The Oligarchs (47 page)

 

The rise of Systema is not just a story about wealth or about Luzhkov's blatant mixture of power and money. At the time Systema began to take shape, the new Russian economy was becoming a tribal, clannish system. It was giving birth to conglomerates (politely called financial-industrial groups) that were in fact small empires in the making, often allied with a political leader. Luzhkov, the boss of a sprawling, increasingly prosperous metropolis, needed his own alliance with a financial-industrial group. In the early years, it had been Gusinsky, and later it became Systema and Yevtushenkov.

Luzhkov began to think about new horizons. Reporters were already badgering him about whether he would run for president. Yeltsin, then sliding into sickness, would not be president forever. “I am tired of repeating that I do not intend to run,” Luzhkov replied in 1995. “This is not my cup of tea.” He then added, “But even if I decided to run for president, is it a crime, an illegal act?”
⁶⁷

In fact, Yevtushenkov and Luzhkov, who vacationed together and spent hours on weekends in long discussions, began to speculate privately about what it would take for Luzhkov to run for president, after Yeltsin. In the end, Luzhkov supported the Russian president during the 1996 elections, but the discussions went on long after that. Yevtushenkov believed that Luzhkov had one very powerful argument: he could change the country in the same way he had rebuilt Moscow. Yevtushenkov felt that Luzhkov had a chance to make history.

It was a daring thought, but there was one problem that would only show itself later: Luzhkov was not ready. He was at heart a
khozyain
, a manager, a Soviet man who had adapted to the new economy. He was still a creature of Moscow's unique situation, and his experience in politics was forged within the protected cocoon of Moscow. The bustling city-state was a world apart from the rest of Russia.

I
N ALL OF MOSCOW, few vantage points are as spectacular as Sparrow Hills, a forested, sloping rise perched above the Moscow River where it makes a lazy turn toward the Kremlin. On summer afternoons, the woods offer a cool refuge from the city. Riverboats and barges ply the waterway. The hill is commanded by the imposing thirty-five-story tower of the Moscow State University building. A broad promenade at the top of the hill overlooks the river and offers a panoramic overview of the city horizon, from the Luzhniki stadium in the foreground to the needle-like Ostankino television tower in the distance. Down each side of the hill from the university runs Kosygin Street, one of Moscow's most placid, tree-lined boulevards. This is a prestigious neighborhood, home to the university, the Institute of Chemical Physics, and Mosfilm, once the heart of the Soviet movie industry. Sparrow Hills is also the fictional point at which Woland, the devil, alights on his steed and flies heavenward in the final scenes of Mikhail Bulgakov's classic novel,
The Master and Margarita
.
¹

It was on the crest of the hill that a few wealthy Russian businessmen gathered at a private villa overlooking the river in September 1994. They were mostly young, and their fortunes were even younger. Mikhail Khodorkovsky, then thirty, had only seven years earlier tried
to start his youth café at the Mendeleev Institute. Alexander Smolensky, then thirty-nine, had been building dachas from logs seven years earlier. Boris Berezovsky, at forty-seven the oldest in the group, had founded Logovaz in a café barely five years earlier. They were joined by several others: Vladimir Vinogradov, thirty-nine, a pioneer among the early cooperative businessmen who became president of Inkombank, one of the biggest of the new commercial banks; Vladimir Potanin, thirty-two, a son of the
nomenklatura
whose bank was expanding very rapidly; and Mikhail Friedman, thirty, who made his first money in a cooperative—washing windows—but was now also head of a fast-growing bank. Two others were quite prominent at the time but later faded from view: Oleg Boiko, thirty, a financier who had supported Yegor Gaidar's party in the early years, and Alexander Yefanov, thirty-eight, president of Mikrodin, a company that invested in heavy industry but was later absorbed into Potanin's empire. As a group, these onetime hustlers and jeans traders were blossoming as tycoons.

They came to the club at the urging of Vasily Shakhnovsky, then thirty-seven, one of Yuri Luzhkov's top aides. Shakhnovsky, who had steely gray-blue eyes that crinkled at the edges, receding, wiry hair, and a brownish beard speckled with gray, was one of their generation. Only five years earlier, Shakhnovsky had been drawn into the ferment of the democracy movement in Moscow city politics. He worked for Gavriil Popov and then Luzhkov, holding a top position on the mayor's staff. From his perch at city hall, Shakhnovsky saw that Russian political and business life was increasingly chaotic. The years of upheaval—the August 1991 coup attempt, the 1992 Yeltsin economic revolution, the October 1993 violent confrontation with parliament—left businessmen without established rules of the game. It was a time when the young financiers and industrialists knew quite well how to get what they wanted from politicians or bureaucrats, but they had only a faint notion of their collective power. They could bribe their way to an export permit but had no idea how to change export policy. Shakhnovsky called the group
bolshoi kapital,
or big capital, but they were adrift, without a voice. The businessmen said they wanted a “normal country,” with normal laws and a normal government and a normal economy, but they didn't have one, nor a clue about how to get there. Most of them had been working so intensely on their own businesses, they had not looked at the big picture.

Moreover, Shakhnovsky saw that the young tycoons dealt with the government in one crude way: bribery and coercion. It was an all-ornothing
environment, and every businessman faced a stark choice, as was often said: “annihilate or be annihilated.”

There were no rules. “If one was playing soccer and another was playing rugby, there was no game; it led to a fistfight without rules,” Shakhnovsky recalled. Increasingly, Shakhnovsky saw that the businessmen settled their scores on the street. “At that time in particular, there were no rules at all.” Worried about the disorder, Shakhnovsky decided on his own to do something about it. “Bribes cannot be given forever,” he said. “Sooner or later, there is an end to everything.”

Shakhnovsky recruited the businessmen to join an exclusive, secret club of their own. In Shaknovsky's mind, the club was to be a protected place where they could be free to talk, argue, and hopefully coalesce around their common interests. Shakhnovsky told me he did not want to create a salon of deal making. He wanted his guests to think broadly: how
bolshoi kapital
could make an impact on the newly emergent Russian democracy and economy. He wanted them to come up with ideas about how to lobby the government in a civilized way—how to create good public relations for themselves—as was done in every normal country.

The club took shape, but not in the way Shakhnovsky had envisioned. The businessmen were far too concerned with their own problems to see the big picture. Two years later, in 1996, they finally came together as a single, powerful group, when they felt their wealth and property were threatened. But at the beginning, they had pressing parochial worries. They wanted protection—from each other. The first order of business at the club was to create “civilized rules of the game with each other,” Shakhnovsky said. They drafted a charter. The essence was that they would not attack each other. They pledged not to bribe the law enforcement authorities to go after each other, or use newspapers and television to smear each other. At the time, all of them were building up their own private corporate armies and intelligence agencies for doing just that. Many of them had hired ex-KGB chiefs for the task. One purpose of these well-paid, well-equipped spies was to dig up dirt and compromising materials, known as
kompromat
, to use against rivals or the government.
Kompromat
could be purchased, easily, from the official security services and agencies, including the ones that had been part of the KGB and still had access to its mountains of files. Or, if not bought,
kompromat
could be manufactured—using forged documents—and it would be just as effective. Moreover, it was not difficult to spread. To deploy a war of
kompromat
against enemies, a banker did not need to own a newspaper or television station or radio station. It was enough to pay a relatively small sum, even a few hundred dollars, to a desperate journalist. Not all journalists were corrupt, but some were, and they would publish or broadcast just about anything for money.

In their charter the tycoons agreed: no
kompromat
against each other. “Maybe a bit utopian, a bit of a childish idea, but at that early stage, they agreed to it, and had some success in somehow channeling the process,” Shakhnovsky told me later.
²

It was the nature of their informal, exclusive club that no one quite remembered years later whether the charter was written or oral, and whether they had signed it or not. Leonid Nevzlin, who was Khodorkovsky's partner, recalled that it was an oral agreement. “It was discussed, but not put on paper,” he told me. Khodorkovsky could not remember attending the meetings at all. Vinogradov said, “I don't remember whether we actually put our signatures on it.” Smolensky said, “There was no document, there was an oral agreement. We agreed not to bite each other, not to resort to the mass media in order to settle our relations, not to use law enforcement to settle our commercial problems.”
³

Shakhnovsky told me the document was written down, drafted and redrafted; the language was kept very general. “It was being corrected, some would sign it, some would add corrections,” he recalled. “There was a document all right, but since this was a very amorphous creation, it cannot be said that all accepted it and all began to follow it. It was signed.”

“I think the minute they walked out of the gates of the building,” Vinogradov recalled, “they immediately broke the agreement.” He was right, and the following years brought every one of them into fierce conflict with each other. They broke their promises and used the law enforcement agencies and the mass media to attack each other.

Yet Shakhnovsky had indeed started something. The members of the club on Sparrow Hills multiplied their millions, and their quiet little club later blossomed into much more than the debating society envisioned by Shakhnovsky. It was the beginning of a daring attempt, far more audacious than Shakhnovsky could have imagined at first, to take over the country.

 

The club on Sparrow Hills met regularly, every other week, at the villa overlooking the river. Nestled among the trees, the villa was set back
from the street by a long driveway, completely shielded from view by an imposing stone wall. It was a perfect hideaway, behind a guarded gate, part of a sprawling network of city-owned buildings. The businessmen arrived at 7:00 P.M. for drinks and then dined around a table. They talked late into the night, until the city horizon stretched out before them in a twinkling sea of lights. They met for the first time in September 1994 and for the last time in the autumn of 1995, but the club revived itself, in other places and other times, for another two years after that.

From the first meetings, the businessmen were frustrated in their search for a political patron. Yeltsin's Kremlin was split by competing factions. Chernomyrdin, the jowly, inarticulate prime minister, was the epitome of the old Soviet factory directors, hardly a promising candidate. None of the young economic reformers such as Gaidar and Chubais were prominent, experienced, or powerful enough to lead the ambitious new elite. The view from Sparrow Hills, as one participant later recalled, was “completely disillusioned.”
⁴

One evening Shakhnovsky invited Luzhkov to meet them. According to Shakhnovsky, the club was pondering whether Luzhkov could be their standard-bearer. “These people were prepared to put their stake on him,” he said, “and were ready to perceive him as a man who would move their interests forward among political circles.” But the effort failed. In the first meeting, it was evident they simply did not speak the same language. Luzhkov, then fifty-eight, had traveled part of the way toward the market economy, but he was suspicious of the young businessmen, who seemed to represent the speculative, gambling side of what he called “parasitic” capitalism. He retained the instincts of his training as a Soviet-era manager; he was a
khozyain.
By contrast, the young banker-industrialists, most of them two decades younger than Luzhkov, were cynical and ambitious. They, unlike Luzhkov, had never run a factory, but they knew more than he did about how to gamble on the ruble-dollar exchange rate and move their winnings offshore. At least two of the young tycoons, Smolensky and Khodorkovsky, long ago, during
perestroika,
applied to Luzhkov for a license for their cooperatives. They may have shared some common ideas back then, but no longer.

Smolensky recalled that Luzhkov immediately alienated the tycoons by bringing along two of his lieutenants, Vladimir Resin and Boris Nikolsky. Smolensky saw Luzhkov's men as cut from the same cloth as the mayor, old-school guys out of sync with the fleet-footed financiers.
“Nonliquid stuff,” Smolensky scoffed at the memory. Smolensky remembered that one of the young businessmen said to Luzhkov, “Yuri Mikhailovich, you want us to invest in Moscow? You are digging a hole in Manezh Square” (the excavation had just begun). “We think this is not a valid project.” In other words, it was a money loser.

Luzhkov stubbornly replied, “I dug, and will keep on digging! And you are not to give orders to me, and I won't take your advice on that.”