The New Tsar (14 page)

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S
obchak reached the zenith of his popularity and power after the putsch. He was Russia’s second most prominent politician after Yeltsin.
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His vision for his city was as grandiose as his personal ambition. He wanted to re-create the glory of the imperial capital, revitalizing the city’s architectural masterpieces, its monuments, and its elegant canals. Having already proposed a free economic zone to attract foreign investment, he reimagined the old Leningrad as a glistening “new” European city, a financial and cultural capital that would rival Moscow for national and international preeminence. He met the U.S. secretary of state, James A. Baker III, who flew into the city on September 15, and five days later Sobchak flew to London, with Putin, to meet the British prime minister, John Major. It was Putin’s first experience in the West: in October Sobchak traveled to West Germany for a meeting with Chancellor Helmut Kohl, with Putin serving deftly as his translator. Sobchak soon joined one of the eminent Cold Warriors, Henry Kissinger, as co-chairman of an international commission of experts and businessmen devoted to finding investors who would convert the city’s moribund defense factories and other manufacturers into commercial enterprises. When Kissinger flew into Petersburg for a visit, it was Vladimir Putin who met him at the airport and took him to the mayor’s residence, chatting about his KGB past. “All decent people got their start in intelligence,” Kissinger told him, to his delight. “I did, too.”
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Soon Sobchak was abroad as much as he was in Petersburg, an international celebrity, profiled by
Time
as one of the rising political stars who would turn Russia into a modern, thriving democracy and free market.
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What happened instead disappointed and mystified those who invested so much hope in Russia’s democratic future. Almost immediately, Sobchak squandered his enormous political capital with acts of arrogance and audacious folly. To the dismay of the city’s liberals and intelligentsia, he filled his ranks with apparatchiks of the supposedly deposed Communist nomenklatura.
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The now-discredited KGB, too, provided not only Putin but also a steady supply of veterans to fill the ranks of Sobchak’s growing staff. For all his talk of democracy, Sobchak courted the security officials who remained in their positions. Viktor Cherkesov, a close friend and colleague of Putin’s who was notorious for prosecuting
dissidents for anti-Soviet crimes, took over the Petersburg branch of one of the security agencies that emerged from the broken-up KGB, the Ministry of Security.

Sobchak’s motives for hiring the security veterans puzzled and alarmed the city’s reformers, but he argued that the city needed experienced professionals to govern, even if it meant co-opting the political and security bureaucracy that he had once vowed to dismantle. To secure his power, he needed the apparatchiks, not the democrats. This would be a central dilemma in Russia for years to come. Young reformers like the economist Anatoly Chubais, who helped draft early proposals to establish Petersburg’s free-enterprise zones, soon found themselves without positions or otherwise marginalized. Chubais left instead for Moscow in the fall and joined Yeltsin’s privatization program, which eventually made him one of the most reviled figures of the new Russia.
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A
s he consolidated executive authority, Sobchak’s relations with the city council soured even more than they had in the internal struggles before the Soviet Union’s collapse. Many of its members, especially the most ardent democrats, were dismayed by his authoritarian tendencies. By early 1992, the council was already trying to impeach him, and the actions of his aide, Vladimir Putin, were among the reasons.

The city faced a multitude of challenges in the winter of 1991. Nothing worked, and the city was broke. The city’s heavily militarized industries, already reeling, were atrophying with the collapse of weapons contracts. The dissolution of the Soviet Union severed economic links with neighboring and now independent republics that had once supplied Leningrad with food and gasoline. As winter arrived, the city had to tap a reserve of canned goods until four thousand tons of fresh meat arrived in January. Moscow, as the capital, had better supply chains and resources than Petersburg, and as a result the latter’s shops would have only paltry stocks of food for years to come. Sobchak warned in November that the food shortages had become critical.
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And yet, inexplicably, one of his first decrees to revive the city’s fortunes was to turn the city into a new Las Vegas, and he put Putin in charge. The result was a proliferation of casinos and gambling dens throughout a faded but beautiful city that had more pressing needs than slot machines. The Petersburg casino boom was not Sobchak’s idea alone, but Russia’s democratic transition soon had its enduring metaphor, the single most visible manifestation of the new capitalism Russians
had been denied for decades. Sobchak’s decree ostensibly sought to bring order to the newly emerging industry—with the “taxes to be used to finance top-priority social programs”
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—but he also authorized the city to provide “the necessary facilities for housing casinos,” an authority he used and abused in other industries as well. Sobchak distributed property rights like a tsar passing out land grants. For the next two decades Petersburg’s cityscape, like Moscow’s, would have a tawdry skein of neon lights and alluring billboards promising riches, and the authorities would fight an ongoing war with organized crime.

Putin did his homework; he studied the way the West regulated its gambling industry. Free now to travel beyond the borders of the Soviet bloc, he could experience life in places he knew only from intelligence reports. As part of his fact-finding that fall, he and Lyudmila flew to Hamburg, where with friends they visited the Reeperbahn, the city’s famous red-light district and the location of one of its casinos. It was the friends, he insisted, who talked them into attending an erotic performance while there, and this introduction to the extremes of personal liberty—to indulge in vices without the moral stricture of state ideology and KGB scrutiny—left such a lasting impression that a decade later he described the performers in vivid detail, from their height to the color of their bare skin.
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His conclusion was that the profits of sin should belong to the state. Initially he favored creating a state monopoly to control the gambling industry, even though Russia’s new anti-monopoly laws forbade it, hoping to break the state’s grip on the economy. Putin’s committee instead created a municipal enterprise that would buy 51 percent of shares in each of the new casinos the city licensed, and the dividends would fill the city’s coffers. The city lacked the cash, and so acquired the shares in lieu of rent for the city-owned buildings that became the casinos. The lawyers advising Putin’s committee were his university adviser, Valery Musin, and Dmitri Medvedev, a young lawyer who had campaigned for Sobchak when he ran for the Congress of People’s Deputies. The enterprise proved to be a disaster, one giant racket that brought the city into alliance with shadowy figures said to include ex-KGB officers and mobsters.
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The city’s new company was called Neva Chance, and it founded two dozen casinos, most of which never received licenses from the new federal government being established in Moscow. And yet the profits the city hoped for never materialized. The managers simply laundered
the proceeds of a cash business and reported losses to the authorities. The owners acquired property and made millions, and the city received almost nothing for it. “They were laughing at us,” as Putin would put it later, defending his role.

The creation of a regulated market economy proved far more difficult than Putin, like many Russian officials, anticipated. The legal foundations for capitalism were not yet in place, and like most officials, he had no experience in managing economic affairs after decades of five-year plans and state control. “This was a typical mistake made by people who are encountering a market for the first time,” he acknowledged. The people who suffered from the mistake were “pensioners, teachers and doctors,”
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but he did nothing about the scandalous loss to the state’s coffers then, or later. Others, meanwhile, quickly became rich, exploiting the immature legal and economic system with, some suspected, the complicity of officials like Putin.

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T
he suspicions surrounding another of Putin’s “mistakes” would have more lasting consequences, creating an aura of impunity in the city’s governance and fueling his own distrust of public demands for accountability. On December 4, 1991, Putin wrote a letter to the federal Ministry of the Economy in Moscow requesting permission to barter abroad more than $120 million worth of products from what were still state companies—including 750,000 cubic meters of wood, 150,000 tons of oil, 30,000 tons of scrap metal, and smaller amounts of rare-earth metals, copper, aluminum, cement, and ammonium—for the equivalent in meat, butter, sugar, garlic, and fruit.
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For a second winter, the city faced severe shortages and imposed rationing again. The crisis worsened when the Russian government allowed prices to rise according to market forces at the beginning of 1992. Even where food was available, it was beyond the reach of poor Russians, which then included almost everyone except the most privileged. In the television documentary, Shadkhan showed Putin speaking on the telephone with Sobchak about preparations for a meeting with Yeltsin. When he hung up, eager to show the mayor’s office was on top of the food crisis, he told Shadkhan that two and a half tons of sugar would soon be shipped from Ukraine. Already, though, he sounded jaded by the waste and corruption. “There is many a slip ’twixt the cup and the lip,” he said.
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As the mayor’s office negotiated the barter deals, Putin and a deputy, Aleksandr Anikin, signed dozens of contracts. Many went to companies whose owners, critics would later say, had links to the mayor’s office and to Putin himself. The contracts were sloppily written, and the whole enterprise was legally dubious since some of the deals were negotiated before Putin had received permission to do so from the appropriate federal minister in Moscow. The contracts had unusually high commissions of 25 to 50 percent; these sizable profits ostensibly went to the city’s coffers for what was supposed to be a crash project to stave off hunger, but most seemed to have mysteriously disappeared. Moreover, the contracts were priced at the official exchange rates, which undervalued the goods being exported. Worst of all, almost nothing was imported in return. The only contract reported to have been fulfilled delivered two tankers of cooking oil, which Putin duly reported to Moscow. The deal was a catastrophic failure at best. At worst, it was a scam.

The city council, perpetually at war with Sobchak, launched an investigation, led by Marina Salye, a gray-haired geologist and one of the council’s most outspoken democrats. She and a colleague, Yuri Gladkov, focused on twelve contracts that they could establish with certainty had been signed by either Putin or Anikin, though they suspected there were still more hidden. There was no public bidding for these contracts, worth $92 million in all, though there were also no clear laws requiring public bids. From January until May, Salye and Gladkov gathered evidence, took depositions, and assembled a lengthy report that they submitted to the full council. Putin cooperated with the investigation but only grudgingly; he initially refused to provide some licenses and contracts, saying he had to protect commercial trade secrets. More likely, as Salye and Gladkov suspected, the documents would show who was already making money off the city’s suffering.

Putin never explained how the contractors were selected, or who they were, but he defended himself aggressively, appearing before the council when summoned and holding press conferences to rebut the accusations.
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He bristled at the very idea of legislative oversight, considering the inquiry nothing more than a politically motivated assault on the mayor’s authority. On March 30, barely six months after the collapse of the August putsch, the council voted to oust Sobchak on the grounds that corruption riddled his government; evidence included the scandal over the food. The council had also compiled a list of one hundred properties Sobchak had already transferred to foreign and local businesses.
Their effort failed because the council had no clear legal power to remove him, and Sobchak merely ignored the council’s vote.
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Putin repeatedly came to his mentor’s defense—and his own. He dismissed critics as “these innocent new people” and asserted that Sobchak’s team consisted of the people “who knew what button to push to get things done.”
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Even so, he had to acknowledge that almost all of the contractors had failed to deliver the food. He lamented that they were shell companies and pyramid schemes beyond the reach of the courts, even though it had been his committee’s responsibility to negotiate the contracts in the first place. Some of the companies had simply exported the materials and then folded as mysteriously as they had appeared, presumably stashing millions of dollars in banks abroad. And yet at least some of the businessmen who received contracts went on to become close associates of Putin’s, including Yuri Kovalchuk and Vladimir Yakunin, who operated a new company that received a license to export aluminum and nonferrous metals.
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Others went to a company called Nevsky Dom, controlled by Vladimir Smirnov, and to the export branch of a refinery with the unwieldy name Kirishinefteorgsintez, one of whose founding owners was Gennady Timchenko. None of these men ever faced any charges. Although they were little known at the time, they would grow close to the young official from the mayor’s office and would ultimately, years later, become business titans in the new Russia. It was never proved that Putin himself profited from the deal, though some, like Marina Salye, said they suspected he did, but people around him clearly had, a pattern that would repeat itself in the years ahead. Putin’s explanations seemed disingenuous. Instead of demanding an investigation, Putin for the most part deflected questions. He even suggested darkly that members of the council itself had wanted the contracts for themselves and did not want “a meddlesome KGB man” in the role of awarding them.
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