After observing Boris Berezovsky in Moscow for several years and meeting him once or twice, I found I rather liked him. And I suspect from the fascinated tone of his book that Paul Klebnikov does too, notwithstanding the part he considers his subject to have played in hijacking the government of Russia over the past ten years, wrecking its industry, poisoning its public morals, and so on.
There is plenty in that argument, and it would be misleading to suggest that Boris Berezovsky could, by any stretch of the imagination, be described as a nice man, at any rate in his professional life. Russia is not a nice place. And, as Klebnikov records, Berezovsky gravitates to corners of it that are lawless and violent even by Russia’s standards—the car industry and the aluminum industry, for example, and Chechnya, where he has been involved in ransoming hostages. Nice men do not take on a fight with the Solntsevo mafia, which wanted to run him out of the car dealerships from which he made his first fortune; or with Anatoly “the Bull” Bykov, who was let out of prison in August of this year having seemingly conceded defeat to Berezovsky and associates in his fight to control Siberia’s great Krasnoyarsk aluminum smelter; or with Alexander Korzhakov, the ex-KGB general whose place in the Kremlin Berezovsky usurped as Boris Yeltsin’s chief courtier.
But at least with Berezovsky there is another side to his character. He is a clever, well-educated, sophisticated man, proof that brains count for something, even in what seems a brutish world. Before reinventing himself in the early 1990s as an aggressive force in New Russian business, he had spent twenty-five years in Soviet universities as a high-powered mathematician. He saw how to make and take money from the collapsing state, and he saw how to use that money to manipulate his country’s politics and so produce yet more money for himself. He can charm practically anyone when he wants to, and he can terrify most people too. “I literally felt that he could kill me,” George Soros said after an argument with him.1
He must still have a billion or two dollars in the bank, even if the political foundations of his fortune have gotten a lot shakier since Yeltsin left office. He still has a lot of friends in high places. You probably do not want him for a partner, and you certainly do not want him for an enemy. But for sheer narrative value he is irresistible. Klebnikov has chosen wisely.
Klebnikov is an American journalist from a Russian émigré family. His book has its origins in a profile of Berezovsky he wrote four years ago for Forbes magazine.2 That piece was called “Godfather of the Kremlin?” and Klebnikov has merely dropped the question mark for the title of his book.
The Forbes piece identified Berezovsky, previously a relatively obscure figure, as possibly “the most powerful man in Russia,” and certainly one of the richest. The article described the origins of his fortune in Russia’s heavily criminalized car-dealing business. It tried to link him, on circumstantial evidence alone, to the assassination of a prominent journalist who was obstructing his takeover of Russia’s main television station. It explained his preferred way of adding to his empire. He rarely invested much capital in buying companies’ shares; instead he found ways to capture control of their management—including joint ventures, political pressures, and personal payoffs—and with it control of company revenues.3 It suggested that he might be starting to use this method on Aeroflot, Russia’s biggest airline.
Berezovsky was, moreover, “a powerful gangland boss,” said Klebnikov. He loomed “like a giant shadow in this violent world”: so violent that Forbes claimed a need to publish the piece anonymously. This last was an odd touch, since Berezovsky knew very well who had written about him. Klebnikov had interviewed him three months earlier. When Berezovsky responded with a libel suit filed in London, he said, “The Forbes article should have been labeled as fiction. It is constructed on falsehoods and mean-spirited assertions…. I deeply resent being falsely accused as somebody who would ever physically hurt someone. I know who Paul Klebnikov is and I know what he wrote and he has nothing to worry about…. However, I do expect Forbes to retract the story and apologize to those it has hurt.”
Forbes has refused. The legal proceedings so far have consisted of preliminary arguments about whether an English court should have the right to hear the case at all. Berezovsky says he wants a trial in London because he has suffered damage to his reputation in England. Others presume he is aware that libel is easier to prove in England than in America, and damages are often higher. Forbes has been objecting that only a tiny fraction of its print run is sold in England, so a trial there is inappropriate. But the argument has gone Berezovsky’s way, and the case looks set to be decided in London next year.
So it is, in the circumstances, a bold gesture on the part of Klebnikov and his publishers to have gone ahead with this book. Doubtless there will be many lawyers in London among its readers. They will find it contains a portrait of Berezovsky more searching and considered than time and space allowed the author the first time around. It gives, therefore, a richer picture of the Russian business world in the 1990s, and, indeed, it contains some of the best reporting I have seen from that strange world. As far as I can tell, Klebnikov stands by his facts, where they can be identified reliably as such. (This can be hard to do in Russia: not for nothing do the Russians have a saying, “He lies like an eyewitness.”) But he recasts and rethinks some of his deductions and assertions. He has become more understanding of the environment in which Berezovsky has been operating. And thus, almost inevitably, he becomes in some respects more understanding of Berezovsky’s methods.
Notably, he does not repeat in this book his straightforward 1996 description of Berezovsky as “a powerful gangland boss.” Rather, he shows Berezovsky as a businessman who makes use of gangland muscle when he has to. In the car trade especially, the competition could be lethal. Dealers enjoyed margins of almost 100 percent on the rickety Zhiguli sedans that they sold, and customers paid in cash. Those factors made the business especially attractive to criminals, who fought to monopolize it. In 1993 a shoot-out between rival gangs outside Berezovsky’s main showroom left three men dead and six wounded. A year later Berezovsky was almost killed by a car bomb, which decapitated his chauffeur. Klebnikov writes that his fortune “made him a target for organized-crime groups. He would not survive in this business unless he could protect his gains physically.”
By 1996, which is to say, by the time of Klebnikov’s earlier profile, Berezovsky had turned his attentions from the car industry to the media, taking control of Russia’s main national television station and buying several newspapers. He was thinking big. He wanted the media properties for the leverage they would bring him over the government. Klebnikov credits him with a new respectability of sorts:
Berezovsky’s media empire meant that he no longer had to sur-vive in the squalid, bloodstained struggles that characterized the auto-dealership business. He had emerged as the supreme oligarch, first among equals in the Russian business world.
Klebnikov’s book contains much new detail and adds many nuances to his work of four years ago. His main new contribution is his investigation into Berezovsky’s relations with Aeroflot, which were still taking shape in 1996. Klebnikov alleges that Swiss firms controlled by Berezovsky, under the guise of running “international treasury operations” for Aeroflot, were, at least until 1998, intercepting hundreds of millions of dollars in Aeroflot’s foreign-currency revenues, investing the money on their own account, and lending Aeroflot rubles at usurious interest rates to cover the deficit.
The Russian authorities have been on the same trail, with mixed results. The first prosecutor to handle the case, Yuri Skuratov, who was in charge of several other controversial investigations, resigned last year soon after ordering raids on several Russian companies linked to Berezovsky. Apparently he was under pressure to go no further. A second prosecutor, Nikolai Volkov, persuaded the Swiss authorities to raid the offices of the firms there linked to Berezovsky. In July the Swiss sent crates of seized documents to Moscow. In August Volkov also resigned, under pressure from people that he declined to name.4
Klebnikov insists in his introduction that he has not sought to write a full-scale biography of Berezovsky, but rather to describe, in the words of his title, “the looting of Russia,” with Berezovsky as his looter-in-chief. Still, I wish he had found time to give Berezovsky’s early life more attention. The looting of Russia is a fairly well documented affair by now, at least in its political and its financial aspects. As Chrystia Freeland shows in Sale of the Century, the best general book on that subject to date, the story in brief is that the wealth of the state was up for grabs, and, human nature being what it is, people grabbed it.
The continuing mystery lies in the character of the oligarchs themselves, and their origins. What made them alone capable of doing what they did? In the case of Berezovsky, what turned the mathematician of 1986 into the “looming shadow” of 1996? Why would he fall out sooner or later with every person he dealt with—including, most recently, Vladimir Putin? What stops him, even now, from consolidating his business interests while he is still alive and rich, and retiring behind high walls in the south of France?
I imagine these are questions that interest Klebnikov too. No doubt he would have asked Berezovsky about these and other subjects had Berezovsky been willing to speak to him. But the source notes list no author’s interview with Berezovsky later than September 1996. Klebnikov makes do with interviewing people who have had dealings with Berezovsky, and who produce several pithy insights.
Berezovsky’s gift for business relations is well summed up in the view of one “Colonel Streletsky,” an officer in the presidential security service, who tells Klebnikov: “For Berezovsky, people are divided into two categories: a condom in its packaging and condom that has been used.”5 There are, in other words, no enduring alliances for Berezovsky. He takes a quantitative approach to making friends and buying influence. He spreads his favors widely at the start of any contest, and shifts his loyalties readily in the course of it. He wants to have around him a good supply of usable people. His skill lies in playing his protégés off against one another, with victory going to the one who, by the end, is obligated to him the most.
Another sharp-eyed observation comes from Sergei Kiriyenko, the well-meaning but overwhelmed young man whose brief term as prime minister of Russia spanned the collapse of the financial markets and the debt default of August 1998. According to Kiriyenko:
Berezovsky is able to project a demonic image quite brilliantly… thanks to the fact that he has access to good information, and as soon as he finds out that someone, somewhere, is trying to do something, he immediately appears in public with a similar suggestion, so that the next day, everyone will think that it was done because Berezovsky mentioned it.
This is, in fact, part of a more general principle exploited by Berezovsky: that in Russia the image of power is often as valuable as power itself. People are easily taken in. And, conversely, he follows the principle that if you do have power, never conceal it. Use it. Exaggerate it. When Russia’s richest men clubbed together to pay for Boris Yeltsin’s successful reelection campaign in 1996, it was Berezovsky who wanted the world to know that he and his friends had just bought the Kremlin.
I will add here an observation of my own, encouraged by the fact that George Soros has confirmed it from his own experience. It is that Berezovsky can never bring himself to give ground, to compromise, even when compromise would be to his advantage. He must always win and be seen to win. In these pages Soros recalled a meeting with Berezovsky, after Berezovsky had tried and failed to persuade Anatoly Chubais, then first deputy prime minister of Russia, to rig an auction of state assets in the way Berezovsky wanted it:
He vowed to destroy Chubais. I had a number of heart-to-heart talks with him but I did not manage to dissuade him. I told him he was a rich man, worth billions on paper. His major asset was Sibneft, one of the largest oil companies in the world. All he needed to do was to consolidate his position. If he could not do it himself, he could engage an investment banker. He told me I did not understand. It was not a question of how rich he was but how he measured up against Chubais and against the other oligarchs. They had made a deal, they must stick to it. He must destroy or be destroyed…. When I warned him that he was pulling down the tent around him, he answered that he had no choice.6
This pugnacity may well be a legacy of Berezovsky’s car-dealing years, when survival was a matter of facing people down, scaring them off, showing no weakness. But in politics and high finance the inability to give ground is dangerous, and it has been doing Berezovsky more and more damage of late. It explains his troubled relations with Putin, whose rise to power he supported, not least through promoting him on the television channel he controls. But because Putin is not an enfeebled old drunk, he does not give Berezovsky the same run of the Kremlin that Yeltsin did. And because Berezovsky cannot bring himself to suffer that diminution of influence gracefully, he turned against Putin.
Since June he has declared himself publicly an opponent of the Kremlin, and he seems to be serious about it. He criticized sharply and publicly the government’s handling of the Kursk submarine disaster, for example, in which 118 Russian seamen died. He has since accused the Kremlin of trying to take away his shares in ORT, the national television channel. His counteroffer has been to vest the shares in a trust which, he says, will be controlled by a committee of journalists and public figures of his own choosing.
It is a battle he need not fight. Putin has been harassing the oligarchs, but in order to show them who is boss, not to drive them out of business. They still own much of Russia’s natural resources and a good many of its major industries. Berezovsky could have accepted this new balance of power and prospered as his rivals in business are doing, recovering in most cases from the losses they suffered in the 1998 crash.7 As Klebnikov shows, he not only has plenty of enemies, but plenty of friends in high places too. He simply cannot do it. He needs to give the orders. That attitude was the making of him under Yeltsin, and it will be the unmaking of him under Putin.
Chrystia Freeland, like Klebnikov, has reporter’s notebooks on which to draw. Her writing from Moscow for the Financial Times included a much-quoted article published on November 1, 1996, that laid bare for the first time both the mechanics and the objectives of the deal whereby Berezovsky and his fellow “oligarchs” paid for Boris Yeltsin’s successful reelection campaign earlier in the year, and installed Anatoly Chubais, a politician previously in change of privatization and economic reform, as its manager.
The “oligarchs” were a group of seven financiers who had formed an alliance during the election campaign and who, Berezovsky said, controlled roughly half the Russian economy between them. The others were Vladimir Gusinsky of the Most media and banking group; Mikhail Khodorkovsky of the Menatep financial and industrial group; Vladimir Potanin of Uneximbank; Aleksandr Smolensky of Sto-lichny Bank; and Mikhail Friedman and Pyotr Aven from the Alfa banking and trading group. The oligarchs’ subsequent demands for privileges were received with amazement abroad. Could a country truly be run this way? Yes, Russia could.
Berezovsky took a job as deputy head of Yeltsin’s National Security Council. Potanin joined the cabinet as first deputy prime minister. All the oligarchs demanded to buy privatized assets at knockdown prices. Yeltsin and Chubais allowed them to do so, mainly through a scheme known as “loans-for-shares.”
This is how it worked. At the end of 1995 the oligarchs’ banks had made loans to the government, in exchange for which they had taken temporary custody of state shareholdings in some of Russia’s biggest and most valuable firms. At the end of 1996 the government chose not to repay the loans, so that the oligarchs could claim the shareholdings as their own. Thus Berezovsky and his allies ended up paying $110 million for 51 percent of an oil company, Sibneft, that was worth almost $5 billion when the stock market boomed in 1997.8 Khodorkovsky’s Menatep group paid $160 million for a controlling stake in another oil firm, Yukos, that was valued at $6.2 billion in 1997. Potanin’s Uneximbank group paid $250 million for control of Norilsk Nickel, one of the world’s biggest metals producers, later valued at almost $2 billion in the stock market.
Freeland argues that these loans-for-shares deals, the “Sale of the Century,” marked the point at which Russian reform went finally and irrevocably wrong. Chubais and others, who had genuinely intended to build Western-style capitalism, ended up selling their souls, and Russia’s assets, to oligarchs who preferred cronyism and corruption. Stripped of its assets, the state was too poor to function properly. Fat with those assets, the oligarchs were too powerful to be taxed or otherwise regulated. And with that much money to be had so easily, the reformers themselves became tainted by it. Chubais and four close colleagues were heaved out of office in 1997 for accepting a total of $450,000 as publisher’s advances from a firm controlled by Potanin’s Uneximbank group. It was not all that much money by Russian standards, but in accepting it the reformers made a horrible error of judgment. It cost them their moral standing, their image as idealists, which was more or less the only political resource remaining to them, in view of the failure to date of their policies.
Freeland convinces us that loans-for-shares was indeed something of a low point in the governance of Russia. But one strength of her book is that she keeps in view the way things looked then. And at the time, loans-for-shares looked a bit more defensible than it does now.
First, there was the politics of it: if the oligarchs had not taken over and paid for Yeltsin’s reelection campaign, then the Communists would have won the election (unless Yeltsin panicked and canceled it). Would a Communist victory have been worse news still for Russia, even worse than the second term of Yeltsin? Yes, it would have been. Not because the Communists, led by Gennady Zyuganov, were all hard-line Marxists or Stalinists. They were not. But they were astonishingly confused and incompetent people who would have been capable, through ignorance as much as intent, of ruining Russia’s finances and public services as completely as Yeltsin ever did. And when everything collapsed around them, as it would have done, their instinct would have been to lash out in anger, and not, as Yeltsin did, to moan in dismay.
Second, the economic defense of Chubais’s team was, and remains, that loans-for-shares might have been bad, but the alternatives were worse. Somebody would have grabbed control of these companies, and it was only a question of whom. At least the sordid arrangement steered the companies toward people with some record of financial or business experience, even if they have proved rotten managers after the fact.
If it does help to place the blame, then Freeland places it where it belongs. “The future oligarchs did what any red-blooded businessman would do,” she notes with what I suspect must also be just a touch of admiration. “The real problem was that the state let them get away with it.” She leaves us with no doubt that Yeltsin, his family, and his top bureaucrats were naive, or incompetent, or corrupt, or all three, in their dealings with the oligarchs.
I have some reservations, therefore, about Freeland’s central thesis, that loans-for-shares was a decisive event in the recent history of Russia. It made one small group of people very rich, instead of whatever other small group of people would have acquired the same assets at another time through other means. And it helped ensure that Russia was looted under a re-elected Boris Yeltsin, and not under President Zyuganov.
But assessing historical responsibility is not the main point of Freeland’s book. Its great value lies in its sharp reporting, its gossip and detail. She has a gift for making people talk, and she clearly gained the trust of enough of the oligarchs to piece together the closest thing I have yet seen to an intimate picture of them. Gusinsky explains to her that:
I always risk everything. A man must regularly, every five or seven years, change his life. If he doesn’t do that, he becomes internally boring. Girls stop loving him, and his own children stop respecting him. Even dogs no longer come up and sniff him. Don’t laugh, it is true—a man must be loved by women, children, and dogs. Those three categories are the essentials of life.
Of the bankers, Vladimir Potanin comes across as forceful but featureless, while Mikhail Friedman has a touch of the student about him, still not quite believing in the durability of his good fortune. Mikhail Khodorkovsky is a split personality, his diffident exterior concealing a strong inner sense of his superiority. He tells Freeland:
If a man is not an oligarch, something is not right with him. It means for some reason he was unable to become an oligarch. Everyone had the same starting conditions, everyone could have done it.
The claim is partly self-serving. Most of the oligarchs, including Kho-dorkovsky, came up through the Communist Party Youth League, the Komsomol. Some started their banks with Communist Party funds. This part of their history, and the debts they contracted during it, remain obscure still. A book dealing with this earlier period as capably as Freeland deals with the later one—a “prequel” to Sale of the Century—would be a welcome addition to Russian Studies.
Still, there is something in Khodorkovsky’s claim. The trouble with Russia, for a capitalist at any rate, is not that it has no past, but that it has almost no useful past. It might as well be a newly created country. And in their way, the oligarchs in the early 1990s were not so very far from Hegel’s “first men,” inventing from first principles a social order determined either through violence or through a willingness to risk it. Hegel, in Francis Fukuyama’s paraphrase, thought the great class divide relied “not…on economic function… but on one’s attitude toward violent death. Society was divided between masters who were willing to risk their lives, and slaves who were not.”9
This sounds a grandiose way of putting it. But I suspect the oligarchs, and Berezovsky especially, would go along with it.
October 19, 2000
George Soros, “Who Lost Russia?,” The New York Review, April 13, 2000, p. 14. ↩
“Godfather of the Kremlin?” Forbes, December 30, 1996. ↩
Berezovsky began his business career by drawing the management of Avtovaz, the country’s biggest car maker, into a joint venture providing computer services to the Avtovaz plant. The joint venture, Logovaz, changed its vocation within months to become the biggest retailer of Avtovaz cars: the cars came out of Avtovaz, the money went into Logovaz. In 1995 Berezovsky and associates took control of Russia’s biggest television station, ORT, by persuading the Yeltsin government to sell them a minority shareholding at a near-nominal price, and at the same time assign them the commercial running of the station. Berezovsky bought control of Sibneft, his oil company, which he has since sold, at the knockdown prices prevailing in the “loans for shares” auctions of 1995-1996. ↩
Volkov was also urging Swiss authorities to look into the possible diversion there of money lent to Russia by the International Monetary Fund. His resignation may have been related to political pressures surrounding this case. ↩
Watching Berezovsky’s recent grapplings with Putin, one might add a third category here: a condom whose packaging Berezovsky finds he cannot open at the necessary moment. ↩
Soros, “Who Lost Russia?,” p. 14. ↩
The obvious exception here has been Vladimir Gusinsky, literally run out of Russia (to a new home in Gibraltar) by the police and tax inspectors after Putin took power. Gusinsky’s main crime has been to own an independent television station, NTV, which has been critical of Putin and his policies. Enigmatic as Putin remains, it is clear enough by now that he has no tolerance for criticism and no respect for a free press. The model for succeeding in business under Putin seems to be Roman Abramovich, a young partner of Berezovsky’s in the oil business and, more recently, in the aluminum industry, who is probably wealthier now than his mentor. Like Berezovsky, Abramovich cultivated ties with the Yeltsin family. Unlike Berezovsky, he has accepted quietly the new regime. He has a horror of publicity, and he has scarcely if ever made a political statement in public, still less a criticism of the government. ↩
Or so it is reliably presumed. Berezovsky’s own name rarely if ever appears on any share register. ↩
The End of History and the Last Man (Avon, 1992), p. 147. ↩