The rise and fall of the Russian oligarchy

By bne IntelliNews April 14, 2015

Graham Stack -


Fifteen years after the then unknown Vladimir Putin took over the Russian presidency, analysts still puzzle over how he arrived in the position. Newly declassified documents from President Bill Clinton’s administration, released to bne IntelliNews, show how Putin's candidacy was a compromise after a fierce battle for power in Russia between pro-US oligarchs and pro-state conservatives. At stake was not just power in Russia, but the crucial question of Russia's relationship with the West.

Russia's 'oligarchy' took power during Yeltsin’s re-election in 1996, when they used his reliance on funding from Russia's leading seven bankers to acquire the cream of the country's resource-producing assets.

According to the documents from the Clinton administration, which were released under a mandatory declassification review, one of the chief ideologists of Russia's freshly minted oligarch system was Russian-Israeli banker and media magnate, Vladimir Gusinsky, owner of Most Bank and TV channel NTV.

Gusinsky came to a November 1996 lunch meeting with US embassy officials with an important message: the oligarchs were here to stay  but they should not be feared by the US. Oligarchy was a fitting governance system for Russia, and would put the country on a pro-US course.

"Russia, Gusinsky explained, was not a democratic or a European country; it is an Asiatic country," he said, according to embassy records, with Gusinsky's name redacted but implicit. "The country was run by an oligarchy, of which businessmen like him were an integral part, and would be for some time," Gusinsky told the US diplomats.

"Our friends in the West" had been right to criticise the oligarchs in the past, he said, but now they had taken on "responsibilities for Russia's national interests”.

Gusinsky "did not deny that many Russian businessmen, including himself, had engaged in dubious activities, especially as they were setting up their operations and accumulating capital”, he told the diplomats. "Nevertheless, a number of big businessmen had now emerged  for example, Berezovsky's seven bankers [Boris Berezovsky himself, Vladimir Gusinsky, Mikhail Fridman, Vladimir Vinogradov, Aleksandr Smolensky, Mikhail Khodorkovsky, Vladimir Potanin] – who were so big and influential that they no longer had to engage in such activities and no longer did," the document reads. Gusinsky claimed that allegations of oligarchs' links to organised crime were spread by Russia's security services, with the aim of stemming capital flight.

Rule of seven bankers 

Of all the 1990s oligarchs, none was more powerful than Berezovsky, who coined the phrase "the rule of seven bankers”. Berezovsky attained high political office, allowing him to directly shape Russian domestic and foreign security policy  at the same time as being a citizen of Israel.

Berezovsky acknowledged that his power was based on his control over TV channel ORT. "90% of all TV influence is concentrated in the top three channels: ORT, RTR and NTV," Berezovsky told US diplomats in 2000, according to the declassified documents. Of these, his own ORT was by the far the most powerful, he said.

With ORT as his power base, Berezovsky set himself apart from all other oligarchs in terms of his political ambitions. He sought and gained influence not only on key domestic political questions, including the country's territorial integrity, but also directly on Russia's foreign policy.

At the height of his power, Berezovsky was deputy head of Russia's powerful security council, but, as the documents make clear, security council head Ivan Rybkin was merely his pawn.

In this capacity, Berezovsky actively sought US backing in 1996 for what he promised would be a "radically pro-Western policy", according to an account to US diplomats in 1996 provided by then Georgian president and former Soviet foreign minister Eduard Shevardnadze.

Shevardnadze was backed in Georgia by Berezovsky's close business partner and friend Bardi Patarkatsishvil, and appears to have acted as wingman for Berezovsky to approach the US in 1996.

In a meeting with a US ambassador-at-large in Tbilisi in November 1996, Shevardnadze told US diplomats that Berezovsky was an "extraordinary person”, who "wanted a radically different foreign policy, putting Russia squarely with the West”. "He merited US support," Shevardnadze advised, but "support would have to be done in the right dosages”. In time, "he would develop into a necessary and useful man,” Shevardnadze said.

In particular, Shevardnadze said, Berezovsky was entirely free of any interest in expanding Russian influence across the post-Soviet space, for instance viewing embryonic plans for a post-Soviet customs union as "nonsense”.

Berezovsky's plans for a pro-Western revolution in Russian foreign policy had to find a way of countering then foreign minister Evgenny Primakov. Primakov was a former deputy head of the KGB and strongly sceptical regarding the West's intentions towards Russia. According to Shevardnadze, Berezovsky intended to undermine Primakov's position in that he "wanted to create something like a secretary of state within the Russian security council”. The powers of the security council were not defined in the constitution, and critics feared it could be used to create a parallel government outside any parliamentary control. At the same time, Berezovksy sought to sideline Primakov.  "Berezovsky felt Russian policy should radically change, and he understood this would be impossible without changes in personnel," Shevardnadze said.

US diplomats were well aware of the negative reports in both Western and Russian media alleging that Berezovsky, the so-called "godfather of the Kremlin”, was involved in corrupt schemes such as siphoning funds from state-owned national carrier Aeroflot, as well as benefiting from crony privatisations. There is no sign in the documents they ever committed themselves to support him, as Shevardnadze wished. "Deputy security council chairman Berezovsky is a dangerous figure," Pavel Gusev, newspaper publisher and editor of leading Russian paper Moskovsky Konsomolets, told US diplomats. "He is a pure mafioso, and his appointment is proof that major criminal groups have reached the highest levels of government."

The only question of wrongdoing discussed in the declassified documents is Berezovsky’s admission that he held Israeli citizenship along with Russian, which was illegal and especially questionable for the deputy head of the security council. "I did it in 1993 and had totally forgotten about it," he told US diplomats somewhat implausibly.  He also claimed to have recently revoked his Israeli citizenship. "Judging by a phone conversation he had in pol/int chief's presence, he was seeking to have the revocation antedated to precede his appointment to the security council," the dispatch commented drily.

'Do it quietly'

The oligarchs came to power at the same time as Nato launched its controversial eastwards push. US diplomats record encountering deep-seated antagonism to the move in Moscow. "Utterances about the undesirability of Nato expansion and the need for 'special agreements' were heard ad nauseum around town," American diplomats wrote in 1997.

With the US looking to overcome Russian suspicions, the oligarchs offered one obvious channel, given their monopoly on Russian TV and their search for international legitimacy. The oligarchs thus lost not time in showing themselves the strongest backers in Russia of Nato’s expansion. Berezovsky even backed an apparent offer to Russia to join the military alliance. "It was a mistake for Russia not to capitalise immediately on Nato's invitation to Russia to become a member, " Berezovsky told US diplomats later at a meeting in February 1999. Berezovsky said at the meeting that there was considerable support for US in Russia among the intelligentsia, both "as the carrier of democratic ideals as well as a powerful country with global plans”.

Igor Malashenko, right-hand man of Gusinsky and president of Gusinsky's flagship NTV channel, was even more gung-ho over Nato expansion than the US diplomats themselves. While US diplomats were prepared to work with Russia to overcome misgivings over the policy, Malashenko simply advised US diplomats at a meeting in 1997 to just "do it quietly”.

Malashenko compared Russia's position relative to the West in the 1990s to Germany or Japan's position after their World War II capitulations, but said that the country's leadership failed to recognise this. "Russia lost the Cold War, but you will never hear any of our leaders say this," Malashenko said, as quoted by the US diplomats.

"Malashenko's injunction to the US to just get on with Nato enlargement ‘but do it quietly’ is a useful warning of the need for a deft hand in the present politically charged atmosphere," was the US takeaway from the encounter.

From Primakov to Putin

Open oligarch support for Nato expansion may have deepened suspicion of the Western alliance among conservative figures in Russia's foreign policy and security elites, who feared that the oligarchs were ready to sell out their country to the West.

The diplomatic dispatches show how competing foreign policy positions  pro-US vs Russia-centric  were quickly enmeshed with the domestic struggle over power and money at the end of the Yeltsin era. Berezovsky's struggle for political supremacy with Primakov, whom he called his "ideological enemy", ran parallel to Primakov pushing back against Berezovsky's business practices in 1999.

Primakov had become prime minister in September 1999 following Russia's default in August 1998. By early 1999 he was a strong favourite for the presidency, with elections due in March 2000, and Yeltsin barred from standing for a third time. Under Primakov, government agencies had carried out checks of Berezovsky's business empire. Primakov at the same time opposed the West over military action against Slobodan Milosevic's Serbia.

Berezovsky directly tried to enlist US support to oust Primakov from the post of prime minister in May 1999, and thus to scupper Primakov's presidential ambitions, the documents reveal.

At a crucial meeting with US diplomats in February 1999, following the first government checks of his business, Berezovsky warned that, "Primakov actually is as red as a tomato'" and that, "Primakov would not serve as prime minister beyond May”. Berezovsky said he was moving "indirectly" to oust Primakov and sought assurances from the US that they would support what he called a "soft landing" for Primakov in favour of a new government.

Berezovsky then switched to English to ask for US support for a new government. "Such a government would understand and have a 'clearer' approach on who and how the economy should be led. In this case, he asked, would the US be ready to help stabilise the situation in Russia? Would the US be able to move the country forward?" the documents relayed.

US diplomats were cautious about getting caught up in domestic feuding, despite the foreign policy advantages it promised them. "Berezovsky's thinly-veiled query about US support in such a circumstance and his well-developed penchant for scheming should be interpreted as a warning to be extra cautious about reacting to rumors or events in the coming months too quickly," they wrote.

In the event, Yeltsin fired Primakov on May 12, sending shockwaves through Russian politics. Yelstin appointed Sergei Stepashin to succeed Primakov, only to replace him six weeks later with the politically unknown Vladimir Putin.

One year after Berezovsky had conspired to oust Primakov, Vladimir Putin was president and Berezovsky on his way out.

Death of an oligarch

Why did Berezovsky miscalculate Putin so badly? The main reason cited in the US diplomatic dispatches is exactly Berezovsky's longstanding feud with, and fear of, Primakov. "Putin is better than Primakov," Berezovsky told US diplomats bluntly in 2000. In contrast to Primakov, Putin had said he would not revise the controversial privatisations of the 1990s, through which oligarchs acquired ownership of key assets in the resource industries.

Berezovsky appears not to have anticipated that Putin would clip the oligarchs’ political wings, perhaps because for him and his fellow oligarchs political and economic power and were one and the same. Putin's ideological mix of capitalism and conservative authoritarianism was new in Russia, which was used to a binary opposition of pro-Soviet statist forces and supporters of pro-Western laissez-fair policies.

Berezovsky was slow to catch on. "Putin is going down the path of Peron or Pinochet – not seeking an authoritarian state per se, but pursuing the goal of a democratic state via an authoritarian path," Berezovsky told US diplomats in late 2000.

Not only was Putin against the oligarchs, but he was also suspicious of their pro-US policy preferences. "Putin fears neither the US nor Nato, but thinks the US holds positions that run counter to Russian interests," Berezovsky warned the US.

Contrary to reports that Berezovsky had selected Putin as presidential candidate, Putin and Berezovsky seem to have had little contact with each other before Putin became president, which may have been another reason for Berezovsky's misjudging him. Berezovsky himself told US diplomats that he backed new foreign minister Ivan Ivanov to succeed Primakov as prime minister in 1999, although Putin eventually got the nod, after an interlude of six weeks.

Oligarch banker Pyotr Aven confirmed to US diplomats that there was no special tie between Putin and Berezovsky, even "noting that he himself had introduced the two”, US diplomats wrote. "Putin knows no-one," Aven told the diplomats, while at the same time acknowledging that the oligarchs have "no instrument of influence over him”.

Soon Berezovsky realised that his efforts to keep Primakov out of office had backfired, and that his power was in decline. "We understand that from an early stage in the Putin administration, Berezovsky lost his privileged access to the Kremlin, and was required to apply for permission each time he wished to visit there," US diplomats wrote in 2000.

Berezovsky put on a typical show of bravado, boasting of his willingness to resist the Kremlin. "They can put me in jail but it won't help," he boasted to diplomats. In the end he left the country to avoid jail on fraud charges relating to Aeroflot and the car dealership LogoVAZ that he controlled, and settled in the UK, from where he continued attempts to organise opposition to Putin.

Only once did American diplomats see a different, anxious Berezovsky, which may have presaged his suicide from depression in 2013, after a devastating London courtroom defeat to former partner Roman Abramovich in 2012. After Primakov's government had ordered the first checks on Berezovsky's businesses in 1999, spelling the beginning of the end of his business empire, Berezovsky’s "obvious signs of worry [were] reflected on the face and in the voice of the reputed oligarch”, who "spoke in hushed tones”, the US ambassador wrote of his troubled guest.

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