviet central bank granted Menatep one of the first licences to trade hard currency, and soon the bank was transferring huge amounts of money abroad.

The floodgates had opened for the transfer of hundreds of millions of dollars into accounts abroad through hard-currency trading. Most of it had happened just as Gorbachev’s deputy general secretary Vladimir Ivashko was signing off on the plan for the ‘invisible economy’ for the Party wealth, and the KGB’s Leonid Veselovsky was proposing creating the system of trusted custodians, or doverenniye litsa. For years, Moscow legend held that Khodorkovsky’s Menatep Bank was one of the main conduits for the transfer of Communist Party wealth abroad. Khodorkovsky has always denied this, but at least one senior Moscow financier and two former senior Russian foreign-intelligence operatives say that Menatep was a key front for the transfer of the Party’s cash. ‘A lot of money was lost from the Central Committee. I know for sure Khodorkovsky was one of the actors in this,’ said the financier.

*

Gorbachev first indicated that he was terrified at the process his economic reforms had unleashed in early 1989. He and his government were proposing to limit how much the owners of the new cooperatives could earn. The plan was that they – and their workers – could pay themselves only a hundred roubles a day, while the rest of the money they made would have to be kept in a special account at a state bank. Gorbachev was clearly trying to stem the looting of the Soviet state: already it was becoming clear that the coffers were running dry. But the proposal met with an immediate backlash. One of the cooperative owners, Artyom Tarasov, the Soviet Union’s first publicly declared rouble millionaire, publicly campaigned against it and won the support of half the Politburo, including Alexander Yakovlev and the former KGB chief Viktor Chebrikov.[69] Gorbachev had always only wanted gradual reform, that would keep the economy within the confines of the socialist state. But now, in the rush for riches, the unity of the Party leadership itself was cracking, with a deepening rift between progressives and old-guard conservatives. One by one, the progressives were giving their support to Boris Yeltsin, the upstart former member of the Politburo who was increasingly challenging Gorbachev’s rule – and members of the KGB secretly joined them. Yeltsin had gained a platform as a leader in his own right under Gorbachev’s own political reforms, first when he was elected chairman of Russia’s Supreme Soviet in 1990, and then when he was elected president of the Russian Federation, in the first such elections in June 1991.

The handpicked new young wolves of Russia’s economic transition were rallying behind Yeltsin, while reform-minded political giants such as Alexander Yakovlev moved to his side too. Khodorkovsky and his team financed part of Yeltsin’s presidential election bid, helping to run part of his media campaign and forging ties deep within his administration.[70]

*

By the time the five black Volga sedans drove up to the wrought-iron gates of Gorbachev’s summer residence in Foros on the Black Sea coast that fateful evening of August 18 1991, the Communist Party of the Soviet Union was already essentially finished.

Parts of the KGB never seemed to support the hard-line coup. The plotters had declared that the KGB chief Vladimir Kryuchkov was with them, but Kryuchkov stepped back from taking decisive action to quash protests against the coup. The KGB didn’t arrest Yeltsin when he landed back in Moscow from Kazakhstan the morning after the plotters took control; nor did the elite KGB special unit, the Alfa troops, detain him as they lurked in the bushes outside his Moscow dacha while he mulled over his next steps. Instead, Yeltsin was able to make his way unhindered to the White House, the seat of the Russian parliament’s power, where he led a defiant protest against the coup as tens of thousands flocked to support him. When the plotters finally gave the order to storm Yeltsin’s stronghold on the afternoon of the third day of the coup, the Alfa troops declined to fire on the White House. Kryuchkov withdrew the order when three men were killed in the early hours of the morning, after a group of protesters had barricaded a nearby street from incoming tanks. No one wanted to spill any more blood.

Progressives in the Party and the KGB had clearly begun to back the democratic leaders, because they didn’t want the flood of cash to stop.[71] ‘Part of the KGB supported Yeltsin,’ said Andrei Illarionov, an economic adviser to Putin in the first years of his presidency. ‘They saw Yeltsin as an alternative who would carry out market reform.’[72]

‘The businesses and the people who stood at the roots of perestroika decided they needed more,’ said Rair Simonyan, the young economist with ties to military intelligence who’d led reform efforts at the Institute for World Economy. ‘It became a political process because it became clear to them that otherwise all their efforts would go into a dead end. Gorbachev was just too indecisive.’[73]

For a long time, hard-liners in the KGB barked about how the collapse of the Soviet system was engineered by agents of the United States. Many were convinced the US had acted to leverage weaknesses within the system and help stoke protests for independence across the Warsaw Pact – and there was some truth to that. It was whispered darkly that Alexander Yakovlev, the godfather of Gorbachev’s perestroika reforms, was planted as an agent of the CIA at the top of the Politburo to demolish the Soviet empire, and that Boris Yeltsin was a US stooge. But the truth is that the revolution that ended seven decades of Communist rule was largely bloodless because many within the system did not want the Party or socialism to survive. ‘The very upper echelon of the Soviet nomenklatura was wiped away, and part of the second and third tier took over the country,’ said the US National Security Council’s Thomas Graham. ‘These people had realised that if you stripped away ideology they could live even better. The country fell apart because these people from the second and third echelon had no interest in it surviving. They had figured out a way of surviving better in the new system.’[74]

Ultimately, when it came, the collapse had been an inside job. The men at the top of the KGB’s foreign intelligence had decided ‘to blow up their own home’, according to one former senior operative.[75]

And when the Russian prosecutors came calling in the search for the Communist Party’s missing wealth, it was the sentinels of the foreign-intelligence directorate who did everything they could to block them. Leading the cover-up was Yevgeny Primakov, the former head of the Institute for World Economy, which had quietly been a leading force behind the reform drive, who soon after the coup would be anointed by Yeltsin as Russia’s new foreign-intelligence chief.[76] ‘Primakov decisively sabotaged the only serious attempt to undo the massive theft that depleted Russia’s treasury,’ said Richard Palmer, a CIA station chief for the former Soviet Union in the early nineties.[77]

All the while, Primakov and his close associate, the one-time military-intelligence chief at the Institute for the USA and Canada, Mikhail Milshtein, had been working on plans to end their country’s standoff with the West. But under the cover of Soviet emigration they’d also been sending a new group of agents into the West to guard and generate part of the hidden cash networks of Russia’s foreign intelligence.[78] Money was being funnelled out and reserved for a later, more covert game. A senior Russian foreign-intelligence operative, Sergei Tretyakov, later claimed that tens of billions of dollars had been transferred to maintain the foreign-intelligence networks of the KGB.[79] Hundreds of foreign shell companies and Soviet joint ventures had been created in the year leading up to the coup, some founded by the Soviet émigrés, others by the handpicked emissaries from the Komsomol.[80]

The Soviet empire might have been lost, but the foreign-intelligence progressives knew that the battle against the West was unsustainable under the command economy anyway. For them, the end of the Communist empire did not mean an end to hostilities, but an opportunity to eventually continue them under new auspices.