Former Russian Spies Are Now Prominent in Business

[simuvac]

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.”

[dMole]

[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."

[dMole]

Taking Control

Putin is no vegetable. In 1999, when he assumed the role of acting President, he was a relative unknown. It was his response to a Chechen rebel incursion in the Russian republic of Dagestan in the North Caucasus that quickly set him on a path toward national glory. Alexei Gromov, who has served with Putin as press secretary since he came to power, remembers being in the room when Putin told his wife Lyudmila that he was preparing to go on a New Year's Eve trip to the war zone to meet with the troops. She was worried about his safety and went along with him. In the end, the trip may have been no more than a calculated, if risky, photo op, but it was effective. Russians met their new leader and admired his courage and energy.

The following year Putin stepped up Russia's invasion of the breakaway republic of Chechnya. Rambo-style, he promised a quick and decisive victory, reiterating his earlier pledge to defeat enemy fighters "even in the toilet." Grozny, Chechnya's capital, was all but obliterated; Russia reassumed power and installed a puppet leader. Despite heartbreaking subsequent Chechen terrorist attacks—including a 2004 assault on a school in Beslan, North Ossetia, where 339 civilians, most of them children, were killed—Russians by and large admire Putin for drawing the line in the south. Having watched Eastern Europe and the Soviet republics slip from Moscow's grip, Russians were happy to keep Chechnya—even a bombed-out Chechnya—in the fold.

To the West, meanwhile, Putin was a mystery. Russia watchers debated endlessly: Was he a pro-Western reformer? (He had worked for Sobchak.) Or a hard-liner? (He was a career KGB man.) Yet just as 9/11 helped define President Bush, so did external challenges allow Putin to grow into a leader. His first steps on the world stage were tentative. His global coming-out had occurred in Auckland at a 1999 meeting of heads of apec (Asia-Pacific Economic Cooperation) nations. Sestanovich, who was traveling with President Clinton, remembers meeting Putin at Clinton's hotel suite. "He seemed rodentlike," says Sestanovich, "like an overgrown summer intern." But Clinton was willing to work with him. Putin tells us how, at an apec dinner at which he was feeling somewhat lost, Clinton crossed the room past other world leaders and leaned down to talk to him. "Volodya," Clinton said, using the familiar form of the name Vladimir, "I suggest we walk out together from this room." Putin rose to his feet, and the two men strolled out together. "Everyone applauded," Putin recalls. "I will remember that forever." It was Putin's only sign of softness during the 3 1⁄2 hours we spoke.

Clinton was not the only American who found something to like about Putin. Two years later, in a line that has haunted him ever since, President Bush declared that he had looked inside Putin's soul. It was their first meeting, at a summit in Slovenia, and Bush said, "I looked the man in the eye. I found him to be very straightforward and trustworthy...I was able to get a sense of his soul." We ask Putin to return the favor, to describe what he has sensed of the U.S. President's soul. He declines to get personal. "I have a very good personal relationship with Mr. Bush," he says. "He is a very reliable partner, a man of honor."

The terrorist attacks on 9/11 provided Putin with another defining moment. He was one of the first world leaders to offer condolences and help to President Bush. That probably led the U.S. to back off from stridently criticizing the Chechnya adventure. But the initial shared objectives between Putin and the Bush Administration did not last. Putin strongly opposed America's invasion of Iraq and established Russia as a steady voice of opposition to Bush's adventure, demanding that decisions on Iraq be made at the U.N. (where Russia, of course, has Security Council veto power). America's occupation of Iraq has affirmed Putin's sense that he was right. "If one looks at the map of the world, it's difficult to find Iraq, and one would think it rather easy to subdue such a small country," Putin tell us. "But this undertaking is enormous. Iraq is a small but very proud nation." The debacle in Iraq plays into what is perhaps Putin's most cherished foreign-policy dictum: that nations shouldn't interfere in one another's affairs. And what that really means, of course, is that no one should interfere in Russia's affairs.

Another Putin joke: Putin and Bush are fishing on the Volga River. After half an hour Bush complains, "Vladimir, I'm getting bitten like crazy by mosquitoes, but I haven't seen a single one bothering you." Putin: "They know better than that."

A Ruthless Streak

Now that Putin has solidified his grip on power, he no longer seems overly concerned with courting Western approval. Despite a chorus of disapproving clucks from the West, Putin has shackled the press, muted the opposition, jailed tycoons who don't pledge fealty. In Russia this has been a terrible time to be a democrat, a journalist, an independent businessman. Just ask Garry Kasparov. The chess grandmaster—the highest-rated player of all time—is a far cry from stereotypically dysfunctional champions like Bobby Fischer. Kasparov has a keen political mind and a lively sense of humor. For years he has fought an increasingly lonely struggle as a democratic activist facing an uncompromising state. On Nov. 24, while holding a political rally in Moscow, he was arrested on a technicality and spent five days at Moscow's Petrovka 38 jail.

A week or so after Kasparov's release, we are sitting in Moscow's Cosmos Hotel, where he is taking part in a human-rights meeting. Assembled is a ragtag group of Russian activists, and here Kasparov is a star. (Even here his two bodyguards sandwich him whenever he walks about.) Unlike many of Putin's other critics, who seem fearful of chastising their leader openly, Kasparov isn't cowed. "Putin wants to rule like Stalin but live like Abramovich," he says, referring to Roman Abramovich, the billionaire Russian oil trader who owns London's Chelsea soccer team. "Putin's system is more like Mafia than democracy."

Putin's administration has blocked democrats like Kasparov from participating effectively in politics by making it all but impossible for them to meet the entry requirements. The President, in our discussion, routinely suggests that Kasparov is a stooge of the West because he spoke to the foreign press in English after his arrest. "If you aspire to be a leader of your own country, you must speak your own language, for God's sake," he says. Kasparov recently gave up his long-shot race for President.

Dmitri Muratov also knows the difficulties of life in the Putin era. A softspoken, heavyset man whose neatly trimmed beard is turning gray, Muratov is the editor in chief of Novaya Gazeta, a Moscow newspaper, published twice a week, with a reputation for pursuing tough investigative pieces. In the past seven years, three of his journalists have been murdered; all were looking into corruption and wrongdoing. After the third murder, Muratov decided to close the 14-year-old paper to avoid putting any other journalist at risk. But his staff talked him out of it. The paper is perpetually harassed by officials around the country, but, Muratov notes with a weary smile, "we're still alive."

The last of Muratov's journalists to die, Anna Politkovskaya, was shot in the elevator of her apartment building last year on Oct. 7. Alexander Litvinenko, a former FSB officer turned government critic living in London, accused Putin of sanctioning the killing. Within weeks, Litvinenko himself was dead too, killed by radiation poisoning from a mysterious dose of polonium 210. (Britain wants to charge a former KGB officer, Andre Lugovoy, who has just been elected to Russia's parliament, with the killing. He denies it, and Russian law prevents the extradition of Russian citizens.)

Muratov, for his part, doesn't know who ordered his journalists' killings. He says only that he blames "corruption," which has flourished during Putin's eight years.

Although few Russians seem to think Putin himself is corrupt, it is commonly believed that he is surrounded by business and political heavies who are amassing millions in payoffs. Indeed, if anything can bring him down, it may well be graft. As long as living standards rise, people are more likely to forgive the perception that officials are getting obscenely rich by demanding illicit payoffs. But if the economy stops growing—if the price of oil falls back to earth—Putin will face a challenge, whether from the masses in the streets or from military and civilian challengers.

One insider, who asked that his identity be protected, spelled out for us just one example of how the game is played, detailing the payments a prospective regional governor has to make to political bagmen in Moscow in order to get the Kremlin's nod for the post. For wealthier regions, such an endorsement can cost as much as $20 million, money that the politicians raise quietly from corporate "sponsors" that expect special treatment in return. The amount of money flowing to kingmakers in the Kremlin, in other words, is staggering.

When we ask about the view that he is surrounded by corrupt officials, Putin turns testy: "If you are so confident, then I presume you know the names and the systems and the tools...Write to us." As for Politkovskaya, who had been investigating policy failures and human-rights abuses in Chechnya when she was killed—and who authored the 2004 book Putin's Russia: Life in a Failing Democracy—Putin says he believes she was murdered by a provocateur to cast suspicion on his administration.

For all the attention the outside world pays to such cases, formal polls make it clear that within Russia, Putin's critics are in the minority. For every journalist distressed at the rollback of freedoms, there are scores of Russians who quietly applaud Putin's efforts to reassert stability. Once a year, when Putin takes phone calls from citizens around the country, tens of thousands of people try to get through. Listening to the calls, however screened and rehearsed they may be, one is struck by the ardor of the appeals to the President to get things done and by the broad range of information at Putin's fingertips. (A woman who lives on an island off Vladivostok complained about the local ferry service. Putin told her a bridge will soon be built to link the island to the mainland.)

Certainly life in Russia today is better than it has been for years. The stores are stocked with goods. The once worthless ruble is a genuine currency, strengthening against the dollar these days. Crime persists, but the cities are not as rough as in previous years.

And then there are the President's loudest and most visible defenders: members of Nashi (Ours, in Russian), the cultish pro-Putin youth movement. In mid-December, about 20,000 of the Nashi faithful from all over Russia gathered for a rally by the Kremlin walls to celebrate the recent victory of Putin's United Russia Party in elections to the parliament. From the stage, speakers, rock singers and rappers declared their patriotism and love for the President. A banner read, into the future with putin! Someone introduced Dasha, a 10-year-old member of Mishki (Bear Cubs), the new children's division of Nashi. "I love Russia," said Dasha. "I love teddy bears. I love Putin. Together we will win!"

I went to Nashi's Moscow headquarters a few days later and met with Lyubov Serikova, a pretty 22-year-old redhead from Russia's Chuvash Republic who is a rising star in the organization. She was thrilled with the recent election and credited Nashi with helping thwart an unnamed enemy's attempt to launch an "orange revolution" in Russia. Her world seemed conspiratorial, and she echoed Putin's own statements: those who run against the President were trying to bring the country down. Putin, she said, "has made Russia a leading country in just a few years."

When we finish talking, I take a look at an official Nashi poster hanging outside her office, which excoriates U.S. policies. It's reminiscent of Soviet-era propaganda with its non sequitur acceleration of hysteria: "Tomorrow there will be war in Iran. The day after tomorrow Russia will be governed externally!" But this is no fringe group. Putin frequently visits Nashi's training camps and meets with its leaders. And from there he sometimes launches anti-Western tirades, including a recent blast at London authorities who are demanding the extradition of the suspected killer of Litvinenko.

Putin's mission is not to win over the West. It is to restore to Russians a sense of their nation's greatness, something they have not known for years. This is not idle dreaming. When historians talk about Putin's place in Russian history, they draw parallels with Stalin or the Tsars. Putin, one can't stress enough, is not a Stalin. There are no mass purges in Russia today, no broad climate of terror. But Putin is reconstituting a strong state, and anyone who stands in his way will pay for it. "Putin has returned to the mechanism of one-man rule," says Talbott of the Brookings Institution. "Yet it's a new kind of state, with elements that are contemporary and elements from the past."

And there's plenty that could go wrong. The depth of corruption, the pockets of militant unrest, the ever present vulnerability of the economy to swings in commodity prices—all this threatens to unravel the gains that have been made. But Putin has played his own hand well. As Prime Minister, he is set to see out the rest of the drama of Russia's re-emergence. And almost no one in Russia is in a position to stop him. If he succeeds, Russia will become a political competitor to the U.S. and to rising nations like China and India. It will be one of the great powers of the new world.

Back at the dacha, with snow falling lightly outside, our dinner and discussion continue. Putin has been irritable throughout, a grudging host. Suddenly, at 10 o'clock, he stands and abruptly ends the evening. "We've finished eating, there's nothing more on the table, so let's call it a day," he declares. Actually, the main course (choice of sturgeon or veal) and dessert ("bird's milk" cake)—lovingly printed in gold ink on the prepared menu cards—haven't yet been served. The Russian President's brusqueness is jarring. Have our questions angered him? Bored him? Does he have another appointment? It's not clear. "Bye bye," says Putin—in English—as he walks briskly out of the room. The work of rebuilding Russia, apparently, is never done.

—with reporting by Yuri Zarakhovich and Dario Thuburn/Moscow