Following the money, mayhem and murder in Putin’s Russia

Catherine Belton, an intrepid Financial Times journalist, has written a detailed study of the breathtaking financial transactions of Vladimir Putin’s elite. She explains how he and a small circle of men, drawn predominantly from his KGB contacts (the siloviki, whom he placed in key positions when he came to power) took over Yeltsin-era oligarchs’ assets and then those of the country’s biggest energy companies and enterprises, funnelling enormous sums abroad for their personal benefit and to advance Russia’s strategic goals, as they saw them.

Belton's work on the financial dealings of Putin's team is the most valuable aspect of  Putin's People: How the KGB Took Back Russia and Then Took on the West (William Collins) and it should be required reading, as it reveals their political implications and the West's inadequate regulation of and occasional complicity in them.

Her big thesis is that Putin’s policies represent the culmination of long-laid plans by elements in the KGB to embrace capitalism, enrich themselves and continue the cold war struggle against the West. Her opening chapter discusses KGB financial operations in the 1980s and Putin’s possible role in them when he was posted to Dresden. Even before the collapse of the Soviet state, the KGB assisted the Communist Party in squirreling abroad an estimated $12 billion of the party’s funds. The aim, she thinks, was in part to maintain its networks and resources, even before the system was swept away.

The 1990s were a period of frustration, as ex-KGB networks were frozen out of power. With the appointment of Putin as president, however, they were able to take their revenge on former proteges such as Khodorovsky, seize their empires (and the wealth of the state) to build up enormous slush-funds abroad for themselves, and to pursue their campaign against the West.

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One might question Belton’s thesis that two generations of KGB men had planned this all along. It might be more plausible to impute to them a mixture of cynicism, opportunism and a default setting of authoritarian nationalism.

Putin’s career illustrates this. One of the best chapters covers his career on his return to Leningrad in February 1990, after he and his colleagues had been forced to decamp from Dresden after the fall of the Wall. Putin did not resign from the KGB but was appointed to oversee foreign relations in Leningrad university. He then appears to have been detailed to monitor the city’s democratic movement, which brought him on to the team of Anatoly Sobchak, a law professor and reformist party member, who became the first elected mayor of the city the following year.

Sobchak opened the way to a new life, appointing Putin as head of Leningrad’s foreign relations committee, which oversaw foreign (and much domestic) trade. The city, which became the crime capital of Russia, was faced with enormous shortages of cash and food and Putin was charged with solving the problem. He was permitted by Moscow to exchange export quotas of natural resources such as oil for food imports.

When no food appeared, the city council investigated and discovered that quotas to the value of $95 million had been given out without legal tender to obscure companies which had vanished. It was suspected that a further $900 million in quotas went to other firms which disappeared with the money. One firm, created only two months earlier, acquired raw earth materials at 2000 times less than the global market price.

When it came to privatising the city’s oil terminal and port, Belton’s research suggests that Putin and the city authorities were involved with local mobsters. Many of the beneficiaries were men Putin knew from his previous career. (Gaidar’s government in Moscow was hardly a beacon of good governance either, as Belton illustrates with some nice details.) Putin, like many of his peers, seems to have seen capitalism as a free for all, which he embraced with all the more fervour since his old loyalties had been betrayed.

After Sobchak failed to get re-elected in summer 1996, Putin moved to Moscow, initially to look after the Kremlin’s foreign property portfolio. He was later appointed in quick succession to head the FSB (formerly the KGB), prime minister and, finally ,Yeltsin’s successor as president (on the grounds that he would not prosecute his family for corruption). Belton thinks this was not an accident but the result of a plan by ex-KGB insiders.

Putin’s first steps do not suggest that he (and his backers) were bent on confrontation with the West from the outset. While he moved to strengthen the state and curb the overweening oligarchs, he also made overtures to the West (for example, allowing the US use of bases in central Asia to fight the Taliban). The deterioration in relations was due partly to western policy. The US abrogation of the ABM Treaty in 2002, the expansion of Nato, and the plan to install an upgraded missile defence system in eastern Europe were all seen as humiliating breaches of trust and insults to Russian great power status.

Putin’s background doubtless contributed to his seeing Ukraine’s Orange revolution as part of a western plot to subvert Russian power and his own rule. Opposition demonstrations in Moscow in 2011 before his own re-election was due, events in Libya and the toppling of Yanukovich in 2014 confirmed this view, with the consequences we know.

It is not the coverage of politics that constitute the main interest of Belton’s book, but her research into the financial transactions of Putin’s circle. Chapter 10 is particularly revealing in its treatment of the ejection of Yeltsin’s oligarchs and  the siphoning off tens of billions of dollars from the Russian oil and gas industries to elite-controlled entities abroad such as Bank Rossiya.

She also covers the revelations of the Panama Papers about money-laundering via the British Virgin Islands and the role in such schemes of Deutsche Bank and the city of London. It is reckoned that $800 billion has been stashed offshore since the Soviet collapse. This money has been used, she shows, to influence politics in Ukraine and Europe.

In her final chapter, Belton examines how a group of Russian exiles in the US with links to crime and the Russian security services came to be close to Donald Trump, bringing him into a real-estate firm (Bayrock). Giving Trump generous shares and an income stream (without any investment on his part), she claims, did much to alleviate his perennial financial woes.

Alarming story

The picture that emerges from  Putin’s People is of a corrupt regime, hostile to the West and ready to use its enormous wealth to undermine it. It is a view shared by Luke Harding who asserts that “Putin rebooted old KGB ways of influence and political subversion” and that Russia has “become a virtual Mafia state in which the government, its spy agencies and organised crime...merged into a single entity”.

Whereas Belton gives 96 pages of references to her sources, Harding's Shadow State: Murder, Mayhem and Russia's Remaking of the West (Guardian Faber) reads like a thriller and abounds with spies, dubious businessmen, politicians and crooks in various exotic settings, but especially New York, Washington, London and Moscow.

Much of Harding’s material, which concentrates on Russian attempts to influence the 2016 US elections and the Brexit campaign, is familiar, but, read at a sitting rather than in occasional articles, it makes for an alarming story. His account of Russian intervention in the US elections (via hackers, trolls, and agents of influence) is well-known and based on FBI investigations and the Mueller report. His coverage of Brexit is shorter and less conclusive, partly because the National Crime Agency failed to substantiate the Election Commission’s concerns about the money that poured into Leave-EU and because MI6 was not instructed by Theresa May’s government to investigate Russian interference in the campaign.

Harding is not impressed, and his judgment on London’s relations with Russian “kleptocrats” is damning: “If money-laundering was a multi-tentacled octopus...London was its cephalopod brain”, using British professionals “for money-laundering operations and to target critics and spread propaganda”.

Harding’s most interesting angle on all this is his attempt to elucidate whether Moscow has leverage over Trump. He is inclined to believe the (plausible) reports of those who claim that Trump compromised himself with prostitutes in Moscow in 2013. He agrees with Belton about Trump’s interest in the Moscow Trump Tower project. He also asks a very interesting question: did Deutsche Bank (whose Moscow branch got into trouble with US and British regulators for money-laundering) sell some of the enormous debt Trump owed them to VTB, a Russian bank sanctioned by the West and close to the Russian authorities?

Harding follows up with Trump’s parallel foreign policy in Ukraine, when he attempted to pressurise the new Zelensky government by withholding military aid in return for incriminating the Bidens, undermining the US’s official foreign policy and its ambassador in Kyiv.

He concludes pessimistically by seeing parallels between Trump’s US and Putin’s Russia: contempt for law and institutions; the privileging of personal connections and friendships, the undermining of the press and a continued interest in dubious business dealings. Not a wonder, then, that neither president is keen to stand down or hand power over to a successor.

Judith Devlin is emeritus professor in the school of history at University College Dublin. Her publications include Slavophiles and Commissars: Enemies of Democracy in Modern Russia (Macmillan) and The Rise of the Russian Democrats: Causes and Consequences of the Elite Revolution (Elgar).