Karen Dawisha:

"Putin's Kleptocracy" (2014)

(Copyright © 2020 Piero Scaruffi | Terms of use )
The publication of this book was delayed until 2014 for British fears of Russian retaliation.

The value of the book is in the amount of details and sources about Putin's links to organized crime. The book has two main drawbacks. Despite being organized in chronological chapters, the book jumps forward and backwads in time, confusingly. Second, one has to keep in mind that nothing of what Dawisha writes has been proven "beyond any reasonable doubt", and probably never will. The whole book is about circumstantial evidence, and sometimes the eyewitnesses are not much more credible than Putin.

Dawisha speculates that billions of dollars were kept abroad by the Soviet Union during the last years of the Gorbachev reign, mostly by senior party members and senior KGB managers. Some of the money was used to fund operations abroad, some of it was used to sabotage Gorbachev, and some of it was simply stolen. When the Soviet Union collapsed and Yeltsin became president of Russia, he hired a US firm to track down the money. Leonid Veselovsky inherited the KGB's apparatus to send money abroad (originally to aid communist parties outside of the Soviet Union) and turned it into a vast and efficient money laundering operation through which KGB and Communist Party members set up bank accounts abroad, with the complicity of those foreign banks. Basically, when Gorbachev and then Yeltsin opened the Soviet and Russian economies to capitalism, many KGB and Communist Party members decided that the system was going to collapse (at least their own system) and they used the new capitalist tools not to revive the economy but to hide state money into foreign accounts controlled by them. Initially they may have done so to create a patriotic underground movement, to save what could be saved while Russia collapsed under Yeltsin, but soon they started plundering these funds for personal profit. Putin's first financial ally was probably Matthias Warnig, a former Stasi operative in East Germany who had worked with Putin when Putin was stationed there to steal industrial secrets from Western companies. After Warnig joined Dresdner Bank, that bank became the first foreign bank to set up offices in St Petersburg, where Putin was now deputy mayor. In June 1990 Bank Rossiya was established in St Petersburg. This bank would become the main liaison between the mafia and the politicians. The Tambov and Malyshev gangs both originated as protection rackets in St Petersburg in the late 1980s. Rivals in the past, the two fought a bloody battle for supremacy in 1989. At the end of 1991 Putin was also placed in charge of the gambling business in St Petersburg Before being assassinated, Aleksandr Litvinenko testified that Putin was also at the center of the smuggling of rare metals out of Russia via St Petersburg: Putin was the one issuing the licenses that legitimized the exports, and most of these licenses were granted to mobsters. For sure, Putin never started, helped or supported any investigation into the smuggling. Senior members of the old KGB were involved. The connections between organized crime and city politicians were sometimes openly displayed, like when in 2004 Roman Tsepov died poisoned and Vladimir Kumarin (head of the Tambov crime family) attended his state funeral next to government officials. Tsepov's business partner Viktor Zolotov remains with Putin to this day, head of his body guards. Tsepov and Zolotov are considered the ones who collected bribes for the mayor of St Petersburg when Putin was deputy mayor. Before becoming a well-respected businessman, Tsepov had been Putin's bodyguard, and had been investigated for numerous cases of corruption.

The political background here is important. In 1995 Boris Yeltsin's government began privatizing state-owned companies through a "loans for shares" scheme overseen by Anatoly Chubais. This privatization program resulted in the biggest theft in the history of Russia and perhaps of the world. The wealth of the Russian state ended up in the hands of a few oligarchs with ties to the government. (The book of how greedy US "experts" helped the corporate thieves still has to be written. For example, Harvard University economist Andrei Shleifer was involved in a financial scandal and is still a professor at Harvard, see this lengthy report).

In November 1996 Putin lost his job as deputy mayor because his boss Anatoly Sobchak lost the election. Putin entered the real-estate business as a parner in the Ozero Dacha Cooperative. Sobchak was immediately charged with corruption for some past dealings (at least one of which involved Putin personally) now that the city was run by his enemy Vladimir Yakovlev (yes, back then elections did matter, and opposition politicians sometimes did win). Putin somehow found a new job in Moscow, working for Yeltsin's "family", a corrupt group that included his daughter Tatyana Dyachenko, oligarch Boris Berezovsky and politician Valentin Yumashev. That was the time when the "family" was under investigation for the Mabetex scandal in both Russia and Switzerland (where the money was held). Mabetex was a construction company based in Italian Switzerland, owned by the naturalized Swiss businessman Beghijet Pacolli. In November 1998 prosecutor Yuri Skuratov had unveiled bribes paid by Mabetex to Pavel Borodin, whom Yeltsin had appointed in 1993 to manage Russia's state property portfolio that includes churches, dachas, hotels and resorts, bribes that Borodin allegedly distributed to members of Yeltsin's "family".

In November 1997 Putin architected the escape of his former boss Sobchak, who was about to be arrested, and who presumably could have implicated Putin. Sobchak moved to Paris and the investigation ended. Meanwhile, mobster Gennady Petrov became co-owner of the Bank Rossia in 1998 with the three Putin friends who had co-founded the Ozero Dacha Cooperative.

Putin became head of the FSB in July 1998. The following month the Russian economy collapsed, and rich Russians shipped abroad tens of billions of dollars. Yeltsin was increasingly incapable of running the country, and the oligarchs Berezovsky, Gusinsky, Abramovich and Khodorkovsky were credited with engineering most of his policies.

In 1999 Yeltsin's "family" was in trouble because Yeltsin had completely lost the support of the people, and his prime minister Yevgeny Primakov was way more popular, and therefore likely to replace him as president. Moscow's popular mayor Yury Luzhkov founded the Fatherland Party/ Otechestvo party, and Primakov, fired as prime minister, founded the All Russia/ Vsya Rossiya party. The two parties united to fight Yeltsin and were supported by several governors, including Yakovlev. Worse news were coming from the USA, where investigations had discovered an account at the Bank of New York owned by Yeltsin's son in law Leonic Dyachenko used for money-laundering operations linked to the Russian mafia. According to George Soros, the situation was particularly desperate for Berezovsky because this new investigation meant that he would soon be a wanted man in the West: if the Yeltsin family lost power in Russia, he would be a wanted man in both Russia and the West. In August 1999 Chechen and Dagestani militants attacked villages in Dagenstan, but Berezovsky is suspected to have architected them on behalf of the "family" to create the kind of distraction needed to stop the rise of Luzhkov/Primakov. At that point Putin was appointed prime minister (largely thanks to Berezovsky) and was the departing head of the FSB, so he would have known the truth. In fact it would make sense that he had personally managed the affair. John Dunlop at Stanford has written extensively about how the "family" paid Chechen leaders to stage attacks that created a state of emergency within Russia. Dawisha mentions sources according to which Putin and Berezovsky met several times secretely in Spain. In September 1999 bombs blamed on Chechen terrorists exploded in Buynaksk, Moscow and Volgodonsk killing about 300 people, but an FSB team was arrested while planting more bombs. The bombs were a blow to the prestige of Moscow's mayor Luzhkov, and a pretext for Putin to launch the second Chechen war, a major distraction from the Yeltsin scandals. Note that Berezovsky never denied that the FSB may have planted those bombs: he simply claimed that the FSB had its own plans to trigger a new Chechen war. Meanwhile, Vladislav Surkov founded the Unity party to support Putin. The parliamentary elections of December 1999 were won by Gennady Zyuganov's communists, running against corruption, but Unity came second, ahead of the Luzhkov-Primakov party, that was running to undo the privatization of the Yeltsin era. A key factor, besides the war in Chechnya, was Sergey Dorenko, host of a popular program on ORT, who methodically demonized Putin's rivals (and early favorites) Primakov and Luzhkov in what was basically a preview of Fox News demonizing Hillary Clinton in the 2016 US elections. It is likely that Putin's Unity party actually lost big time the December 1999 elections because the "family" used well-documented fraud to boost Unity's share of the votes and lower the communist party's and OVR's share (OVR was the Primakov-Luzhkov alliance, Otechestvo-Vsya Rossiya). On the last day of 1999, Yeltsin resigned and Putin was appointed acting president, granting Yeltsin permanent immunity from prosecution. Yeltsin trusted the word of Putin when Putin promised never to go after him, and Putin kept his word.

Putin probably won fairly the presidential elections of March 2000, despite the fact that he had refused to debate his opponents. He presented himself as a defender of democracy, freedom and the rule of law. Putin won 53% versus Zyuganov's 29%. Surprisingly, Luzhkov dumped Primakov and joined Putin's party to form United Russia, and United Russia formed an alliance with the communists in parliament. The inefficiency of the Russian state was proven dramatically in August 2000 when the sailors of the submarine Kursk were left to die because of bureaucratic delays.

Dawisha omits the whole story of Edmond Safra, the co-founder in 1996 of Russia's Hermitage Capital Management with Beny Steinmetz and Bill Browder. In 2000 Lucy Edwards, a former Bank of New York vicepresident, and her husband, Peter Berlin confessed that between 1996 and 1999 more than $7 billion of Russian mafia money were laundered via the Bank of New York and Russian banks such as Depozitarno-Kliringovy Bank. This scandal started when Edmond Safra, owner of the rival bank Republic New York, alerted the FBI. So far these are the facts. The conspiracy theory claims that Yeltsin's family had stolen $7 billion from IMF funds for personal use and wired them out of Russia via the Bank of New York: that would be the money laundered in this scandal. Berezovsky demanded to become the new president of Russia in return for keeping silent about the source of the $7 billion. Putin offered to get rid of the dangerous witnesses if Yeltsin appointed him president. Safra died in December 1999 just a few weeks before Putin was appointed to succeed Yeltsin. Ted Maher was convicted of starting the fire in Safra's penthouse apartment that killed Safra but always maintained his innocence. Bereszovsky fled to Britain and applied for political asylum and eventually killed himself. Incidentally, Edmond Safra was an investor in Bill Browder's Hermitage Capital, which at the peaked was one of the most valued funds in Russia. Browder, however, started fighting a personal crusade against Putin's kleptocracy and in 2005 he was expelled from Russia. His lawyer Sergei Magnitsky, who continued to investigate Russian corruption, was jailed and died in prison in November 2009. In 2012 the USA passed the Sergei Magnitsky Rule of Law Accountability Act to punish with sanctions those responsible for Magnitsky's detention (and perhaps murder). All of this makes for a great Hollywood movie but it is all based on conjectures, except that the dead people are really dead, and that Putin was really appointed out of nowhere.

For the record, all of this happened while Bill Clinton was president of the USA.

Right after his election to president, Putin proceeded to crack down on the independent press and on the independent oligarchs. Putin went after television the way Lenin had gone after the media of his time: Putin realized from the beginning that television was the way to control the public. Russia only had one national independent tv channel, NTV, owned by oligarch Vladimir Gusinsky. This channel had mocked Putin and aired a damning investigation into the 1999 bombings. In June 2000 Gusinsky was arrested. He had to sell NTV and leave the country. In 2001 NTV moved under control by the state-owned gas giant Gazprom. Boris Berezovsky was the main shareholder in Russia's main television channel, ORT, the channel that had always defended Yeltsin and helped Putin get elected. After ORT criticized Putin's handling of the Kursk submarine disaster, Berezovsky too came under attack: in 2000, fearing for his life, Boris Berezovsky fled to London and in 2001 he was forced to sell his shares to Roman Abramovich's Sibneft, and ORT was renamed Pervyy Kanal/ Channel 1 (to this day, Russia's main TV channel). TV6, the last independent TV station, also owned by Berezovsky, was simply shut down by the government in 2002 for "bankruptcy".

There was no apparent reason for Putin to go after the oligarchs. None of them was threatening him. Partly, he may have wanted to consolidate his power, but there may have been another, more subtle, reason. When the Soviet Union collapsed, just about every body of government generated oligarchs who simply took over assets of the government. The only exception was the KGB (now renamed FSB). The KGB apparatus watched as everybody else was getting rich (sometimes ultra-rich). Putin's crackdown on the oligarchs may also be viewed as a sort of revenge by the KGB/FSB.

Russia had three giant corporations. Gazprom was the biggest and least efficient, notoriously currupt under the (mis)management of former prime minister Chernomyrdin. Putin fired him and replaced him with Medvedev, his former St Petersburg lawyer and chairman of his election campaign. The other two industrial giants were managed much better: Yukos by Khodorkovsky and Sibneft by Roman Abramovich. In 2003 Yukos was seized to create Rosneft under Igor Sechin.

In 2008 Spain arrested the leaders of the St Petersburg-based Tambov-Malyshev gang. Spain was also on the verge of arresting the chairman of Putin's United Russia, and at least two ministers (the communications minister and the minister of defense) were under investigations for being involved in the operations of the Russian mafia. All are close associates of Putin. The Spanish investigation painted Russia as a system in which the secret services and the mafia cooperated methodically: the FSB used the mafia for covert operations, and the mafia bribed ministers. This was proven by multiple wiretapped conversations between members of the Russian mafia and Russian politicians.

Dawisha's story ends there because the book was written before Russia began its massive disinformation campaign to destabilize the European Union and the USA.

My footnote: in 2016 Spain issued a warrant for the arrest of Vladislav Reznik, a lawmaker from Putin's United Russia party; deputy prime minister Dmitry Kozak, who was Putin's chief of staff in 1999-2000; Viktor Zubkov, Russia's prime minister from September 2007 until May 2008 and then Putin's first deputy prime minister from May 2008 until May 2012, when Putin was the prime minister and Dmitry Medvedev the president; Nikolai Aulov, the deputy head of Russia's Federal Antinarcotics Service; former defense minister Anatoly Serdyukov; former deputy prime minister Igor Sobolevsky; and former information technology minister Leonid Reiman. They were all accused of working with the Russian mafia in Spain.

What happened to the characters of this soap opera? Let's start with the politicians, mostly sidelined by Putin's emergence. In June 1999 Sobchak returned to Russia but he died eight months later, officially of a heart attack, at the same time that two of his aides died of heart attacks, raising suspicions of poisoning. Yury Luzhkov remained mayor of Moscow until September 2010, Luzhkov was fired from his post by then president Dmitry Medvedev for corruption after Luzhkov decided to rehabilitate Stalin (but he was never convicted of the crime). Alexander Lebed was governor of Krasnoyarsk Krai from 1998 until his death in the 2002 in a helicopter crash. Chubays remained chairman of the state-owned electrical power monopoly RAO UES from 1998 until 2008, and then became the chairman of the Russian Nanotechnology Corporation (RUSNANO), a well-respected businessman but estranged from politics. Yegor Gaidar died of a stroke at the end of 2009. Pavel Borodin was appointed by Putin to a honorary position as "state secretary" of the Union of Russia and Belarus. He was arrested in 2001 in the USA for money laundering but then released on bail.

Then there are the oligarchs, who mostly left Russia. Gusinsky now lives in exile in Gibraltar. Berezovsky lived in Britain until his death, convicted in absentia of fraud and embezzlemen in Russia. Officially, he hanged himself (in 2013). Abramovich moved to Israel after being governor of Chukotka Autonomous Okrug from 2000 to 2008. Khodorkovsky, who in 2003 was the wealthiest man in Russia, now lives in London.

There were numerous investigators who pieced together Putin's story. Andrey Zykov was fired a year and half after in 2000 Russia's prosecutor general shut down his investigation on the grounds of "insufficient proof". Marina Salye has remained active and in March 2010 signed the online anti-Putin manifesto "Putin must go". Yury Skuratov was discredited in April 1999, when Putin, head of the FSB, and Yeltsin's interior minister Sergei Stepashin identified him in a compromising video, and was officially fired in April 2000 (and his successor quickly closed the Mabetex case). Mikhail Trepashkin was arrested in October 2003 by the FSB and convicted by a closed military court to four years of imprisonment for "revealing state secrets" and released in 2007. Sergey Yushenkov was assassinated in April 2003, hours after registering his political party for the forthcoming parliamentary elections. Yury Shchekochikhin died suddenly in July 2003 of a mysterious illness a few days before he was to travel to the USA to testify to the FBI. Artyom Borovik died in an aircraft crash in March 2000 just before the presidential elections won by Putin. Viktor Shenderovich was among the signatories of the online anti-Putin manifesto "Putin must go". Sergey Kolesnikov, who in December 2010 wrote an open letter to then president Dmitry Medvedev about large scale corruption at the Kremlin, left Russia. Felipe Turover, the source of the 1998 Italian newspaper report which revealed the Mabetex scheme, hides in Switzerland.

It's interesting how similar Putin's story is to Trump's story, just ten years ahead: same background (gambling, money laundering, real estate), same strategy (TV hosts demonizing the opponents and chants of "lock them up"), same policies once in power (create a deep state in charge of subverting the constitution). The only differences are 1. Putin orchestrated fake terrorist attacks (coming soon to the USA?) and 2. Most journalists and prosecutors who investigated his dirty deeds are dead (coming soon to the USA?).


For a summary of Russia's privatization program under Yeltsin and how the oligarchs were born, see this Facts and Details article .