How Putin conquered the Russian oligarchy (2023)

Note: This is the second part of a two-part newsletter series from Planet Money about Russian oligarchs. You can readfirst part heremiSign up for the newsletter here.

In the summer of 2000, 21 of Russia's wealthiest men climbed out of their bulletproof limousines and entered the Kremlin for a historic meeting. Over the past decade, these men had seemingly appeared out of nowhere and amassed spectacular fortunes while the country plunged into chaos around them. Through shady dealings, open corruption, and even murder, these greedy “oligarchs,” as Russians derisively call them, have seized control of much of Russia's economy and, increasingly, the fledgling democracy. But now their country's newly elected president, Vladimir Putin, wanted to tell them face to face who is really in charge.

"I would like to draw your attention to the fact that you built this state yourself, largely through political or semi-political structures under your control," Putin said.allegedly saidin the exam session. "So there's no point in blaming the reflection. So let's get down to business and be open and do whatever we can to keep our relationship civil and transparent in this area."

Putin me 2000ALEXANDER NEMENOV/AFP via Getty Images hide title

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ALEXANDER NEMENOV/AFP via Getty Images

How Putin conquered the Russian oligarchy (2)

Putin me 2000

ALEXANDER NEMENOV/AFP via Getty Images

Putin has offered the oligarchs a deal: submit to my authority, stay out of my way, and you can keep your mansions, superyachts, private jets, and multibillion-dollar corporations (corporations that the Russians owned just a few years ago ). ). Government). In the years to come, the oligarchs who broke this agreement and harmed Putin would bethrown into a Siberian prisonor be forced into exile ordie under suspicious circumstances. The remaining loyalists and the newcomers who became filthy rich during Putin's long rule have become ATMs for the president and his allies.

"These people have enriched themselves at the expense of the Russian people," the White House said in a statement.a current statementAnnounced sanctions against more than a dozen Putin-affiliated oligarchs. "[You] are at the helm of Russia's largest corporations and are responsible for providing the necessary resources to support Putin's invasion of Ukraine."

(Video) How Putin's Oligarchs Hide Their Billions | Investigators

Putin shows who's boss

Putin came to power in large part thanks to the original class of oligarchs, who appear to have enriched themselves through crooked privatization deals during Boris Yeltsin's presidency. These oligarchs founded and funded Putin's political party, Unity, the predecessor of what is now called United Russia. They led to President Boris Yeltsin's overwhelming victory in the 1996 presidential election. Without that victory, Yeltsin would never have been able to appoint Putin as his prime minister, a position that turned out to be Putin's stepping stone to his presidential bid. The oligarchs contributed to Putin's meteoric rise. Two of them, Vladimir Gusinsky and Boris Berezovsky, mobilized their TV channels and newspapers to transform Putin from an unknown figure into a household name.

But Putin was a smarter politician than they first thought. As Putin's presidential campaign heated up in 2000, he began paying lip service to Russia's hatred of oligarchs and the corrupt deals that enriched them. Shortly before election day, a radio station asked Putin what he thought of the oligarchs. If oligarchs mean those who "contribute to the merging of power and capital, then there will be no such oligarchs as a class."

But once in power, Putin has not really eliminated the oligarchy. He only targeted individual oligarchs who threatened his power. shown firstWladimir Gusinski, the rare oligarch who built most of his wealth from scratch rather than simply taking over the extractive industries that were once owned by the government. In the mid-1980s, Gusinsky was a taxi driver with shattered dreams of directing plays on the Moscow theater scene. When the Soviet Union began allowing entrepreneurship in the late 1980s, Gusinsky made a small fortune selling and selling copper bracelets, which appeared to be a huge hit with Russian consumers. In the early 1990s he sold buildings in Moscow's booming real estate market and opened a bank. By 1993 he had enough money to open a newspaper and Russia's first private television station, NTV.

Tolerated under Yeltsin, NTV broadcast programs, including a satirical puppet show, criticizing the Kremlin. If the presenters of NTV -and puppets- began to criticize and mock the newly elected President, hitting Putin with an iron fist. Armed in 2000Agentsdressed in camouflage and balaclavas stormed the NTV offices. GovernmentHamGusinsky stole $10 million in a privatization deal. Gusinsky was arrested and then fled abroad. A state-owned energy company, Gazprom, eventually bought NTV in ahostile takeover. Rest assured, Putin no longer has to worry about being mocked by puppets.

Director Victor Shenderovich poses with a life-size puppet of Vladimir Putin in 2000 on the set of a popular NTV satirical TV show called “Kukly” (Puppets).Oleg Nikishin/Getty Images hide title

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Oleg Nikishin/Getty Images

How Putin conquered the Russian oligarchy (4)

Director Victor Shenderovich poses with a life-size puppet of Vladimir Putin in 2000 on the set of a popular NTV satirical TV show called “Kukly” (Puppets).

Oleg Nikishin/Getty Images

In the early 2000s, another oligarch, Mikhail Khodorkovsky, crossed the line with Putin and also paid a heavy price. Khodorkovsky, an edgy tycoon built as a retired linebacker, was then Russia's richest man, with a fortune estimated at around $15 billion. He made his fortune largely through a corrupt deal with the Yeltsin government under a scheme known as "Loans for Shares" (readour latest newsletterfor more details). Khodorkovsky managed to buy shares in the state oil company Yukos for only 78%$310 million, although it was worth around $5 billion at the time.

(Video) Curious Number Of Russian Oligarchs Have Died Since Invasion Of Ukraine

Mikhail Khodorkovsky, then CEO of Russian oil company Yukos, poses for photos in his private office in 2003.Tatiana Makeyeva/Getty Images hide title

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Tatiana Makeyeva/Getty Images

How Putin conquered the Russian oligarchy (6)

Mikhail Khodorkovsky, then CEO of Russian oil company Yukos, poses for photos in his private office in 2003.

Tatiana Makeyeva/Getty Images

Khodorkovsky proved to be an able oil baron, bringing transparency and Western management to his empire. Like corporations in the United States, he spent lavishly on lobbying and campaign contributions to politicians in the Russian legislature. He funded opposition parties. He even hinted that he could run for president. As his empire grew, he became more and more stubborn. In February 2003, Khodorkovsky challenged Putin at a television session, accusing him of corruption at a state oil company. Meanwhile, Khodorkovsky was considering a merger with the American oil company Exxon Mobil. Putin and his allies hated it all.

2003 Masked Agentsbroke into Khodorkovsky's private jetduring a fuel stop and held him at gunpoint. The authorities accuse him of fraud and tax evasion. They caught it in Siberia, where it would languish for the next decade. The government took over his oil empire and turned over the keys to one of Putin's former associates, Igor Sechin.

the rise ofSilowiki

Igor Sechin is one of the leaders of a new generation of oligarchs who have amassed wealth and power under Putin: theSilowiki, which roughly translates to "men of strength". Most are military or ex-KGB officers like Putin himself. Sechin, who has a PhD in economics, is said to have served as a KGB officer in East Africa in the 1980s.

While the original class of oligarchs during the era of "shock therapyand rapid privatization in the 1990sSilowiki— or silovarcas, as they're also known — made their fortunes under Putin, largely through government contracts, Putin's renationalization of the extractive industries, and good old-fashioned corruption. Like Putin, most silovarcas slander the reformist era of Gorbachev and Yeltsin, when Russia lost its empire and saw a multitude of pro-Western and liberal intellectuals take over government and the economy.

Sechin has been working for Putin for decades. In the 1990s, when Putin served as an adviser to the mayor of St. Petersburg, Sechin served as Putin's assistant. He later served as Putin's Deputy Prime Minister. A 2008 US Embassy documentleaked by WikileaksHe said: "Setchin was so obscure that it was joked that he didn't really exist but was some kind of urban myth, a bogeyman invented by the Kremlin to spread fear." Some in Moscowcall him"Darth Vader." Sechin is now chairman and CEO of the state-controlled oil company Rosneft, Russia's largest producing 24/7 companysix percentof world oil and employs about 300,000 people.

(Video) How dangerous is Putin? Hear ex-Russian oligarch's answer

Vladimir Putin talks to Russian oligarch Igor Sechin (centre right) in 2009.AFP/AFP via Getty Images hide title

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AFP/AFP via Getty Images

How Putin conquered the Russian oligarchy (8)

Vladimir Putin talks to Russian oligarch Igor Sechin (centre right) in 2009.

AFP/AFP via Getty Images

In his autobiographyFirst person, Putin wrote: “I have many friends, but few people are really close to me. You never left. They have never cheated on me, and neither have I cheated on them. In my opinion, that is the most important thing.”

This brings us to another important subset of oligarchs who are friends of Putin but have not served in the Russian military, police, or security apparatus. A good example of this type of oligarch - a Putin friend, if you will - is Arkady Rotenberg.

It pays to be Putin's judo partner

In the 1960s, 12-year-old Arkady Rotenberg was forced by his parents to attend martial arts classes. Little did they know it was like giving your child a lottery ticket. In this judo course, Rotenberg met the young Vladimir Putin. Rotenberg and Putin quickly became friends. For years they fought each other and traveled to their hometown of Leningrad (aka Saint Petersburg) for judo tournaments. The two were known to be pranksters who got into trouble over stupid things like troublepop balloonsin parades throwing wire balls at them.

In 2000, Arkady and his brother Boris were small oil traders. But then something crazy happened: one of Arkady's best friends became President of Russia. In the same year,created by Putina new state liquor monopoly, Rosspirtprom, which merged over a hundred liquor factories. Rosspirtprom controlled about 30% of the Russian vodka market. Putin commissioned Arkady to do this.

A year later, Putin installed his own henchman on the board of directors of Gazprom, a major state-owned gas company. Arkady and Boris saw an opportunity. They opened a new bank, SMP Bank, and began acquiring construction, gas, and pipeline companies that could serve Gazprom. Since then, the Rotenbergs have been the biggest beneficiaries of a government that tends to award contracts without bidding. The government paid the Rotenbergs billions and billions of dollars to build things like pipelines, roads and bridges. Interestingly, they're known for itsignificantly overloadfor these projects, but the Kremlin seems to agree. Evidence suggests it could be because someone in the Kremlin is getting a cut.

(Video) What Is An Oligarch? Here’s What You Need To Know About Russia’s Billionaires | Forbes

Stanislav Markus, an economist at the University of South Carolina who studies Russian oligarchs,said recentlyThere Indicatorthat Putin's friends would pay some of the extra money they get from the state back to the President himself. "That makes Vladimir Putin one of the richest people in the world," said Markus. "No one knows exactly how rich, but this is one of the main processes."

Much of the money went to the oligarchs and to Putin - the historianLeague by Timothy Snyder"the main oligarch" - was hidden in accounts and assets outside Russia. “There is just as much financial wealth held by wealthy Russians abroad, in the UK, Switzerland, Cyprus and similar offshore centers as held by the entire Russian population in Russia itself.”a 2017 studyby economists Filip Novokmet, Thomas Piketty and Gabriel Zucman.

While it has been difficult to see exactly where all the money is going and how much of it really belongs to Putin, it is easy to see that loyalist oligarchs make their money from oily government contracts. In 2014, when Putin was thrilled to be hosting the Sochi Winter Olympics, his government prepared lavishly for the games. The biggest winner of this edition? Arkady and Boris Rotenberg. TOArkadys Profile 2017Shethe New Yorkerstated: "In total, the companies controlled by Rotenberg received orders worthseven billion dollars– equivalent to the full cost of the previous Vancouver 2010 Winter Olympics.”

Shortly after the Sochi Olympics, Putinentered Ukraine for the first time, annexation of the Crimean Peninsula. Of course, Ukraine has closed the only land access to the territory located on the southern border. In order to unite Russia with his new territory, Putin decided to build a 12-mile bridge across the Kerch Strait. Because it was a war zone with many logistical and political challenges, many construction companies were reluctant to build this bridge. Not Arkady Rotenberg. His company took on the multibillion-dollar project despite the political headaches it caused, andcompleted in 2018. "A miracle has come true," Putin said of the bridge's completion.

Russian President Vladimir Putin presents oligarch Arkady Rotenberg with the Hero of Labor medal during an awards ceremony for those who spearheaded the construction of the Crimean Bridge across the Kerch Strait, connecting mainland Russia with annexed Crimea to Moscow.ALEXANDER NEMENOV/AFP via Getty Images hide title

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How Putin conquered the Russian oligarchy (10)

Russian President Vladimir Putin presents oligarch Arkady Rotenberg with the Hero of Labor medal during an awards ceremony for those who spearheaded the construction of the Crimean Bridge across the Kerch Strait, connecting mainland Russia with annexed Crimea to Moscow.

ALEXANDER NEMENOV/AFP via Getty Images

The Obama administration sanctioned the Rotenbergs to punish them and Putin for invading Crimea. "Arkady Rotenberg and Boris Rotenberg supported Putin's pet projects, winning and executing high-priced contracts for the Sochi Olympics and the state-owned Gazprom," he said.said the US Treasury Department.. "Both brothers amassed enormous wealth during the years of Putin's rule in Russia." European countries have also sanctioned them. For example, Italy confiscated Arkady's multi-million dollar villas in Sardinia and Tarquinia.

(Video) Russian oligarch puts million-dollar bounty on Vladimir Putin's head | 60 Minutes Australia

The sanctions only brought the Rotenbergs and the Kremlin closer together. Russian lawmakers even attempted to pass a law called the "Rotenberg Law" that would compensate citizens whose assets were confiscated by foreign governments. I don't fit. However, the Rotenbergs were generously compensated in the form of lucrative state contacts, which only increased after they came under foreign sanctions.

Western authorities are at it againin the sights of the Rotenbergsand other Russian oligarchs in response to Putin's second invasion of Ukraine. This script is similar to the prequel, but the sanctions are tougher and more coordinated than after Putin's first invasion of Ukraine. The last time the sanctions turned outlargely ineffective. The people of Ukraine can only hope that this time will be different.

Videos

1. Who Are Russia's Oligarchs And Why Are they Being Sanctioned? - Cheddar Explains
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2. The challenges of tracking Russian oligarchs' yachts
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3. Ex-oligarch says Putin is risking his life
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4. ‘Live in the mess that Putin has created’: a tour of Russian oligarch-linked properties in London
(The Guardian)
5. Putin says Moscow will pull out of nuclear treaty with US
(Guardian News)
6. What was Vladimir Putin like 20 years ago? #Putin #Russia
(The Economist)
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