Progressives in the Party and the KGB had clearly begun to back the democratic leaders, because they didn’t want the flood of cash to stop.[71] ‘Part of the KGB supported Yeltsin,’ said Andrei Illarionov, an economic adviser to Putin in the first years of his presidency. ‘They saw Yeltsin as an alternative who would carry out market reform.’[72]
‘The businesses and the people who stood at the roots of perestroika decided they needed more,’ said Rair Simonyan, the young economist with ties to military intelligence who’d led reform efforts at the Institute for World Economy. ‘It became a political process because it became clear to them that otherwise all their efforts would go into a dead end. Gorbachev was just too indecisive.’[73]
For a long time, hard-liners in the KGB barked about how the collapse of the Soviet system was engineered by agents of the United States. Many were convinced the US had acted to leverage weaknesses within the system and help stoke protests for independence across the Warsaw Pact – and there was some truth to that. It was whispered darkly that Alexander Yakovlev, the godfather of Gorbachev’s perestroika reforms, was planted as an agent of the CIA at the top of the Politburo to demolish the Soviet empire, and that Boris Yeltsin was a US stooge. But the truth is that the revolution that ended seven decades of Communist rule was largely bloodless because many within the system did not want the Party or socialism to survive. ‘The very upper echelon of the Soviet nomenklatura was wiped away, and part of the second and third tier took over the country,’ said the US National Security Council’s Thomas Graham. ‘These people had realised that if you stripped away ideology they could live even better. The country fell apart because these people from the second and third echelon had no interest in it surviving. They had figured out a way of surviving better in the new system.’[74]
Ultimately, when it came, the collapse had been an inside job. The men at the top of the KGB’s foreign intelligence had decided ‘to blow up their own home’, according to one former senior operative.[75]
And when the Russian prosecutors came calling in the search for the Communist Party’s missing wealth, it was the sentinels of the foreign-intelligence directorate who did everything they could to block them. Leading the cover-up was Yevgeny Primakov, the former head of the Institute for World Economy, which had quietly been a leading force behind the reform drive, who soon after the coup would be anointed by Yeltsin as Russia’s new foreign-intelligence chief.[76] ‘Primakov decisively sabotaged the only serious attempt to undo the massive theft that depleted Russia’s treasury,’ said Richard Palmer, a CIA station chief for the former Soviet Union in the early nineties.[77]
All the while, Primakov and his close associate, the one-time military-intelligence chief at the Institute for the USA and Canada, Mikhail Milshtein, had been working on plans to end their country’s standoff with the West. But under the cover of Soviet emigration they’d also been sending a new group of agents into the West to guard and generate part of the hidden cash networks of Russia’s foreign intelligence.[78] Money was being funnelled out and reserved for a later, more covert game. A senior Russian foreign-intelligence operative, Sergei Tretyakov, later claimed that tens of billions of dollars had been transferred to maintain the foreign-intelligence networks of the KGB.[79] Hundreds of foreign shell companies and Soviet joint ventures had been created in the year leading up to the coup, some founded by the Soviet émigrés, others by the handpicked emissaries from the Komsomol.[80]
The Soviet empire might have been lost, but the foreign-intelligence progressives knew that the battle against the West was unsustainable under the command economy anyway. For them, the end of the Communist empire did not mean an end to hostilities, but an opportunity to eventually continue them under new auspices.
New Day
When Boris Yeltsin, blinking in the sunlight, strode out of the Russian White House in the middle of the hard-line coup on the afternoon of August 19 1991, the world believed it had gained an icon for a new age. Defying the military hardware surrounding the White House, Yeltsin clambered stiffly on top of one of the tanks, shaking the hands of the soldiers manning its guns as he went.
In the euphoric days that followed, the symbol of the KGB’s overpowering might, a statue of the founding father of the Soviet secret police, Felix Dzerzhinsky, was winched away from its plinth in front of the KGB headquarters on Moscow’s Lubyanka Square. Western bankers and government officials were soon hurrying to Russia to advise Yeltsin’s new government on the creation of a market economy. The new cabinet was partly staffed with bright young economists, including Yegor Gaidar and Pyotr Aven. Russia was to integrate into Western markets, and a new era of cooperation was hailed.
Although in October 1991 Yeltsin signed an order abolishing the KGB and breaking it up into four different domestic services, his appointment of Vadim Bakatin to head the organisation in the final months before its break-up was an early sign that change was going to be cosmetic. Bakatin was an inexperienced outsider who’d served briefly as interior minister in the final years of the Soviet regime, and his new KGB comrades ran rings around him. He himself admitted to the Moscow journalist Yevgenia Albats that he had little control over his employees, and that he knew they were manipulating him and withholding information from him: ‘I am absolutely convinced that whatever the komitetchiki don’t want me to know, I won’t know,’ he told her.[81] And once the KGB had officially been broken up, under Primakov’s stewardship the powerful foreign-intelligence service, now renamed as the SVR, remained intact. Even though tens of thousands of apparently demoralised officers resigned from the service to join the rush into business, part of the system merely went underground. Like Putin with Sobchak, ‘they stayed in the shadows’, said one former intermediary for the KGB, speaking on condition of anonymity.[82] ‘They didn’t really get rid of anything. They changed the façade and they changed the name. But nothing else really changed.’ While officially the SVR’s budget was shredded, unofficial sources of funding were soon found.
Even though the Russian government was struggling in the chaos of the Soviet collapse to pay pensions and the wages of teachers, doctors and other state workers, the new prime minister, Yegor Gaidar, made sure to find funds to maintain strategic outposts for foreign intelligence. One such payment was $200 million in 1992 to Fidel Castro’s regime in Cuba for Russia’s foreign-intelligence service to continue to use its Lourdes listening station for eavesdropping on the US. The payment was made through a convoluted barter scheme, swapping oil products for sugar imports – exactly like the smuggling schemes deployed by the KGB through friendly firms.[83] The $200 million transfer was made at the same time as Russia’s official state budget for 1992 was $148 million. Later that year, Gaidar diverted an entire $1 billion loan from the International Monetary Fund, aimed at stabilising the Russian economy, to bail out one of the most important financial outposts of Russia’s foreign-intelligence network, Eurobank, the Soviet state bank in Paris.[84]
For the first half of the nineties, the KGB remained a potent force behind the scenes. Its operatives were still everywhere, employed as advisers for trade or government relations or as security chiefs. Until 1995, most of the oil sector remained in state hands, its exports watched over by the foreign operatives of the KGB. ‘You found this virtually everywhere, in all the companies, in all the government