The New Tsar (15 page)

The investigative committee’s report stopped short of explicitly accusing Putin and Anikin of corruption, but it did charge them with “complete incompetence bordering on bad faith.” The committee referred the entire affair to the prosecutor’s office and called on the mayor to fire them both.
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A team of investigators from the federal audit chamber traveled to Petersburg to investigate, but did not press charges.
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The affair tainted Putin with scandal for the first time, but it would be largely forgotten for nearly a decade. Anikin did resign, and was replaced by Aleksei Miller, a young economist who would become one of Putin’s
closest aides. Sobchak did not punish Putin. Instead, he promoted him to deputy mayor and left him in charge of his greatest goal: attracting foreign investors to the city.

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P
utin had better success in that endeavor, in part because of his KGB career. His contacts and his fluency in German opened doors to investors from the newly reunified Germany. Even as the casinos and food contracts became mired in controversy, Putin traveled again to Germany—this time to Frankfurt—to announce an international banking conference in Petersburg. There he negotiated the opening of Russia’s first foreign bank in the city, Dresdner Bank. The man sent to run it was Matthias Warnig, a former Stasi officer who had been assigned to work with the KGB in Dresden in October 1989, even as East Germany was unraveling amid the protests.
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They both claimed they first met in Petersburg, though on at least one occasion, in January 1989, they appeared together in a photograph of Soviet and Stasi officers, along with another friend of Putin’s involved in high-tech intelligence in Dresden, Sergei Chemezov.
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Their three lives would soon be intertwined professionally and personally. They were like-minded intelligence veterans navigating the tumultuous transition to a new economic model, one they had operated against all their lives.

Dresdner’s bank opened in January 1992, with the aim of creating the financial infrastructure necessary to integrate Russia’s economy into the German market and to help privatize or restructure the vast Soviet state enterprises, vertical behemoths that were unlikely to adapt quickly to market forces. Its first project was to assist the Kirov factory, which was now in danger of going bankrupt, costing the jobs of thousands of workers who had supported Sobchak during the putsch in 1991. For Dresdner, it was a risky bet on the future of Russia. Not only were Petersburg’s finances in disarray, so were its laws, regulations, and oversight. The entire economy, the entire country, was in chaos, and getting worse. “You really have to start with Adam and Eve,” the bank’s chief economist, Ernst-Moritz Lipp, said a few months later, explaining the dearth of expertise in banking and finance. “In St. Petersburg, maybe there are 10 people who can really have an effect.”
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Putin made himself one of them, and Dresdner’s early investment would reward the bank and Warnig spectacularly in the years ahead. Dresdner was followed by Deutsche Bank, Banque Nationale de Paris, and Crédit Lyonnaise. The Spanish candy maker Chupa Chups began
making lollipops in Petersburg in 1991. Otis Elevator opened a branch, anticipating the renovation of the city’s antiquated buildings. Procter & Gamble, which had invited Sobchak to its American headquarters the year before, opened an office in the city almost immediately after the putsch. Sobchak relished his role as city father, but Putin remained in the background, negotiating the deals with foreigners and seeing to the details. “Vladimir Putin was the person who was there to implement what Sobchak wanted,” said Kaj Hober, a Swedish lawyer who dealt with him then. Hober spent weeks negotiating the sale of one of the city’s landmarks, the Grand Hotel Europe—a sale forced by an onerous tax bill that many believe was meant to clear the way for another favored owner. Hober described him as a stubborn negotiator who would not “give up many millimeters” in their talks. “He certainly seemed at the particular time to be doing what he was supposed to do—that is, representing the interests of St. Petersburg.”
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Macroeconomic policy—the debate over “shock therapy” to revive Russia’s economy—was the province of Boris Yeltsin and his ministers in Moscow, but Sobchak wanted to make his city one of the friendliest to foreign investors in the entire country. Putin’s committee oversaw the completion of a fiber-optic cable to Denmark, a project begun during Soviet times, giving the city its first modern international telephone connections. Later the committee would open industrial zones for foreign factories, including Heineken, Pepsi, Coca-Cola, Ford, and Wrigley. Sobchak had, with Putin’s help, reopened the “window to the West” that Peter the Great had imagined his capital to be. The mayor traveled regularly abroad, often twice a month or more, tending to his international reputation as much as his job. He also continued to advise Yeltsin in Moscow, devoting hours of time and political capital to helping write Russia’s new constitution, introduced in 1993.

Sobchak left the daily administration of the city to his deputies, including Putin, who after his brief star turn on television, tended to operate without public fanfare, or scrutiny. He avoided the cocktail circuit and diplomatic social life. Lyudmila complained that he worked long hours, returning home late at night, while she stayed at his parents’ apartment with the children. He rarely had time for friends like Roldugin. Even when they did meet, Roldugin found him drained and preoccupied with the city’s affairs.
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Yet the new work—his “civilian life,” as he described it—interested and challenged him. Before, as an intelligence officer, he had collected information to pass to superiors who made decisions
on policy. Now he was the one making decisions.
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Putin developed a reputation for competence, effectiveness, and absolute, ruthless loyalty to Sobchak. While others who worked for the mayor soon left, often acrimoniously, he remained steadfastly by Sobchak’s side, his influence and authority growing, even as accusations of corruption swirled around the city’s administration. At work, Putin appeared aloof, even imperious, rarely displaying emotion or sympathy—in contrast to the stormy political debates under way in the country. “He could be strict and demanding and yet never raised his voice,” his secretary, Marina Yentaltseva, recalled. “If he gave an assignment, he didn’t really care how it was done or who did it or what problems they had. It just had to get done, and that was that.”
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When Yentaltseva once broke the news to him that the family’s new Caucasian sheep dog had been killed by a car, she was struck by the absence of any reaction at all.

He proved equally enigmatic in his interactions with the investors and politicians who swarmed Smolny, looking for deals and, as often, for help when deals turned sour in the lawless turmoil of Russia’s transition to capitalism. Putin was the man to slice through the bureaucracy and opaque laws. “Although he was the principal official for dealing with the problems foreign investors encountered, the investors never felt that they knew him or had a sympathetic ear,” wrote Arthur George, an American lawyer who worked closely with him then. “Putin picked his battles carefully and avoided controversy, never going out on a limb. It was difficult to decipher what he really thought.”
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Putin became a wheeler and dealer, brokering investments and refereeing business disputes through personal connections, contacts, and threats. He continued to travel, with Sobchak or alone, to lure companies into the murky world of post-Communist capitalism. He became the “main enabler” for the city’s economy, approving hundreds of licenses and ensuring the state shared in the wealth. He became the arbiter of business disputes in the city, working behind the scenes to settle conflicts that often turned violent. And yet despite Putin’s efforts and Sobchak’s dreams, Petersburg began to lag behind Moscow on most economic indicators, including production, foreign investment, and unemployment.
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The city became notorious for its crime—for contract murders carried out by competing gangs and business interests, often with political motives, and for petty thefts from foreigners, which were so rampant that tourism dwindled after the initial influx inspired by the collapse of the Soviet Union.

The intersection of business and organized crime in Petersburg, as elsewhere in Russia, brought Putin into proximity with some of the city’s most notorious gangsters. Golden Gates, a company he registered in 1992 for Gennady Timchenko to build an oil terminal, became entangled in a dangerous clash with a gang that escalated to the point that Putin sent his daughters, Masha and Katya, to Germany for safety until things blew over.
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Putin’s ties, through the foreign economic affairs committee and, some said, personally, also entangled him in accusations of criminality. A company he registered with Vladimir Smirnov in 1992, the St. Petersburg Real Estate Holding Company, would come under investigation for laundering money; one of its board members, Mikhail Manevich, would later be assassinated by a sniper in broad daylight on Nevsky Prospekt. The Company, known from its German abbreviation as SPAG, later drew the attention of investigators in Germany and Liechtenstein who suspected the company of laundering money, including proceeds linked to the Cali drug cartel in Colombia. Putin sat on the company’s board for years.
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Putin licensed another company, the Petersburg Fuel Company, which also involved Smirnov and the reputed head of the Tambov crime family, Vladimir Kumarin, whose activities were so notorious in the 1990s that he was dubbed the “night governor.” It would receive the exclusive right to supply gasoline to the city.
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Despite his proximity to power and control over government transactions worth millions of dollars—unimaginable sums for a lowly former intelligence officer—Putin still lived modestly, at least not as ostentatiously as Sobchak and the generation of “new” Russian businessmen who were quickly amassing enormous fortunes and dressing the part. As a deputy mayor, he was assigned a state dacha in Zelenogorsk—it had previously belonged to the East German consulate, no less—and though it was more than thirty miles from the city’s center, he moved his family there rather than continuing to live close to Smolny with his parents. Putin later acquired an apartment in the city on Vasilievsky Island—reportedly from Sobchak, who was accused of transferring hundreds of properties into private hands—and slowly set about renovating it. Lyudmila worked at the university, teaching German (though hers was far from perfect) and shuttling the girls to school, to the swimming pool, to the violin lessons they had taken up at Sergei Roldugin’s insistance. It was a hectic life, but as secure as anyone’s could be in Russia in the turbulent 1990s, when everything seemed to hang by a thread, even for the Putins.

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T
he political euphoria that followed the collapse of the Soviet Union evaporated in barely a year. The “shock therapy” Boris Yeltsin’s government imposed to introduce capitalism failed to stop the implosion of the economy; the gross domestic product fell by double digits in each of the first years of the new decade. Yeltsin sought to wrestle political control from the Congress of People’s Deputies and the Supreme Soviet, then housed in the building on the embankment of the Moscow River known as the White House. In March 1993, Yeltsin imposed presidential rule and announced he would disband the congress until a constitutional referendum could be held in April and a new parliament elected. The deputies responded by voting for his impeachment. Yeltsin survived the vote, but was forced to back down. He narrowly won a national referendum on his leadership, but the vote did nothing to resolve the underlying political and legal struggles over power. By September, Yeltsin sacked his vice president, Aleksandr Rutskoy, whom he now saw as a rival, but the deputies refused to accept his decision. He then reappointed Yegor Gaidar, the reformist father of the economic policies that had infuriated and impoverished so many Russians, only for that appointment to be ignored, too. The untenable balance of power between the executive and legislative branches in the new Russia—between a presidential system and a parliamentary one—had reached a moment of crisis, and on September 21, Yeltsin acted at last, decisively, forcefully, and illegally.

He abolished the Supreme Soviet and the Congress of People’s Deputies, where he had once served, and he scheduled a referendum on a new constitution that would create a new parliament with the State Duma, and a new upper house, the Federation Council, representing the eighty-nine provinces and republics that Russia had at the time. Elections would be held in December. Even Yeltsin regretted that his presidency—he was the first democratically chosen leader in Russia’s history—had resorted to fiat.
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A majority of the current deputies met in defiance of the decree, proclaimed Rutskoy president, and dismissed Yeltsin’s ministers of defense, security, and interior. When they voted to hold simultaneous elections for president and parliament in March 1994, Yeltsin cut off electricity, phone service, and hot water at the White House, as public protests mounted and lawmakers prepared for a siege. Four days later he sealed off the building and ordered Interior Ministry troops to surround the building.

In Petersburg, Sobchak sided decisively with Yeltsin, going on air to
appeal to the city’s residents to refrain from demonstrations or strikes, but his vice mayor, Vyacheslav Shcherbakov, sided with the rebellious parliamentarians, appearing on television news to denounce Yeltsin’s decrees as “anti-Russian and unconstitutional.” Sobchak promptly fired him and locked his office in Smolny. A few protesters appeared outside the Mariinsky Palace, but not in the numbers and fury of the crowds that gathered around the White House in Moscow. The city council was in disarray. Its chairman, Aleksandr Belyayev, appeared with Sobchak in September to urge calm, but the council members passed sixteen resolutions or statements ineffectively criticizing Yeltsin’s decrees. A journalist mocked the council for “impetuous brain-storming” at a time of grave political crisis.
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