The Oligarchs (23 page)

Khodorkovsky's machine was moving into overdrive. His network of connections began to stretch far abroad to such confidential offshore banking havens as Switzerland and Gibraltar, as well as the
United States. The Soviet government maintained tight restrictions on hard currency, but the young commercial banks, including Menatep, began to routinely ignore them.
³⁵
The gradually collapsing Soviet state had no way to keep track of the fleet-footed easy money boys. Khodorkovsky's early offshore network extended to Geneva, and a private investment bank known as Riggs Valmet. The firm had offices in Gibraltar, Cyprus, the Isle of Man and other financial centers known to cater to wealthy individuals and companies seeking ways to avoid taxes and move money offshore. After the Berlin Wall fell in 1989, Riggs National Bank of Washington had purchased a 51 percent stake in Valmet as part of a plan to expand into Eastern Europe and Russia.
³⁶
Khodorkovsky was not yet thirty years old—and only a few years earlier had tried unsuccessfully to open a youth café in Moscow—when he first became a client of the exclusive Geneva investment bank. At the lavish party Khodorkovsky threw in 1991 at the Moscow Commercial Club, where a jazz band played softly and Mercedes Benzes and BMWs filled every available parking space outside, a representative of Riggs Valmet told a reporter that Khodorkovsky had already been a client for two years. “They are the most sophisticated in Moscow,” he said of Khodorkovsky's team. Also, Platon Lebedev, who was then Menatep's financial director, called Riggs “our teachers” and added, “Their Swiss branch is our second home.”
³⁷

Five days after the August 1991 coup attempt against Gorbachev, Nikolai Kruchina, the Communist Party treasurer, threw himself out of a window. Six weeks later, his predecessor, Georgi Pavlov, fell to his death the same way. They took with them one of the great secrets of the Soviet denouement: what happened to the billions of dollars held by the party? The missing cash and gold of the Communist hierarchy became an enduring and unsolved mystery, one that even a decade later could arouse the most intense arguments and speculation among Moscow bankers and politicians. No one knows for sure how much money was involved or where it went, but the speculation often pointed to the “kids” of the Komsomol, the most successful of whom was Mikhail Khodorkovsky. Was it possible that this bright young fellow, who found his first wealth as the system scrambled to rescue itself, became the Communist Party's life raft as well, helping the party bosses or KGB transfer riches safely away to foreign bank accounts? Khodorkovsky already had the skills, the network, and the foreign contacts.

Khodorkovsky has denied a role in saving the party's money. But he made an ambiguous statement about it in the early 1990s. “A bank is like a waiter,” he said. “Its business is to cater to the clients independently of their political beliefs or affiliation with this or that camp. Its job is to take or give money to someone, registering the deal. So it is not clear to me, what is the fault of those banks that kept the Communist Party money on their accounts? Had I been offered to keep them in my bank, I would also have considered it as an honor. Then all of a sudden the Communist Party was declared a criminal organization, and the banks servicing it became if not criminals then some kind of accomplices. It should not be this way.”
³⁸

Yegor Gaidar, who was Yeltsin's first prime minister, told me that the only people in Russia who could really help find the Communist Party money were the KGB—and they had probably taken the money out. Gaidar turned instead to the international private detective firm, Kroll Associates, to help find the party money.
³⁹
Gaidar authorized a fee of $900,000 for three months. By May 1992, the probe had produced a lot of paperwork, but the Russian security service was not cooperating, and Gaidar concluded the investigators were coming up with nothing useful. He stopped the search.

At the same time, Fritz Ermarth, a top CIA official, heard about the investigation from a retired CIA colleague. The retired colleague told Ermarth that the new Russian government wanted to find “the vast sums essentially stolen by the KGB on behalf of itself and the CPSU and deposited abroad in bank accounts and front companies.” Ermarth said his former colleague wanted to know if the U.S. intelligence community could help the Russian reformers get the money back?
⁴⁰

Ermarth said that U.S. intelligence could help find the money. But should it? A high-level White House group was convened to decide. But the answer came back: no. Ermarth said the rationale was “capital flight is capital flight. We can no more help Russia retrieve such money than we can help Brazil or Argentina.”

The case was closed, and the money never found.

O
N LANGUID summer days, Leonid Boguslavsky took his small skiff, powered by a cranky motor, and zoomed out over the shimmering flat surface of the lake outside of Moscow. When the motor broke down, as it often did, Boguslavsky spent weeks searching for spare parts. Then he devoted hours taking it apart and then reassembling it, tenderly coaxing it back to life. A computer specialist, Boguslavsky was curious about how things worked. He had a feel for the motor. He knew when it could run and when it would not.

On a summer weekend in 1974, Boguslavsky planned an outing with a dozen acquaintances, including one of his closest friends, Boris Berezovsky. Both he and Berezovsky were young researchers at the Institute of Control Sciences, a prestigious think tank for applied mathematics, automation, and the emerging computer sciences. Boguslavsky, then twenty-three years old, was reserved, while his friend Berezovsky, five years older, was irrepressible. Berezovsky had a full head of black, wiry hair and longish sideburns. He spoke rapidly because he thought rapidly. Sunday? Sure. The lakeside party was set.

On Saturday, the motor died. Boguslavsky knew it was impossible to get spare parts before Sunday, maybe not for days or weeks. When Berezovsky and the others arrived on Sunday, he told them the bad
news. He suggested they play football and forget about the boat. The others agreed, but Berezovsky refused to believe the motor was dead.

“Leonid,” he implored, “let's try to fix it.”

“Boris,” he replied, “there is no way to fix it. What do you know about engines?”

“I know nothing about engines, but we have to try! We have been
dreaming
about water skiing, it will be a great thing if we can fix it!” Berezovsky said, his speech picking up speed as it did when he got excited.

“Okay,” Boguslavsky relented, confronted with his older friend's considerable powers of persuasion. “I bet you—it's just impossible. I know this engine. Something has happened, and we just can't fix it.”

While their friends went to the beach and lit a bonfire, Boguslavsky and Berezovsky headed off to the dock to try to repair the motor. Boguslavsky did the work, while Berezovsky talked and talked and talked. Boguslavsky thought to himself: Berezovsky can't even use a screwdriver, but he sure can talk! Three hours later, they had taken apart and reassembled the motor. It was still dead. They had missed most of the party, yet Berezovsky insisted they
had
to keep trying. “We tried this and that,” Boguslavsky recalled. Berezovsky would not give up. The sun was going down, their friends were tired, and Berezovsky finally acknowledged that Boguslavsky had been right all along, the motor could not be fixed.

Berezovsky was like that. He always raised the bar to the highest notch and went for it. He was always in motion, always racing toward the goal, never knowing or fearing obstacles. Even if no one else believed it was possible, Berezovsky had to try, and he would only abandon his quest at the very end, at the very last minute, if it became absolutely and unassailably clear that the goal could not be reached.

There was one other reason he might give up, and that was that Berezovsky's mind was restless, his emotions ever changing, and he sometimes lost interest in what he had started. But as long as he wanted something, he did not relax, not for a minute. “He has this attitude,” Boguslavsky recalled many years later, when both of them had become successful businessmen, “never stop attacking.”
¹

 

Moscow is a flat city of broad boulevards, crisscrossed by a lazy river and its tributaries, strewn with a hodgepodge of buildings, from elegant
stone prerevolutionary apartment houses to ugly concrete prefab high-rises and Soviet-era utopian monstrosities. A few gentle hills rise on this flat plain of diversity, and one of them lifts Profsoyuznaya Street as it extends outward from the center of the city. Perched on a slope at 65 Profsoyuznaya Street is the Institute of Control Sciences, a sleek box of an office building fronted by a pond. It is an island of seeming calm isolated from the metropolis. Huddled in their tiny closetlike offices or drinking tea in the high-ceilinged classrooms with picture windows overlooking the city, the scientists and researchers here formed the brain center of Soviet technology. Founded in 1939, the institute had originally been an outgrowth of Stalin's drive for rapid industrialization. After World War II, a whole new family of mechanical beasts had arrived, requiring ever more sophisticated controls such as intercontinental ballistic missiles and atomic power stations and jet fighter planes. The scientists wrote the algorithms that guided these rockets and jet planes. They toyed with the flow of giant oil refineries and searched endlessly for the perfect automation for a thousand assembly lines. On their chalkboards were scratched mathematical formulas for controlling anything that moved, from the orbit of a supersecret satellite to a scheme for sorting the mail. As the Soviet Union forever struggled to keep up with Western technology, the institute became an elite and prestigious scientific center encompassing everything from cybernetics to pneumatics to the study of decisionmaking. One of the most famous accomplishments was the algorithm of professor Mark Aizerman, who figured out how to keep a tank's gun locked on a target while the tank itself was in jerky motion.

But the institute was more than chalkboards, theorems, and assembly lines. It was a freethinking cauldron of intellectual ferment, a club for nonstop debates about literature, theater, philosophy,
perestroika, glasnost,
auto parts, sausage, the shortage economy, and whatever else could be chewed over. Science was their purpose but life was their diet. Most of the scientists wrote their papers at home on the kitchen table and spent their days at the institute in these discussions. Vladimir Grodsky, who worked in the institute at the time, recalled it was very much like the mythical Institute of Research into Magical Processes described in the famous 1966 Russian novel,
Monday Begins on Saturday
, by the brothers Arkady and Boris Strugatsky. “It was a science fiction novel in which all the intellectual elite, a lot of really intelligent and talented people, got together in one particular place.”
²

In the halls of the Institute of Control Sciences strolled gifted mathematicians and theorists, who worked with their formulas and enjoyed the luxury of time to think. They were grateful for a small place to scratch out their ideas, a decent salary, a seminar where they could brainstorm, a cup of tea, and the intellectual room to thrive. But they did not make their own space; it was provided to them by others, who found the money and the means.

Berezovsky was one of those who found the means. He streaked through these halls like a comet. He was a compressed ball of energy. Constantly in motion, he was burning with plans, ambitions, ideas, and, most of all, connections to make them happen. He was also restless, always racing down the long hallways, always calling on the phone from halfway across Moscow. His colleagues liked to say he was distributed over time: he was always in several places at once. Somehow, with an insistent, gentle charm, and a fierce underlying desire, Berezovsky got what he wanted.

Berezovsky was the only child of a Jewish construction engineer and a pediatric nurse. His father had come to Moscow in the 1930s from the Siberian city of Tomsk. Berezovsky's father worked his entire life building factories in bricks and stone. Berezovsky was an only child, born January 23, 1946, just after the war, and enjoyed what he called a “very happy Soviet childhood.” He attended a forestry institute before coming to the prestigious Institute of Control Sciences as a young researcher January 23, 1969.
³
As a Jew, Berezovsky faced hurdles. There were tacit, unspoken limits on how many Jews could hold senior posts, defend dissertations, enjoy the status of a laboratory chief, or win a prestigious prize. Everything required five times greater effort for a Jew; anti-Semitism was a Soviet state policy. “For me, there was no political future,” Berezovsky told me. “I wasn't a member of the political elite. I am a Jew. There were massive limitations. I understood that perfectly well.”
⁴
Yet the Institute of Control Sciences became one of the safe harbors for Jews. Many Jews had been inclined toward science to avoid serving the Soviet regime directly and to find professional satisfaction. The best and brightest Jewish scientists gathered at the institute. “It was a surprising place,” recalled Alexander Oslon, who came to the institute in the 1970s as a part-time student. “Surprising in the quantity of unusual people—by their energy, their intellect, their originality. There was an extremely rich intellectual life at the institute, both scientific and humanitarian. It was a phenomenon. In the sphere
of Soviet life, these were the brightest people who had come together. It was, to a meaningful degree, a Jewish institute.”
⁵

In the world of late Soviet socialism, a scientist could hardly dream of accumulating great property and wealth. But status in one's field, even worldwide recognition and fame, was extraordinarily important and could lead to material gains. Berezovsky labored at applied mathematics, but, by his own account, he was not a brilliant scientist. What he was talented at—what everyone remembers from his two decades at the institute—was a flair for making things happen in a world of lassitude and false pretenses. Although impulsive in his desires, Berezovsky thrived on inventing tactics to achieve them. He had an analytical mind, along with enormous energy and willpower. The years at the institute were a precursor for all that was to come, for Berezovsky's transformation into one of the most wealthy and influential men in Russia. In the halls of the Institute of Control Sciences, the comet burned brightly.