#How Vladimir Putin’s dirty power grabs made him a modern czar

The slight, bespectacled prisoner slumped against the bars of his cage — the traditional spot for a defendant in a Russian courtroom — as the judge read out his sentence.

He had been in custody in a notorious Moscow prison for nearly two years. His multibillion-dollar bank and oil company had been seized by the state. Still, the reality of his fate — nine years in prison for tax evasion and fraud — shocked Mikhail Khodorkovsky to his feet.

“This is lawlessness!” the former oligarch shouted, clambering onto a bench within his cell as armed guards strained to quiet him.

In the Russia where Khodorkovsky had made his $15 billion fortune, during the decade of privatization and profiteering under President Boris Yeltsin, that would have been true. Then, the retroactive prosecution of the nation’s richest man for using tax shelters that were legal at the time would have been unthinkable.

But this was 2005, five years into the reign of Vladimir Putin. And with Khodorkovsky’s prosecution, Putin’s takeover of the nation’s judiciary, as well as its economy, became unstoppable.

“The trial helped transform the entire law-enforcement system … into a predatory machine,” writes Catherine Belton in “Putin’s People: How the KGB Took Back Russia and Then Took On the West” (William Collins), out now, a monumental expose of the twisted stratagems that brought Putin to power.

“By the time it was over, thousands of businessmen were being held every year in pre-trial detention, many of them released only when they agreed to hand over their businesses,” she adds.

By 2012, forced transfers would expropriate half of the nation’s GDP and push it into the hands of Putin loyalists.

In public, Putin held himself aloof from such petty concerns. “The courts should speak of this themselves,” he said of Khodorkovsky’s plight.

But beneath Putin’s implacable exterior, the man who called himself a “hired manager” — chosen by Yeltsin to be the Kremlin’s caretaker president — was driven by an ideological fire years in the making.

Vladimir Putin was a creature of the KGB, the Soviet Union’s feared intelligence agency, and a graduate of its Red Banner Institute for foreign operatives. In 1985, the 32-year-old Putin was posted to the KGB’s office in Dresden, East Germany, where he watched the slow dissolution of communism in the Eastern Bloc.

Putin’s Dresden activities remain mysterious, Belton writes — due in part to his Herculean efforts to destroy all evidence of his agency’s cloak-and-dagger doings. When the Berlin Wall fell in 1989, he commandeered truckloads of documents from the Stasi, the German secret police. “We burned papers night and day,” he told a biographer in 2000. “We burned so much stuff that the furnace burst.”

Information that survives paints Putin as a key KGB liaison to the Stasi, deeply involved in its smuggling operations, especially of technology the Soviets needed for military purposes.

He used the proceeds to support West German terrorists from the Baader-Meinhof Group, a former member alleges in the book, providing them with intelligence and even weaponry — classic “active measures” that the USSR had used for decades to destabilize its foes in the West.

In the late 1980s, he was recruited by a KGB faction opposed to Mikhail Gorbachev’s perestroika reforms for an operation meant to put the brakes on German reunification.

He would change his colors so fast you could never tell who he really was.

 – Franz Sedelmayer, a security consultant who knew Putin in St. Petersburg

But as that effort failed and communism foundered, the author writes, the KGB built a strategy to survive. Russia’s old-style command economy was unsustainable, the foreign-intelligence operatives decided. But they could build on its ashes, using their familiar methods of finance — smuggling, money laundering and crony companies that siphoned wealth into “black cash” slush funds.

“The plan was always for the security services to remain in control behind the scenes,” Belton writes.

In 1989, Gorbachev bowed to reformers’ demands and authorized Russia’s first democratic elections. Putin’s KGB mentor, Col. Lazar Matveyev, ordered him home to his native Leningrad.

There Putin ingratiated himself to Anatoly Sobchak, a foppish law professor who spoke passionately about democracy — but was disinterested in its details. As Sobchak rose from the city council to the mayoralty of what was now St. Petersburg, Putin became his fixer.

“You could make the case that he’d first been given the task to infiltrate the democratic community through his work with Sobchak,” an anonymous former crony tells Belton.

In St. Petersburg, Putin established and managed a thoroughly corrupt local economy that generated rivers of cash used for both legitimate city functions and illicit payoffs, according to the book.

The collapse of the USSR in 1991 threw the nation into chaos. As Boris Yeltsin ousted Gorbachev, banned the Communist Party, sold off national assets and lifted price controls, local governments were on their own.

Putin, as the head of the port city’s foreign relations committee, oversaw the goods traded at St. Petersburg’s docks, the ships entering its harbor, and the oil stored at its terminal. When food supply chains disintegrated, he set up an oil-for-food scheme that handed out millions of dollars’ worth of export licenses to companies that promised to bring supplies to the city. But the contracts went to insiders close to Putin, according to Belton, and little food ever arrived.

Instead, the license holders grabbed most of the profits and siphoned the rest into a hard-currency slush fund for City Hall to tap: an obschak, in Russian criminal parlance.

Putin allied with local organized crime to muscle in on port operations in the name of “privatization,” again giving his ex-KGB cronies preferential deals on the ships that had once been the property of the state. Soon the port, under Putin’s protection, became a major drug-smuggling hub between Colombia and Western Europe, a former KGB officer told a London court during the 2015 investigation into the death of Russian defector Alexander Litvinenko,

Putin compatriots set up a local bank that those engaged in foreign trade through St. Petersburg were required to use — convenient for laundering illicit funds.

For every transaction, a cut was fed into the obschak.

Putin dipped into the obschak for major city expenses, like repairing St. Petersburg’s sewer system and paying off its debts. He also spent it on personal travel, meals and eventually an even more elaborate perk: a group of lakeside dachas, or country homes, for himself and his inner circle, most of them ex-KGB like himself.

St. Petersburg was “the model on which the Putin regime and its influence operations would be run,” Belton writes — and his dacha mates became some of its top beneficiaries.

Sobchak lost a re-election bid in 1996 amid rumors of an impending bribery investigation. Weeks later, Putin was in Moscow at the invitation of Yeltsin’s first deputy, a former defense minister with close KGB ties.

It was the start of a meteoric rise that within two years made Putin the head of the FSB, the KGB’s successor agency. “They didn’t just take Putin from the street,” one unnamed ally tells Belton. “I think this transfer was planned.”

Meanwhile, Yeltsin was losing public support as oligarchs like Khodorkovsky snapped up formerly state-owned assets to build their personal wealth. Yeltsin’s economic reforms had established not free markets but a kind of robber-baron capitalism — and rumors of kickback schemes were beginning to swirl.

Putin launched an all-out assault on Yeltsin and his inner circle, known as the Family, deploying his secret political weapon: his intense personal charm.

“Putin is an outstanding politician, and he carried out a very successful operation to win the trust of the Family,” Andrei Illarionov, a Yeltsin economic adviser, tells Belton. The FSB leader convinced them that he too was a progressive, a loyal lackey who would maintain the democratic agenda and keep the Yeltsins out of legal trouble.

In truth, it was a political chameleon act, honed through years of KGB training. “He would change his colors so fast you could never tell who he really was,” Franz Sedelmayer, a security consultant who knew Putin in St. Petersburg, explains to Belton.

Later, Putin would use this ability to win over a succession of American presidents, starting with George W. Bush, to whom Putin portrayed himself as a secretly faithful Christian. “I was able to get a sense of his soul,” Bush insisted.

But in 1999, when it was the Yeltsin Family he had to convince, Putin played the humble retainer. That August, a few months before a presidential election that Yeltsin seemed doomed to lose, the president appointed Putin as his prime minister and chosen successor.

Within weeks, he changed his colors yet again when a series of apartment explosions killed more than 300 Russians in their homes. With little evidence, the Kremlin denounced the tragedies as terror attacks conducted by Chechen separatists — and Putin morphed into an action-hero commander in chief. He launched airstrikes on Grozny, Chechnya’s capital, and rolled out tough-guy rhetoric, promising to “wipe out” Russia’s enemies “in the outhouse.”

By the end of November, Putin’s approval rating stood at 75 percent. And on New Year’s Eve, when Yeltsin announced his sudden resignation from office, he installed Putin as acting president.

He barely had to campaign for the presidential election in March 2000. Putin would remain in power for the next two decades — and counting.

Putin abided by one part of his unspoken bargain with his predecessor. Yeltsin and his immediate family members were never prosecuted for the kickbacks that were rumored to have enriched them during his presidency. Yeltsin died in 2007.

But by that time, Putin had already converted Russia into a faux democracy with a “KGB simulation of a normal market economy,” Belton writes. The independent Yeltsin-era oligarchs like Khodorkovsky bore the brunt of Putin’s relentless takeover in the form of byzantine legal proceedings that forced them to pay heavy fines or give up their businesses. Others fled into exile.

Each time, Putin’s inner circle scooped up the loot — the oil companies, mining firms, auto factories and banks — left behind. Meanwhile, he installed ex-KGB allies at the head of industries that had remained under state control, such as airlines, railways and the energy giants Gazprom and Rosneft.

All of it fed an obschak that was larger and more elaborately protected than ever before, a bottomless slush fund that could be used for domestic political payoffs, foreign disinformation campaigns, election meddling efforts and more — just as the KGB had trained Putin’s men to do.

Hundreds of millions of dollars were stashed in overseas funds and front companies that Putin could tap for his own purposes, including the construction of a palatial billion-dollar dacha on the Black Sea, complete with a marina, three helipads and multiple swimming pools.

“The court system was not a court system, it was an arm of the Kremlin. The same went for the parliament, for elections, and for the oligarchy,” Belton writes.

Russia had become “a phantom system of phantom rights” — with Vladimir Putin, its modern-day czar, at the top of the heap.