Putin’s People. Catherine Belton

passed in 1987 allowed private businesses to be set up in the parts of the economy where shortages were most acutely felt – consumer goods, shoe repairs and laundry services. A year later the laws were extended to allow entrepreneurs into the Soviet Union’s most lucrative business, the trade of raw materials. Khodorkovsky and his team put the beznalichiye from the Institute of High Temperatures to extremely profitable use, exchanging it for hard currency earned by state timber exporters, and then using the money to import computers. Their actions, however, were still partly directed from on high. The Soviet economy was in dire need of Western technology, its computer systems were lagging far behind. But the Western embargo on high-tech goods made the import of computers a difficult process. Khodorkovsky and his partners needed to use the secret trading channels set up by the KGB.[62]

      ‘The new generation of businessmen did not appear from nowhere,’ said Thomas Graham, a former senior director for Russia on the US National Security Council. ‘They had people who were helping them. There were certain elements in the Soviet government and in the first directorate of the KGB who had a sense of how the Western world worked and understood the need to change.’[63]

      ‘Gorbachev was pushing it. It was official policy,’ said Christian Michel, who by 1989 had become a money manager for Khodorkovsky’s new wealth. ‘There were two directorates of the KGB that were specifically interested in this. One was the directorate for the black market and economic crimes. And the second was the foreign-intelligence department, because they understood better than the rest of the Politburo what was happening, and because they had access to a lot of money. They wanted a better return on what they had, so they gave it to people like Khodorkovsky and said, “Go and play.”’[64]

      When we met, Khodorkovsky insisted that he was unaware he was part of any KGB experiment. He claimed that he was too young, too obsessed by his bid to succeed to notice that he may have been part of a broader plan. But for years, he said, his activities seemed to him only a job, and it was only in 1993 that he realised the business he ran could be considered his own. All the while, he’d received instructions: ‘They asked, “Could you supply computers here, could you supply computers there? Could you do this, could you do that?” They had the right to issue orders. But always they asked.’[65] (He would not, however, say who these masters were.)

      Hundreds of young businessmen began to set up cooperatives. Most of them sought to import computers or trade in consumer goods. But the most successful of them, the ones who entered the raw-materials trade or went into banking, were the ones with the most powerful connections. One such black marketeer from the Komsomol was Mikhail Fridman, an exceptionally bright and ambitious twentysomething with a round face and a pugnacious air who’d essentially been barred from attending Moscow’s best universities due to unofficial anti-Semitic quotas. He’d studied instead at the Moscow Steel and Alloy Institute. After he graduated, instead of focusing on his dead-end job as an engineer at Moscow’s Elektrostal plant, he hawked tickets to the Bolshoi theatre at black-market rates to unsuspecting tourists, reaping dollars to barter goods, always cooperating with the KGB to keep them onside.[66] With friends he created another of the first cooperatives, Alfa Foto, which first washed windows, then imported computers, and then became one of the very few operators allowed to expand into the commodities trade. The outfit was renamed Alfa-Eko, and sank roots deep into Switzerland as one of the very first Soviet–Swiss joint ventures. None of this could have happened without the patronage of the KGB. ‘It was all under Soviet control,’ said a former government official who knew Fridman’s operations well.[67]

      The KGB sought to keep tight control over commodity exports, but after the 1988 law was passed allowing cooperatives to participate in trade, its task became ever more difficult. The directors of state enterprises joined the goldrush, creating their own cooperatives to export the huge stores of raw materials – aluminium, steel, copper and fertilisers – held by the plants they ran. They were taking over industrial cash flows, privatising their companies from the inside out before anyone had ever mentioned the word privatisation. Though the KGB attempted to maintain its grip over the most strategic commodities – oil in particular – parts of the raw-materials trade were rapidly becoming a free-for-all. Gorbachev’s reforms had let the genie out of the bottle. The Soviet state was being looted, and most importantly, the power the Communist Party held over the economy – and the country itself – was being eroded fast.

      A little-noticed line in the law on cooperatives allowed for the creation of financial or credit businesses – in other words, the creation of banks. Khodorkovsky was among the first to pay attention. He’d gone to a local branch of the Soviet state housing bank, Zhilsotsbank, to ask for a loan for his cooperative, and was told he could be granted one, but only if he created a bank first. Once again, he received a friendly helping hand from on high. Zhilsotsbank agreed to become one of the founders of his bank, eventually registered as Menatep Bank, and the head of the Institute of High Temperatures joined its board. Khodorkovsky contributed capital from the NTTM profits, and soon began making himself loans to fund his computer-import business. Then he found a loophole that allowed him into an even more lucrative trade: the exchange of hard currency. It was now that his business really took off. He could change roubles for dollars at the official fixed state price of sixty-five kopecks to the dollar, and then sell computers at a price worth forty roubles to the dollar.[68] The profits were enormous. The Soviet central bank granted Menatep one of the first licences to trade hard currency, and soon the bank was transferring huge amounts of money abroad.

      The floodgates had opened for the transfer of hundreds of millions of dollars into accounts abroad through hard-currency trading. Most of it had happened just as Gorbachev’s deputy general secretary Vladimir Ivashko was signing off on the plan for the ‘invisible economy’ for the Party wealth, and the KGB’s Leonid Veselovsky was proposing creating the system of trusted custodians, or doverenniye litsa. For years, Moscow legend held that Khodorkovsky’s Menatep Bank was one of the main conduits for the transfer of Communist Party wealth abroad. Khodorkovsky has always denied this, but at least one senior Moscow financier and two former senior Russian foreign-intelligence operatives say that Menatep was a key front for the transfer of the Party’s cash. ‘A lot of money was lost from the Central Committee. I know for sure Khodorkovsky was one of the actors in this,’ said the financier.

      *

      Gorbachev first indicated that he was terrified at the process his economic reforms had unleashed in early 1989. He and his government were proposing to limit how much the owners of the new cooperatives could earn. The plan was that they – and their workers – could pay themselves only a hundred roubles a day, while the rest of the money they made would have to be kept in a special account at a state bank. Gorbachev was clearly trying to stem the looting of the Soviet state: already it was becoming clear that the coffers were running dry. But the proposal met with an immediate backlash. One of the cooperative owners, Artyom Tarasov, the Soviet Union’s first publicly declared rouble millionaire, publicly campaigned against it and won the support of half the Politburo, including Alexander Yakovlev and the former KGB chief Viktor Chebrikov.[69] Gorbachev had always only wanted gradual reform, that would keep the economy within the confines of the socialist state. But now, in the rush for riches, the unity of the Party leadership itself was cracking, with a deepening rift between progressives and old-guard conservatives. One by one, the progressives were giving their support to Boris Yeltsin, the upstart former member of the Politburo who was increasingly challenging Gorbachev’s rule – and members of the KGB secretly joined them. Yeltsin had gained a platform as a leader in his own right under Gorbachev’s own political reforms, first when he was elected chairman of Russia’s Supreme Soviet in 1990, and then when he was elected president of the Russian Federation, in the first such elections in June 1991.

      The handpicked new young wolves of Russia’s economic transition were rallying behind Yeltsin, while reform-minded political giants such as Alexander Yakovlev moved to his side too. Khodorkovsky and his team financed part of Yeltsin’s presidential election bid, helping to run part of his media campaign and forging ties deep within his administration.[70]

      *

      By the time the five black Volga sedans drove up to the wrought-iron gates of Gorbachev’s summer residence in Foros on the Black Sea coast that fateful evening of August