Former Russian Spies Are Now Prominent in Business
http://www.nytimes.com/2007/12/18/bu...gewanted=print
Uh oh. Looks like the CIA has competition.
December 18, 2007
Former Russian Spies Are Now Prominent in Business
By ANDREW E. KRAMER
MOSCOW — At a venture capital conference in Silicon Valley, Oleg S. Shvartsman mixed easily among the titans of private equity.
“He didn’t stand out from the crowd,” said Evgeny Zaytsev, the organizer of the conference on Nov. 9.
That is, until he acknowledged in a newspaper interview that the $3.6 billion group of equity funds he manages serves investors “close to the top of the F.S.B. and S.V.R.,” the domestic and overseas espionage agencies of the Russian government.
Russians and outsiders have long suspected that the Federal Security Service, or F.S.B. by its Russian initials, successor to the K.G.B., has had a hand in Russian business. But Mr. Shvartsman’s statement, the boldest such assertion yet, has generated debate over the appropriate corporate role for spies and ex-spies.
Highly educated and well connected, former Federal Security Service officers include among their number Russia’s president, Vladimir V. Putin. And Mr. Putin has seeded former colleagues throughout government and appointed them to boards of state-run corporations.
For big Western companies, the prevalence of former Federal Security Service agents in Russian business is raising questions of ethics and due diligence, as a growing number — including Boeing, Exxon Mobil and Renault — have business transactions with Russian companies linked to former spies or members of the political police.
Boeing and Exxon declined to comment on their companies’ due-diligence criteria for deals with former K.G.B. officials. A spokeswoman for Renault said her company was “not concerned” with the matter.
“We look at AvtoVaz as an interesting partner,” the spokeswoman, Olga S. Sergeyeva, said, referring to Russia’s largest carmaker, “so we work with the people who manage the factory. That person is Chemezov.” Sergei V. Chemezov, chairman of the state-run Russian Technology, is a former K.G.B. agent who served with Mr. Putin in the east German city of Dresden in the 1980s.
“Very creepy” was how one European manager of an equity fund invested in Russia described his dealings with the leadership of a company run by former security service officers. He did not want to be identified making the assessment because he wants to do business with the companies.
There is nothing illegal about such dealings, and Russia is an attractive emerging market. The country has drawn $45 billion in Western capital so far this year. And as Mr. Shvartsman’s foray into Silicon Valley, presumably in search of investment opportunities for his funds, showed, Russians are also stepping up their investment abroad of tens of billions of dollars, part of the country’s windfall from high oil prices.
It could also be argued that the role former members of the intelligence services play in business here is similar to the outsize role the Chinese Army plays in businesses there.
Currently serving security service employees are prohibited from working outside the service, according to Gennadi V. Gudkov, a member of parliament and a former K.G.B. agent.
Only, according to an old Russian axiom, no one ever leaves the service. Mr. Putin himself said in his 2000 presidential campaign, using a post-1917 revolution name for K.G.B. precursors, that “there is no such thing as a former Chekist.”
In the interview published in the newspaper Kommersant, Mr. Shvartsman described other fund investors as “not the leadership of the presidential administration, but members of their families.” And he boasted that his ties to the secret police helped his company, the FinansGroup, buy businesses in Russia at knock-down prices because business owners, he said, “know where we come from.”
Mr. Shvartsman suggested that he had F.S.B. backing for corporate raiding, a term that is often more than just a figure of speech in Russia’s bare-knuckle business world.
The assertions sent ripples through business circles here, though the Kremlin spokesman, Dmitri S. Peskov, dismissed Mr. Shvartsman’s statements as “absolutely untrue.”
Still, the European Bank for Reconstruction and Development and a leading Israeli bank, Tamir Fishman, pulled out of a deal with Mr. Shvartsman to create the Tamir Fishman Russia Venture Capital Fund.
Just last week, Renault signed a memorandum of understanding to buy 25 percent of AvtoVaz, and manage it in partnership with Mr. Chemezov’s Russian Technology.
To be sure, intelligence agency officials have become businessmen in other countries, too. The first President Bush was director of central intelligence in the 1970s and, more recently, a senior adviser to the Carlyle Group, a private equity firm, until 2004. And some Western businessmen here say that the K.G.B., with its language training and networking opportunities for the young and ambitious, is a good school for international business.
Aleksandr Y. Lebedev, a Russian airline tycoon whose estimated worth is $3.5 billion, was a K.G.B. agent in London in the late 1980s.
In an interview, Mr. Lebedev said that seeing the great gap in economic development between the West and the Soviet Union in the 1980s made reformers of some in his generation of Soviet spies. Thus, the characterization of the K.G.B. as an inherently reactive force is a misperception, he said, and it should not be surprising that former agents became free-market enthusiasts. Last month, the Russian edition of Smart Money magazine published a cover article proclaiming, “The K.G.B. Is better Than an M.B.A.”
In Russia, there may be some logic to that reasoning. Boeing is buying titanium for its new 787 Dreamliner jet from a company run by Mr. Chemezov. Exxon Mobil is a partner in a Sakhalin Island oil development with Rosneft, a huge Russian energy company whose chairman, Igor I. Sechin, is a former intelligence officer. Mr. Sechin is also Mr. Putin’s deputy chief of staff.
One son of the Federal Security Service director, Nikolai Patrushev, worked at the state foreign trade bank, the VTB Group, and another worked at Rosneft.
Sergei B. Ivanov, a first deputy prime minister and former K.G.B. agent who served in London, is chairman of the state aircraft-making monopoly. His son was vice president of Gazprombank, the banking arm of the Russian natural gas monopoly.
“Due diligence has become something of a headache sorting this all out,” a Western business consultant, who did not want to be further identified criticizing the Kremlin, said.
And Yevgenia M. Albats, author of a 1994 book on the K.G.B., “The State Within a State,” said, “The F.S.B. is no longer just a police organization, it is a business.”
In exchange for loyalty, Mr. Putin has allowed top F.S.B. officials to tap business opportunities in Russia’s oil-boom economy by acquiring stakes in companies in oil, telecommunications, retailing and finance.
“The problem is, this business has the power of violence,” Ms. Albats said. “It has troops and intelligence equipment.”
Whether the security service will retain its power remains to be seen. Last week, Mr. Putin endorsed Dmitri A. Medvedev, the other first deputy prime minister, to be Russia’s next president, a step that most here assume makes Mr. Medvedev’s choice a certainty. Mr. Medvedev has no known background in the security services.
After the publication of his interview, Mr. Shvartsman asserted that the Kommersant journalist, Maksim Kvasha, had used “literary license” in transcribing his statement, though he did not take back any of the specifics. In an interview on Echo of Moscow radio, he said the journalist should “drink poison.”
Putin is Time's Man of Year, p1 of 2
[Yes, it's related to OP]
http://www.time.com/time/specials/20...0.html?cnn=yes
Tuesday, Dec. 04, 2007
A Tsar Is Born
By Adi Ignatius
No one is born with a stare like Vladimir Putin's. The Russian President's pale blue eyes are so cool, so devoid of emotion that the stare must have begun as an affect, the gesture of someone who understood that power might be achieved by the suppression of ordinary needs, like blinking. The affect is now seamless, which makes talking to the Russian President not just exhausting but often chilling. It's a gaze that says, I'm in charge.
This may explain why there is so little visible security at Putin's dacha, Novo-Ogarevo, the grand Russian presidential retreat set inside a birch- and fir-forested compound west of Moscow. To get there from the capital requires a 25-minute drive through the soul of modern Russia, past decrepit Soviet-era apartment blocks, the mashed-up French Tudor-villa McMansions of the new oligarchs and a shopping mall that boasts not just the routine spoils of affluence like Prada and Gucci but Lamborghinis and Ferraris too.
When you arrive at the dacha's faux-neoclassical gate, you have to leave your car and hop into one of the Kremlin's vehicles that slowly wind their way through a silent forest of snow-tipped firs. Aides warn you not to stray, lest you tempt the snipers positioned in the shadows around the compound. This is where Putin, 55, works. (He lives with his wife and two twentysomething daughters in another mansion deeper in the woods.) The rooms feel vast, newly redone and mostly empty. As we prepare to enter his spacious but spartan office, out walk some of Russia's most powerful men: Putin's chief of staff, his ideologist, the speaker of parliament—all of them wearing expensive bespoke suits and carrying sleek black briefcases. Putin, who rarely meets with the foreign press, then gives us 3 1⁄2 hours of his time, first in a formal interview in his office and then upstairs over an elaborate dinner of lobster-and-shiitake-mushroom salad, "crab fingers with hot sauce" and impressive vintages of Puligny-Montrachet and a Chilean Cabernet.
Vladimir Putin gives a first impression of contained power: he is compact and moves stiffly but efficiently. He is fit, thanks to years spent honing his black-belt judo skills and, these days, early-morning swims of an hour or more. And while he is diminutive—5 ft. 6 in. (about 1.7 m) seems a reasonable guess—he projects steely confidence and strength. Putin is unmistakably Russian, with chiseled facial features and those penetrating eyes. Charm is not part of his presentation of self—he makes no effort to be ingratiating. One senses that he pays constant obeisance to a determined inner discipline. The successor to the boozy and ultimately tragic Boris Yeltsin, Putin is temperate, sipping his wine only when the protocol of toasts and greetings requires it; mostly he just twirls the Montrachet in his glass. He eats little, though he twitchily picks the crusts off the bread rolls on his plate.
Putin grudgingly reveals a few personal details between intermittent bites of food: He relaxes, he says, by listening to classical composers like Brahms, Mozart, Tchaikovsky. His favorite Beatles song is Yesterday. He has never sent an e-mail in his life. And while he grew up in an officially atheist country, he is a believer and often reads from a Bible that he keeps on his state plane. He is impatient to the point of rudeness with small talk, and he is in complete control of his own message.
He is clear about Russia's role in the world. He is passionate in his belief that the dissolution of the Soviet Union was a tragedy, particularly since overnight it stranded 25 million ethnic Russians in "foreign" lands. But he says he has no intention of trying to rebuild the U.S.S.R. or re-establish military or political blocs. And he praises his predecessors Yeltsin and Mikhail Gorbachev for destroying a system that had lost the people's support. "I'm not sure I could have had the guts to do that myself," he tells us. Putin is, above all, a pragmatist, and has cobbled together a system—not unlike China's—that embraces the free market (albeit with a heavy dose of corruption) but relies on a strong state hand to keep order.
Like President George W. Bush, he sees terrorism as one of the most profound threats of the new century, but he is wary of labeling it Islamic. "Radicals," he says, "can be found in any environment." Putin reveals that Russian intelligence recently uncovered a "specific" terrorist threat against both Russia and the U.S. and that he spoke by phone with Bush about it.
What gets Putin agitated—and he was frequently agitated during our talk—is his perception that Americans are out to interfere in Russia's affairs. He says he wants Russia and America to be partners but feels the U.S. treats Russia like the uninvited guest at a party. "We want to be a friend of America," he says. "Sometimes we get the impression that America does not need friends" but only "auxiliary subjects to command." Asked if he'd like to correct any American misconceptions about Russia, Putin leans forward and says, "I don't believe these are misconceptions. I think this is a purposeful attempt by some to create an image of Russia based on which one could influence our internal and foreign policies. This is the reason why everybody is made to believe...[Russians] are a little bit savage still or they just climbed down from the trees, you know, and probably need to have...the dirt washed out of their beards and hair." The veins on his forehead seem ready to pop.
Elected Emperor
Putin has said that next spring, at the end of his second term as President, he will assume the nominally lesser role of Prime Minister. In fact, having nominated his loyal former chief of staff (and current Deputy Prime Minister) Dmitri Medvedev to succeed him as President, Putin will surely remain the supreme leader, master of Russia's destiny, which will allow him to complete the job he started. In his eight years as President, he has guided his nation through a remarkable transformation. He has restored stability and a sense of pride among citizens who, after years of Soviet stagnation, rode the heartbreaking roller coaster of raised and dashed expectations when Gorbachev and then Yeltsin were in charge. A basket case in the 1990s, Russia's economy has grown an average of 7% a year for the past five years. The country has paid off a foreign debt that once neared $200 billion. Russia's rich have gotten richer, often obscenely so. But the poor are doing better too: workers' salaries have more than doubled since 2003. True, this is partly a result of oil at $90 a barrel, and oil is a commodity Russia has in large supply. But Putin has deftly managed the windfall and spread the wealth enough so that people feel hopeful.
Russia's revival is changing the course of the modern world. After decades of slumbering underachievement, the Bear is back. Its billionaires now play on the global stage, buying up property, sports franchises, places at élite schools. Moscow exerts international influence not just with arms but also with a new arsenal of weapons: oil, gas, timber. On global issues, it offers alternatives to America's waning influence, helping broker deals in North Korea, the Middle East, Iran. Russia just made its first shipment of nuclear fuel to Iran—a sign that Russia is taking the lead on that vexsome issue, particularly after the latest U.S. intelligence report suggested that the Bush Administration has been wrong about Iran's nuclear-weapons development. And Putin is far from done. The premiership is a perch that will allow him to become the longest-serving statesman among the great powers, long after such leaders as Bush and Tony Blair have faded from the scene.
But all this has a dark side. To achieve stability, Putin and his administration have dramatically curtailed freedoms. His government has shut down TV stations and newspapers, jailed businessmen whose wealth and influence challenged the Kremlin's hold on power, defanged opposition political parties and arrested those who confront his rule. Yet this grand bargain—of freedom for security—appeals to his Russian subjects, who had grown cynical over earlier regimes' promises of the magical fruits of Western-style democracy. Putin's popularity ratings are routinely around 70%. "He is emerging as an elected emperor, whom many people compare to Peter the Great," says Dimitri Simes, president of the Nixon Center and a well-connected expert on contemporary Russia.
Putin's global ambitions seem straightforward. He certainly wants a seat at the table on the big international issues. But more important, he wants free rein inside Russia, without foreign interference, to run the political system as he sees fit, to use whatever force he needs to quiet seething outlying republics, to exert influence over Russia's former Soviet neighbors. What he's given up is Yeltsin's calculation that Russia's future requires broad acceptance on the West's terms. That means that on big global issues, says Strobe Talbott, president of the Brookings Institution and former point man on Russia policy for the Clinton Administration, "sometimes Russia will be helpful to Western interests, and sometimes it will be the spoiler."
Up from the Ruins
How do Russians see Putin? For generations they have defined their leaders through political jokes. It's partly a coping mechanism, partly a glimpse into the Russian soul. In the oft told anecdotes, Leonid Brezhnev was always the dolt, Gorbachev the bumbling reformer, Yeltsin the drunk. Putin, in current punch lines, is the despot. Here's an example: Stalin's ghost appears to Putin in a dream, and Putin asks for him help running the country. Stalin says, "Round up and shoot all the democrats, and then paint the inside of the Kremlin blue." "Why blue?" Putin asks. "Ha!" says Stalin. "I knew you wouldn't ask me about the first part."
Putin himself is sardonic but humorless. In our hours together, he didn't attempt a joke, and he misread several of our attempts at playfulness. As Henry Kissinger, who has met and interacted with Russian leaders since Brezhnev, puts it, "He does not rely on personal charm. It is a combination of aloofness, considerable intelligence, strategic grasp and Russian nationalism" (see Kissinger interview).
To fully understand Putin's accomplishments and his appeal, one has to step back into the tumult of the 1990s. At the end of 1991, just a few months after Yeltsin dramatically stood on a tank outside the parliament in Moscow to denounce—and deflate—a coup attempt by hard-liners, the Soviet Union simply ceased to exist. Yeltsin took the reins in Russia and, amid great hope and pledges of help from around the world, promised to launch an era of democracy and economic freedom. I arrived in Moscow a week later, beginning a three-year stint as a Russia correspondent.
I retain three indelible images from that time. The first: the legions of Ivy League—and other Western-educated "experts" who roamed the halls of the Kremlin and the government, offering advice, all ultimately ineffective, on everything from conducting free elections to using "shock therapy" to juice the economy to privatizing state-owned assets. The second: the long lines of impoverished old women standing in the Moscow cold, selling whatever they could scrounge from their homes—a silver candleholder, perhaps, or just a pair of socks. The third, more familiar image: a discouraged and embattled Yeltsin in 1993 calling in Russian-army tanks to shell his own parliament to break a deadlock with the defiant legislature when everything he was trying to do was going wrong.
Yeltsin bombed his way out of the threat of civil war and managed to hang on to power, but Russia was left hobbled. Virtually every significant asset—oil, banks, the media—ended up in the hands of a few "oligarchs" close to the President. Corruption and crime were rampant; the cities became violent. Paychecks weren't issued; pensions were ignored. Russia in 1998 defaulted on its foreign debt. The ruble and the financial markets collapsed, and Yeltsin was a spent force. "The '90s sucked," says Stephen Sestanovich, a Columbia University professor who was the State Department's special adviser for the new Independent States of the former Soviet Union under President Bill Clinton. "Putin managed to play on the resentment that Russians everywere were feeling." Indeed, by the time Putin took over in late 1999, there was nowhere to fall but up.
Path to Power
That Russia needed fixing was acknowledged by all. But how was it that Putin got the call? What was it that lifted him to power, and to the dacha in Novo-Ogarevo?
Putin's rise continues to perplex even devoted Kremlin observers. He was born into humble circumstances in St. Petersburg in 1952. His father had fought in World War II and later labored in a train-car factory. Putin's mother, a devout Orthodox Christian, had little education and took on a series of menial jobs. The family lived in a drab fifth-floor walk-up in St. Petersburg; Putin had to step over swarms of rats occupying the entranceway on his way to school. Putin's only ancestor of note was his paternal grandfather, who had served as a cook for both Lenin and Stalin, though there's no sign that this gave his family any special status or connections.
Putin describes his younger self as a poor student and a "hooligan." Small for his age, he got roughed by his contemporaries. So he took up sambo—a Soviet-era blend of judo and wrestling—and later just judo. From all accounts, he devoted himself to the martial art, attracted by both its physical demands and its contemplative philosophical core. "It's respect for your elders and opponents," he says in First Person, his question-and-answer memoir published in 2000. "It's not for weaklings."
It was the KGB that rescued Putin from obscurity—and turned the child into the man. Putin had begun to apply himself to schoolwork, and in 1975, during his senior year at Leningrad State University, he was approached by an impressive stranger who said, "I need to talk to you about your career assignment. I wouldn't like to specify exactly what it is yet." Putin, who had dreamed of becoming a spy, was intrigued. Within months he was being trained in counterintelligence. By the mid-1980s he was assigned to East Germany, where he worked undercover, pursuing intelligence on nato and German politicians. He was in Dresden, not Berlin where the action was, and probably would have been only a bit player in the Le Carré version of the cold war. But when the Berlin Wall came down in 1989, so did Putin's KGB career. As angry crowds moved on the local KGB headquarters, Putin and his colleagues feverishly burned files that detailed agents' names and networks—so much paper, he recalls in the memoir, that "the furnace burst." Then he slipped into the crowd and watched as the newly liberated mobs sacked the detested building. Within two years, he left the KGB altogether.
Putin's big break was a friend's introduction to Anatoli Sobchak, the liberal mayor of St. Petersburg, who was happy to bring in an intelligent, no-nonsense outsider to help push his reformist agenda. Putin ran the office that registered businesses and promoted foreign investment. He was responsible for ensuring that President Clinton's visit to the city in 1996 went smoothly—it was the first time American officials saw Putin in action. But later that year, Sobchak, damaged by a perception of ineffectiveness and rumors of corruption, lost his re-election bid. As Putin tells us at the dacha, as a member of the losing team, he was suddenly untouchable. "Nobody would hire me there," he says.
So Putin headed to Moscow. What transpired next seemed to Kremlin watchers as unlikely as Chauncey Gardiner's unwitting rise to power in the Jerzy Kosinski novel Being There. Although Putin often says that he had no connections when he arrived in the capital in mid-1996, he had several powerful allies who landed him work in the Kremlin. He became deputy to the head of Yeltsin's general-affairs department. Within two years he was asked to head the FSB, the spy-agency successor to the disbanded KGB. Putin, in his memoir, says he received a call out of the blue asking him to head to the airport to meet Russia's Prime Minister, Sergei Kirienko. Kirienko offered congratulations. When Putin asked why, he replied, "The decree is signed. You have been appointed director of the FSB." Then, in August 1999, Putin was named Prime Minister. It's a grand title, but it doesn't come with much security: Putin was Yeltsin's fifth Prime Minister in 17 months. But Putin did far better than survive; within four months a declining Yeltsin asked Putin to take over as acting President. Putin tells us he initially declined but that Yeltsin raised it again, saying, "Don't say no." By the last day of 1999 Putin was running the country.
We ask if it had ever occurred to Putin that history would place him in such a role. "It never occurred to me," he says. "It still surprises me."
Experts generally believe that Putin won Yeltsin's endorsement because he was competent, because he wasn't part of any of the major Moscow factions competing for power and because his KGB past gave him a source of authority. But they also widely assume that he made a deal with Yeltsin and his family: in return for Yeltsin's endorsement, Putin would not pursue corruption charges against the outgoing President and his relatives, despite the rumors that surrounded the family's dealings. It's impossible to verify, but neither Yeltsin, who died this year, nor his well-connected daughter Tatyana Dyachenko was ever a subject of public investigation (though Putin quickly fired her from her position as a Kremlin image consultant). Indeed, Putin's first decree guaranteed Yeltsin and his family immunity from such probes. Putin explains things to us this way: "Mr. Yeltsin realized that I would be totally sincere and would spare no effort to fulfill my duties and would be honest and see that the interest of the country could be secured." Eight years on, one can't help seeing a parallel with the latest maneuverings in the Kremlin: just as Yeltsin rewarded Putin for his loyalty, now Putin is doing the same for his anointed successor, Medvedev. There is already a new Putin joke: Putin goes to a restaurant with Medvedev and orders a steak. The waiter asks, "And what about the vegetable?" Putin answers, "The vegetable will have steak too."