If you are following the war in Ukraine you are constantly bombarded with news stories concerning sanctions against Russia and Russian president Vladimir Putin’s oligarchs. Frozen bank accounts, offshore investigations, the seizure of yachts, homes, the inability to access money or transfer funds, in addition to the loss of real estate, a soccer team and who knows what else are daily headlines. The target of these actions are men who Vladimir Putin made rich by fleecing Russian mineral wealth, real estate, communications networks, weapons manufacturing, banking, highjacking the legal system, and of course the Russian people. These men, many of which are former KGB operatives along with Putin, looted their country siphoning off billions of dollars out of state enterprises and moving their wealth to the west forming a second wave of oligarchs replacing those who accumulated extreme wealth under Boris Yeltsin.
The west’s rationale for sanctioning Putin’s oligarchs is clear – destroy their wealth and lifestyle and they would pressure Putin to end his “special military operation” in Ukraine. It is clear that the strategy has failed to move Putin to change course as the genocide in Ukraine continues. Many wonder who these oligarchs are, how did they acquire their wealth, and what is their relationship with the Russian President. Catherine Belton, an award winning journalist whose specialty was investigative reporting on Moscow has written PUTIN’S PEOPLE: HOW THE KGB TOOK BACK RUSSIA AND THEN TOOK ON THE WEST, an exceptional expose based on years of her own reporting and contacts in Russia and the west.
As Daniel Beer writes in his May 26, 2020, article in The Guardian, Belton is a renowned business journalist who spent years covering Russia for the Financial Times, Belton follows the money. She has an unrivalled command of the labyrinthine history of share schemes, refinancing packages, mergers, shell companies, and offshore accounts that lay bare the stealthy capture of the post-Soviet economy and state institutions by a coterie of former KGB officers, or siloviki. Belton combines this financial history with testimony from a dazzling array of Kremlin insiders, diplomats, intelligence officers, prosecutors, mobsters and oligarchs. The result reads at times like a John le Carré novel.”** Belton’s approach and final product will amaze the reader for its depth of analysis and the disturbing picture she creates.
(Vladimir Putin was appointed prime minister in August 1999 before taking over from Boris Yeltsin as president on 31 December)
Belton’s theme is clear and direct – Putin justifies bringing all levers of power including ending elections for governors, bringing the court system under the will of the Kremlin, taking over and reorienting the media towards the needs of the state, and destroying certain oligarchs and private companies in the name of stability, all to end the chaos of the 1990s that existed under Boris Yeltsin. But, behind the patriotic fervor he encouraged a system whereby “Putin and the KGB ran the economy through a network of loyal allies now monopolized power and introduced a new system in which state positions were used as vehicles for self-enrichment. It was very different from the anti-capitalist, anti-bourgeois principles of the Soviet state they had once served.”
The author dissects a number of important questions. First, how did Vladimir Putin, a KGB operative in Dresden when the Berlin Wall collapsed end up the authoritarian presence in Moscow that exists today? Second, who are the men who he manipulated allowing them to accumulate vast amounts of wealth and if they crossed him wound up in the Gulag? Third, what mechanisms did Putin, and his coterie of sycophants employ to bring about the unequal and illegal distribution of wealth in Russia? Fourth, why has the Russian leadership and their oligarchs been so successful in hiding their wealth in the west and penetrating the western political apparatus? Lastly, what have been and are currently the implications for the system of “state capitalism,” or “state feudalism” that now exists in Russia?
As Belton methodically answers these questions she places events and actions in the context of Russian history and examines the different personalities and actions of Putin and his St. Petersburg KGB, and how they were able to overturn the corrupt oligarchical system which claimed to be mostly progressive under the reign of Boris Yeltsin.
The key component to Belton’s narrative centers around Leningrad at the time the Soviet Union collapsed. Leningrad, soon renamed St. Petersburg was the home a KGB faction which had a close relationship with the East German Stasi which was aware of the risks of a communist collapse and quietly launched “Operation Luch” to prepare for a potential regime change, particularly recruiting agents for a possible unification of Germany. Putin, then stationed in Dresden was part of the process that smuggled millions of dollars out of East Germany to maintain their operations and create techniques that would become the model for Putin’s later Kleptocracy.
(Russia’s cabinet members observe a minute of silence in September 2004 after the Beslan school siege, in which militants killed more than 330 people)
Belton follows Putin’s biography pointing out the significant role played by Anatoly Sobchak, a key reformer on the Leningrad City Council who would be elected mayor, then enamored with Putin made him Deputy Mayor. From this position Putin and his KGB compatriots had a base of power and the tools to implement their plan to replace Yeltsin’s oligarchs, men who took advantage of the collapse of the Soviet Union to line their own pockets and indirectly steal state assets. Billions were siphoned from Soviet coffers – a process overseen by the KGB. Front companies and banks were created to house this wealth and no matter what occurred, the 1991 coup, the raping of Russia under Yeltsin, the corruption of the Yeltsin family, and finally the choice by Yeltsin to first choose Putin as his Prime Minister, then resigning early so his protégé could be elected Prime Minister in his own right in 1999 – all linked to the KGB, men from the Soviet and post-Soviet period.
Belton’s detail is to be admired as she traces how Putin exercised power and destroyed men like Mikhail Khodorkovsky who was emblematic of former Komsomol officials who early on were cultivated by KGB progressives who would acquire enormous wealth under Yeltsin but would be destroyed by Putin. The modus operandi to go after these oligarchs was charging them with personal and business tax evasion resulting in the seizure of their companies and dividing their assets between the St. Petersburg KGB types and organized crime who worked hand and glove with Putin in the past. The agenda for Putin and these KGB loyalists was their belief that conflict with the west was not over with the collapse of the Soviet Union, so they created vehicles to funnel billions of dollars into the west to finance KGB intelligence operations against the United States and its allies.
(Talks resumed this month, five years after the start of the conflict in Ukraine, with President Volodymyr Zelensky, in a bid to end the fighting)
The privatization of state enterprises under Yeltsin using “loans for share,” and auction gimmicks quickly transformed ownership of the country’s wealth and created a class of oligarchs. Men such as Khodorkovsky controlled Yukos Oil, Vladimir Potanin controlled Norlisk Nickel, Boris Berezovsky controlled Sibnet Oil to name a few who reaped the benefits of the new system that controlled over 50% of the country’s wealth, but once Putin arrived they had to kow tow to his whims and goals. These men would become the target of the KGB who sought revenge because of their desire to control the country’s riches. The St. Petersburg KGB forged relationships during the early 1990s through an elaborate system of barter and export deals that involved organized crime creating a model of how Putin’s Russia would be ruled in the 21st century.
Belton outlines how Putin and his cronies were able to become President pointing to a number of issues that Russia faced in the late 1990s. First, Yeltsin and his family were crooks. Second, the war in Chechnya which Yeltsin unleashed and Putin would use to raise his popularity for the 2000 election. Third, The economy was on a roller coaster where market reforms led to a lowering of the standard of living for the Russian people. With fears of a coup, the Yeltsin family decided they needed a strong KGB type who they could rely on to protect them from prosecution – that man was Vladimir Putin. Yeltsin would resign early to facilitate Putin’s popularity and election victory.
Belton excels in describing the machinations of how Putin was able to consolidate power including a discussion of domestic terrorism blamed on Chechen terrorists. This tactic appealed to the Russian people, but there is a great deal of evidence that FSB agents were behind the attacks creating the climate for Putin to crack down and re invade Chechnya.
Once in power Belton delves into Putin’s goal of creating an authoritarian system that he would control with an iron fist and how he accumulated billions in personal wealth which necessitated his own oligarchical system whereby fronts were created to limit any trace of wealth back to him. Foreign bank accounts, real estate, a domestic banking system symbolized by Rossiya Bank, state control of the energy sector, threats, violence were all tools that were employed.
(US intelligence services say that Russia interfered in the 2016 US election)
There were those in the west that hoped to work with Putin in the early 2000s, but the influence of the St. Petersburg security men outweighed all other considerations. Their world view was steeped in the logic of the Cold war, an ideology that would mold Putin. They sought to restore Russia’s might and saw the United States as the main obstacle to achieving this. For them, the economy was to be harnessed as a weapon first to restore the power of the Russian state – and themselves as leaders of the KGB and then against the west.
What saved Putin and the Russian economy from the outset was the rapid increase in the price of oil. The leading Russian oil company was Gazprom, and the St. Petersburg KGB soon took over decision making. Putin’s goal was to use possible oil and natural gas shutdowns as a vehicle to be employed in foreign policy as he did to Ukraine in 2004 and is currently doing so to Poland and Bulgaria. More and more Putin evolved into a Tsar and he and his men would build a Russian fortress, presenting the country as under siege from an external threat.
Belton is correct that the key turning point was the 2003 trial of Khodorkovsky, his imprisonment, and exile to the Gulag for nine years. It opened the way for Putin’s KGB men to take control of the country’s economy and created a precedent for the country’s judiciary to be an extension of Putin’s “security men.” It also sent a message to other oligarchs that if they did not cooperate with shielding Putin’s wealth, laundering his money and protecting his power they could be next. The west did not realize that it was the beginning of the state takeover of the entire legal and political system leading to the accumulation of wealth that would be turned against them. Throughout the process the hypocrisy of the west is evident as Belton points out the role and desires of western energy companies wanting to get their piece of the action with the Yukos and later Gazprom sell offs. Further western hypocrisy is evident with oligarch investments in western real estate and banking, in addition to the role played by western banks such as Deutsche Bank, the Bank of New York, Danske Bank and others.
(Khodorkovsky gave the first news conference after his release in Berlin)
Belton is able to unravel a process explaining how billions of Russian state assets were spirited to offshore accounts outside Russia – in 2012 alone, $49 Billion disappeared overseas. Much of the wealth was invested in real estate particularly in New York, Miami, and London. To create a mirage of legitimacy Roman Abramovich, an oligarch with strong ties to Putin was able to purchase the Chelsea Soccer Club, and others invested in large real estate holdings in the United Kingdom fostering the nickname Londongrad.*** According to Belton, by the mid-2000s the British LLP (Limited Liability Partnership) was created as the money launderer’s vehicle of choice. London would gain the reputation “as the world’s laundromat, washing hundreds of billions of pounds of dirty cash every year.” Soon an awareness developed as to the inroads the oligarchs made in the west and how they used its institutions to protect Putin’s wealth and as well as their own. Interestingly, Putin and his men correctly predicted that western greed would outweigh any sense of morality when it came to western businesses’ approach to investing in and with Russia.
Belton’s exploration of Putin’s ideology focuses on the role of the Eastern Orthodox Church, the writings of White Russians dating back to the Russian Revolution, and recreating Russia’s imperial past. In a sense Putin sees himself as a Peter the Great figure whose country should create a Eurasian empire whose destiny was to counter the west as Putin forged a new Russian identity based on its imperial past. In addition, Putin and his KGB cohorts sought revenge for the collapse of the Soviet Union, the economic chao of the 1990s, and the threat the west presented to their overall goals.
Ukraine plays a significant role in this process and from 2004 onward would become a training ground for Russia’s undermining western unity. First, employing energy blackmail, “black cash,” then the outright invasion of Crimea took place in 2014 and the insurrection to create the Donetsk Republic. The eastern industrial region of Ukraine would endure eight years of war conducted by Russian backed separatists until the recent invasion of the entire country.
From the outset the Kremlin took over control of the Russian media from the oligarchs and developed the message that Putin was as godlike as a Tsar and saved Russia from western encirclement. As long as Russian incomes grew due to the increase in energy prices the masses did not worry about the increasing state corruption, the growing arbitrary power of the FSB, and the control of all businesses by law enforcement. Putin and his minions could jail anyone they wanted as long as the emerging middle class was happy.
Belton explores how Putin, and his cronies employ “soft power” in a frightening chapter, “Soft Power in an Iron Fist.” She describes how “black cash” was used in Eastern Ukraine, funding right wing parties in France, Italy, Hungary and elsewhere in Europe, and co opting western politicians such as Gerhard Schroeder former Chancellor of Germany, Jean-Marie Le Pen who lost the French presidential election last week, former Italian Prime Minister Silvio Berlusconi, and of course Donald Trump. This strategy was in line with Putin’s goal of pushing a populist right wing agenda as a rebellion against the western liberal establishment which he views as a threat to his position as Tsar of all Russia’s.
Putin’s interference in western elections is well known as his support for the far right throughout Europe. Former Kremlin insider Sergei Pugachev points out that Russia’s aggressive new tactics employing cyber, money though out Europe to achieve his goals “is like a dirty atomic bomb. In some ways it’s there, in some ways it’s not. Nowadays it’s much harder to trace.” PUTIN’S PEOPLE lay bare the challenge the west faces internally and now externally with Putin’s invasion of Ukraine in addition to offering a remarkable explanation of how Putin’s feudalistic state came into being and how it is evolving.
For an up to date view of what these oligarchs actually believe see Catherine Belton; Greg Miller, “Cracks Emerge in Russian Elite as Tycoons Start to Bemoan Invasion,” Washington Post, April 29, 2022.
**Daniel Beer “Putin’s People by Catherine Belton review – A Groundbreaking Study that Follows the Money,” The Guardian, 6 May 2020.
***For a discussion of how the oligarchs took London see Patrick Radden Keefe, “Do Stay For Tea,” The New Yorker, March 28, 2022.