by Craig Unger
In all, Russia privatized 150 state-owned companies for just $12 billion. Anatoly Chubais, Russia’s first deputy prime minister and the so-called father of Russian privatization, framed the dilemma in stark terms. “We did not [at first] have the choice between socialism and ideal capitalism,” he said.58 “The choice in Russia . . . was between a criminalized transition and civil war.”
What Russia faced was nothing less than the looting of its natural resources, the betrayal of a capitalist revolution, and the birth of Putin’s kleptocracy, an era of unimaginable corruption and greed. It was as if a virus had been injected into the system, spreading and institutionalizing corruption throughout a Mafia state run by a kleptocrat who ruled over a web of crooked patronage networks.
Before long, the money began to flow. There were real estate transactions, arms sales, shady bank deals, illegal exports, and much more.59 From the beginning, Putin’s friends did well. His judo pals Arkady and Boris Rotenberg ended up being co-owners of SGM (Stroygazmontazh) Group, the largest construction company for gas pipelines and electrical power lines in Russia. Forbes estimated Arkady’s wealth at $2.6 billion, and Boris’s at $1.16 billion. Gennady Timchenko, another judoka pal of Putin’s, fared even better as chairman of the Gunvor oil-trading firm, with a net worth of $15.6 billion.60 Anatoly Turchak, yet another judo sparring partner of Putin’s, served as deputy to Putin in St. Petersburg.61 He ended up being the main owner of the Leninets defense plant, and was worth hundreds of millions of dollars.62
Others who remained loyal to Putin over the years were rewarded with enormous wealth and key positions during his presidency—among them, Igor Sechin, who ended up as CEO of Rosneft, the huge Russian oil company;63 Alexei Miller, CEO of Gazprom; Herman Gref, CEO of Russia’s largest bank, Sberbank; Dmitry Medvedev, who became prime minister and subsequently president; and many others.
In their very different ways, Trump and Putin were assembling networks that were essential to their political ambitions. In Trump Tower, Donald had put together a glamorous refuge for celebrities and the super-rich that enabled him to project a highly marketable persona all over the world. As for Putin, he took the idea of the dacha, the seasonal or second home that is so popular among Russians, and personalized it for his own inner circle by assembling the Ozero dacha cooperative on the shores of Lake Komsomolskoye as a relaxing weekend retreat for the new privileged Russian elite, including Yeltsin and his family; Tambov crime boss Vladimir Kumarin, who served as the Ozero co-op’s vice president; and a number of oligarchs in the making.
Over time, the Ozero cooperative became so emblematic of Putin’s inner circle that in 2014, when the United States and the European Union imposed economic sanctions on Putin’s closest associates, no fewer than eight shareholders in Ozero were sanctioned.64
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Putin’s tenure in Sobchak’s office was so rife with scandal that it led to a host of investigations into illegal assignment of licenses and contracts by Putin as head of the Committee for Foreign Liaison; collaboration with criminal gangs in regulating gambling; a money-laundering operation by the St. Petersburg Real Estate Holding Company, where Kumarin was involved and Putin served on the advisory board; Putin’s role in providing a monopoly for the Petersburg Fuel Company, then controlled by the Tambov criminal organization; and much, much more—virtually all of which was whitewashed.65 But according to Kumarin himself, while he was in St. Petersburg in the nineties, Putin signed many hundreds of contracts doling out funds to his cronies.66
One KGB/FSB agent who tracked Putin’s corruption relentlessly during this period was Alexander Litvinenko, a lieutenant colonel then in his midthirties who later wrote about his findings in The Gang from Lubyanka.* An avid athlete, Sasha, as his friends called him, had joined the KGB as a young lieutenant to be “part of a real team fighting a common enemy—and on the right side, so you think.”67
“I thought I was going to be protecting people from harm,” he told a friend.68 “That the Agency had a dark past—the Gulag, you know, millions of victims—I didn’t learn until the 1990s.”
In the end, Litvinenko discovered that Putin’s “relationship with the criminal Kumarin-Barsukov is currently the number one state secret in Russia.” He added that “the whole of St. Petersburg knows that Putin is linked to this man by personal friendship and financial ties.”69
When St. Petersburg prosecutors investigated Putin’s corruption, they concluded, “In 1994, the humble clerk [Dmitry] Medvedev* owned 10% of Europe’s largest pulp* 70 and paper mill. . . . And this was only Medvedev, Putin’s advisor. Can you imagine what kind of money was already owned by his boss?”71
Putin himself mysteriously ended up with a villa in Biarritz that was registered to Gennady Timchenko for many years.72 But that was merely the beginning of a wealth that includes huge stakes in Russia’s massive private energy and commodities companies and that is so vast and so secretive that it could not reliably be calculated.
While much of the world thought post-Soviet Russia was struggling with the birth pangs of creating a new democracy, in fact something very different was going on: A kleptocracy was being born. Putin had put himself at the nexus of three worlds—the Chekists (agents of the KGB, FSB, and other state security organizations), the bureaucrats with whom he worked who were in charge of licensing and regulating companies that had been controlled by the state but were being privatized, and alleged Russian mafiosi such as the Tambov gang’s Vladimir Barsukov, also known as Kumarin.
Altogether, Putin’s three-legged stool formed a base of operations that was capable of propelling its creator to the highest reaches of power in the new Russian Federation that was rising from the ashes of the Soviet Union. But if Putin was truly to achieve his grandest ambitions, he would need something more—namely, an ally who had the power and reach to recruit assets and agents among people of influence deep inside the United States.
CHAPTER EIGHT
MOGILEVICH’S BIG MOVE
Far from sitting idly by as the Soviet Union crumbled, Semion Mogilevich had quickly forged extremely close ties at the highest levels of Boris Yeltsin’s new Russian government and become a highly valued adjunct to Russian intelligence.
Indeed, according to secretly recorded conversations between Leonid Kuchma, the second president of newly independent Ukraine, and Ihor Smeshko, the head of Ukraine’s secret service (the SBU), Mogilevich was still living in Budapest, but had bought property in Moscow and had already begun delivering valuable intelligence to Yeltsin’s highest-ranking security officers—all in an apparent effort to strengthen his ties to the intelligence establishment in the chaotic Russian capital.
Kuchma: “He [Mogilevich] has bought a dacha in Moscow, he keeps coming.”
Smeshko: “He has received a passport already. By the way, the passport in Moscow is in a different name. And . . . [Alexander] Korzhakov [the head of Boris Yeltsin’s personal security] sent two colonels to Mogilevich in Budapest in order to receive damaging information on a person . . . He himself did not meet them. His organization’s lieutenant, [Igor] Korol, met these colonels and gave them the documents relating to ‘Nordex.’* 1 Mogilevich has the most powerful analytical intelligence service. But Mogilevich himself is an extremely valuable agent of KGB, PGU. . . . When one colonel . . . tried to arrest [Mogilevich] . . . they told him ‘Stop meddling! This is PGU elite.”* 2
Being tightly wired with the Kremlin, however, was not enough for Mogilevich. By 1993 or 1994, according to Litvinenko,3 Mogilevich had also made contact with Deputy Mayor Vladimir Putin. Little is known about how they met or exactly what transpired, but some insight into their relationship might be gleaned from transcripts of secret tape recordings made several years later in which Ukrainian president Kuchma inquires about Mogilevich in conversation with secret service chief Leonid Derkach.
Kuchma: “Have you found Mogilevich?”
Derkach: “I found him.”
Kuchma: “So, are you two working now?�
��
Derkach: “We’re working. We have another meeting tomorrow. He arrives incognito.”
Later in the discussion Derkach revealed a few details about Mogilevich.
Derkach: “He’s on good terms with Putin. He and Putin have been in contact since Putin was still in Leningrad.”
This apparent budding relationship with Semion Mogilevich tied Putin to a man whose money-laundering virtuosity was vital now that a torrent of flight capital had been unleashed in post-Soviet Russia. For both men, it was Mogilevich’s burgeoning operation in the United States that held so much promise. As Putin’s ascent began, the Mafia moved into a powerful strategic position on the geopolitical chessboard from which it would be able to compromise powerful political figures and businessmen in the United States, undermine financial markets, and exploit the weaknesses in a wide array of political institutions such as campaign finance, Washington lobbying, and more.
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When Vyacheslav Ivankov landed at JFK airport in March 1992, just after the fall of the Soviet Union, he was met by an Armenian vor who handed him a suitcase packed with $1.5 million in cash. According to Pravda, he soon married an American woman, to legalize his stay.4
Before long, however, he discovered that the Brighton Beach Mafia was riven by turf wars and in complete disarray. In the late eighties, Marat Balagula had used the Red Daisy gas tax scam as the basis for a vertically integrated operation that included a fleet of gasoline trucks, more than one hundred gas stations, oceangoing tankers, refinery terminals in Eastern Bloc countries, and the like. But after being convicted of credit card fraud in 1986, Balagula fled the country. He was finally apprehended in Frankfurt in 1989,5 and served years in jail.
Meanwhile, David Bogatin, likely the first Russian to launder money through Trump Tower, fled first to Austria and then Poland after the Red Daisy scam. His partner, Michael Markowitz, had been shot to death in his Rolls-Royce after assisting authorities in the investigation.6
Short and wiry, Ivankov was stern faced and bearded with a strong jaw, sparse eyebrows, and strikingly unusual eyes that sloped noticeably downward. His slight stature—five foot four, maybe 140 pounds—notwithstanding, he projected the intense ferocity and the daunting aura of the vory v zakone. Even when he was spruced up for a court appearance—a blue blazer with a handkerchief in his pocket, an Oxford shirt concealing the menacing eight-pointed stars tattooed on his shoulders—Ivankov was right out of central casting as a fearsome Russian mobster. “One felt as if in the presence of Ivan the Terrible, or Joseph Stalin,” said one observer who saw him in New York.7
Before long, Ivankov became known as the most powerful Russian mobster in the United States,8 and oversaw the mob’s growth from a local extortion racket in Brooklyn’s Brighton Beach to a multibillion-dollar-a-year criminal organization.9
Ivankov’s mandate from Mogilevich was to consolidate the Russian Mafia in the US, to form alliances with the Cosa Nostra and other Mafias, to take over smaller gangs, and to bribe politicians as part of a plan to infiltrate governments in the US and elsewhere.10 Ruthlessly systematic, the Russians began scrutinizing the vulnerabilities of America’s campaign finance system, the K Street lobbying system, Wall Street, and more.
To that end, Ivankov launched a two-pronged offensive. On the one hand, with his foreboding tattoos and fearsome visage, he was the man who brought the vory from the gulag to Brighton Beach. The old-school Mafia scams, shootouts, car bombs, and murders were still an important part of their operations. To help fight these gang wars, Ivankov recruited two brigades composed of 250 athletes and Special Forces veterans of the Afghan war who were put on $20,000-a-month retainers to kill his enemies and establish ties connecting thieves-in-law to the United States. Monya Elson, the brutal killer who had been Marat Balagula’s bodyguard, was still working for Ivankov in New York,11 and Ivankov also used a man named Alexander Inshakov in “five or six murders of top ROC [Russian organized crime] figures who ‘got in the way.’”12
Even after he was locked up for extortion in 1996, Ivankov continued to order the murders of his underworld adversaries from his prison cell. Witnesses who dared testify against him were forced to take new identities in the Federal Witness Protection Program. FBI agents who investigated him ended up on his hit list.13
The same was true for journalists. When Ivankov found out that Robert Friedman was on his trail, he went so far as to send a message crafted especially for the occasion inside a Hallmark Valentine’s Day card that teased, “It was easy finding a Valentine for someone like you”: “Friedman! You are a dirty fucking American prostitute and liar! I WILL FUCK YOU! And make you suck my Russian DICK!” America’s most fearsome vor signed the affectionate missive “Vyacheslav Kirillovich Ivankov.”14 Later, Friedman found out that a $100,000 contract had been taken out on his life—by Semion Mogilevich.
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But to a certain extent, Ivankov’s colorful depravities masked a bigger story. Just as Russia had effectively become a gangster state whose political system was governed by organized crime, so the Russian gangsters who emigrated and ran the Russian mob were now poised to infect and infiltrate a vast array of power centers in the more open, more easily manipulated corporate and political America.
So it was with Ivankov, who also had steered the post-Soviet Bratva into the white-collar professional world of lawyers, stockbrokers, accountants, and the like with offshore shell companies comprising a vertically integrated corporate empire all over the world. As a classified FBI report put it, “Ivankov brings with him the tradition of hard-core Russian criminals. . . . While not abandoning extortion, intimidation and murder, Ivankov also incorporates more subtle and sophisticated modern methods which enable cooperation with other groups.”15
Over time, thirty Russian crime syndicates began operating in New York, Miami, San Francisco, Los Angeles, Denver, and at least a dozen other cities, orchestrating insurance scams, pump-and-dump stock rip-offs that inflated stock prices, complex schemes to launder millions of dollars in flight capital pouring out of Russia, medical fraud, and jewelry heists.16 Ivankov used a consulting firm in Vienna to launder tens of millions of dollars, allegedly with the help of his son, Eduard Ivankov.17 He tried to steal diamonds in Sierra Leone. In New York, the FBI suspected that Ivankov was engaged in money laundering.
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Meanwhile, throughout most of the nineties, Mogilevich was based largely in Budapest, but traveled regularly to Vienna, Munich, Rome, and Athens under several different names and passports. However, he and Ivankov also kept a keen eye on developing operations in the US. According to FBI files, in North America, Mogilevich traveled to Toronto, Philadelphia, Miami, and New York, and went to LA at least five times between May 1992 and November 1994. There, he met with Vladimir Berkovich, a key Mogilevich lieutenant who, according to FBI files, “arrange[d] contract murders, bringing in ‘hitmen’ from Russia under tourist visas, out of the Palm Terrace restaurant.”18 There were deals for a Russian restaurant in Denver, real estate in the Rocky Mountains, a car dealership in Houston which the FBI asserted was for money laundering, diamond thefts in Sierra Leone.19
When the Russians moved into Miami, Ivankov allegedly became a silent partner in Porky’s, a Miami strip club owned by Russian mobster Ludwig Fainberg, also known as Tarzan thanks to his muscled torso and long mane of hair. Fainberg helped strike a deal with the Cali cartel in Colombia to provide heroin and money laundering in exchange for Cali’s cocaine.20
These were not small-time transactions. At the time, Russian military hardware was absurdly easy to come by if you knew the right people in the former Soviet empire—and that meant everything from armored personnel carriers to submarines. At one point, Fainberg was in talks with Colombian drug lords to sell them a submarine to help smuggle the illicit drugs and money—complete with a Russian crew of eighteen men. Before it could be finalized, however, the deal was busted by the D
rug Enforcement Administration.21
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In large part, Mogilevich’s success grew out of the fact that he had cultivated close ties to the powers that be in the post-Soviet world. He had operatives who infiltrated the Hungarian National Police, and in Prague, where he also had a major presence, the Czech police. He was wired into the intelligence services of both Russia and Ukraine at the highest levels.
One of the key people helping Mogilevich in Budapest was Dietmar Clodo, a longtime associate of Mogilevich with a colorful history as a mercenary in Rhodesia and as a supporter of the mujahideen in Afghanistan against the Soviets.22 A suspected international arms and drug trafficker, Clodo was sentenced to ten years in prison for his role in a series of bombings in Hungary in the 1990s and was extradited to Germany in 2005, where he was wanted on charges of murder, bank robbery, and other serious crimes.23
According to an article by Russian journalist Anastasia Kirilenko on a website called Hungarian Spectrum, in 1994, Clodo said he was entrusted by Mogilevich with the delivery of large sums of money to various top political officials in Hungary, “among whom was [Minister of the Interior] Sándor Pintér.”24
On one such occasion, Clodo received a suitcase with approximately one million deutschmarks with instructions to give it to an unnamed political figure who was coming by to pick it up. As Clodo recalled, when the man arrived, he “didn’t want to come into my house. I told him, ‘Listen to me, I have that damned money in a suitcase. I don’t want to go out on the street with this suitcase. I don’t care. If you refuse to come in, I will give it back to Mr. Mogilevich. I don’t care.’”25
Of course, Clodo did not tell the man why he wanted the transaction to take place indoors—namely, that there was a hidden camera among his books that would record the transfer.
