Putin’s People. Catherine Belton

had worked on a reform that would bring foreign capital into the Soviet economy through the creation of joint ventures between foreign and Soviet businesses. It was a bold measure that would erode the Soviet monopoly on all foreign trade, and it was immediately vetoed by the institute’s director. But when a new director was appointed under Andropov in 1983, ‘an absolutely different life’ began, recalled Simonyan. The new director was Alexander Yakovlev, a former ambassador to Canada who would become a mentor to Gorbachev and the godfather of his perestroika reforms. Simonyan worked closely too with Yevgeny Primakov, a mandarin-like foreign-intelligence operative who’d worked many years in the Middle East under cover as a correspondent for the Soviet newspaper Pravda, forging close ties with Saddam Hussein in Iraq and other leaders in the Soviet patronage system there. Throughout the seventies, Primakov worked at IMEMO, cooperating closely with Milshtein at the US Institute for the USA and Canada, and took over as director of IMEMO when Yakovlev was promoted to the Politburo. He was now heading one of the main nests for the progressives in foreign intelligence. IMEMO became an engine room for the perestroika reforms.

      Under Andropov, a new generation of economists was being educated. The twentysomething Yegor Gaidar discussed far-reaching market reforms that he believed were crucial to the survival of the Soviet bloc with the equally youthful Pyotr Aven. Both of them worked at another key research institute in the early eighties, the All Soviet Institute for Systems Research, and both of them were from the heart of the Soviet elite. Aven’s father had been one of the country’s most respected academics, while Gaidar’s had worked under cover of being a correspondent for Pravda in Cuba, where he rose to the rank of admiral. Fidel Castro and Che Guevara visited him in his home, and his son grew up surrounded by high-ranking Soviet generals. Both Gaidar and Aven were to play leading roles in the market reforms of the new Russia. ‘All the market reformers who later came to prominence – from Gorbachev to the young reformers – were brought up in institutions created by Andropov,’ said Vladimir Yakunin, a close Putin ally from the KGB and later a senior Russian official. ‘The first market reforms were mapped out at these institutions.’[52]

      Once Andropov had taken over as leader, progressive factions in the KGB, led by the foreign-intelligence directorate and the economic-crime directorate, began to experiment with the creation of a new class of entrepreneurs who would operate outside the confines of the Soviet planned economy. They began with the black marketeers, the tsekhoviki. ‘The real perestroika started under Andropov,’ said Christian Michel, a financial manager who for more than a decade handled funds for the Soviet and then the Russian regimes. ‘The message was given out to turn a blind eye to the black market. He knew the country was otherwise headed for mass starvation.’[53] ‘There was a conscious creation of a black market,’ agreed Anton Surikov, a former senior Russian military-intelligence operative. ‘It was impossible to work in the black market without KGB connections and without protection from the KGB. Without them, no shadow business was possible.’[54]

      What had begun as corruption within the system became a KGB-cultivated petri dish for the future market economy, and a stopgap measure to fill the shortages of the command economy. The black marketeers were mostly from the Soviet Union’s ethnic minorities. Often they had very little choice, their careers having been blocked due to the prejudices of the Party elite. ‘The only people who went into it were the people who had no prospects in the normal Soviet system, the ones who had hit a glass ceiling and could go no further,’ said Michel. ‘These were the ethnic minorities: the Georgians, the Chechens, the Jews.’

      The black-market experiments also marked the beginning of a sudden acceleration in the transfer of the Soviet Union’s vast wealth through KGB-associated friendly firms. This was the beginning of the looting of the Soviet state. It was also the beginning of what became a mutually beneficial alliance between the KGB and organised crime that stretched through Boris Birshtein’s Seabeco in Switzerland, an outfit named Nordex in Vienna, and to New York through a metals trader named Mikhail Cherney and his Brooklyn-based associate Sam Kislin. Birshtein and the owner of Nordex, Grigory Luchansky, were Soviet émigrés recruited by the KGB to transfer state and Party wealth on the eve of the Soviet collapse, the Swiss intelligence service later said.[55] Later, Birshtein and Kislin were to become part of a network funnelling money from the former Soviet Union into America, including – indirectly – into the business empire of Donald Trump.

      *

      While Putin was in Dresden, the KGB progressives in Moscow were beginning the second stage of their market experiment. They began to cultivate and create their own entrepreneurs from the ranks of the Communist youth league, the Komsomol.

      Their eyes soon fell on Mikhail Khodorkovsky, an intensely driven young Muscovite in his early twenties who’d risen to become a deputy chief of his local Komsomol. Khodorkovsky was escaping from a childhood spent in a communal apartment in the north of Moscow where he learned from an early age the dangers of falling through the cracks of Soviet society. The other family who shared his parents’ two-room apartment were a clear demonstration to him of many of the things that could go wrong in life: the father was a half-crazed Bolshevik who would wander through the flat without his trousers, scaring Khodorkovsky’s mother; the son was a drunk,[56] and the daughter a member of ‘the world’s oldest profession’, according to one of Khodorkovsky’s former partners. ‘The whole atmosphere there firmly propelled him to follow Lenin’s principle of “Learn, learn and learn again”. He understood that if you did not try hard and work hard in life you weren’t going to get anywhere.’[57] By the time Khodorkovsky was a teenager his family had moved out of the shared flat, but its atmosphere left a lasting imprint. His parents were engineers, and Khodorkovsky began work at the age of fourteen, earning extra cash by sweeping the yard after school.[58] When we met many years later, after he had experienced a meteoric rise and an equally dizzying fall, he told me his ambition in life back then was to become the director of a Soviet factory, but that he feared his father’s Jewish ethnicity would hold him back.[59]

      In those days Khodorkovsky looked like a thick-necked street hustler, dressed in jeans and a denim jacket, with thick glasses and a dark moustache. But his intense focus helped propel him to the top of the local Komsomol, where he started out organising discos for the students at the Mendeleyev Institute for Chemical Science. He demonstrated such entrepreneurial flair that he was soon invited by the top of the Moscow city Komsomol to run an ambitious new initiative called ‘scientific youth centres’, known as NTTMs, which were to act as intermediaries for Moscow’s top scientific research institutes, finding ways to turn research into cash and providing computer programming. They were also to be given access to a potentially vast source of funds, known as beznalichiye. In the Soviet Union’s skewed Alice-in-Wonderland planned economy, profits meant nothing, and everything – from the cost of materials to the price of the finished product – was determined by state planners. All the state enterprises had to do was rigorously follow the annual plan for production handed down by the state. As a result, the plants weren’t meant to hold any more cash in their accounts than what they needed to pay wages. What they held instead were accounting units called beznalichiye, or non-cash. Real cash was in such short supply as a result that one real rouble could be worth ten times as much as a beznalichiye rouble.[60]

      Soviet law forbade any enterprise from exchanging the non-cash units for real cash. But under Gorbachev’s reforms, the NTTMs were to be given permission to swap the beznalichiye for real cash simply by moving the funds from one account to another. This unlocked huge amounts of capital, and generated enormous profits. By then Khodorkovsky had teamed up with a cybernetics graduate, Leonid Nevzlin, a smooth-talking political animal with intense green eyes and a debonair air, and Vladimir Dubov, an employee of Moscow’s Institute of High Temperatures. They were given a helping hand from the top. Dubov’s place of employment was one of the Soviet Union’s most secretive research institutes, a gigantic scientific complex deeply involved in research for laser weapons and the Star Wars race. Its head, Alexander Sheindlin, granted the team access to 170,000 roubles in beznalichiye, worth nearly two million roubles in real cash. He didn’t even ask what they would do with the money.[61]

      Khodorkovsky and his partners moved into the vanguard of a new movement created by Gorbachev’s perestroika reforms, forming one of the country’s