Putin’s People. Catherine Belton

from which the Communist Party had run the city since the days of Lenin’s takeover. The legacy they inherited was desperate. The city’s coffers were empty. There was no cash to pay for imports, and the shop shelves were fast emptying. Domestic food production was in a parlous state. Grain was left to rot at the roadside by inefficient state collective farms, while a series of bad harvests made things even worse. They not only had to deal with the food crisis, but also with an explosion of crime. In the chaos of the Soviet collapse, the institutions of power appeared to be melting away. Organised-crime groups moved in to fill the vacuum, running protection rackets extorting local businesses and taking over trade.

      From his office behind the stately columns and fading façade of the Smolny Institute, Sobchak seemed incapable of dealing with the deteriorating situation. He was a convincing and powerful orator who prided himself on his appearance, but his relations with what remained of the city’s law enforcement were fraught. ‘Sobchak was a moron,’ said one former senior KGB officer who worked for a time with Putin in St Petersburg. ‘He wanted to wear the sharpest suits, and he could give speeches for hours on end. He loved all the attributes of power, and his wife wanted to live like an aristocrat. He liked to travel in limousines, but someone needed to work. Who was going to clean the shit from the streets and deal with the bandits?’

      Few in law enforcement would even take Sobchak’s calls. ‘The former chairman of the St Petersburg KGB would not even go into a room with him,’ the former KGB officer said. ‘If you tried to explain to him how security worked, it would be the same as explaining nuclear physics. But with Putin, you could explain. You could say, “Volodya, there is this situation and there is this one.” And when he had to phone up the police to sort out situations, for him they would not put down the phone.’

      So Sobchak came to rely on Putin, who had maintained a network of connections with the top of the city’s KGB: his former mentor in the Leningrad KGB’s feared dissident-fighting Fifth Directorate, Viktor Cherkesov, was the new head of St Petersburg’s FSB, the KGB’s successor agency. Putin became the point man for dealing with law enforcement. He ‘was someone who could phone someone and say, “We have to do something, otherwise there’s going to be a nightmare,”’ the former KGB officer said. ‘He could agree with a general who before had handled special forces, who could tell him how to handle something and maybe provide back-up. They were people with connections. The system had collapsed, but part of it had remained.’[3]

      What emerged out of the chaos and collapse – and Sobchak’s ineffectiveness – was an alliance between Putin, his KGB allies and organised crime that sought to run much of the city’s economy for their own benefit. Instead of seeking to impose order for the good of the city’s population, the only order they imposed was mostly for themselves. Above all, the collapse meant opportunity for their own enrichment – and, in particular for Putin and his allies in the KGB, for the creation of a strategic slush fund that was to preserve their networks and secure their position for years to come. The slush fund had its roots in the barter schemes of KGB-run friendly firms. Later they extended to the sea port, and then to the oil terminal itself. Running through it all was St Petersburg’s Tambov organised-crime group. It was a business, according to one former local FSB officer, that consisted of ‘murder and raiding’: ‘The arms of the Tambov group were covered in blood.’[4]

      *

      It was near the end of 1991 when Marina Salye first noticed something was wrong. The firebrand democrat, who at one point had rivalled Sobchak as St Petersburg’s democratic leader, had been tasked by the head of the city council to find ways out of the food crisis. A doughty geologist in her mid-fifties with soft greying hair and shadows sunk deep under determined eyes, Salye was relentless. That autumn, she’d successfully pushed for the city to introduce a system of ration cards. It was the first time food had been rationed since the terrible days of starvation of the Leningrad blockade.[5] She’d now decided to push for a barter scheme that would allow the city to exchange raw materials for imports of food. It seemed the only way out of the impasse. A system had already been set up on a federal level to deal with the crisis that was facing the entire country. The Moscow government had begun issuing quotas that allowed the export of set quantities of natural resources held by state-owned enterprises, such as oil products, metals and timber, in exchange for food. But as Salye began to push the mayor’s office to apply for the export quotas for St Petersburg, she got wind of rumours that Putin’s foreign-relations committee had already been granted them. ‘What quotas? Where are the quotas? Officially no one knew anything,’ she later told an interviewer.[6] When she tried to extract more information from the mayor’s office, no one answered her letters. The scheme, she found out, had been under way since at least the beginning of December, and no one had been informed.[7] The biggest problem of all was that the expected food imports were nowhere to be found. As the city entered the new year, it had only one month’s worth of food reserves left.[8]

      Salye launched a parliamentary inquiry demanding information on the deals.[9] When Putin eventually bowed to demands and addressed the city council, pale-eyed and defiant, he turned up with just two pages of notes, and told the MPs that everything else was a commercial secret.[10] What he told parliament differed greatly from the documents Salye was eventually able to retrieve from the State Customs Committee and other officials as she ramped up her investigation.[11]

      By the time she’d pieced everything together, it had become clear that Putin’s committee had handed out more than $95 million in export licences to an obscure web of front companies, while virtually none of the food imports expected in return had arrived.[12] A further $900 million worth of export quotas had been granted by the federal government, including one for $717 million worth of aluminium.[13] It was impossible to tell whether Putin had gone ahead and handed out the additional $900 million in quotas to other firms which also disappeared with the proceeds, as Salye had been unable to access any further documentation. But she suspected that he had.[14]

      As Salye and her deputies dug through the paperwork, the scandal seemed to grow. State customs officials and St Petersburg’s representative from the foreign trade ministry had written to Putin complaining that he’d issued the export licences in violation of laws governing such barter deals.[15] An expert opinion commissioned by Salye’s committee warned that the companies involved were so obscure they could disappear with the proceeds from the sales overnight.[16] Most of them were to receive mind-blowing commissions for their services: 25 to 50 per cent of the value of the deals, instead of the usual 3 or 4 per cent.[17] A handful of the contracts appeared to allow the companies to purchase raw materials for far less than the market price. One quota awarded by Putin allowed for an outfit created just two months before the scheme took off to acquire 13,997 kilograms of rare-earth metals for two thousand times less than the global market price, enabling it to reap vast profits when it sold it all on world markets.[18]

      The scheme Salye had uncovered was almost identical to the practices deployed by KGB joint ventures in the dying days of the Soviet Union, which had led to a flood of raw materials being siphoned out of the country from state-owned enterprises at the low internal Soviet price, while the profits from the subsequent sales at much higher world prices remained in bank accounts abroad. In those days, any outfit that wanted to export raw materials had to receive a special licence to do so from the ministry of foreign trade, whose ranks were mostly manned by associates of the KGB. When the Russian government launched a series of barter schemes intended to staunch the looming humanitarian crisis following the Soviet collapse, the deals followed a similar route. But Putin had special permission to award his own quotas, licences and contracts for the city’s so-called oil-for-food deals, bypassing the need to agree each one with the ministry.[19] He’d been granted this by the minister for foreign trade himself, Pyotr Aven, the same bespectacled economist who’d worked closely on reforms with Gaidar in the early eighties, and who then protected Putin when the oil-for-food deals came under scrutiny.

      One of the contracts Putin handed out was to a Soviet-Finnish joint venture called Sfinks, which at the end of December 1991 was awarded a quota to trade diesel fuel, cement and fertiliser in exchange for 200,000 tonnes of livestock grain.[20] Another was a Soviet-German entity named Tamigo, given a licence to trade five hundred tonnes of copper in return for supplies of sugar and cooking oil.[21] Dzhikop, the outfit that was awarded the contract