Russians

2 Extravagance

Money is like down—one puff and it’s gone.

—Old Russian saying

You see them in front of downtown Moscow’s five-star hotels and fancy restaurants: rows of luxury cars jammed on sidewalks, forcing pedestrians into the traffic-choked streets. Matrix points of a privileged city within a city, they come with bodyguards, tough men who help maintain the distinction between their employers and the vast bulk of lesser Russians by directing wilting stares of suspicion at passersby. Maybe that’s why I was the only one who appeared to notice a line of especially costly automobiles inching down Bolshaya Dmitrovka, a narrow street of pre-Revolutionary brick buildings around the corner from the Kremlin, on a bitter April evening in 2009. Bone-chilling wind lashed the huddled pedestrians shuffling across ice-covered sidewalks past the Mercedes, Bentleys and Hummers, mostly black with impenetrably tinted windows.

I’d almost broken my neck by slipping on the treacherous ice, surprised once again, as foreigners in Moscow often are, by the women in perilously high stilettos who click by with apparent ease. Surprised, too, that the administration of a city blanketed in snow and ice for half the year allows shops to pave the sidewalks in front of their doors with slippery tiles. However, those weren’t the concerns of the passengers in the luxurious cars, which stopped at velvet ropes cordoning off a red carpet. It led to a five-story building that was sparkling under banks of brilliant lights. Photographers snapped as glitterati emerged from the backseats: leggy women in alluring dresses, men in suits and shirts with collars opened wide. Bodyguards in dark jackets and two-way radio receivers buttoned in their ears kept nervous watch.

The evening’s affair was devoted to the opening of yet another exclusive Moscow restaurant. While the Soviet Union excelled in broadcasting prescriptions for reforming the world, until the dying days of the USSR, not a single Japanese restaurant—or a French, Italian or American one—broke the numbing uniformity of dour state establishments that served the same cuts of overcooked meats and soggy vegetables to those lucky enough to get in. By the end of the 1990s, however, chain outlets offered sushi on virtually every third corner. Now the addition of Nobu, the latest outpost of the upscale international chain, would provide another little playground for the city’s rich and powerful.

My invitation to its launch reflected Russia’s often paradoxical shifts in ideology and interests since 1991: it came from the former head of the CIA’s Soviet division, who knew Nobu’s co-owner Robert De Niro. The former intelligence officer had enlisted my help in inviting some of his ex-KGB adversaries. Now that the Cold War was over, they were potential collaborators in a future Hollywood film that carried a promise of big bucks. But my main interest in attending was to gauge what effect, if any, the global financial crisis that had just bashed Russia was having on the city’s legendary social life.

Inside, the main room was dramatically dark. The white-haired former KGB officers dropped their steely guard to gawk as politicians mingled with businessmen amid an army of models sporting enough eye shadow to make up for decades of Soviet rule, when cosmetics were often unavailable. Their kind of loud chic can seem in bad taste in Paris: too outrageous for a predominantly bourgeois society. In fad-crazy New York, it often appears unnatural because it’s poorly copied. But something about Moscow enables its women to carry off risqué designer wear better than almost anywhere else. Maybe the secret lies in the essential lawlessness of the city’s gritty streets, which carry more than a whiff of danger. Or the jarring contrast between extravagance and the heart-wrenching shabbiness of the great unwashed. In Russia, anything goes.

As dance music pounded, waiters with fixed smiles distributed flutes of Champagne and sushi canapés. More photographers circled celebrities and “minigarchs”: the second-tier millionaires and billionaires who aspire to join the oligarchs. Unlike the journalists, hangers-on and people providing party services, those who counted were very much at home amid the restaurant’s international panache of wood, brushed steel and mosaic-tile. The evening’s crowd could have been visitors from another land with no connection to the vast mass of “ordinary” Russians.

The conversation centered on purchases and play. No mention was made of the financial crisis that was spinning the economy into a deep abyss. The price of oil, which accounts for almost a third of Russia’s GDP, had dropped from $130 per barrel in July 2008 to forty dollars, with devastating consequences. The economy, which had grown by 8 percent in 2008, shrank by the same amount the following year. By January, millions of Russians had lost their jobs, the stock market had shed more than three-quarters of its value compared to the previous year, and no prediction of improvement was taken seriously. But I overheard another of Nobu’s partners, an ethnic Azeri billionaire named Aras Agalarov, whose son was married to the daughter of Azerbaijani President Ilham Aliyev, curtly shrugging off the implications. Agalarov’s development empire includes a Moscow luxury shopping mall and the city’s most exclusive suburban housing complex. Most houses still under construction had already been sold, the cheapest for ten million dollars.

Although many of Moscow’s wealthiest lost billions of dollars during the crisis, especially those who had built their business empires with the help of hugely leveraged spending sprees, they would soon benefit from generous government spending. Two hundred billion dollars would help bail out banks and some of the largest companies owned by the wealthiest oligarchs. When the economy picked up the following year, depleted fortunes would promptly resume their prodigious expansion.

Elsewhere in the room, talk continued of favorite restaurants, holiday destinations and De Niro’s expected appearance. A would-be starlet in a little black dress grew impatient with the complaints of two foreign businessmen about Russian bureaucracy. “But Moscow has everything, isn’t that why you’re here?” she interrupted. “Why would you be anywhere else?” Like others who assert that everything Russian is bigger, better and grander, she spoke as if the poverty, potholes and streets deep in muddy slush were of no concern to anyone who mattered.

When I first arrived in Moscow, armed with dislike for the communist elite, I was surprised by how diverting it was to visit the few hard-currency restaurants open to foreigners and select bribe-paying Soviets with connections. Although hardly opulent, places like the musty Spanish Bar in the old Moscow Hotel next to the Kremlin provided a cherished sense of exclusivity. Its dishes bore but slight resemblance to real tapas, but watching lucky patrons swagger into the little oasis as if they were royalty was instructive. Although the explosion of new restaurants and bars since then helped erase that particular inequity of the communist system, a growing demand for exclusivity created a profusion of ever-more-expensive restaurants that have turned the city into a diners’ paradise for those who can afford them. And while present-day Russia can’t be compared to the Soviet Union in terms of freedom and opportunity, its displays of extravagance can be as appalling as communist deprivation was grim. Or so it seems to me.

Stories about various forms of excess are legion. An American businessman who examined the books of a Moscow telecommunications company to help prepare it for floating on the stock exchange told me he was surprised to find the firm owned a shooting range in central Moscow, where the managers unwound by firing rounds from Kalashnikov automatic rifles. “When I asked about it in his office, the chief operating officer proudly produced a machine gun fitted with a laser sight,” the American said. “He proceeded to point it at me in alarming jest.”

The excessiveness comes from startling changes that have made Moscow home to the world’s largest collection of young millionaires, many in their twenties. The capital reportedly also boasts seventy-eight billionaires, more than any other city in the world.¹ The first Bentley sold there several years ago is said to have been bought by a twenty-four-year-old. Now they’re a common sight, inching ahead in monumental traffic jams on streets that used to be scarcely lit and nearly empty. Their owners often also love luxury at sea. One of the leading oligarchs owns four of the world’s most expensive yachts, including a new one—to replace another he gave as a gift—that cost five hundred million dollars.

Not that you need to visit Russia to know something about the country’s superrich. A strappingly tall forty-eight-year-old who is considered Moscow’s most eligible bachelor—who bought the New Jersey (now Brooklyn) Nets basketball team before running for president, then launching a political party—is among the most infamous. Shortly before Mikhail Prokhorov temporarily became Russia’s richest man, he was arrested in the fancy French ski resort of Courchevel on suspicion of participation in a prostitution ring. Since it’s well known that the country’s wealthy men export young women to entertain their entourages on holiday, most Russians were amused by the charge. Quickly released, Prokhorov soon launched Snob, a magazine that costs twenty dollars an issue. His arrest drew international attention not only because of his wealth and status but also because it provided a glimpse into the closed society of the Russian elite. In January, when the best skis in Courchevel sell for twenty thousand dollars and the “in” nightclub charges thousands of dollars for its top tables, local wags call it Courchevelski. That’s because Russia’s richest arrive for two weeks of very extravagant partying.

The spending sprees are affecting the international market for art as well as prime European real estate. In Sotheby’s Moscow office, housed in a swank office building near the Kremlin, director Mikhail Kamensky told me wealthy Russians who have been buying expensive cars and houses for years are increasingly adding paintings and sculpture to their holdings. “It’s coming back as a new fad for buying luxury, but not in buildings or hardware,” he said. “It’s creating a trend to invest a lot, not just in art but also in a lifestyle of collecting.”

Oligarch Roman Abramovich, the owner of Britain’s Chelsea Football Club, lost billions of dollars in 2008, but not before buying a Lucian Freud painting for $33 million and a series of three paintings by Francis Bacon for $86 million. The driving force behind his affection for art was his new girlfriend, thirty-two-year-old socialite Daria Zhukova, a former model and the daughter of another billionaire, Alexander Zhukov, an economist who was also a deputy prime minister. Zhukova launched Moscow’s newest contemporary art gallery, called Garage, which is housed in a massive avant-garde bus depot built in the 1920s.

Marat Guelman, who is sometimes called the entrepreneurial leader of Russian avant-garde art, says the publicity surrounding the opening of Garage helped sire a new appreciation for contemporary art. Not long ago, Guelman, who wears a scrappy beard and publishes a literary magazine called Pushkin, was using his selling skills as a public relations consultant to Vladimir Putin’s Kremlin. Guelman’s bohemian-chic, exposed-brick-wall apartment in an upscale pre-Revolutionary Moscow neighborhood serves as an informal gathering place for artists who, carrying on an enduring Russian tradition, often drop by unannounced for coffee or vodka. Sitting there, near a life-size female mannequin encrusted in a glass mosaic like a giant disco ball, he told me that seventy years of socialism left many bare walls that would-be oligarchs are now eager to adorn. Although a handful of top collectors know more about art than he does, most are unsure of themselves. “French collectors are delighted to discover new artists and buy their work cheaply. Russians tend to buy expensive pictures by names they learned in grade school.”

How truly different are Russia’s rich from others in the world? An old joke about a man who’s just bought a Christian Dior tie still applies. Spotting another Russian wearing the very same tie, he approaches to ask how much he paid for it. “A hundred dollars” is the proud reply.

“Ha! I paid two hundred.”

As Guelman says, extravagance is partly a reaction to the decades of Soviet austerity, when wallets and purses were immediately emptied whenever their owners spied something worth buying in the knowledge that another chance would be unlikely to materialize. But over-the-top spending is more than that in a country whose tsars built some of the world’s most lavish palaces—as well as the world’s largest cannon and bell, both of which were too big to function. Aliona Doletskaya sees it as a reflection of national character. When I visited the former longtime editor of Russian Vogue, who is called Russia’s Anna Wintour, in the magazine’s offices in a nineteenth-century building several blocks from Nobu, we sat on clear plastic Philippe Starck chairs. The admirably composed fiftysomething blonde with shoulder-length hair spoke in flawless British English that edged toward whispers, as if she were confiding great secrets.

“For years, I remember hearing ‘New Russian, New Russian, New Russian,’ ” she said of the disparaging term for the country’s nouveau-riche. “Suddenly I realized that’s what I am, a New Russian.”

The doyenne of fashionable Muscovites and one of their chief arbiters of taste said the thick gold chains and cheap red sport jackets favored by capitalist thugs during the years following the Soviet collapse are long gone. Now the very wealthy spend for “pure entertainment.”

“Russians love spending money. The generosity of sharing fun is in our blood. Being able to spend without thinking is a gift. You invite as many people as possible to your house and throw everything you’ve got on the table.” Spending with abandon is called gussarskoe, meaning “like a hussar”—the dashing, fast-living, hard-drinking imperial cavalry officer. Status symbols are all-important for satisfying that impulse. “Very expensive, very unique cars, houses in Sardinia, in England… Russians invest a lot in houses. And in yachts for cruising the Mediterranean, they love them,” Doletskaya said.

The main preserve of such lifestyles is Rublyovka, a suburban region where Moscow’s wealthiest have built sprawling mansions behind high metal gates. Once a zone for dachas of the Soviet elite, the area is now home to the compounds of oligarchs and ministers—as well as Putin, who travels there along the Rublyovo-Uspenskoye Road, for which it’s named. Closed to most cars under communist rule, the narrow way winds through a dense fir forest fronted by an endless stretch of billboards advertising French real estate and Philippine maid services. In the formerly rustic settlement of Zhukovka, a Gucci shop neighbors a Lamborghini dealership. When I interviewed the billionaire vodka and banking magnate Roustam Tariko nearby, it was on a bench on his front lawn, within spitting distance of one of his cars, a million-dollar Bugatti Veyron. His apparent disregard for it as it stood baking under a hot summer sun seemed typically cavalier.

“Those bastards,” complained Gera Kiva, an elderly cousin of my mother’s who worked for forty years as an engineer and teacher of automation technology before hyperinflation in the 1990s wiped out his life savings. Although he welcomed the collapse of communism, he joined the great majority of Russians who became vocal supporters of Putin, under whose rule the oil boom created most of Moscow’s countless millionaires and billionaires. He also took to dismissing Western criticism of the president, including mine, as the reflection of a desire to see Russia back on its knees. Now he’s unhappy, although not yet to the point of dissent. So are the very many Russians who openly rail against the corruption that chokes daily life and its beneficiaries in the Kremlin, whose behavior they call bezpredel, “without limits.” It’s virtually impossible to ride in a Moscow taxi without hearing the kind of complaints that used to be whispered only in the privacy of Soviet kitchens.

“Those greedy bastards,” Gera repeated with not so much as a fleeting thought that he or anyone like him can do the slightest thing to counter them. “They stole my country.” Still, Gera’s lucky because he and his wife, Lucia, are supported by their two sons, who work for private companies and live in large suburban houses they recently built for their families. Many others often speak, as they’ve been doing since the collapse of communism, about a new revolution waiting just around the corner.

The Bolshevik Revolution was supposed to have eliminated class conflict. Having condemned egalitarianism as “petit bourgeois,” Stalin characterized Soviet society by 1936 as “two friendly classes and a layer”: workers, peasants and the intelligentsia. He failed to mention its most privileged members, the communist elite, which he cultivated by abolishing limits on Party members’ salaries and instituting a graduated pay scale, along with perks that would help keep subordinates loyal. Although some later argued that the nomenklatura, as the officials who ran the USSR came to be called—the term literally means a list of posts—could not be considered a social class because the Party drew its members from all groups, historian Michael Voslensky nevertheless called it a “concealed class.” Describing the various Party bosses and managers who lived in sprawling apartments and relaxed in large dachas behind high walls to which they sped in specially reserved highway lanes, he estimated their numbers at around three million, roughly 1.5 percent of the population, and illustrated the great lengths to which the coddled elite hid its private use of supposedly public property.²

It is just as improper for a nomenklatura official to own his own dacha as it is to own his own car. Infringement of this unwritten law would expose the offender to being suspected of being a free-thinker or being not very sure of his future in the nomenklatura. Consequently a head of desk who buys a dacha will do so in the name of his parents; if he buys a car, it will be in the name of one of his grown-up children or his brother. This is his way of avoiding any suspicion of having petit-bourgeois leanings, while enlarging his share of the collective property of the nomenklatura.³

Voslensky mentions a telling joke. One day the mother of a Central Committee official who lives on a collective farm visits her son in Moscow. After staying in his luxurious apartment, enjoying his opulent dacha and eating excellent meals prepared from food bought in special stores, she nevertheless wants to return home as quickly as possible.

“What’s the matter, Mother?” her son asks. “It’s lovely here; don’t you want to stay?”

“It is lovely,” she replies, “but very dangerous. What if the Reds come?”

If Russia’s current one percent aren’t like you and me, to paraphrase F. Scott Fitzgerald’s celebrated statement, they’re also unlike the rich of other countries. Despite the desire to show off by spending in a very big way, the instinct for self-preservation still compels most of them to hide the full extent of their wealth. Extravagant acquisitions made in the names of spouses and children remain common. And although the surge in art sales helped buoy the local art scene for more than a decade, purchases began dropping off around 2010 because most collectors—including more than 80 percent of Guelman’s onetime clients—now live abroad.⁴ Those who make up an ever-larger share of the rich back home—officials and others whose fortunes depend on their connections to the state—tend not to collect art because they’re more interested in hiding their no doubt ill-gotten gains instead of displaying them on their walls. In 2012, soon after Guelman moved his gallery to Vinzavod, or “wine factory,” a sprawling nineteenth-century industrial space that’s become a center of the city’s art world, he announced he was closing it. Others followed suit.

Fighting the urge to display wealth is an increasingly good idea for everyone in Russia. With the Soviet authorities, under whom hiding became its own kind of art, swept away, the danger today often comes from the tax police. Masked officers sometimes raid the offices of political critics, possible rivals and lesser threats to Kremlin favorites. Almost always, the offending parties’ real dereliction is to have shown themselves to be insufficiently loyal to the Kremlin or allowed themselves to be perceived as such. The danger of arbitrary punishment from the authorities remains a key aspect of life for Russia’s tycoons. In a country that runs on crime, where law enforcers are believed to be among the most corrupt officials, fear may be the only effective way of putting limits on lawlessness.

Fear has also been used to carry out a redistribution of wealth—which is to say back under the control of the state, where Putin is chief among a collection of officials whose roles more closely resemble those of Mafia dons than public servants. An American investment banker in Moscow characterizes the newest rich as “thugs” who demand kickbacks of up to 70 percent in all their deals. “We now consider 40 percent average,” he told me under the condition I wouldn’t name him. “Everything’s being sucked out of the economy because they think only about what they can deposit into their offshore bank accounts before they lose their jobs, or worse.” When the government quietly ordered managers of Russia’s state energy companies to declare their unofficial incomes and assets along with those of their subordinates several months before Putin’s reelection in 2012—an indication of how bad the situation has become—many panicked but proceeded to reveal as little as possible. Putin later launched a drive to “nationalize Russia’s elite”—a common description of his purpose for enacting regulations passed in 2013 that bar officials from owning foreign bank accounts and other assets. The new rules put even the outwardly obedient under threat.

Estimates for the amount illegally spirited abroad from Russia each year reach above $70 billion. One especially well-placed source put the 2012 figure at $49 billion, or 2.5 percent of the GDP. Shortly before stepping down after eleven years, the usually taciturn Central Bank governor revealed his calculations of so-called capital flight, saying more than half was accomplished by one unnamed “well-organized group of individuals.”⁵

His description of “shady operations conducted by firms directly or indirectly linked to each other by payments” appeared to back widespread circumstantial evidence that officials are routinely involved in massive underhanded schemes, such as the $230 million tax fraud uncovered by the now well-known lawyer Sergei Magnitsky in 2009. He said thieves used corporate seals and tax documents that police had confiscated during a raid on a foreign investment fund in 2007 to hijack several companies it controlled. Impersonating company employees, they pleaded guilty to crimes for which the company was subsequently fined in order to make it appear unprofitable. The three companies then proceeded to apply for the largest tax refund in Russian history, which was granted the same day. Arrested by the same police investigators whom he had exposed, Magnitsky died in jail in a pool of his own urine after being tortured and denied medical care for failing to recant his accusations. Tracking some of the money, the independent newspaper Novaya Gazeta—protected partly by its high profile and influential supporters—later linked officials from a tax office Magnitsky had accused of taking part in the fraud to the purchase of luxury apartments in Dubai and the United States.

The tension between the need or desire to display wealth and power and the wish to remain safe by obscuring it pervades Lukoil, a company that operates gasoline stations in many foreign countries, including the United States, where the opening of the first station in 2003 sanctioned an appearance by Putin. Founded by Vagit Alekperov, Russia’s third-richest man at the time I spoke to him—although estimates of oligarchs’ fortunes cannot be fully trusted—Lukoil has its headquarters on an old, tree-lined boulevard in Moscow’s center. Amid the street’s neoclassical architecture, Lukoil’s concrete-and-glass building, constructed during the final Soviet years and later given to the company, is something of an eyesore.

Although it may look odd in a city where glamour seems to be everything, Lukoil’s workaday image has been a vital factor in its success. The Kremlin’s drive to control the country’s energy industry, by far its largest source of wealth and power, has led to dispossessing and even imprisoning once high-riding tycoons. Nevertheless, Alekperov’s Lukoil—Russia’s largest private oil firm and number two overall, after state-controlled Rosneft—remains hale, if not entirely unscathed.

The company headquarters differ in other ways from typical office buildings. The security measures require visitors to spend half an hour passing through numerous checkpoints manned by a private army of guards. I was divested of my camera, cell phone and even my passport before a spokesman escorted me to the president’s executive suite, where more men wearing berets and earpieces that gave them the look of special-forces troops waited. My final destination was a large anteroom staffed by a single saccharine receptionist. Behind it, a small, wood-paneled room offered sofas, armchairs and a wall decorated with photos of Alekperov with Putin, Prime Minister Dmitri Medvedev and the late Orthodox Church Patriarch Alexiy II.

The rise of Russia’s leading oligarchs to pinnacles of wealth and influence—at levels barely imaginable to most people during the lawless, literally murderous free-for-all 1990s—has made them legendary. Together with the envy and dislike the captains of industry prompt in their fellow Russians, they also earn grudging respect for their often relaxed, if haughty, personas—reminders that they were once like everyone else. They are Russia’s biggest superstars, and the expectation of meeting one made me nervous as well as excited.

An automatic door opened and in walked the CEO. Ruggedly handsome, with close-cropped gray hair that matched the color of his suit, Alekperov had the brusque manner of a self-made man. Unlike most other oligarchs, who knew little about industry before acquiring their assets in the mid-1990s, he started by dirtying his hands as an oil-field worker.

Born in the Azerbaijani capital, Baku—the world’s first oil boomtown before the Revolution of 1917—eighteen-year-old Alekperov followed in his father’s footsteps by finding work in the Soviet republic’s Caspian Sea oil fields. In the 1970s, he moved to the forbiddingly rough territory of western Siberia, where major new oil fields were being tapped in endless expanses of steppe and virgin forest. By 1990, he’d worked his way up to first deputy oil minister. His job overseeing all Soviet oil production provided an ideal position for putting together what would become the country’s top oil company from formerly state-owned fields and refineries. Visits to the American company Chevron, Italian Eni and other foreign oil giants opened his eyes to possibilities back home, where, he said with characteristic understatement, he saw the Soviet industry’s “problems.”

Alekperov persuaded Yeltsin, then still head of the Russian Republic, to give him control of three of its biggest oil fields. Lukoil took its name from the three—located near the Siberian towns of Langepas, Urai and Kogalym—which Alekperov and two others built into a vertically integrated company that Alekperov privatized after the Soviet collapse the following year.

“I see the oligarchs positively,” he told me. “They spend most of their lives working, and they’re very responsible to their shareholders and workers. They make unique investments in Russian industry and in the United States, Europe and Asia.” However, Alekperov draws a distinction between Lukoil and other major companies run by more visible oligarchs who borrowed huge amounts during the great oil boom in the first decade of the twenty-first century. “Our heads weren’t spinning from high oil prices,” he insisted of his company’s conservative investment strategy. As a result, Lukoil suffered significantly less during the financial crisis of 2008.

Far more threatening is the arbitrary power Putin returned to the hands of the state officials whom fleets of black Audis and Mercedes ferry around town. Although entrepreneurs continue earning immense fortunes, it’s now at the pleasure of those ruling bureaucrats, who tend to see private business as an extension of the state, an attitude nowhere more evident than in the rise of massive state industries run by Putin’s former KGB cronies. Sergei Chemezov, who served with him in the East German city of Dresden in the 1980s, is now chairman of state-run Russian Technologies, a massive defense-industry umbrella company that includes the country’s arms export firm Rosoboronexport; Avtovaz, maker of the Lada automobile; and Black Sea resorts. Another former KGB officer named Igor Sechin is CEO of state-owned Rosneft, the country’s leading oil company. Widely believed to be the boss of bosses, Sechin, Putin’s former deputy chief of staff, heads a powerful clan of siloviki, “strongmen” who run the country’s security services. Many saw him as the country’s second-most-powerful man after Putin. Although Sechin left the government after Putin returned to the presidency in 2012, he retains great influence because in addition to heading Rosneft, he is a board member of the main state energy holding company, Rosneftegaz.

Some of the siloviki, who are among Russia’s newest rich, helped the Kremlin reestablish its control of the economy by taking over private companies. Sechin himself was responsible for orchestrating the downfall of the largest loser in that process, who was once the country’s wealthiest oligarch. Mikhail Khodorkovsky rapidly assembled a massive empire in the 1990s by intimidating his rivals and sometimes diluting the shares of major stakeholders to take control of his many businesses. But although he was known as one of the most ruthless oligarchs by the time he put together the Yukos oil company, his reputation improved after he’d cemented his control of the firm. Khodorkovsky was among the first to hire European accountants to bring the company’s practices up to Western standards. Investing in infrastructure and equipment to improve production was also rare in an environment where capitalism often meant seizing or stealing as much profit as quickly as possible—perhaps a somewhat understandable perception, given the generations who grew up on propaganda portraying that as the free market’s basic operating principle.

After a decade of decline brought on by the Soviet collapse, oil production began to recover thanks in no small part to new techniques imported by a handful of Texas oilmen who brought new fracking and other extraction methods to Russia. As the Georgetown University scholar Thane Gustafson has made clear, no company was more receptive than Yukos, whose pioneering work soon made it number one.⁶ The new culture of maximizing productivity clashed with the old Soviet way of doing things, however. Khodorkovsky deployed legions of young, laptop-wielding executives to ensure Yukos’s wells were pumping out as much as they were supposed to by cutting out waste and rooting out double bookkeeping. Slowed by massive bureaucracy that virtually ruled out innovation, the old establishment saw him as a serious threat.

Already disliked by his business peers, the upstart broke more rules by criticizing Putin, who planned to reestablish state control over the all-important oil industry after he became president in 2000. The multibillionaire seriously angered the Kremlin by lobbying parliament to privatize Russia’s network of pipelines, at the time, the government’s last remaining means of exercising control.

In April 2003, Khodorkovsky announced that Yukos would merge with another top oil company, Sibneft, to create a firm whose reserves would rival the biggest multinationals’. He was also huddling with ExxonMobil and ChevronTexaco, which were interested in buying stakes in the new enterprise. Khodorkovsky, who openly bankrolled liberal opposition parties and set up a prominent charitable foundation, was seen as a menace more than a mere nuisance. In October, masked special forces officers stormed his plane on a S iberian runway and arrested him.

Tried and sentenced for fraud and tax evasion, the once haughty tycoon came to be seen by many Russians as a symbol of the ruin faced by those who opposed or resisted Putin. After he was sent to serve an eight-year term in Chita, a desolate Siberian city four thousand miles east of Moscow, Yukos was dismantled and most of its assets sold to a scarcely known company with a temporary address in another provincial city. That company, the single bidder in a highly suspect auction, soon resold the properties to Sechin’s Rosneft, the state oil firm Putin was transforming into the country’s largest and most powerful. Although the Kremlin hadn’t outright seized Yukos, its flimsy legal cover fooled few. The message was unmistakable: private businesses, no matter how big and powerful, would remain private only if the state approved.

In the spring of 2009, Khodorkovsky was returned to Moscow for another trial on a new charge that even some of his critics considered absurd: that the owner of Yukos had stolen twenty-five billion dollars, nearly the company’s entire income, over a period of six years. The second trial was held in a shabby courthouse on a quiet downtown street next to a park. Its panoramic view includes the Moscow River and the White House, the seat of government where Putin—who, then between his second and third presidential terms, was serving as prime minister—had his offices. Although the public had long lost interest in Khodorkovsky, his supporters, who included prominent dissidents and a few celebrities, stood in line to observe the charade of justice in the second-floor courtroom. I joined them on a day so beautiful it seemed to buoy even the spirits of Khodorkovsky’s elderly parents, who attended most days.

At the top of the stairs, a platoon of tough-looking men with shaved heads and black flak jackets guarded the room with Kalashnikovs while Khodorkovsky sat in a cage of thick bulletproof glass. Dressed in a brown cotton jacket and Soviet-looking jeans, he looked fit but grayer than at his first trial, as would be expected after his years in Siberia. Looking up from talks with his lawyers, who included some of the country’s most prominent human rights defenders, he occasionally smiled.

Grim-faced prosecutors in ill-fitting military-style uniforms opened the proceedings by reading the charges in barely audible monotones that put even one of the accusers to sleep. Taking notes and studying documents through his rimless eyeglasses, Khodorkovsky seemed almost irrelevant, a curiosity in his cage who surely knew that one of the show trial’s chief purposes was to further humiliate him. But although his expression sometimes seemed to hint of mocking the proceedings, he also played along, as if in mad hope the court could somehow be influenced. Hours of prosecutorial droning, including reading every word of many Yukos contracts, pushed the mood in the cramped room toward despondency. By the time the prosecutors moved on to reciting minutes of shareholders’ meetings, I was fidgeting less from the pain of sitting on one of the unforgiving plastic benches than the discomfort of witnessing the banal machinery of authoritarianism plodding toward an inevitable outcome. The judge announced a recess only after a guard had begun snoring.

“You don’t know a thing about the system until you’ve found yourself in its claws,” Khodorkovsky wrote during his trial, describing it as “a single enterprise, whose business is legalized violence.”⁷ Found guilty of course, he was sentenced to an additional six years in prison. They probably won’t be his last. In 2013, state-controlled NTV television aired a documentary alleging that Khodorkovsky took part in the murder of a Siberian mayor in the 1990s. Many believe the film was groundwork for a third criminal case against him.

Although he stands out as a symbol of injustice, Khodorkovsky is hardly an isolated case: in the space of a decade, one of every six businessmen in Russia faced some form of prosecution.⁸ Around the time of his second trial, I met billionaire Victor Makushin, the founder of a scrap-metal empire who confirmed that upper bureaucrats’ success in taking back the better part of Russia’s oil industry emboldened them to appropriate a larger slice of all pies by demanding ever-bigger kickbacks and bribes. That, Makushin stated, made the overseers of Putin’s regime the country’s predominant criminal group. “Officials have amassed huge powers,” he said in his modest office on the grounds of a Moscow factory. “They represent the greatest threat to business, and you can’t turn to the courts for relief because judges are afraid of ruling against the authorities. It’s a huge drag on the economy.”

Soon after I spoke to him, Makushin was charged with criminal activities and fled abroad. If any doubt about the motives existed, he was blocked by officials from seeking bankruptcy, which would have protected his company after it was forced to stop production. He could only look on as Sberbank, the state savings bank, which happened to have loaned his once booming enterprise $63 million months before the surprise charges were filed, took it over. At the time, the governor of the southern Stavropol region bragged to Putin that he had prohibited Makushin from closing one of his plants there, which again prevented him from filing for bankruptcy.⁹ His case demonstrates that the siloviki and others in the Kremlin are less interested in the economy than in their tap on it. Just as Soviet leaders cared more about their control of the socialist system than addressing its massive inefficiencies, the current ones are more intent on preserving their cut of Russia’s form of capitalism than improving it. The results of a 2012 poll that revealed more than half of respondents believed they could not protect their property from possible takeover were no surprise.¹⁰

Alekperov talked about the government and its problems in a kind of code. As the country’s biggest private oilman at a time when the state was continuing to acquire oil assets in one strong-arm way or another, his position uncomfortably resembled Khodorkovsky’s before he was imprisoned. Lukoil had even developed plans to emulate Yukos’s aggressive business model before Khodorkovsky’s arrest prompted Alekperov to drop them. Although the former Soviet oilman doubtless shares the industry’s overwhelming distaste for Khodorkovsky, Lukoil’s CEO said he would make no judgments. “I’m sure our legal practices are transparent enough and I hope the right decisions will be made… But I knew Mikhail personally, respect and sympathize with him. From the very beginning, I said of course he should be punished if he’s guilty. But the court determines what the punishment should be, not I.”

Alekperov had reason to be concerned. Soon after state-owned Rosneft had swallowed most of Yukos, it began targeting lucrative Lukoil oil fields in the country’s Arctic far north. Those assets, like many in Russia, lie beneath some of the world’s least hospitable terrain, in that case the remote Nenets Autonomous region.

Alexei Barinov, an oil executive turned politician, was the last regional governor to take office in Russia before Putin abolished gubernatorial elections in favor of Kremlin appointments in 2005. The following year, he was charged with fraud and embezzlement in connection with a previous job he had held. That happened after the region’s local legislators, in a rare show of defiance, butted heads with the Kremlin by unanimously refusing to approve Putin’s decision to sack the region’s representative to Russia’s upper house of parliament.

Declaring that the interference in Nenets came from people whose interests “don’t correspond to the interests of the region or its government,” Barinov declined to keep the legislators in line. Arrested the following day, he was quickly fired. However, some locals were convinced his apparent political defiance was just an excuse to throttle him over the real reason for his ouster: he was protecting Lukoil’s local subsidiary, which he’d headed in his previous job. Nenets residents—many of whom praised Barinov for financing schools and libraries—said their former governor’s transgression lay in opposing Rosneft’s moves to assume control of Lukoil fields in the region. His tactic was delaying deals between the two companies while insisting Rosneft pay nine hundred million rubles ($33 million) it owed in back taxes.

Some Nenets residents compared Barinov’s arrest to Khodorkovsky’s. Most appeared resigned to their region’s fate. An earnest regional legislator named Nikolai Fomin explained that Barinov’s arrest was part of a carefully planned Kremlin scheme to dismantle the local government and take control of the region’s oil and gas reserves. “Our example sent a signal to all governors,” Fomin said in his cramped office in what passes for Naryan-Mar’s town center. “The signal was that if you don’t play by the rules they invented, the same’s in store for you.” In that case, Fomin continued, the Kremlin counted on the isolation of Nenets to execute its corporate takeover. “We’re located at the end of the earth. So a few people go out and yell on the tundra, will anyone hear us?”

Back in Moscow, Alekperov rolled with the punches. No one at Lukoil said anything publicly about the loss of its northern oil fields, nor was anything done to shore up Barinov. Deferential as before, Alekperov professed to feel no pressure from the government. Competition for oil licenses might be more open and more understandable, he said, with more companies competing. However, “Lukoil gets its licenses for developing its fields from the state, which has the right to determine how its property is exploited; to enact whatever regulations it sees fit.” The state’s belief that a number of oil fields should be considered strategic was “understandable,” since it will make them available to future generations. “Their availability will wait until more oil is needed or there’s more money to develop them.”

Alekperov’s doormat tactic has paid off. Apparently on good terms with the Kremlin, he’s often seen with Putin. The one possible development Alekperov admitted to fearing is the “undoing” of the competition in Russia’s oil industry, which began in the 1990s. After I spoke with him, domination by a single company, as in the gas industry, became reality when Rosneft announced it would buy BP’s joint venture with a Russian oil firm called TNK, which would boost the Kremlin’s share of the world’s largest oil industry from 40 percent to more than 50 percent and cement Putin’s drive to put the energy industry back in state hands.

That development—and the Kremlin’s influence over businessmen it wants to do its bidding in general—has implications abroad, where Moscow uses its vast natural resources as an instrument of foreign policy. A “transnational oil company,” as it describes itself, Lukoil is already the largest source of direct Russian investment abroad and predicts that half its business will soon be conducted outside the country.

More than simply to consolidate power at home, Putin has used control over the energy sector to pursue his goal of restoring Russia to the ranks of the great powers, along the lines he outlined in his doctoral thesis in 1997. His logic is simple: the more countries depend on Russia for their energy needs, the more leverage Moscow has over them. The Kremlin hopes Europe’s current reliance on Russia for a third of its natural gas will inevitably grow as demand inexorably increases. For now, beyond simply exporting energy, Russia is using companies such as Lukoil and its state natural gas monopoly Gazprom to buy control of pipelines, utilities and other infrastructure that delivers Russian energy directly to European consumers.

Those worried by the inroads Russian companies have made in Europe warn that, unlike Western firms, which lobby largely in their own interests, Russian companies, both state-controlled and private, play an important role in Kremlin strategizing. Increasing control over foreign energy industries not only generates larger profits for Moscow but also helps cultivate political influence in target countries—more, according to Harvard University’s Marshall Goldman, than the Red Army did during the Cold War. “The Russians have that weapon,” he told me at the height of Gazprom’s wealth in 2008, “and there’s nothing you can do to counter it.”

Former Czech president Vaclav Havel raised the same alarm about the drive to reestablish influence in former Soviet Bloc countries. Before his death in 2011, Havel told me that “Russian companies are undoubtedly influencing the behavior of various Czech political parties and politicians. I’ve seen several cases where the influence started quietly, then slowly began projecting onto our foreign policy. I can only advise serious discretion and great caution.” In 2009, Havel led a group of prominent Central and Eastern European politicians who published an open letter directing that message to President Obama. The West, they wrote, should abandon its mistaken belief that the end of the Cold War and the expansion of the EU and NATO into the former Soviet Bloc guarantees their countries are “safe.”

Moscow’s success has been dramatic during the past several years. Goldman said the threat from its control over the European energy market was made clear when Moscow shut off gas to Ukraine during a price dispute in 2006, which disrupted supplies to Western Europe. “It intimidates, and in a sense, it neutralizes the country,” he said. “If you look at Germany’s policies after that incident, they become much more timid in challenging some of the things countries might do that would upset the Russians.”

The 2008 campaign of the administration of George W. Bush to put Ukraine and Georgia on a path to NATO membership provoked fury in Moscow. Despite international outrage over Russia’s summer invasion of Georgia months earlier, German chancellor Angela Merkel—whose country gets more than 40 percent of its natural gas from Russia—led the opposition to Washington’s plan, which was defeated. At the same time, Germany blocked proposed European Union regulations that would have restricted foreign companies from buying European energy utilities, a policy that could have slowed Gazprom’s advance into Western Europe.

That kind of acquiescence appeared to begin changing in 2012, when the European Commission launched a major investigation into Gazprom’s anticompetitive practices in eight European countries. At the time of this writing, the case promised to force Gazprom to lower its prices, which would be especially threatening for Moscow at a time when supplies from new and diverse sources, such as American shale gas, and the development of liquefied natural gas are significantly depressing prices. Backed by new EU regulations and resolve, Eastern European countries have begun taking back control of their pipelines by breaking up their energy utilities—a major threat to Gazprom, which is responsible for providing up to 20 percent of the government’s revenues and a major source of Putin’s influence in the world. Since 2008, Gazprom’s market capitalization of more than $360 billion—which fueled confident predictions the company would become the world’s largest by that measure—has declined to below $80 billion. Despite the looming clouds for Gazprom, however, Russia has stuck to its old strategy of pouring billions of dollars into the construction of pipelines to Europe and other tactics it hopes will lock in European customers. Far from integrating into Western institutions, as many hoped in the 1990s, Moscow is continuing to wage a new kind of Cold War with new kinds of maneuvering. Although it’s nowhere as threatening as it used to be, the Western disinclination to publicly acknowledge the conflict has helped undermine attempts to develop a common European policy toward Russia, another factor in Moscow’s successes.

Growing up in London during the real Cold War, I corresponded with my Muscovite second cousins, whose innocuous letters were written with Soviet censors in mind. When I finally met them during my first trip to Moscow in 1991, it was in their parents’ cramped gray concrete-block apartment in a mind-numbing stretch of residential buildings. We sat at their living room table knocking back vodka and eating heavy meat dishes with pickled vegetables. Between stories about the deprivations of Soviet life and my parents’ courtship, my relatives told me they believed my fiercely independent mother had been destined to escape the Soviet Union.

Although the great majority of Soviets may have been hugely materialistic because consumer goods had long been scarce, what you wore or in rare cases drove mattered little in one sense because almost everything was poor in quality and style. The change came almost instantly after the collapse of communism. A year later, the novelty of meeting a foreigner was gone and my relatives had many more questions about how much things cost in America. I also noticed a hint of disappointment. What kind of relative was I, the personification of the West for them, not to be driving a BMW or Mercedes, or even hope to acquire one soon? What did I think a degree in history and literature would do for my future? I was headed nowhere near luxury and they could sense it. Within the decade, my cousins, who worked for new private companies, had built themselves swank suburban houses, were vacationing abroad every summer and had lost almost all interest in me. Not that they had time anyway: the sink-or-swim atmosphere of the 1990s required those who wanted to win in professional life to work incredibly hard, especially if they weren’t among the lucky few positioned to profit from a disintegrating economic system—or criminals. The successful had little concern, let alone respect, for the huge mass who couldn’t graduate from the bankrupt Soviet way of doing things.

The return of capitalism, relentlessly denounced as the chief source of evil under Soviet rule, says more about the Russian people than about their economy, the current tooth-and-claw version of which shares underlying aspects of the Soviet and even tsarist versions. Among early critics of the social order was a minor nobleman named Alexander Radishchev, who made big waves in 1790 by publishing a polemic called A Journey from St. Petersburg to Moscow. Radishchev was among the first members of Russia’s intelligentsia, and many credit his book with marking the start of the country’s intellectual history. Stopping in villages along the road between Russia’s two major cities, its traveler protagonist depicts the misery of Russia’s serfs, who made up 95 percent of the population and were bought and sold as though they were property, with no say in their fates. Describing the estate of a landowner who flourished because he overworked his serfs, Radishchev wrote, “Do we think our citizens are happy because our granaries are full and their stomachs empty? Or because one man blesses the government, rather than thousands? The wealth of that bloodsucker does not belong to him,” he concludes. “It has been acquired by robbery and deserves severe punishment according to law.”¹¹

Although Radishchev didn’t call for revolution—he blamed the nobles, not the tsar—his screed helped initiate a storied revolutionary tradition among critics of a regime whose aristocracy was subservient to its rulers in ways rarely seen in the West. In Europe, feudalism developed over centuries to include a tradition of obligation to peasants. By contrast, the concept of nobility was imported to Russia from a distinctly different world and installed by decree. One of the most important steps, by Empress Catherine the Great, instituted a charter of the nobility, a ranking system for the monarchy’s manipulation.

Not unlike the communists, who promised to right tsarism’s inequities, Putin—who has done more than anyone to reshape present-day Russia to his whim—said he’d establish a “dictatorship of the law” to level the playing field for all Russians. Like the Bolsheviks’ dictatorship of the proletariat, Putin’s system turned out to be all about dictatorship and very little about the law. The manner in which he took power had much to do with that. Plucked from obscurity in 1999 to become Boris Yeltsin’s chosen successor, Putin was a last resort when Yeltsin’s inner circle was panicking about being unseated by a rival political group. (That was when some political competition was still allowed.) More than anyone else, it was a single businessman—one who exemplified the term “oligarch” and even helped coin it—who was responsible for Putin’s appearance on the scene. There would have been no Putin as we know him without Boris Berezovsky, who was once called the godfather of the Kremlin—although “consigliere” would have been more accurate because the power broker’s influence was far from all-powerful.

Berezovsky’s balding crown and clipped, machine-gun speech was part of a brand most Russians associate with the perceived evils of the Yeltsin regime. In the 1990s, the fifty-three-year-old former mathematics professor owned a private car dealership, Russia’s first, with an exclusive license to sell Mercedes. After buying rich oil fields for a song in a questionable closed auction, he parlayed them into the Sibneft oil empire—which was to have merged with Khodorkovsky’s Yukos—working his way into Yeltsin’s entourage along the way. He also bought control of Russia’s flagship Aeroflot airline and put together a media industry.

In 1996, Berezovsky led a group of the country’s biggest tycoons in backing Yeltsin’s long-shot reelection campaign. Soon after, he bragged to the Financial Times that he and six other financiers—who he said controlled half the Russian economy—got the president reelected. It was those seven men the Russian media dubbed the “oligarchs.” “Now we have the right to occupy government posts and enjoy the fruits of our victory,” Berezovsky said.¹²

Several insiders have told the Berezovsky-Putin story, but none as well as Sergei Dorenko, a former news anchor at Channel 1, Russia’s top station when Berezovsky controlled it in the 1990s. I spoke to the handsome journalist, whose deadpan baritone is unmistakable to Russians, in Rublyovka, the suburb housing Moscow’s wealthiest. Dorenko asked that we meet at his club for SUV owners, nestled next to a helicopter dealership.

Berezovsky had hired him in 1999 to anchor a series of Sunday evening news analysis programs that would assault the opposition, which was battling for control of the Kremlin ahead of a presidential election the following year. It was then, when Yeltsin’s deeply unpopular presidency was coming to an end with no plausible successor, that Berezovsky assumed a central role in concocting the unlikely choice of the scarcely known Vladimir Putin. Having recently climbed coattails to become the head of the Federal Security Service, the FSB—formerly part of the KGB—Putin was appointed prime minister that August in a move that shocked the establishment. No one predicted he would last long—except for Berezovsky. Dorenko remembered the businessman-cum-covert-strategist as the only member of “the Family,” as the Kremlin kitchen cabinet was dubbed, who believed in victory in the election that loomed the following June. “You take care of the masses,” Dorenko said Berezovsky told him. “And I’ll take care of the elite.”

A popular former prime minister named Yevgeny Primakov and Moscow’s then-powerful Mayor Yuri Luzhkov headed the opposition to the Kremlin. As the election approached, Dorenko used his program to pour libelous vitriol on them. He told me Berezovsky was also vital to the Kremlin’s forthcoming victory because “he forced other people to believe in it. Everyone else in Yeltsin’s circle was thinking of where to flee to save themselves—but Berezovsky went around yelling, ‘We’ll defeat them all, defeat them all!’ and kept it up even after falling ill with pneumonia. While he was lying on a hospital bed with an intravenous needle in him, I kept saying, ‘Stop yelling, Borya, lie still.’ ”

When he was well enough, Berezovsky flew across the country in his private jet persuading influential governors to defect from the Luzhkov-Primakov alliance. “Explaining things like a chess master,” he almost single-handedly cobbled together a pro-Kremlin political party called Unity. On New Year’s Eve, Yeltsin dramatically resigned, appointing Putin acting president. The new heir had already captured public support by launching a popular second war in Chechnya that—after the decade of humiliating deferral to the West—fed a growing nationalism and eagerness for confrontation. With Putin’s approval ratings skyrocketing, his ascension virtually assured him victory in the election three months later.

But the alliance between Berezovsky and his new cronies in government soon began crumbling. In June, the prickly tycoon, now a member of parliament, wrote an open letter criticizing new legislation aimed at boosting Putin’s powers largely by reining in the country’s regional governors. Then he said he’d be obliged to vote against the bill, which represented a “threat to Russia’s territorial integrity and democracy.” Berezovsky’s open break with the president brought threats of prosecution for fraud in connection with his holdings in Aeroflot, among other large companies. Before the end of the year, he’d fled to London, where he remained in exile, fiercely criticizing the Kremlin and bankrolling opposition groups until his suicide in 2013.

Some of the lurid details of Berezovsky’s fall emerged in a London courtroom two years before his death, when he sued Roman Abramovich, his former protégé, for $6.8 billion, saying that Abramovich had bilked him of his share of Sibneft, ORT television (now Channel 1) and other businesses by bullying him into selling his stakes before handing the companies to the government. The case was fascinating for its details not only of how some of the oligarchs acquired their Soviet spoils, but also how Putin later snatched some of them back. Abramovich, whose fortune under Putin soared to an estimated seventeen billion dollars, claimed he owed Berezovsky nothing after having paid him billions for his political influence. He explained that the two had met on a private yacht in 1994 to agree that Berezovsky would use his Kremlin connections to persuade the government to privatize oil fields Abramovich would buy in a closed auction. In return for Berezovsky’s political protection—in Russian, krysha, literally “roof”—Abramovich said he financed the older man’s luxurious lifestyle by chartering planes, booking five-star Riviera hotels and buying resort houses costing many hundreds of millions of dollars.

Losing the case deeply humiliated Berezovsky, who was ordered to pay Abramovich more than fifty million dollars for his legal fees. His fortune now believed to be seriously depleted—he sold an Andy Warhol painting and was rumored to have borrowed five thousand dollars to pay for a plane ticket—he withdrew from public life. In April 2013, he hanged himself in a locked bathroom of a mansion outside London. In an interview with the Russian edition of Forbes magazine days earlier, he’d said he wanted nothing more than to return to Russia. “Khodorkovsky saved himself,” he reflected. “That doesn’t mean I have lost myself. But I’ve lived through a lot more of my own reevaluations and disappointments than Khodorkovsky. I lost the meaning.”¹³ Unloved as he was back home, his death nevertheless came as a shock, marking the end of an era as well as another gratifying victory for the president whom Berezovsky, more than anyone else, had helped create. As if to confirm that interpretation, Putin’s spokesman said Berezovsky had recently written the Russian leader to beg forgiveness for his “many mistakes.”

According to Dorenko, what had really finished the magnate in Russia were his political aspirations: winning the presidency for Putin had been only part of his ambition. Eager to become more than a backroom Kremlin power broker, the oligarch had approached the president with the idea of creating two new political parties, modeled on the American system, one of which would be headed by Berezovsky himself. “So he went to Putin,” Dorenko explained, “but he failed to understand that he was sitting opposite someone who was already president.

“ ‘Borya,’ I told him, ‘to you he’s no longer Volodya [a diminutive of the name Vladimir]. Look above his head and you’ll see the seal of an imperial eagle. From the moment he took the president’s seat, you became just one of his subjects. Not a citizen but a subject.’ ”

That observation says much more about the nature of Russian rule than about Putin himself. When the Marquis de Custine visited Russia in 1839, the French aristocrat was struck by the servility of even the highborn. Custine, who would write Empire of the Czar: A Journey through Eternal Russia shortly after returning to France, noted the Russian court’s instant switch from its ordinarily relaxed behavior to groveling whenever the emperor appeared. Without suggesting that obsequiousness was or is universal in Russia, I think bowing to the highest authority, even by the rich, was typical. That’s largely because the image of the sovereign-autocrat’s power, regardless of his real strength, is crucial for keeping the system from collapsing from infighting. Berezovsky became the exception that proved the rule—the rich will almost always stay rich only if they show fealty.

After becoming president in the all-or-nothing battle against the Kremlin’s opposition, Putin may well have felt he had to destroy all potential opponents—including Berezovsky and many others who helped install him in office—because he lacked his own power base. He built authority not by enacting a dictatorship of the law, which seemed to be an excuse for using law enforcement agencies to destroy his rivals, but by relying on the support of a traditional oligarchy empowered by the Kremlin’s coercive authority. He did it methodically. After curtailing governors’ powers, then threatening some of the country’s leading businesses with tax fraud investigations, he went on to oversee the state takeover of the pro-Luzhkov media—among Russia’s best—all the while gauging public and political reaction before taking the next step. Neither stood in his way. Clearing his path for himself, he created a far more corrupt and inequitable system than anything seen under Yeltsin.

Like most regimes not based on genuine popular support in an era of open access to information, Putin’s is inherently unstable and requires vigilant maintenance of the leader’s strong image, however antiquated that may now appear to foreigners. He regularly tells private businessmen what they should be doing with their money and assets. One of his tirades, at the height of Russia’s oil boom in 2008, helped push the entire economy off a precipice. It came during a visit to the Volga River city of Nizhny Novgorod, where he demanded to know why the CEO of a company named Mechel was absent from a meeting with metals executives. “Illness is illness,” he said after learning the billionaire was at home sick. “But I think he should get well as soon as possible. Otherwise we’ll have to send him a doctor and clean up all the problems.”

After he accused the company of price fixing and tax fraud, it lost six billion dollars overnight, depressing the entire Russian stock market by 5 percent, the start of a downward spiral soon made far worse by the global financial crisis. Those consequences were evidently far less important to Putin than demonstrating that he remained in charge.

Myths about the extent of the chaos and criminality that characterized Yeltsin’s 1990s form an important part of Putin’s image. The Kremlin’s story is that he saved Russia, or at least restored it to working order, by ending wanton crime, taming the oligarchs and putting the country’s riches back to work for the people. That he allowed them to continue to work, but for his own benefit and that of his cronies, is closer to the truth.

Former First Deputy Prime Minister Boris Nemtsov, who was among Yeltsin’s “young reformers” and once his chosen successor, knows many of the oligarchs well. Shortly after Putin became president in 2000, Nemtsov organized a meeting between him and the country’s most powerful Yeltsin-era businessmen. The purpose was to arrange a truce: if the oligarchs promised to stay out of politics, the president would call off the tax police and prosecutors who had begun investigating top companies.

Nemtsov, a tall, swarthy bachelor with a sharp tongue, appears on glossy magazine covers, sometimes bare-chested, but more often in blue blazer with an open-collar white shirt. During one of my interviews with him in his spacious, high-ceilinged apartment in one of Moscow’s seven neo-Gothic Stalin-era skyscrapers, he challenged Putin’s argument that the Yeltsin years in the 1990s were rampant with mass theft. At the same time, he acknowledged that most Russians associated that grim period with democracy.

“We know what happened then. Unemployment. Other huge problems in the economy. Many people impoverished, children wandering homeless. So people still connect freedom with economic hardship.”

Indeed, the hardship was so overwhelming that privatization and other reforms were often aimed not at an equitable distribution of former Soviet property but at jump-starting an economy ruined by decades of consummate inefficiency and woeful mismanagement. With factories idle, oil wells drying up and a huge part of the national workforce unemployed—as if the country were in a fatal depression—the first priority of the young reformers under President Yeltsin was to get assets and enterprises as quickly as possible into the hands of people who might get them working, never mind how.

One of those reformers was Maxim Boycko, a chief architect of privatization. In 1992, he shared a cramped Moscow office with a thirty-two-year-old Harvard law school student who helped him act as a liaison between the government and advisers working under Harvard professor Jeffrey Sachs. Boycko, still a very youthful-looking executive of a top advertising agency when I interviewed him years later, told me the old Soviet managers didn’t want to give up control of their state-owned enterprises because they sucked out money for themselves while running their companies into the ground. Among the privatizers’ main goals was to somehow rip the companies from their control. “You shouldn’t assume ours was an orderly country with a national consensus,” Boycko said in flawless English. “Now that socialism is behind us, we can sit down quietly and start building capitalism and democracy with due order under due process. That was absolutely not true then.”

During the country’s mass privatization, each Russian was issued a voucher that could be sold or used to buy shares in a wave of auctions of the old enterprises. But contrary to conventional wisdom that the voucher system was aimed at a fair distribution of state assets, it was little more than an openly acknowledged bribe to get Russians to accept privatization. As for the later privatization schemes—in which the country’s oil industry went to Berezovsky, Khodorkovsky and a few other Kremlin insiders for next to nothing in rigged auctions—Boycko said, “The top consideration was finding people with the ability to invest in oil and other enterprises whose production was in very serious decline, or to attract investment.”

A partner of the New York law firm White and Case, John Erickson was newly arrived in Moscow in 1992 when the World Bank approached him with a request to advise Boycko’s agency, the State Committee for State Property Management, or GKI (for the Russian name Goskomimushchestvo). Erickson said opposition from competing state agencies controlled by old-guard managers created tremendous pressure to move quickly. He told me he’d get a call at four o’clock in the afternoon, “and they’d say, ‘We need a draft investment company regulation on Yeltsin’s desk by nine o’clock tomorrow morning.’ In a sense it was a race. The overriding concern, over and above doing it perfectly properly, was speed. Get it done, get the genie out of the bottle before somebody could turn it back.” Although there was “a lot of chaos” in the 1990s, Erickson believes the enactment of new, Western-style laws meant the country was Westernizing.

In the murky free-for-all that followed communism’s collapse, most successful businessmen exploited loopholes or resorted to outright crime to compile their huge fortunes. At one point, Berezovsky relied on a criminal gang of Chechens to do his dirty work. But although the economic chaos was real and disturbing enough, it was only part of the picture then. Yeltsin guaranteed individual rights and freedom of speech. He also installed the young technocrats in government who drafted the country’s Westernizing, democratizing reforms. Rampant as they were, crime and corruption took place on a smaller scale than now. According to the government’s own anticorruption committee, the average Russian company paid a whopping $135,000 in bribes each year after the first four years of Putin’s presidency—up from $23,000 when he took office.

In short, Putin didn’t clean up crime. He only made it look that way by institutionalizing crime after making certain the Kremlin was the dominant player. “Whatever the apparent gains of Russia under Putin,” observed Stanford professor and future U.S. ambassador to Russia Michael McFaul about the myth that Putin had rescued the country from the bankrupt, lawless 1990s, “the gains would have been greater if democracy had survived.”¹⁴

As for his promise to leave the oligarchs alone if they stayed out of politics, Putin failed to keep his end of the bargain. The oligarchs who do the Kremlin’s bidding continue reaping huge fortunes. Those who don’t have been prime targets in the president’s attack on anyone who stands in his way or even hints at the possibility.

Putin threatens and destroys even some who give no indication of opposing him, only of getting too big for their breeches. Like the seventeenth-century French nobleman Nicolas Fouquet, who hosted a party so lavish it gave Louis XIV an excuse to arrest him, Azeri businessman Telman Ismailov found himself in trouble in 2009 after throwing an opening party for his new billion-dollar Turkish hotel, which has ten restaurants and a beach with nine thousand tons of artificial sand.¹⁵ Ismailov paid Sharon Stone, Richard Gere, Mariah Carey, Paris Hilton and Tom Jones to attend. At one point, he was reported to have danced as hundred-dollar bills rained from the ceiling. Many believe the images angered Putin, who is especially sensitive about oligarchs’ conspicuous spending abroad. A close ally of former Moscow Mayor Yuri Luzhkov—who, after his failed challenge to the Kremlin, maintained an uneasy relationship with Putin despite showing all the outward attributes of loyalty—Ismailov also owned a sprawling outdoor market in the capital where Chinese and other traders sold hundreds of millions of dollars’ worth of contraband goods. It was soon shut down before Ismailov temporarily fled to Turkey.

The conventional wisdom in the West is that hard work tends to be rewarded. In Russia, many who build wealth still often see it confiscated in one way or another. If the relationship between Russia’s wealthy and its leaders resembles its iterations in previous eras, however, Moscow’s new money is changing the city’s old face. Like another transplant from the West, a new development of corporate glass skyscrapers called Moscow City looms over everything built before it. One of the antiseptic new buildings, the billion-dollar Mercury City Tower, was Europe’s tallest upon its completion—until the showcase of angular, pink mirrored glass was overtaken by its neighbor the Federation Tower.

The latest installments of Moscow’s grand architectural projects, together with many smaller complexes of office and residential buildings, are cropping up like the proverbial mushrooms. Although most of the new construction is unimaginative—one friend complained that “rich Russia is even less attractive than impoverished Russia”—that’s hardly unique to Moscow. The splurging by the superrich has helped make the city one of the world’s most expensive, but that, too—like its filthy and often slushy streets—apparently must be lived with. What often seems intolerable, even for the superrich—“often” being daily or twice daily—is the city’s horrendous traffic, which leaves millions stuck in cars for hours, breathing terribly polluted air. A 2013 survey by the satellite navigation company TomTom rated Moscow traffic as the world’s worst.

Igor Shein, editor of the Russian edition of the Robb Report, a consumer magazine for the very wealthy, said it will be difficult to do something about that. “Russians are behaving better abroad,” he told me—a claim visitors from other countries to Europe’s luxurious resorts may challenge. “But back home, they still behave very immodestly. They drive like crazy and do what they want in all sorts of other ways.”

A century and a half ago, the Marquis de Custine feared an explosion in the country he saw as “a cauldron of boiling water, tightly closed and placed on a fire that is becoming hotter and hotter.” With the lack of concern on the part of today’s superrich for the people as a whole rivaling that of earlier eras, the anger is again never far from the surface. The wealthy also know in their bones that their power is fragile, as do the rulers about their own.