In October 1917, the Bolsheviks overthrew the Russian provisional government and placed themselves in power. As soon as they reached power, by violent means, the Bolsheviks as “good communists” confiscated all the properties and placed everything in the hands of the party. Seven decades later, a similar phenomenon occurred. The guardians of the properties of the socialist State became the owners of everything left by that failed Soviet Union. As a few individuals seized state property, a third of Russia’s population was placed below the poverty line.
The disintegration of the Soviet Union resulted in the transfer of public goods to the ruling class—the party and the KGB nomenklatura—and the criminal world. As a consequence, writes Vladimir N. Brovkin, a former associate professor of Soviet History at Harvard, “the nature of property relations in post-Soviet Russia was mired in crime, corruption, insider deals, and criminal networks.” As noted by him, “this mixture of social backgrounds could only generate more theft and more corruption than under the Soviet Union because the opportunities were wider and the controls fewer;” for in that post-Soviet period, Brovkin writes:
There were three groups of actors in the privatization and criminalization of state assets. The first was the state and party apparatchiks who had used the position they had in the Soviet hierarchy to their advantage; the second group was the KGB intelligence officers who differed from the state apparatchiks in that their profession was to collect compromising material on others… The former KGB agents, the former party/state officials, and Komsomol leaders constituted the main social group that engaged in entrepreneurship in Russia in the course of market reforms. These people were masters of duping the state, double accounting, patronage networking, influence peddling, and deal arranging. The third component in that post-Soviet entrepreneurial class was the semi-criminal and outright criminal dealers of the shadow economy, who had been running underground manufacturing since the 1980s. These people had their roots in business ventures designed to outsmart the state, buy and sell despite of official ban.
When Vladimir Putin was elected the President of Russia, in 2000, he inherited several pressing problems. Arguably, the most serious of them was the “oligarchical problem”. Some of these oligarchs had entered the media business and, although this is not a lucrative venture in Russia, their ultimate goal was to gain political control. In fact, it was largely through the power of the media that these oligarchs managed to turn the tide in Yeltsin’s favour, thus allowing him to win the crucial presidential elections of 1996. According to Marshall Goldman, the late professor of Russian Economics and associate director of the Davis Center for Russian and Eurasian Research at Harvard University,
When it came to dealing with the oligarchs, the government was generally unable to exercise much control. Since the state was very weak, these “new Russians” paid little or no taxes on their purchases. And if most American robber barons had at least created something out of nothing, the Russian oligarchs added nothing to what already was something. Virtually all their wealth come from the seizure of Russia’s raw material assets, which until 1992 had been owned and managed by the state. An oligarch’s success, in other words, almost always depended on his connections to the government officials in charge of privatizing the country’s rich energy and mineral deposits, as well as on his ability to outmaneuver or intimidate rivals.
Shortly before election day, Putin was asked by a radio producer how he felt about these oligarchs. He stated: “There will be no such oligarchs as a class.” This statement was widely interpreted as a declaration of war against the oligarchs. In fact, Putin was basically addressing the issue of the emergence of the oligarchy and its growing dominance in the country’s economic and political life. During the Yeltsin years, there was a nexus between the oligarchs and powerful political groups, mutually supporting and benefiting from each other. Thus, close ties were forged between these oligarchs who stole state property, hence also known as kleptocrats, and their “brothers-in-arms” who seized state power. As Professor Brovkin points out,
The country was ruled by the oligarchs, a group of unscrupulous businessmen who controlled the industry, the banks, the police, and the media. The insurgency in Chechnya cost thousands of lives, and terrorist attacks on kindergartens, and theatres demanded urgent measures. The war in Chechnya divided society and raised questions about the capacity of the central government to preserve Russia in its current post-Soviet borders. There was a problem with the governors who acted as medieval kings in their provinces, selling property, moving money to overseas accounts, violating tax laws, and surrounding themselves with obedient servants above the law. There was poverty, a huge gap between the rich and the poor, and a host of accompanying problems of alcoholism, crime, low birth rates, high mortality, unemployment, the collapse of the army, the collapse of science and research, and the collapse of morals.
President Putin inherited all these awful social problems. He tackled each of them with time but the most urgent one was precisely problem of the oligarchs. By the time Putin succeeded Yeltsin as the Russian President, in 2000, there was much to be done. One of his first steps was to declare a change in the rules of the game. As Putin put it, in a meeting with the oligarchs, in February 2000, “It is asked, what then should be the relationship with the so-called oligarchs? The same as anyone else. The same as with the owner of a small bakery or a shoe repair shop.” That Putin said this at that meeting with these oligarchs “was taken as a signal that the tycoons would no longer be able to flout government regulations and count on special access to the Kremlin” (Goldman).
On July 28, 2000, Putin had a showdown with the country’s top 20 Russian oligarchs to establish the new rules of the game. The men in attendance had a combined wealth of US$ 213 billion, which was almost as much as the Russian federal budget. In May 2004, the Russian edition of Forbes identified 36 of these oligarchs as having a fortune worth at least $1 billion. According to Greg Rosalsky, a writer and reporter at NPR’s Planet Money,
In the previous decade, these men had risen seemingly out of nowhere, amassing spectacular fortunes as the country around them descended into chaos. Though shady deals, outright corruption, and even murder, these rapacious oligarchs—as Russians had come to derisively call them—had seized control of much of Russia’s economy, and, increasingly, its fledging democracy. But now, their nation’s newly elected president, Vladimir Putin, wanted to tell them, face to face, who was really in charge.
The initiative for that meeting had come from Boris Nemtsov, the former governor of Nizhny Novgorod, who had helped to kick-start the privatisation process in the mid-1990s but now headed a political party, the Union of Right Forces. The oligarchs were concerned after they heard the new leader had threatened their existence “as a class.” They had just seen how one of their fellow oligarchs, Vladimir Gusinsky, a Russian media tycoon, was effectively stripped of his wealth and chased out of the country. They were also quite dependent on the West, so such apprehensions about the meeting were not unfounded. Angus Roxburgh, the BBC’s Moscow correspondent during the Yeltsin years, commented:
These were men who had acquired vast fortunes during the Yeltsin years by exploiting every loophole, breaking and bending laws, bribery, thuggery, extortion, and, most simply of all, by helping themselves to companies and resources offered to them in exchange for ensuring Yeltsin’s political survival. They owned they country’s major oil and gas companies, aluminum smelters, telecoms and advertising, automobile plants, iron and steel works, a brewery and the top banks.
That meeting of the Russian President with these oligarchs can be described as a watershed. It was the moment when the “robber barons” were given the opportunity to transform themselves into respectable businessmen or to face the full force of the law. Putin admonished: “We are making a gesture to you, we are drastically reducing taxes, we are creating a favourable environment for investment and defending property rights. But please, since we are lowering taxes, you have to pay them. And secondly, if it’s a business you’ve chosen, then do business.” One of these oligarchs, Vladimir Potanin, the then president of the mining and metallurgical conglomerate Interros, seemed repentant: “The oligarchs have established themselves as an elite, but society does not accept this elite. We have to behave better.”
When Putin was elected, Boris Berezovsky, a former government official who made billions in interests ranging from oil to aviation, was convinced that his time had come. “It’s all right now,” he exulted, “our man is in power.” It was typical Berezovsky, a government official and mathematician by training who, in the words of his friend Pyotr Aven, was “completely amoral, but with great ambitions and strengths.” “His ultimate goal,” Aven added, “was to control Russia.” In his relationship with Putin, “Berezovsky really thought he had God by his beard and could walk on water,” told his business partner at the time, billionaire investor Leonid Boguslavsky.
As would soon become clear, Berezovsky had misjudged the situation entirely. Putin had strong reservations about him ever since their first encounters in St Petersburg. “He’s the worst criminal you can think of. He’s going to damage Russia,” Putin said. Berezovsky had once confessed that “there is no doubt that any person who did business in Russia over the last 10 years broke the law.” There were many reports that he, using all the strength of his impressive economic power, had managed to influence numerous political decisions in his favour.
In December 2000, Berezovsky was caught defrauding tens of millions of dollars through Aeroflot, the Russian airline, through a network of Swiss companies that created foreign currency revenues. The Deputy Prosecutor-General demanded that he appear for questioning. Fearing imminent arrest, Berezovsky fled to Great Britain. In February 2004, Russia requested the British authorities extradite Berezovsky but he was granted asylum later that year. Three years later, he was tried in absentia by a Russian court and found guilty of embezzling from Aeroflot. While in exile, Berezovsky announced that he was creating a multimillion-dollar foundation to promote “judicial reform” and “civil society” in Russia. He also resumed his restless attack on the Russian President, “going so far as to finance Putin’s opposition and to call for his overthrow by force.”
At the time Putin was elected, Mikhail Khodorkovsky was widely regarded as the richest and most powerful of man in Russia. In 2003, Khodorkovsky was believed to have amassed a fortune estimated to be worth US$15 billion. Like all the “loans-for-share” deals, his acquisition of wealth was “unconventional.” He had paid US$ 309 million for an oil company called Yukos, which not long later would be worth more than US$ 7 billion. He also got Sibneft, another oil giant, worth US$ 3 billion, for about US$ 100 million. In the eyes of common Russians, Khodorkovsky epitomised everything that is corrupt and rapacious about those oligarchs. Just to give one example, according to the late Marshall I. Goldman, who was senior scholar at the Davis Center for Russian Studies, Harvard University, and Professor of Russian Economics (Emeritus) at Wellesley College,
After the Russian government declared a moratorium on the repayment of its debt on August 17, 1988, most Russian banks, including Khodorkovsky’s Menatep, simply closed their doors, depriving hundreds of thousands of ordinary Russians of their savings. Rather than try to help depositors and other lenders, Khodorkovsky too whatever sound assets he could salvage and diverted them to a subsidiary in St. Petersburg, beyond the reach of his creditors.
At the end of April, Putin met Khodorkovsky to discuss the latter’s proposal to form an alliance with the American giant oil company, Chevron. If realised, the deal would make the prospective group the world’s largest oil company. Putin showed appreciation for the idea, provided the foreign company had no more than a 25 per cent stake. He also told Khodorkovsky to stop giving money to the Russian Communist Party. Overall, Khodorkovsky felt that the meeting had gone well. In February 2002, he went to London to visit John Browne, the chief executive of British Petroleum (BP), with the intention to offer the British company a 25 per cent share in Yukos, one of the world’s largest integrated oil and gas companies. Browne later described how the Russian oligarch conducted the negotiation:
He began to talk about getting people elected to the Duma, about how he could make sure oil companies did not pay much tax, and about how he had many influential people under his control. For me, he seemed too powerful. It is easy to say this with hindsight, but there was something untoward about his approach.
Khodorkovsky had rather grandiose political ambitions. That same year, he created a society modelled on George Soros’s Open Society Institute. Henry Kissinger, Lord (Jacob) Rothschild and Arthur Hartman, a former U.S. ambassador to Russia, were among its board members. Called the Open Russia Foundation, its goal was to radically change Russian society via the injection of millions of dollars in so-called “educational” and “cultural” projects, especially “cultural youth projects”. As many in the West applauded such “progressive” initiatives, “Khodorkovsky became increasingly self-confident and even brazen” (Goldman). He openly hinted that he would run for president in 2008, when Putin’s term would expire. ‘He was going around Moscow saying that he wanted to buy one third of the Duma [seats],” his friend Pyotr Aven recalled. To secure support, Khodorkovsky held several secret meetings with opposition leaders and offered to donate tens or even hundreds of thousands of dollars to finance their electoral campaigns in the coming December Duma (parliamentary) elections. It is alleged that he bought control of about 100 seats in the Duma, including several held by the Communist Party. Whether this is true or not, the fact is that Khodorkovsky managed to prevent the Duma’s attempts to raise taxes on oil producers in 2001 and 2002.
It was also rumoured that Khodorkovsky wanted to become the prime minister and reduce the presidency to a decorative figure. In May 2002, a Moscow think-tank known as the National Strategy Council published a report with the striking title: “An oligarchic coup is being prepared in Russia.” Written by the influential thinker Stanislav Belkovsky, it claimed that the hateful oligarchs were preparing a creeping putsch that would bring the Duma under their control, “leading to the rewriting of the Constitution and the crowning of Khodorkovsky as all-powerful prime minister with the presidency emasculated.” The report also explained how these oligarchs were planning to install a system like that of 14th-century Venice, where the Council of Ten ruled the principality and the nominal leader, the Doge—a transparent allusion to Putin—became a figurehead. Khodorkovsky, the report insisted, was the leading force behind the ambitious plan.
True or not, the Kremlin took it seriously. To pass up this challenge would be to demonstrate weakness and compromise the national interest. As long as Khodorkovsky remained at the helm of the Yukos, he would pose a threat. In August 2010, the Duma elections were approaching and President Putin had vowed that the oligarchs would “cease to exist as a class.” A few weeks later, coincidence or not, Khodorkovsky was caught stealing money from the oil that Yukos had produced in the years 1998 to 2003. He was charged with committing a number of economic crimes—tax evasion, fraud and embezzlement. Prior to this, two senior Yukos executives had been “charged with murder and attempted murder, and the mayor of Nefteyugansk, where Yukos’ major producing unit is headquartered, was murdered after criticising the firm’s failure to pay taxes” (Philip Short, Putin: His Life and Times, p. 360).
In September 2010, Khodorkovsky was detained by the police when his plane landed in Novosibirsk, Siberia. In December, after a long trial, Khodorkovsky was sentenced to 14 years’ imprisonment. To avoid imminent arrest, he moved to Britain and applied for political asylum, which was granted by the British government. Like so many other oligarchs, he was granted permanent residence and allowed to invest his fortune in Western countries, especially the United Kingdom. Khodorkovsky would remain a vocal critic of Putin for the rest of his life.
In those days, there was also Vladimir Gusinsky, an oligarch from the Yeltsin years who had emerged from the underground economy of the era of the Soviet Union. Gusinsky had founded a private bank known as the MostBank and also a company known as Media Most which included the second largest television network NTV, and a daily newspaper Segodnya (Today). Gusinsky was called the “Rupert Murdoch of Russia”. For many in the West, he was a symbol of free enterprise and freedom of religion. Besides being a Jew, he was very prominent in the Jewish community, heading the national Jewish Congress and funding the construction of new synagogues. His business assets totalled 42 companies, including a bank and a number of construction companies he had created from scratch, in 1997.
In June 2002, the Prosecutor-General Office launched an investigation against Gusinsky for misappropriation of funds in connection with a company called Russian Video. On 13 June 2002, he was arrested in Moscow and incarcerated into the Butyrka Prison. The cause of arrest was that he had evaded taxes. Fearing arrest, other Russian oligarchs offered their protest. In a joint letter they declared: “We thought were living in a democratic country, today, we have serious doubts.” The Russian public was delighted as they thought he was just another “robber baron” who finally got his turn.
Gusinsky’s conviction caused the Western media to accuse the Russian president of being a “ruthless autocrat”. Russians saw it differently as they abhorred these unscrupulous corporate oligarchs. “Putting an oligarch in prison was an almost universal dream,” the gazette Nezavisimaya wrote. “Why? To show that the fight against corruption has begun in this country.” There was a hint of this during Putin’s campaign when his electoral headquarters turned down numerous offers of financing from the business tycoons who were competing for a “single buyer”. As a presidential candidate, Putin had refused to receive their money and, instead, he promised the electorate a “dictatorship of the law, the only dictatorship with which we can accept to be governed.” Under Putin, new “Justice of the Peace” courts were introduced, affording relief to overburdened district courts and speedy justice courts to ordinary plaintiffs as well as adjudication of minor criminal offences.
Khodorkovsky, presently living in London, frequently criticises Putin’s war in Ukraine on his social media accounts. Now that such oligarchs have effectively lost control over Russia’s society, they have launched a ferocious campaign against Putin, with the explicit goal of removing him from power at any cost if necessary. This won’t be easy because Putin is genuinely popular among the ordinary people, who are thankful to a leader who has raised their living standards, restored Christian Orthodox values and morality, and confronted not just the hateful oligarchs but a notoriously corrupt bureaucratic class. Once in a while even a high-ranking bureaucrat is charged with breaking the law.
Facing a deluge of Western sanctions that deeply affect their assets and businesses, these oligarchs have conjointly decided to speak out against the war in Ukraine. And yet, according to the Ukraine-born, Russian banking billionaire Mikhail Fridman, these disgruntled oligarchs have “no ability to influence the Russian president and those who urge people like him to pressure Putin understand nothing about how Russia works.” In fact, Putin may even be content about these international sanctions and confiscations of private property, because they might force these oligarchs to bring their billions back home to Russia. As reported, the Russian leader is largely “indifferent” about their predicament and he may even like these oligarchs being “forced to bring wealth inside Russia” if their access to investment abroad is diminished.
According to the Russian non-governmental organisation, Levada Center, about 85 per cent of the Russian population approved of Putin in April 2024. Only 12 per cent of Russians disapprove their leader. However, the disgruntled oligarchs who resent what President Putin has done to them are notoriously ruthless and one must always be mindful that political assassination has a long history in Russia. Out of the last twelve Romanov tsars, six died violently. The tsars lived in constant fear of attempt on their lives, and Putin has himself said in 2017 that he has survived a number of assassination attempts. A report compiled by the German Federal Intelligence Service, the BND, has listed five attempts to take Putin’s life after he became the president of Russia. In reality, there have been at least six assassination attempts on the Russian president over the last twenty years.
Featured: Chichikov at Sobakevich’s, illustration to Nikolai Gogol’s Dead Souls, by E.I. Topikov; painted in 1930.
