One of them belonged to Anatoly Sobchak, the then Mayor of Saint Petersburg. The other one was Putin’s, who was at the time in charge of liaisons with foreign countries. One day, the Mayor’s Office received a phone call; the caller, after introducing himself, said he was interested in procuring new cars and asked if someone at the city administration could recommend a good local Mercedes-Benz dealership. In fact, there were no Mercedes-Benz dealerships in Saint Petersburg.
“From the next day, Putin stopped driving his Mercedes. But Sobchak did not,” says Karen Dawisha, an American analyst and the author of Putin’s Kleptocracy. Who Owns Russia?
“But he [Putin] did not sell his Mercedes either. It remained in the yard. This is just to say that from a very early stage they understood that Putin was interested in acquiring wealth, but was going to be very careful in announcing that,” she adds.
Dawisha learned this little anecdote from someone in the intelligence community who at the time was working in Saint Petersburg and watching Putin. The analyst says that American and Western European intelligence services had their eye on Putin from a very early stage. Still, they pushed a panic button when, in 1998, he was appointed to head the Federal Security Service (FSB).
“But then it was a matter of months until he was prime minister, named by [President Boris] Yeltsin as his heir apparent. And immediately after that were the apartment bombings and the beginning of the war in Chechnya, which was too late [to react],” Dawisha summarizes how Putin’s meteoric rise to power caught Western intelligence quite unprepared.
Finally, on 11 September 2001, the United States was shocked to its core by terrorist attacks in New York and Washington and threw all its resources into war on terror. Putin was left alone to build his kleptocratic regime run by the siloviki, former agents of the Russian security agencies.
The meaning of exposés on preposterous wealth
In her book, Dawisha analyses the development of Russia’s current power elite since the collapse of the USSR. The conclusion she draws is that siloviki from the KGB built a regime based on the silovarch class: former KGB agents turned into state-backed oligarchs who use national resources to build their personal wealth and influence.
However, the solidity of this class seems to have started cracking after Russia’s economy took a hit from targeted Western sanctions, a response to Moscow’s aggression against Ukraine, and record-low oil prices which caused the rouble’s exchange rate to plummet.
“These are problems that would have produced a lot of political stress on any regime. Whether it’s an EU member or a Western state. Just think about the shocks on the system in the United States that the 2008 crash produced. So here you have a country like Russia that already had an accumulation of problems and that has, I would say, very low legitimacy and very low stability. And then you have the killing of [opposition figure Boris] Nemtsov. And so this has produced a lot of political competition amongst the top people,” Dawisha explains.
One of the tangible effects of the turmoil, she adds, was the resignation of Vladimir Yakunin from the post at the helm of Russian Railways.
Yakunin, who was a KGB intelligence agent for 22 years, has been a Putin circle insider since the times when the two and six other people founded the cooperative Ozero in 1996. For the last decade, he had been heading the state-run Russian Railways company and exerted enormous influence. However, it was recently announced that Yakunin was stepping down from the post (many assume he was forced to resign) to move to the Federation Council, the upper house of the Russian parliament.
Dawisha believes that Yakunin made the transition in order to avoid the requirement to submit a property declaration, because the senatorial position grants him immunity. According to the analyst, Yakunin might have become a target of other Kremlin power groups due to excessive ambition.
The former head of Russian Railways previously fell in disfavour in 2013. Opposition figure Alexey Navalny then publicly exposed the incredible personal wealth of Yakunin, which contrasted jarringly with multi-billion losses that the company he managed was making. One month later, it was announced that Alexander Misharin was replacing Yakunin. Eventually he managed to keep the post, but this time the shake-up ended in his resignation, although not in utter downfall.
“No one falls in Russia. They just move to less influential positions. But being a member of the Federation Council is hardly without influence. It certainly signals that he will continue to be able to behave with impunity,” Dawisha says.
She says that recent news stories in the Russian media about personal riches of several members of Putin’s kleptocracy might be used as weapons in inner power struggle. Among the targets are Putin’s former security head Viktor Zolotov, whose wealth has been reported on by Vedomosti, and the Russian president’s spokesman Dmitry Peskov. The latter’s extravagant wedding party and expensive watches became a topic of scrutiny at the time when most ordinary Russians felt the effects of the rouble’s dramatic fall.
“There does appear to be a group of people in inner circle who are quite adamant that the public will not put up with these stories about corruption. And I would have to say that an interesting question is, who is leaking these stories? Where is Vedomosti getting the information about Zolotov?” Dawisha asks.
She adds that there might be limits to how much Putin lets his people to steal from the state budget.
New group to replace Putin?
According to Dawisha, all kleptocratic groups in Putin’s environment are eager to take as much as they can from Russia’s coffers. These, however, are not bottomless.
“Whether the Yakunin resignation means that there are limits, I don’t know. We’ll see what happens to [Rosneft head Igor] Sechin, who has been the first amongst equals in demanding payment from the budget. We’ll see whether Putin rotates him out as well. If he does, then it’s a real signal, but I haven’t seen any indications yet,” the American analyst says.
The system received a considerable shock from the recent killing of opposition leader Boris Nemtsov almost at the Kremlin’s doorstep, Dawisha says. Moreover, rare public statements by some prominent figures also hint at possible antagonisms within the power elite.
“About two months ago, [president’s administration chief] Sergey Ivanov, someone who made Putin, who was senior to Putin in the 1990s, gave a very interesting interview. He rarely speaks. In that interview he said that he thought it was very unfair that people were always talking that corruption in the system came from Saint Petersburg. Because he himself came from Saint Petersburg and that he could name at least five people who had never been tainted with the charge of corruption. He did not name Putin. He did not name Sechin, he did not name [Gazprom chief Alexey] Miller. And he named [Foreign Minister Sergey] Lavrov and [Defence Minister Sergey] Shoigu, neither of whom comes from Saint Petersburg,” Dawisha notes.
Putin’s former economy adviser and later critic Andrey Illarionov quickly commented that these were outlines of the group that will replace Putin. However, the Russian president is very good at covering his bases when it comes to potential palace coups, Dawisha says.
“It is interesting that when Putin this August went to Crimea, who did he take with him but these people? So he appears to be keeping them very close. So in the august week when Gorbachev was in Crimea and was subjected to a coup, Putin was also in Crimea, but he took everyone who could make a coup against him with him: Shoigu, Lavrov, Ivanov,” the analyst says.
Bread crisis existentialism
While one of the regime’s stability factors has been unwavering public support for Putin, that, Dawisha says, can weaken along with deteriorating economic situation in Russia. The Russian society did not take well the recent show of Western foodstuffs being squashed by tractors. After Moscow banned imports of some food products from the EU, Putin said that illegally imported cheeses, meat, vegetables and other products would be destroyed.
“Food is something which people in Russia, also in the former Soviet space, are very sensitive to. They know genetically what it means to have a regime that is indifferent to whether or not you receive food supplies. And they understand completely that the elite will of course continue to receive Parmesan from Italy. That’s the meaning of the outrage against Peskov. They understand completely that not only did he have a watch, not only did he ride in a yacht, but at this wedding reception there was a full supply of cheeses and foodstuffs from wherever,” Dawisha says.
She is even more appalled at the Kremlin’s campaign against Western consumer chemicals. AP recently reported that, this August, Russia’s consumer rights agency ordered to take a whole range of detergents and hygiene products off the market, saying they contained toxic ingredients.
The campaign was mainly targeted against Procter & Gamble which has a branch and operates many factories in Russia. The American company has been in the Russian market since 1991 and produces some 70 products widely used in most Russian households. Save for several exceptions, all Procter & Gamble employees in Russia are Russian citizens, the company is a major employer and taxpayer.
“All of their chemicals are produced by Russian firms, those old Soviet behemoths in the one-factory towns were bought by Procter & Gamble and transformed into firms that produce chemicals for the consumer market. And there would be thousands upon thousands of people laid off [if Procter & Gamble were pushed out],” Dawisha notes.
One more thing that caught her attention recently was a report in a Russian newspaper that wheat farmers refused to sell their crops to the government, because they did not trust the Russian currency.
“Russian wheat producers would rather sell wheat on foreign markets for hard currency. How will the state provide bread for the winter? Bread crisis is something that is very existential for the Russian state.”