Deception (11 page)

From the outside, it is easy to conclude that this political arrangement cannot last. The infrastructure is crumbling, the demographic collapse accelerating and the economy is becoming obsolete. Russia is running out of people. The old cadre-factories of the Soviet Union are no longer forging the steely spooks of the Cold War. Even those minted in the later Soviet period, such as Mr Putin, are far less impressive, intellectually and operationally, than their predecessors. The great game of geopolitical competition with the West required idealism, brains and determination. Serving the Soviet Union in its declining years did not arouse the same loyalty or attract the same talents. The main motivator for those joining government service now is greed, mixed with resentment or a touch of Russian chauvinism. So it is tempting to imagine that the spookocracy will fade away with time, to the point that it will be dislodged by the growing Russian middle class, with its aspirations to live in a normal country. But the economist Mr Inozemtsev does not believe much will change. He argues:

 

The elite's most important goal is the preservation of a system that enables incompetents to control the country's wealth. Hoping that change will come when the current ruling class retires and newcomers replace them is forlorn.

 

He concludes that the Russian elite has ‘piratised' one of the world's richest countries, creating a neo-feudal system that is more stable than outsiders, plagued by wishful thinking, are willing to realise.

A big test of government is in the results it yields versus its costs. A benign autocracy may in some cases be better than a chaotic winner-takes-all political competition that leads to chaos and mob rule. It would be a mistake to dismiss the present Russian arrangement out of hand, especially at a time when political systems in Europe and America have signally failed to make the farsighted and sensible decisions that fans of parliamentary democracy believe it produces. It is easy to argue that Russia needs strong government in its transition from seven decades of totalitarianism. Western-style multiparty democracy may not suit all countries. Corruption, and an overlap with business and politics, is not confined to Russia (think of Italy under Silvio Berlusconi). As far as the role of the ex-spooks is concerned, the KGB employed some of the country's brightest and most knowledgeable people. It would not necessarily be stupid or evil for Russia to draw on their talents now.

But in this case, such considerations do not affect the verdict: the experiment has been a spectacular failure. The regime has presided over an orgy of greed and waste, but with more than a trillion dollars of extra oil and gas revenues flooding into the country between
2000
and
2010
, pitifully little has been built or repaired. The visitor may be impressed by the sleek black limousines that clog the Moscow streets, by the high-rise luxury apartments and by the glitzy shopping malls, but he will search in vain for a network of high-speed rail lines, for new world-class universities, or even for a proper arterial road linking Russia with its distant provinces on the Pacific coast. Outside Moscow and a handful of other big cities, Russia is rotting. Only the rise in bribes is impressive – by one estimate more than
164
bn roubles ($
6
bn) is paid in kickbacks in Russia every year.
²⁷
Others would see that as a wild under-estimate. A common unscientific assumption in Russia is that roughly half the
4
trillion roubles (
$
140
bn) in public spending is purloined.

The power relations among the self-proclaimed new nobility in Russia are shrouded in mystery. Even the most expert insiders disagree about whether Mr Putin brought in his old colleagues in order to hold on to the power he so unexpectedly gained in
1999
, or whether those colleagues put him there in the first place. He certainly cut a remarkably unimpressive figure in his early months as prime minister and then president, prompting ribald jokes about his inexperience and indecisiveness that seem bizarrely misplaced in retrospect. Perhaps his grey unprepossessing demeanour was part of his KGB training in covert operations: it certainly fitted the textbook instructions for infiltration, which are to respond to scrutiny by seeming unthreatening and inconspicuous. That disarmed critics and encouraged rivals to over-reach themselves (signal examples include oligarchs such as Mr Khodorkovsky of Yukos: in retrospect, he should have challenged the president a lot earlier, or not at all). Now Mr Putin is not only the unchallenged leader of Russia. He is also (according to estimates by the CIA) one of the richest men in the world. But he does not rule alone.

A detailed explanation of the ruling circles in Russia involves  weighing the importance of figures that even sophisticated observers have barely heard of, such as Mr Putin's cousin Igor, the brothers Yuri and Mikhail Kovalchuk, or the oil-trading magnate Gennady Timchenko. Some are members of
Ozero
(Lake), a cooperative that built dachas in a complex on the Komsomolskoye lake near St Petersburg. A prominent member of that group is Mr Yakunin, the railways chief. Another is Viktor Zubkov, now First Deputy Prime Minister. Mr Treisman, the American academic, who is a largely sympathetic observer of Russia under Mr Putin, gives in his book some tantalising hints of the Russian leader's business past, including the troubling and unexplained question of his membership of the advisory board of the German-registered St Petersburg Real Estate Holding Company (known by its abbreviation SPAG). In
2003
German police raided offices and homes associated with the company in an investigation about the laundering of ‘tens of millions of euros' for a St Petersburg crime syndicate involved in ‘numerous crimes, including vehicle smuggling, human trafficking, alcohol smuggling, extortion and confidence trickstering'.

No arrests were made and the investigation fizzled out. A banker who worked with SPAG said he had no knowledge of the company's alleged links with organised crime and had agreed to take on the company as a client because of Mr Putin's presence on its board. Mr Putin stepped down from SPAG's board when he became president in
2000
. He has consistently denied any wrongdoing. Another SPAG advisory board member, a Liechtenstein-based financier called Rudolf Ritter, was acquitted on charges of laundering more than
$
1
m for the Colombian Cali drug cartel, but convicted on a charge of illegally trading the company's shares. Reports in
Newswee
k
²⁸
and
Le Monde
in
2001
and
2000
highlighted German official concerns about SPAG. Mr Putin had a close friendship with Vladimir Smirnov, head of SPAG's St Petersburg affiliate, a company called Znamenskaya. He also was deeply involved in the lucrative municipal fuel business. Shortly after Mr Putin became president Mr Smirnov moved to Moscow, working first in the Kremlin property department, which administers the vast inheritance of the old Soviet Communist Party. He later moved to an agency that exports enriched uranium. The German journalist Jürgen Roth, in a book on this and related issues called
Die Gangster aus dem Osten
(
The Gangsters from the East
), alleges a systematic attempt to cover tracks and deter investigators.
²⁹

The best explanation of how Russia really works that I have encountered is an unpublished one, compiled by the corporate intelligence service of a big Western company that has extensive dealings with Russia. These corporate spy services have many similarities to government agencies: they often employ retired spooks, are able to trade information and insights with those still inside the secret world, and are sometimes less constrained by the legal and bureaucratic restrictions that hamper public officials. This company's analysts may have come closer than most (and certainly closer than some governments) to unravelling the truth.

According to their theory, Russia operates with two layers of governance. Mr Putin is chair of an ‘executive board' comprising officials in public view such as Mr Sechin. But he is also a member of a shadowy ‘supervisory board', a cabal of ex-spooks and other associates from St Petersburg days, probably only four in number. At least one of them (whose name for legal reasons I cannot mention in print) does not live in Russia. His nickname is ‘cashier'. Other members of the putative ‘four' are even more obscure. They include a former colleague of Mr Putin from his days as a KGB officer in Dresden, and an antique dealer from St Petersburg with close ties to that city's underworld. The four plus one are never seen in public together, though Western intelligence agencies have picked up some traces of coordination: Mr Putin and one of the four were in Sochi in
2007
just as the then Russian president fired his prime minister and appointed the unknown Mr Zubkov. Another foreign intelligence agency believes that Mr Putin made a seven-hour flight to Russia's far east in the summer of
2008
with a member of his supervisory board on the presidential plane. An executive jet belonging to one member of the supervisory board appears to act as an air taxi for other members. In March
2008
, for example, this aircraft flew to Prague to pick up Alina Kabayeva, a gymnast whose name has been linked to Mr Putin in the Russian tabloid press. It flew her to the holiday resort of Sochi in time to meet the Russian leader who arrived there on the same day.

Some theorise that the real story of Mr Putin's rise to power is the fusion between wilier elements of organised crime in St Petersburg, such as the Tambov mafia, with the remains of the KGB in that city, and the transplantation of that formidable hybrid to power in Moscow. It is also tempting to see crime, business and intelligence as the three pillars of power in Russia. Yet such explanations are too elegant and too simple. Gangsterdom, spookdom and officialdom are intertwined, to the point that they are really just one pillar with three sides: a kind of unholy trinity.

Making sense of these swirling allegations and theories is tricky, not least because of the ever-present threats of violence and lawsuits.
³⁰
But whether by accident or design, our view of Russia is clouded by misinformation and wishful thinking; in some cases clear evidence exists of intimidation and deception. Skewed perceptions are one reason why the West's response has been so weak to the subject of the next chapter: the regime's activities abroad.

3

Deadly Games and Useful Idiots

Many reading this grim account may still feel that greedy, lawless and incompetent spooks are chiefly a problem for Russians. It may all be a great pity, but why should outsiders actually mind what happens inside the Kremlin's realms? But as I will show in this chapter, the toxic combination of chauvinism and criminality is a problem for the rest of the world too. In no other country have gangsterdom and state power overlapped to such a threatening extent. The most powerful drug cartels may have high-tech communications equipment or the ability to penetrate a law-enforcement agency, or have some politicians on the payroll. But they have nothing that (yet) matches Russia's ruling criminal syndicate's capabilities. It has almost limitless money, global geographical scope and the full armoury of state technical and logistical resources, from spy satellites to submarines, giving unprecedented capabilities in snooping and manipulation. Russia's world-class hackers, for example, work sometimes in government, sometimes under official protection and sometimes entirely in their own criminal interest.
¹
Russian dirty money and underhand business practices taint and corrode the financial systems, business cultures and politics of the countries they touch. As Don Jensen, a stalwart American critic of the regime, points out, Russia's main export is not oil and gas. It is corruption.
²

Though officials do not speak about this much in public, they worry a lot about it in private. A cable from the American embassy in Madrid in August
2010
(now available on WikiLeaks) termed Russia a ‘virtual mafia state'.
³
It stated baldly that Russian intelligence agencies were using mafia bosses to carry out criminal operations such as arms trafficking. It highlighted the secret support and protection that Russian intelligence in Spain provides for gangsters, who in return work ‘as a complement to state structures' to carry out tasks that the Russian government could not be publicly linked to. The cable cited gun-running to Kurdish separatists in Turkey and also the mysterious case of the
Arctic Sea
cargo ship, hijacked in
2009
in a complex tale that probably involved smuggling elements of Russia's S-
300
air defence system to Iran.
⁴

The source of the allegations was José Grinda González, nicknamed ‘Pepe', a senior Spanish prosecutor who has spent a decade investigating the Russian mafia. His record in fighting Russian organised crime leaves other European countries looking feeble and ineffective. He was responsible for the investigation of Zakhar Kalashov, the most senior ‘Russian mafia' figure (he has Georgian nationality) to be jailed in Europe. Mr González was involved in two big anti-mafia operations in recent years, ‘Avispa' (
2005
–
07
) and ‘Troika' (
2008
–
09
), which resulted in the arrest of more than sixty suspects.