But there was zero oversight over any of the transactions, and rather than paying down debts, many suspected most of the money was used to fund the foreign networks of the KGB. In many ways, the central bank’s Fimaco operations and Putin’s oil-for-food scheme were cut from the same cloth. They looked to be part of the black cash of the Russian regime, and were so lacking in transparency that they could just as easily be used as the personal slush funds of the officials running Russia. Turover insisted that Putin never stole from the slush funds he helped create through the oil-for-food scheme. ‘But he spent money, of course. Of course he spent some of the money, and somehow managed this money, because he needed to travel, to pay for hotels, and he probably needed to eat as well.’[41]
In essence, what had been created was what in Russian criminal parlance is called an ‘obschak’, a common cash pot or slush fund for a criminal gang. It was a model based on handing out riches to a tightly controlled network of close allies, where the lines between what was to be used for strategic operations and what was for personal use were always conveniently blurred. This model became the basis for the kleptocracy of the Putin regime, and later its influence operations too – and it was based on the clandestine networks and payments systems of the KGB.
As for Salye, she was sidelined as a political figure. Sobchak blocked any further investigation of his young protégé’s oil-for-food deals. In the mid-nineties she moved to Moscow, where her voice was drowned out in the capital’s political din. On the eve of Putin’s election as president, however, she resurfaced to publish the first in-depth investigative article on the deals, titling it ‘V. Putin – The President of a Corrupt Oligarchy!’ Although her findings created a furore among liberals, they had little impact nationwide. Soon after the election she withdrew to the depths of the countryside near the border with Finland, miles down a boneshaking road from the nearest town. Only a handful of journalists made the journey to interview her there. But the scheme, and her investigation of it, remained her abiding obsession till the day she died, just weeks after Putin began his third term in 2012. She knew she’d glimpsed the true nature of his regime in those deals.[42]
Submariner, Soldier, Trader, Spy
The KGB men who took over St Petersburg with Putin were far more commercially minded than the generation that had gone before. Though they mourned the collapse of the Soviet empire, many in the younger, middle echelon of the security services like Putin had fast embraced the tenets of capitalism and rejected the dogma of the Communist Party. For this new generation, it had been Communism that failed the empire, leaving them high and dry in Afghanistan and abandoning them in East Germany. ‘They saw Communism as having betrayed them,’ said Andrei Illarionov, the former presidential economic adviser to Putin.[43] They were the product of the operations the KGB launched in the final years of Soviet rule to create networks of foreign firms. The secrecy surrounding these activities meant that from the beginning, the methods of the KGB men of the eighties resembled money-laundering operations.
Once the oil-for-food scheme was done, Putin’s allies began to move in on the sea port, which initially together with the oil terminal and a fleet of ships was part of a vast state holding company known as the Leningrad Baltic Sea Fleet, or BMP. For the St Petersburg KGB men, the BMP had long been a strategic asset and the story of how Putin’s people took it over is inextricably bound up with the forging of an alliance between Putin’s City Hall and the city’s most notorious organised-crime group, the Tambov group. In Soviet times, the KGB had manned the fleet’s ships as trade aides to the captains.[44] They knew intimately its trade routes, its cargoes, the contraband and the money to be made. In its heyday, hundreds of ships had set out from Leningrad carrying oil products, metals and grain, while others arrived from as far away as South America carrying fruit, sugar and smuggled goods, vital for underground operations and cash. In those days, the BMP represented the city’s most strategic cash flow. Even in 1991, the year of the Soviet collapse, its net profits were in the hundreds of millions of dollars.[45] It was not only the owner of nearly two hundred passenger and cargo ships, it also controlled the entire Leningrad sea port, including its oil terminal, as well as the neighbouring ports in Vyborg and Kaliningrad. It was the key to the city’s wealth.
The man who ran the Baltic Sea Fleet at the time of Yeltsin’s revolution, Viktor Kharchenko, was an avowed liberal who under Gorbachev’s perestroika reforms had won the government’s permission to carve out the company as his own fiefdom. Square-jawed and built like a tank, Kharchenko had become increasingly independent. He’d risen from a childhood spent in an orphanage to become one of the city’s most revered businessmen. In 1990, under his watch, the BMP became an enterprise he rented from the state, which kept 50 per cent of its profits for reinvestment.[46] He’d grown close to Yeltsin, and when the Communist regime collapsed in the wake of the failed August putsch, he unceremoniously kicked all the KGB men out of the fleet.[47]
Kharchenko was carving out a separate power base just at the time the St Petersburg KGB men most urgently wanted to keep control of the cash flow. In the chaos of the Soviet collapse, and with organised-crime groups also trying to get a piece of the port and the oil terminal, it took over a year for them to exact their revenge.
One of the first moves was made quietly. Late one evening in February 1993, Viktor Kharchenko was returning home from a meeting with Yeltsin in Moscow when police stopped the Red Arrow train he was travelling on just outside St Petersburg. He was hauled off the train, charged with siphoning $37,000 out of the Baltic Sea Fleet, and jailed.[48]
Kharchenko was released on bail four months later, but he was removed from his post in charge of the BMP. The St Petersburg KGB men installed their own director, sold off the fleet of ships one by one and transferred them to a myriad of offshore companies. In the process, one of the BMP’s directors was shot dead.[49] ‘It was a real raider attack,’ said one of Kharchenko’s associates. ‘They sold off the ships for nothing. Everything disappeared. They siphoned everything out of the country.’[50]
Kharchenko’s former associates still fear to speak of what happened back then, or about who was behind the attack. But the footprints of the local KGB men were everywhere. ‘They needed to clean their boots and eat,’ said one. ‘They didn’t pay attention to anyone. They just took BMP and looted it.’[51]
The raid was a foretaste of operations that were to come later. The KGB men had bent St Petersburg’s law enforcement to their will to take over the city’s most important trading link. Kharchenko had been removed as BMP chief at a crucial moment. At the same time, the port and the oil terminal were being carved out from the Baltic Sea Fleet into separate entities, and privatised by Putin’s City Hall. ‘They pulled out the harbour walls from BMP,’ said a former Kharchenko associate.[52]
Submariner
As City Hall began to privatise part of its stake in the sea port, Ilya Traber, an alleged St Petersburg mobster later named by Spanish prosecutors as an associate of the Tambov organised-crime group, was quick off the mark.[53] His men bought up shares from the port’s workers, who’d received them as vouchers, as soon as the sell-off began. The process was violent. ‘There were huge violations in the privatisation of the port. But all this was covered up,’ said a former Traber associate.[54] From the beginning, Traber seemed to have an inside track. On paper, the state retained a 49 per cent stake in the port: 20 per cent through the federal property ministry, and 29 per cent through St Petersburg’s City Hall. But a clerk at the City Hall Property Department somehow lost the City Hall voting rights to the 29 per cent stake through a ‘mistaken’ stroke of a pen, leaving Traber and his associates free to do as they wished.[55]
‘The raider takeover would not have happened without help from the mayor’s office,’ said a former city FSB officer.[56] After a series of violent struggles, Traber, who’d become the quintessential intermediary between the St Petersburg KGB men and the Tambov group, established control over the oil terminal too.[57] He’d first arrived in Leningrad in the early eighties, as an ex-officer from the Soviet nuclear submarine