Issue #25/50, October 22 - November 5, 1998  

by Mark Ames

"Fortunately, there is good news in Russia that makes this a time of new opportunity. Despite the outrages and inequities of their robber baron capitalism, self-help and prosperity are growing in ways our macroeconomic charts have no way of describing. Moscow and St. Petersburg are boom towns. Governors and mayors are finding ingenious ways to raise money and provide services that are no longer coming from the central government."

It may seem strange, but just a few months ago, such Goebbels-like inverses on the truth were the Party Line. Heck, that quote could have come from any number of Moscow Times Op-Eds. In this case, the quote is taken from a June 17th, 1998 editorial in The New York Times, written by James H. Billington, the U.S. Librarian of Congress. Reading such cockeypock today-and it is cockeypock-you get this eerie feeling that these people were, if not downright sinister, then at the very least, totally psychotic.

In fact, Russia was being controlled not by "robber barons" or "oligarchs," but rather by a posse of purse-snatching chumps who were no more qualified to control Russia's wealth and build the foundations of capitalism than, say, Michael Bass.

And as you'll find out, these so-called robber barons, they was nuthin' but nickel-baggin' chumps whose only thang was jackin and swindlin and pimpin ho's.

Most of you probably wouldn't put a swindler in charge of your piggy bank, let alone your nation's finances. You wouldn't entrust a convicted embezzler to deliver your grandmother's pension check, because you know he'd pocket that check. And that's exactly what happened. The reason why you didn't know how much danger your finances and Russia's were in was because, by constantly referring to the gang of seven that controlled Russia's wealth as an "oligarchy" or "robber barons," you were sub-consciously comforted by the thought that they descended from great, if morally ambiguous, historical names: Mellon, Carnegie, Rockefeller, the contemporaries of Caesar, Sallust and Plato...

Let's get something straight. There's a big difference between a "robber baron" like Carnegie or Rockefeller or an "oligarch" like Plato's aristocratic contemporaries and a slippery ex-con like SBS-Agro boss Alexander Smolensky. The term "robber baron" was first coined by E.L. Godkin in 1867, who wrote about ruthless railroad magnates for The Nation. America's robber barons were, arguably, a necessary evil, the Supermen who drove America from its belated Industrial Revolution into the forefront of world economic powerhouses. By simple association, any reader would be led to believe that Russian "robber barons" are similar to American ones, the good and the bad. That's why the positive "baron" part was attached to the negative "robber"-in the oxymoron lies the moral ambiguity.

Here was the hitch. Take the "baron" out of "robber baron" and all you've got is... a robber. Robber barons monpolize and build. Robbers, however, just rob. And if a robber was given control over an entire nation, he wouldn't stop robbing... until... the country went broke.

Before delving into the sordid details, let's get our terms straight. The word "oligarch," which comes from the Greek word "oglio," meaning "few," was first used to describe small groups of reactionary Greek aristocrats who, in the early 5th century BC, conspired to overthrow Athenian democracy, which they saw as mob rule, the rule of the commoner. What the original aristocrat-oligarchs objected to most in democracy was that it empowered the commoner who, they believed, lacked education and respect for culture and law.

In Russia, as always, the inverse is true. Here, "oligarchy" doesn't mean overthrowing the rule of the mob, but rather, it means a few mobsters ruling over everything-the President, the aristocrats and commoner alike-showing absolutely no respect for law and having less cultural sensibility than your average East LA carjacking cholo.

But if calling the Russian mob-bosses "oligarchs" was a whitewash, then calling them "robber barons" was downright criminal.

Let's compare. John D. Rockefeller's Standard Oil built 1,012 miles of trunk oil pipelines between 1880 and 1882 alone. Andrew Carnegie, by consistently reinvesting profits, turned Carnegie Steel into the world leader in steel production by 1901. He also donated over $350 million to charities in his lifetime, including endowments for 2,800 libraries. Russia's "robber barons" did things like siphon off state budget money intended for teachers' salaries so they could "buy" massive, resource-rich companies-which they then stripped and leveraged into oblivion.

Last month's issue of Sovershenno Sekretno was kind enough to do some digging into the sordid pasts of the assholes who ruined Russia for decades to come.

Let's start with the slimiest of them all, Alexander Smolensky, who heads the largest private bank in Russia, SBS-Agro. Smolensky's higher education consisted of furtively purchasing a diploma from an obscure institute in the town of Dzhambul. After a stint in the Red Army, he found work in printing, and worked his way up to the position of foreman for a publisher affiliiated with the Economic Administration of the USSR's Ministry for the Construction Materials Industry. Confidential reports from his superiors characterized Smolensky as "having a tendency towards swindling."

Right they were. In 1981, the future oligarch was sentenced by the Sokolniki District Court in Moscow to two years in prison for embezzling. Immediately after getting out of jail, he went to work in another construction firm, and in 1989, with the help of then-Moscow Mayor Gavriil Popov, Smolensky founded his Stolichny Savings Bank. How did he get there from jail? If we knew the answer to that, we could tell you how Michael Bass went from Lompoc to hosting a Hollywood party for Ronald Reagan and Ryan White...

The first few years were pretty dicey financially for Stolichny, and Smolensky's reputation was tarnished by repeated investigations into embezzlement charges. The investigations were quashed after Smolensky extended a loan to the Interior Ministry. In 1993, the Finance Ministry opened an investigation into the disappearance of $25 million from a Stolichny account, which had allegedly been transferred to the Vienna branch of ABN-AMRO. Austrian police joined in the investigation, but it was mysteriously hushed.

At that time, the Austrian press began to loudly accuse Smolensky, who lived part-time in Vienna, of being connected to a Russian Mafia kingpin, one Lenni Makintosh. Smolensky was enjoying the mafia High Life, cruising Vienna's imperial roads in a Rolls Royce, living in Tony Montana-like mansions, marking himself as the trailblazer in nigga-esque New Russian chic. Austrian authorities began a public campaign to prosecute and possibly deport Smolensky but, after intervention from the heads of the Russian Foreign Ministry and Interior Ministry, the case was dropped.

In 1995, Stolichny Bank looked like it was going under. Depositors were pulling out, and Sberbank and Vneshtorgbank cut off credits. Smolensky's own bodyguards reportedly worried that he was on the verge of getting iced in his podyezd by up-and-coming bandits. But then-and here, we should insert a John Williams crescendoing deceptive cadence-the ex-con was saved in the nick of time by... stand up please, sir!... "young reformer" Anatoly Chubais. As chairman of Yeltsin's election campaign, Chubais created an oligarchy in exchange for their support of his candidate.

For his support, Smolensky was handed the nation's agro-industrial bank network, Agroprombank, the second largest in Russia, for next to nothing. He merged his new baby with tiny Stolichny and formed SBS-Agro. Coincidentally, eXile readers will recall that Chubais, who oversaw the auction, was given a $3 million "interest-free loan" from Stolichny right around the time the Agroprom auction took place.

So, how does this grotesque Horatio Alger tale end? As the Sovershenno Sekretno section on Smolensky concludes, "Today, SBS-Agro owes $2 billion to Westerners, and $100 million in Central Bank credits issued to SBS-Agro after the crisis, money that vanished right away without a trace." Oh yeah, and don't forget the $200,000 of Independent Media money that disappeared, along with a couple billion more in domestic deposits. Smolensky, more than anyone, was responsible for wiping out the fabled "emerging middle class" in Russia, since he had the second-largest deposit base after Sberbank.

If you think of Smolensky as a Carnegie or an Athenian aristocrat-that is, a robber baron or oligarch-then it's hard to imagine him being responsible for so much brazen destruction. But when you look at the real Smolensky-no education, ex-con jailed for embezzlement, relentless schmoozer with Mafia dons and government heads, whizzing around Central Europe in a Rolls and fighting to keep from getting deported-in other words, strikingly similar to our own eXhole hero Michael Bass-and then you imagine that this Smolensky, this ex-con was suddenly, overnight, promoted into the role of oligarch and Russia's chief banker... well, it's hard to imagine things turning out any differently than they did.

Boris Berezovsky was just beginning to make headway into remonting his image from bloodthirsty godfather to ruthless "robber baron." On September 7, 1998, The New York Times called Berezovsky "a capitalist in the bloodless image of Commodore Vanderbilt." You read that right: Berezovsky is now an blue-blooded aristocrat.

Ledbetter explained it this way: "One reason why Berezovsky gets such favorable treatment in the U.S. press is that [he] employs an American firm, Edelman Associates, to handle his public relations (the account is managed by, of all people, former Reagan aide Michael Deaver)."

If I were Deaver, I'd want people to believe that my car-dealing Jewish client was in fact a genteel aristocrat. And you know what? Deaver got his wish!

Berezovsky gained power by clawing to the top of the most dangerous, mafia-infested business of all-Soviet automobile distribution. Later, he was given Aeroflot, ORT, and Sibneft, and you can bet those companies have experienced boom times and massive capital investment ever since. Actually, an article in MK by Leonid Krutakov detailed how nearly all of Aeroflot's foreign earnings were siphoned off into Berezovsky's personal Swiss bank account.

Sovershenno Sekretno's expose on Berezovsky is frankly too dangerous for us to quote, but let's just say it links him to a very notorious, elitny pimp who uses his posse to collect kompromat, and is linked to murders as far away as Paris. Because Boris Abramovich was, and we quote, "v beshenstve" when another Moscow newspaper wrote about this link, we thought we'd give our already paranoid psyches a break by passing on this one. But it's enough to know this: if you're going to compare Berezovsky to railroad robber baron Vanderbilt, then you may as well refer to Vladimir Zhirinovsky as "a democrat in the charismatic image of John F. Kennedy."

If there were two men who epitomized the wild capitalism of their time, then John D. Rockefeller would have to be the American robber baron mascot, while Uneximbank founder and nickel magnate Vladimir Potanin would represent the "robber baron"-in-quotes of the Russian '90s.

The link between the two men goes even further. It has to do with a shower. Barbara Sears Rockefeller put her family's $12 million Manhattan townhouse up for sale this past April. Her realtor, Wolf Jabukowski, reported that "numerous Russian buyers" were interested. The home featured a "nickel-plated shower," built in 1921, which Rockefeller called the "Robber-Baron Shower." Nickel. Robber-Baron. Russians. Just a coincidence?

Actually, just a stupid joke, unless you're one of several Western journalists who, without even getting paid for it, wrote straight PR fluff pieces on Potanin-the-good-robber-baron. The list of Western journo suspects includes Business Week's Patricia Kranz, The LA Times's Carol J. "Ironhead" Williams, and, in a notorious incident earlier this year, Fred Hiatt of The Washington Post.

Hiatt referred fawningly to Potanin as a "baby billionaire" who came to America in early March of this year "seeking to show that not all 'robber barons,' as they are commonly known in America, are the same."

How did this adorable little baby billionaire manage to snare Norilsk Nickel? Did he do it like the first robber barons, through years and years of ruthless acquisitions, investments, restructuring, strategizing? Uh, no, not really. Actually, the baby billionaire simply took it.

It's common knowledge that Norilsk's privatization auction was completely rigged. Must have been a pretty clever operation, right?

Here's how it worked. In order for an auction to be valid, there must be at least one competing bid. Since the baby billionaire was overseeing the auction, he disqualified everyone else's valid bids, no matter how much higher than his own, allowing only one company, OOO Reola, to bid. Reola's "bid" came in $1 million below Unexim's. The baby billionaire was the winner!

The legal founder of Reola turned out to be a fella named Rashid Ismatulin from Alabushevo, a miserable little village outside of Moscow.

When Sovershenno Sekretno went to Alabushevo to find the mysterious would-be Nickel magnate, he wasn't home.

"He's probably out drinking somewhere," his embittered old mother told the reporters. The baby billionaire's rival for Norilsk was such a destitute zero that he had recently sold his passport to a thief, Evgeny Merkulov, for 50 rubles. Merkulov has spent a total of 11 years in jail for theft and robbery, and had been snatching up passports as part of his new gig.

Today, Norilsk's market capitalization is worth barely a fraction of its true value. It has always struck foreigners as a classic strip-the-assets, hide-the-profits, and screw-the-shareholders company. Also, the auction was so shabbily rigged that many think it is a likely candidate for renationalization.

So there you have it, a sordid portrait of the lowlifes who stripped and bankrupted the nation, all with the help of a little PR work from your friends in the journalism world, who, by dignifying common mobsters with words like "robber barons" and "oligarchs," made a lot of people feel a lot more comfortable than they should have. These guys weren't interested in building anything. Like all purse-snatchers, they wanted to strip, rip and split while the gittin was good. And boy was it good. That such a ridiculous collection of balding goons like these-at times comical, at times scary-should have left their nation bankrupt three years after having been handed its wealth on a silver platter is no surprise at all. Even the Crips couldn't would have needed a good decade or two to inflict this much damage. In fact, after reading stories like these, the banking collapse is no longer shocking, just depressing.