The KGB foreign-intelligence operatives who had been behind the creation of the scheme now held the keys to the hidden wealth. ‘At the end, when the Soviet Union collapsed, when the music stopped, these KGB men were the men who knew where the money was,’ said Helsby. ‘But by then they were the employees of a non-existent Soviet state.’
Some of them, however, stayed on; fragments of the KGB’s foreign-intelligence networks were being preserved. Behind the scenes, amid the chaos, ‘some of them continued to manage money for the KGB’, Helsby said.
The night Nikolai Kruchina plunged to his death was the night the Communist Party’s wealth was transferred to a new elite – and part of it had gone to the foreign-intelligence operatives of the KGB. Some of the cash had already undoubtedly been stolen, squirrelled away by top Party bosses and organised crime. But the foreign-intelligence operatives were the men who controlled the accounts when Yeltsin signed the Soviet Communist Party into history. Kruchina may have been grappling with the despairing realisation that the men who handled the funds were no longer under his control. Equally, he may have been sent to his death by those same men, to make sure he could never tell.
‘Kruchina was most probably frightened that he could be asked where all the property had gone,’ said Pavel Voshchanov, a former spokesperson for Yeltsin and a journalist who spent many years investigating the Party’s stolen wealth. ‘Kruchina gave the orders, but now he didn’t know where it all was. The state was being destroyed. The KGB was being destroyed. And already no one knew where these KGB guys were – and who they were.’[45]
*
The story of the prosecutors’ search for the missing Party wealth was fast forgotten in the tumult of the collapse. But what the prosecutors found then was a blueprint for everything that was to come later. The smuggling schemes, the friendly firms and the trusted custodians became the model on which the Putin regime and its influence operations would be run. The fact was that parts of the KGB foreign-intelligence elite had begun preparing for a market transition ever since former KGB chief Yury Andropov became Soviet leader in 1982. In the early eighties a handful of Soviet economists had begun to quietly discuss the need for a move to the market, whispering in the privacy of their kitchens about the chronic inefficiencies of the Soviet economy and publishing underground treatises on the need for reform. At the same time, there was a growing realisation among a tight-knit group within the intelligence elite that the Soviet economy was in a death spiral, that it was impossible to maintain the empire of the eastern bloc, let alone run broader influence and disruption campaigns in South America, the Middle East and Africa, and in the West. ‘If you want to have a policy of being a great empire you should be able to spend a huge amount of money,’ said one person who worked closely with reform-minded foreign-intelligence chiefs in those days.[46] ‘It was not within our means to compete with the US. It was very costly and very difficult, impossible perhaps.’ Even before progressive elements within the KGB began tentatively preparing for a possible transition in East Germany, they’d been pushing for sweeping reform in the Soviet Union itself.
The Soviet economy was being drained of resources by the push to build up military production and compete with the West at the expense of everything else. The Communist state was, in theory, succeeding in delivering its socialist vow of providing all workers with free education and healthcare. But in practice the planned economy simply didn’t work. Instead there was a corrupted system under which the ordinary people the Communist state was supposed to protect lived largely in poverty. The Communist state could access plenty of natural resources for corrupt trading schemes, but it was failing to develop light industry to produce competitive consumer goods. There was no private ownership, or even any understanding of what profit was. Instead, the government handed down production quotas to each and every enterprise, controlled all earnings and fixed prices for everything. There was no motivation for anyone, and the system just didn’t work. Consumer goods prices were fixed at incredibly low levels, but because of this there were acute shortages of everything – from bread, sausages and other foodstuffs, to cars, televisions, refrigerators and even apartments. The shortages meant queues and rationing, sometimes for months on end. Informal connections and payoffs to officials were often the only way to jump weeks-long queues for the most basic necessities – for shoe repairs, for a hospital bed, for coffins and funeral rites. The overweening power of the Soviet bureaucracy had built corruption deep into the system, while under these conditions the black market flourished.[47]
In the late sixties black marketeers, known as tsekhoviki, began to set up underground factories in which spare parts and materials siphoned from the state-owned plants were used to produce goods outside the regulated economy. Such activities could result in jail sentences of ten years or more, but increasingly these factories’ output was becoming the only way to make up for at least some of the shortages of the Soviet planned system. Hard-currency speculators would trawl the halls of the Soviet Intourist hotels, risking prison to buy dollars from visiting foreign tourists at an exchange rate far more advantageous to the tourist than the fixed Soviet one. It was a good deal for the speculators, too. In the system of Soviet shortages, anyone with access to hard currency was king. Dollars would gain you access to the well-stocked Bereyozki shops reserved for the Soviet elite, where the shelves were crammed with the quality foodstuffs and other luxuries of the West. It would enable you to buy Western clothing, Western pop music, anything produced outside the stagnating and dreary Soviet economy – all of which could then be sold on for vast profits. The shortages in the Soviet economy ran so deep that, according to the former KGB foreign-intelligence operative Yury Shvets, everyone was for sale. Factory directors fiddled the books to give materials to the black marketeers in return for a cut of the profits. Law-enforcement officials turned a blind eye to the currency speculators marauding through Soviet hotels in return for bribes and access to the hotel buffet.[48] And at the top of the pyramid, ever since the seventies, the Party elite had been taking a cut of the smuggling and trading schemes. All of it undermined any efforts to improve production. ‘The Soviet Union could not even make a pair of tights or shoes,’ said Shvets. ‘Prostitutes would give themselves for one night for one stocking, and then the next night for the other. It was a nightmare.’[49]
It was the members of the security service’s foreign intelligence who saw most clearly that the system had to change. They were the ones who could travel and could see how the market economy operated in the West, how the socialist system was failing to keep up with the technological progress of the Western world. Among them was a legendary Soviet military-intelligence chief, Mikhail Milshtein, a strapping, Kojak-bald man with thick bushy eyebrows who’d served for decades in the US and then returned to Moscow to head the intelligence department at the Soviet military academy. In the seventies he moved to the Institute for the USA and Canada, a think tank that worked closely with Falin’s influential International Department, where he was among those working on ways to engineer a rapprochement with the West. In the halls of the institute, an elegant pre-Revolutionary building tucked away down a narrow, leafy street behind Moscow’s main thoroughfares, Milshtein worked with other associates of the Soviet foreign-intelligence elite on disarmament proposals. He forged close ties with the former US secretary of state Henry Kissinger as he sought ways out of what he called ‘a vicious circle’ of standoff with the West.[50]
Across town, deep in the southern suburbs of the city, in a dark and sprawling seventies-era tower block, a group of economists at the Institute for World Economy and International Relations, known as IMEMO, began working on reforms that would start to relax the Soviet state’s monopoly on the economy. Among them was Rair Simonyan, a bright young economist in his early thirties who was the son of a high-ranking Soviet military-intelligence general. He worked closely with his deputy Andrei Akimov, a foreign-intelligence operative who would later be sent to head the Soviet Union’s bank in Vienna, and subsequently became one of the most important financiers behind Vladimir Putin’s regime. Simonyan made research trips to East Germany, where he saw clearly how far behind the Soviet economy lagged.