The Oligarchs (22 page)

Khodorkovsky's next move was into banking. At the time, the all-pervasive Gosbank, the main bank of the Soviet centrally planned economy, had split off five new specialist banks, known as the
spetsbanks,
for agriculture, industry and construction, foreign trade, retail
savings, and the fifth, Zhiltsotsbank, for financing social needs, such as housing. Khodorkovsky showed up one day at Zhiltsotsbank, which was in his district, and asked for a loan. “I heard such things could happen!” he laughed years later, recalling the audacity of the request. The bank didn't throw him out. Bank officials explained that they could only give a loan to a state enterprise operating under the official state plan, and Khodorkovsky was not a state enterprise and was not under the plan. They also told him that if he was a bank they could give him a credit—but, at that moment, he was not a bank either. At the time, the very first commercial banks were being permitted, many of them taking advantage of the Law on Cooperatives.

It was another of those breakthrough moments when Khodorkovsky was anointed or anointed himself. The management of Zhiltsotsbank agreeably helped Khodorkovsky set up his own commercial bank and then made him loans to finance the computer deals.
²⁶
Zhiltsotsbank signed on as founders of the new bank, but Khodorkovsky recalled they did not contribute any capital. He said the bank's original capital included 2.5 million rubles from the science center's profits. Khodorkovsky's bank went through several name changes and was formally registered as Bank Menatep at the end of 1988.
²⁷
“We were meeting practically no obstacles from the state structures,” he commented. “A rare occurrence of circumstances. ”
²⁸

Rare indeed, but not for a favorite son of the system.

Two years after first visiting the Institute of High Temperatures, Khodorkovsky called on Sheindlin at home. Sheindlin told me that Khodorkovsky informed him that he had come into a lot of money and wanted to create a bank. But Khodorkovsky was worried about status and connections—he needed some high-level sponsors. “They were young kids,” Sheindlin recalled. “I took them in warmly. We drank good wine and vodka together. I listened and I said, ‘You are great, kids! Tell me, and any way I can help, I will.'”

Sheindlin agreed to sit on the board of the new Bank Menatep. At the infrequent meetings, he recalled, “We sat together and drank tea for two or three hours, and spoke about the situation in the country. So, that was for them, for the kids, very important.”

 

The “kids” were no longer kids. They were beginning to set up offshore accounts and move hard currency in and out of the Soviet
Union, where the old underground economy was rapidly becoming the primary economy. Although private property had not yet appeared, Khodorkovsky was at the forefront of the rapidly emerging world of banking and finance, at the cutting edge of proto-capitalism. Joel Hellman, a Columbia University graduate student who came to Moscow to research a doctorate on the new Russian banks, found that Menatep was low-key and inscrutable, compared with some of the other flashy new commercial banks that blossomed in 1989. “No one spoke English, no one had Western suits,” Hellman recalled of Menatep. “They didn't rush to fancy offices. They kept it low-key.”
²⁹
But Khodorkovsky was undeniably among the leaders of his generation. When Gorbachev invited a group of politicians, scholars, and journalists (the word “businessmen” was not used) to the Kremlin to talk about reform in 1990, Khodorkovsky was among them.
³⁰

As the “kids” were feeling their way to riches, they also sensed danger. What if the whole experiment collapsed? Would they have any allies to defend them? Nevzlin, who had become a partner and confidant of Khodorkovsky, was extroverted, whereas Khodorkovsky was reclusive. Nevzlin had an idea: they needed to explain themselves because on the street, and in the public mind, there were many doubts about their business. What was a commercial bank? What was Menatep? Rumors swirled that it was a front for the Komsomol or the Communist Party or the KGB; the same rumors dogged almost all the young commercial banks at that time.
³¹

Nevzlin proposed that they explain themselves in a small book, an explanatory tract. Khodorkovsky went along because Nevzlin urged him to do so. They had become close partners. Nevzlin recalled that they were living in a country house outside of Moscow, he on the first floor and Khodorkovsky upstairs. In 1991, the last year of the Soviet Union, they dictated their thoughts into a tape recorder and then published
Chelovek s Rublyom
(Man with a ruble), mimicking a famous Soviet play about Lenin,
Man with a Gun.
The book jacket featured dollars and rubles. Their company Menatep-Inform printed fifty thousand copies.
³²

The book was fifty thousand shouts at the system. Khodorkovsky and Nevzlin screamed, Get rich! Like us! The entire treatise has the tone of brazen teenagers taunting their parents. It has only one idea: getting rich is not evil. The exuberant writing is quite a contrast to the low-key Khodorkovsky, a shy banker in jeans and flannel shirts. I
think the book was a crude attempt by the pair at public relations. The book is so filled with exhortations and clichés that it is almost unreadable. “Our compass is profit,” they wrote. “Our idol is his financial majesty the capital.” Their goal: “to become billionaires.” They asked, “What is a good leader? It seems to us that it must first of all be someone who brings profit.” They invoked Henry Ford as one of their heroes. “A man who can turn an invested dollar into a billion is a genius.”

In their rambling discourse, punctuated by headings such as “Menatep: A Way to Being Wealthy,” Khodorkovsky and Nevzlin celebrated greed, which may explain why they felt compelled to write it: they feared envy, jealousy, and misunderstanding. Their fears were not unfounded. Suspicion of capitalism, wealth, and property, a feature of Soviet propaganda, was a deeply held belief in Russian culture, one that would linger, especially in the older generation, for years after the demise of Soviet Communism. The “kids” did not know what was coming and sought to justify their extravagant new status. “Ourselves for ourselves,” they declared of their philosophy. “Being wealthy is a norm of being.” They ebulliently recalled a lavish business presentation they had made at the Moscow Commercial Club, a favorite watering hole of the newly rich, with fireworks, food, drink, and entertainment for four hundred guests. “Glasses were filled with twenty brands of cognac, whiskey, champagne, gin, all kinds of wines, liqueurs, more than fifty kinds of drinks for all tastes. We did not begrudge the expense of arranging the party.” They described their lavish hospitality as “the highest form of ethics.” But the point of describing their glittering party was not so much to brag as to defend and justify. “We, Menatep, can afford not to fear the results of our own work, can afford to show off what we have earned,” they insisted. Whereas Lenin's formula was equality in poverty, “we are advocates of equality in the right to be rich.”

 

Charles Ryan, a Harvard graduate who came to the Soviet Union in its final year to work for the European Bank for Reconstruction and Development, got off a train one day in St. Petersburg, where he had been sent to give advice to some young reformers, including Anatoly Chubais. Ryan recalled walking across the square looking for a bus, thinking that he was anxious to quit being an adviser and participate
in the “hunt and kill” of the emerging capitalism. He spotted a man wearing a sandwich board advertisement, two strings, and a sign that read: “Buy Shares of Bank Menatep.”

“I say to myself, this is funny, I gotta see this one!” recalled Ryan, who had spent some time on Wall Street before coming to St. Petersburg and knew a few things about shares. “A bank? So, the guy is standing there. He's got a greasy handful of these little scraps of paper that say Menatep Bank shares. I bought a couple. I whipped out a couple of those twenty-five ruble notes with Lenin's face on them and I bought myself a little fistful. I got in a taxi, and I am cracking up at the idea that you can just buy these bearer notes, you know, shares on the street. I am thinking, this has got to be a pyramid scheme.

“I get to the hotel and click on the television. You know, back then the television ads in Russia, there was no picture. Just a line of the name of the company and a phone number.”

“Surprise: there's a face! And it's Mikhail Khodorkovsky. And there he is, waving a fist at the television and saying, ‘My name is Mikhail Khodorkovsky and I am urging you to guarantee your future and
buy shares
in Bank Menatep! It's a commercial bank.'” Ryan was amazed. “It was couched in the usual sort of Soviet language, but the bottom line was, buy these damn things and you're going to get rich. Which was weird, and interesting, I thought. It's interesting that they are appealing to people's desire to make money.”

The significance of the Menatep shares, one of the first such stock offerings, was that once again Khodorkovsky was at the head of the pack, relentlessly looking for new avenues and directions in which to expand. Despite his penchant for secretiveness, Khodorkovsky decided that he wanted to make Menatep into a household name and turned to Vladislav Surkov, a wiry, chain-smoking young man whom he first met at the youth science center. Surkov had made his first money by using a state press to print reproductions of a famous painting, which he then sold for a huge profit on the street outside an art exhibition where the original was hanging. “I liked Khodorkovsky at first glance,” Surkov recalled, “because he immediately took a sheet of paper and started drawing circles and arrows, and he said that in several years we're going to have an empire.”
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“I knew that many people, the majority of people, were very skeptical about Khodorkovsky's ideas,” he added. “Everybody thought that the Communists just gave young people a chance to play for about
two or three years, and that they would never give us a chance to go further.” But Surkov said he believed in Khodorkovsky's dream of an empire, however distant it may have seemed from the shabby beginnings in the youth science center. “I wanted to be like a hero in the movie
Pretty Woman
. I wanted to be a big businessman who's sitting in a big hotel, supervising big events.”

Surkov became Khodorkovsky's marketing man. He hired some journalists he knew, and together they sat down for a brainstorming session, thinking about how to create an advertising campaign. Instead of long, boring Soviet-style television appearances, Surkov came up with snappy, attention-getting ads. He thought up a foursecond flash on the television screen that said simply, “Bank Menatep,” and he got the bank's name posted in a corner of the television screen during the weather broadcast on
Vremya,
the main nightly news broadcast, which was rigidly controlled by the party. “People remembered it,” he recalled of the weather advertisement, “but we had to coordinate it with the party central committee.” Surkov also cajoled famous Russian actors into appearing in Menatep television spots, encouraging them to give testimonials using any words that came to mind, and he negotiated appearances by Khodorkovsky on popular television talk shows, including
Moment Istiny
and
Tema
, a popular program that often broke Soviet-era taboos.

Although they were advertising in public, Menatep was not really interested in the public. The bank was a largely closed financial nerve center for Khodorkovsky's trading and currency operations. The point of the advertising and shares campaigns was political insurance against a crackdown by the authorities. If the Communist Party had started the whole experiment, it could also shut it down. There were dark clouds of retreat in 1990, as Gorbachev hesitated with
glasnost
and
perestroika.
“We wanted many thousands of shareholders in our company because we expected that the authorities would say at any time, ‘Enough!' When they came to our bank to disperse it, we wanted them to encounter the resistance of many shareholders,” Surkov recalled.

 

Within the bank, Khodorkovsky was creating a money machine that would tower above the first modest transactions with
beznalichnye
. He realized that the really large sums to be found in Russia were not
in the private sector, which was still in its infancy. Khodorkovsky and Nevzlin decided to go for the big money—to milk the state, the largest source of capital, more directly than before. They began roaming the increasingly chaotic corridors of power. The Soviet Union was already coming unglued, and a new power center had emerged with Yeltsin at the head of a separate Russian government. Khodorkovsky became an adviser to Yeltsin's prime minister, Ivan Silayev. What he did in this post is not known precisely, but it must have given him an ideal vantage point for identifying new sources of cash.

Meanwhile, the Soviet government was cranking out huge amounts of credits to enterprises in a vain effort to keep them from falling apart. Menatep became an authorized bank, one of the chosen commercial banks that served as an intermediary to transfer government money to enterprises. The rate of return for working with the government money was, on the face of it, not very lucrative, Khodorkovsky told me. But Khodorkovsky could parlay the state credits—which came practically free, like water from a tap—into good profits. He took the state credits, used them for his own purposes, and paid the state back much later. It was free capital. Khodorkovsky told me that in 1990 and 1991, the computers and hard currency earnings began to play a secondary role in his bottom line. “The main thing was credits” from the state, he recalled. “Basically, we took money from the state, gave it to state enterprises, and then took money from state enterprises and returned it to the state.” The turnover was tremendously profitable in part because neither the state enterprises nor the low-paid bureaucrats fully understood the time value of money; Khodorkovsky could earn his profits by holding their cash and using it. Latynina wrote that Khodorkovsky was also very skillful at manipulating the bureaucrats. “He was one of the first to understand the advantages of investments in government officials,” she wrote. “Receptions for high-level guests at the bank's country cottages on Rublevskoye Highway . . . would be returned in income a thousandfold.”
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In other words, Khodorkovsky and Nevzlin realized the value of connections—that a bureaucrat, properly entertained, could sign over a big account to their bank, and they could make millions of dollars just playing with the money of the state.