Although Yeltsin ordered the offices of the Central Committee on Old Square to be sealed, Valentin Falin, the head of the committee’s International Department, which oversaw the funding of foreign operations, immediately ordered his subordinates to start destroying documents.[10] What lay in the archives could provide a roadmap to the crimes of the Communist regime and, most importantly of all, to the cash that had been stashed away.
The most top-secret operations had been run out of Room 516, which had housed the International Department’s special section for ‘Party technology’. It was headed by Vladimir Osintsev, a specialist in black operations, who ran Communist Party influence campaigns to sow discord in countries where the existence of the Party was illegal, such as El Salvador, Turkey, South Africa and Chile. When the Russian prosecutors finally entered this room months later, in October 1991, reams of shredded files were found in ribbons across the floor. But signs of the lengths Party operatives had gone to run sleeper agents under deep cover remained. The prosecutors found piles of foreign passports and stamps from many different countries, heaps of other blank travel documents, and official stamps and visas waiting to be forged. There was a huge photo album filled with pictures of people of all types and races, a selection of wigs and beards, and even rubber moulds for faking fingerprints.[11]
One of the International Department’s employees, Anatoly Smirnov, had rebelled, and smuggled out what he could.[12] The top-secret documents he managed to extract included details of hundreds of millions of dollars in payments to Communist-linked parties abroad. One such document, dated December 5 1989, showed an order for the Soviet state bank to transfer $22 million directly to Falin for the Party’s International Fund for left-wing organisations.[13] Another, dated June 20 1987, ordered Gosbank, the central bank of the USSR, to transfer $1 million to the Party’s curator for international affairs to provide the French Communist Party with additional funds.[14] The physical transfer of the money to France was to be organised by the KGB.
To Smirnov, the fact that the Party was regularly dipping into state coffers to fund its political and influence operations abroad meant that ‘a crime was being committed against our people’.[15] For him, this was a red line. It was against Soviet law. The Party’s operations should have been funded from the donations it collected from members, not from state coffers.[16]
The Russian prosecutors calculated that more than $200 million had been transferred out of the Soviet Union to fund Communist-linked parties in the USSR’s final decade of existence; Smirnov put the total at many times more.[17] The sums transferred by more surreptitious means, for more clandestine activities, remained unknown.
But as the team of prosecutors trawled through what remained of the Central Committee’s archive, they began to find documents that cast light on the myriad of unofficial, secret schemes via which billions of dollars more in funds seemed to have been siphoned out. One such scheme involved what the Soviets called ‘friendly’ firms. These were the crony companies at the heart of the vast system of black-market operations that kept the eastern bloc afloat. Many of them were involved in the smuggling of embargoed technology. They included the string of front companies the East German trade official Alexander Schalck-Golodkowski deployed across East Germany, Austria, Switzerland and Liechtenstein. Others were involved in selling much-needed equipment to the Soviet oil, nuclear power and manufacturing industries at prices that were inflated many times over, while the profits were used to fund the activities of the Communist Party and other leftist movements in Italy, France, Spain, the UK and elsewhere.[18]
The money the CPSU would send directly to fund Communist Parties’ activities was nothing compared to the amounts sent via the friendly firms, said Antonio Fallico, a senior Italian banker with close ties to the top of the Soviet elite, and later to the Putin regime too. The official donations the Italian Communist Party received annually from the Soviet Union were ‘only about $15–20 million. This is not even money.’ The real funding, he said, came from the intermediaries. ‘All Italian firms who wanted to do business in the Soviet Union had to pay money to these firms … This was a colossal flow of money.’[19] A list of forty-five such ‘friendly firms’ was disclosed by prosecutors rooting through the archives. Among the mostly obscure import-export firms was at least one well-known name: Robert Maxwell’s Pergamon Press, a vast publishing house that had long been a channel for the sale of Soviet science books to the West.[20] Just days before the list was published, the body of the controversial former Labour MP and media tycoon had been found floating in the Atlantic Ocean not far from his yacht.
Other companies working with the Soviet regime that stayed off the radar included titans of European industry such as Fiat, Merloni, Olivetti, Siemens and Thyssen, according to a former KGB operative who worked closely with Putin in the nineties, and another businessman who worked in these ‘friendly firms’ during Soviet times. This businessman, who would speak only on condition of anonymity, said his firm had supplied military goods under the guise of medical equipment: ‘The medical equipment – it was a façade. Behind it, the firm produced very serious military equipment. It was the same with Siemens and with ThyssenKrupp. All of them were providing dual-use equipment to the Soviets. These friendly firms were not just fronts, the way things operate now. It was major European companies.’[21]
The network of friendly firms was not only involved in imports. According to one former aide to Gorbachev, some of them were engaged in barter operations that had been under way since the 1970s under Brezhnev.[22] The state oil-export monopoly Soyuznefteexport had, for instance, engaged in an elaborate scheme to barter oil for embargoed goods. It had first delivered oil via traders to vast storage reservoirs in Finland, where the oil’s origins were disguised before a web of intermediaries sold it on in exchange for embargoed technology and other goods, according to a former Soyuznefteexport associate. Fertiliser exports, too, had long been part of these schemes.
For the Russian prosecutors trying to investigate the Party’s finances, the traces of these schemes presented the biggest red flag. Untold fortunes in oil, metals, cotton, chemicals and arms had been transported out of the Soviet Union, either through barter schemes or export deals, and sold at knockdown prices to the intermediary friendly firms in the West. Under the export deals, the friendly firms would buy the raw materials at the Soviet internal price, which was fixed low under the rules of the planned economy, enabling them to reap vast profits when they sold them on at world market prices: the global oil price, for example, was almost ten times higher than the internal Soviet price in those days.[23] They could then stash the funds away into a web of accounts in friendly banks in Europe, such as Switzerland’s Banco del Gottardo, and tax havens in Cyprus, Liechtenstein, Panama, Hong Kong and the British Channel Islands. The fortunes they made could be deployed for the activities of the Communist Party abroad, for active measures to destabilise the West. Most importantly of all, the entire process was overseen by the KGB, whose associates manned the friendly firms and controlled much of the Soviet trade ministry. ‘The friendly firms sold what they had acquired for global prices. The profit was never returned to the Soviet Union,’ wrote the prosecutor general tasked with overseeing the investigation, Valentin Stepankov. ‘All contact with the friendly firms was carried out by the KGB.’[24]
The siphoning of commodities had rapidly accelerated in the final years of the Soviet regime. Later, the one-time head of economic analysis for Soviet military intelligence, Vitaly Shlykov, claimed that a large part of the Soviet Union’s huge military stockpiles of raw materials – literal mountains of aluminium, copper, steel, titanium and other metals – that had been intended to keep the Soviet military machine running for decades to come, were fast dwindling by the time of the Soviet collapse.[25] Prosecutors, however, found only scraps of information. The raw-materials deals had left barely any trace.
But as they searched the debris and destruction, the reams of shredded paper on the floor, the prosecutors found one vital document, which looked as if it might provide a partial key to what happened in the twilight years of the Communist regime. It was a memo, dated August 23 1990, signed by Gorbachev’s deputy general secretary Vladimir Ivashko, and it ordered the creation of an ‘invisible economy’ for the Communist Party.[26] The top Party leadership had evidently recognised that it urgently needed to create a network of firms and joint ventures that would protect and