Chubais subscribed to the idea that the top priority was to build a market economy that would make the country richer, which would then create the right conditions for democracy. He never had to worry too much about the political base for their reforms – Yeltsin took care of that. ‘Our market approach was completely unsuitable for building a democracy. But we believed that a market economy and the creation of the middle class would result in a democracy,’ Chubais reflected later.60 The oligarchs and the loans-for-shares privatizations were a necessary evil to avert a communist comeback and ensure the continuity of reforms. The auction of Svyazinvest would therefore be a necessary correction.
Two days before the auction, Berezovsky, Gusinsky and Potanin flew on Gusinsky’s private Gulfstream to the south of France where Chubais was on holiday. They told him that they had come to an agreement: Gusinsky would get Svyazinvest and Potanin would get the next asset to be sold by the state. Chubais dithered for a moment but refused to cave in. To him, it was not about who got what in a privatization, but who gets to set the rules. Berezovsky felt the same way. ‘You can’t just break the system over your knee. You are igniting a war,’ he told Chubais.61
On 25 July 1997, Potanin, backed by the money of international financier George Soros, won the auction by offering $2 billion, a record amount of money by the standards of Russian privatization, but only slightly more than Gusinsky. The next day a media war broke out. The first shot was fired by Berezovsky’s Channel One. The man who delivered it was Sergei Dorenko, a good-looking, shamelessly cynical but effective anchor with a deep, penetrating voice and an overt lack of scruples. Dorenko accused Potanin of planning to siphon profits out of Svyazinvest. He and George Soros, Dorenko said, were spekulianty (speculators), effectively black marketers, ‘people with a scandalous, tarnished-to-doubtful reputation’, who had benefited from a sweetheart deal arranged by Alfred Kokh, the man who had been in charge of conducting the auction on the government’s behalf.
Both Malashenko and Kiselev were on holiday abroad when the ‘bankers’ war’ broke out. Gusinsky summoned them back to Moscow. Malashenko, who was no longer running NTV but oversaw all of the television projects, including the satellite one, argued strongly against getting NTV involved. ‘I could see that Gusinsky had every reason to be furious – they did screw him over – but at the same time I was against waging any wars or fighting any vendetta. I thought we just needed to cut our losses and move on,’ said Malashenko.62 But this was not Gusinsky’s style. He was not an oligarch for nothing. Just as he could not cave in to gangsters, he could not submit to the government. ‘There was an informal block on saying anything negative about the young reformers of the new Yeltsin’s government. All we had to do was to remove it,’ Gusinsky said.63
Gusinsky’s first target was Kokh. Through his own contacts in Switzerland, Gusinsky dug up information that Kokh had received a ‘book advance’ of $100,000 – a vast sum of money by the standards of most ordinary Russians – from a mysterious Swiss company, Servina, which, on closer inspection, appeared to have links to Potanin. Kokh had to resign.
A week into the war, Chubais gathered the oligarchs in his office, hoping to put pressure on Gusinsky and Berezovsky to stop fighting. Those who had no interests in the auction, including Mikhail Khodorkovsky, were called to arbitrate and ruled that Gusinsky should have got Svyazinvest. Gusinsky offered to match Potanin’s price. Chubais, however, refused to reconsider the result of the auction. ‘He was certainly breaking an informal agreement,’ said Khodorkovsky.64 At the same time Chubais told Yeltsin, ‘We need to sock them in the teeth for once in our lives! We won’t achieve anything if we don’t do this.’65 But if Chubais wanted to fight, so did Berezovsky and Gusinsky. Buoyed by the support of his peers, Gusinsky doubled his effort.
As the war got more intense, Yeltsin grew increasingly nervous and gathered the oligarchs in the Kremlin. On the face of it, the meeting went well. But as Yeltsin wrote in his memoirs, ‘Despite their assurances, I sensed that these men had not really become my allies. After the meeting there was an unfamiliar silence in the room… It was as if I were dealing with people of a different race, people made not of steel but of some kind of cosmic metal… There was no area for compromise.’66
Two weeks later, Chubais and his fellow deputy prime minister, Boris Nemtsov, persuaded Yeltsin to fire Berezovsky as the deputy secretary of the Security Council. This achieved nothing: Yeltsin took away Berezovsky’s title, but left him with the main source of his power – Channel One. A few days later Gusinsky and Berezovsky fired back at Chubais with such force that it knocked out the entire government. On 12 November 1997, Gusinsky’s radio station, Echo Moskvy, reported that Chubais and five of his deputies had received $90,000 each in book advance fees from a publisher owned directly by Potanin.
The story was immediately picked up and amplified manifold by both NTV and Channel One. ‘The government no longer has to worry about its [moral] authority. It has none,’ Dorenko stated bombastically.67 Then, as though by magic, Dorenko’s sources in the prosecutor’s office started to leak documents, bank transfer details, contracts. There was little doubt that this was the fruit of Gusinsky’s efforts. To any ordinary viewer, it seemed that the young reformers, who preached to the oligarchs and the country about honesty and fair competition, were at it as well.
Chubais first dismissed the whole story as slander, then, after being given a dressing-down by Yeltsin, admitted that the fee was, perhaps, too large. A few days later Chubais offered his resignation. He was stripped of his post as finance minister, though he formally remained in the government. Gusinsky, somewhat tongue-in-cheek, justified himself by saying that what NTV told its viewers about the book scandal was true: ‘We did not lie, we did not make up the story. It was simply that we allowed it to be aired’. The story was dug out and cynically used by the oligarchs to destroy Chubais. As Chubais later admitted, the book was conceived to cover the transfer of money left over from Yeltsin’s election campaign to his team as a reward for their service. Effectively, it was no better or worse than the ‘box money’. Both Gusinsky and Berezovsky knew this.
One person who did know about it, but who was also turned into a target, was Boris Nemtsov, a young, bright and charismatic reformer who had moved to Moscow in the spring of 1997 from Nizhniy Novgorod, an old Russian merchants’ town on the Volga where he had served as governor. Yeltsin groomed Nemtsov – a brainy former physicist with a vast frame, curly black hair and oozing charm – as his successor and even introduced him to world leaders as such. In many ways Nemtsov was part of the Perestroika-era dream of Russia as a liberal, Western-oriented, dignified country driven by energetic, well-educated and decent people. Yeltsin first met Nemtsov in 1990 when the thirty-one-year-old democrat was elected to Russia’s first parliament. Nemtsov shunned communist ideology not because it was communist, but because it was ideology. Instead of ideology, he had values and ideas. He stood by Yeltsin in August 1991 and in October 1993 – despite criticizing Yeltsin’s decision to dissolve the parliament.
Nemtsov and Chubais – the two deputy prime ministers – were the core of Yeltsin’s government of young reformers who, after the communist defeat in 1996, were supposed to finally launch the country on a path of reforms. Nemtsov reflected the optimism of the 1990s, when everything seemed possible for those who had energy and brains – and he had both. Unlike most people of his generation he also had integrity and an inherent understanding of right and wrong. Stealing, betraying, killing were wrong. Thinking, loving, living were good. Of all the people who served in the Russian government, Nemtsov was the most scrupulously honest and untainted by connections with oligarchs. In fact, it was Nemtsov who coined the word ‘oligarchs’ and took them on. In January 1998, Nemtsov organized a public debate called ‘Russia’s Future: Oligarchy or Freedom?’ ‘I had the idea of a normal European Russia and the oligarchs did not fit into it. They had privatized most of the state institutions – including the police, security services and the courts. So my first thought was that we should “re-nationalize” the state, take away their special passes to the Kremlin and their special blue flashing lights, which allowed them to break traffic rules, remove the system of banks entitled to state money,’ said Nemtsov.68