Putin in St. Petersburg: Official Corruption and an Enduring Alliance with Organized Crime
This article covers Vladimir Putin’s tenure as the Deputy Mayor of St. Petersburg and his early alliance with Eurasian organized crime. It is the fifth article in the series “Vladimir Putin, Russia, and the Road to the 2016 American Election.” While reading the previous entries is not necessary, it is recommended.
The first article provided a brief history of Russia’s intelligence services and a definition of “Disinformation” and “Active Measures.”
The second article describes Vladimir Putin’s early life and his experiences as a KGB Officer in Russia and East Germany.
The third article describes how elements of the KGB laundered billions of dollars of Communist Party money into the West as the USSR collapsed.
The fourth article describes the rise of the post-Soviet oligarchic system and the role Eurasian organized crime played in facilitating it.
This article is an excerpt from my book, While We Slept: Vladimir Putin, Donald Trump, and the Corruption of American Democracy, available here.
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After the fall of the Iron Curtain, Vladimir Putin was recalled from his KGB posting in Dresden and returned to St. Petersburg in early 1990. The Russia he came home to was unrecognizable from the country he had left. Putin was part of an entire generation of spies and intelligence operatives returning from Eastern Bloc and other Soviet missions abroad, dejected and in search of new work or anything that would pay the bills.
He ended up returning to his alma mater Leningrad State University were he was employed as the assistant to the rector for international affairs.
During his last days in Dresden, Putin had met with the head of the KGB’s illegal-intelligence directorate Yuri Drozdov to receive a new assignment. He was transferred to the KGB’s active reserve.
In the Soviet era, members of the active reserve were placed in state and civic organizations for monitoring purposes. As the KGB rezident at Leningrad State University, Putin kept tabs on the political activities of its students and faculty.
Putin’s stint at his old university was short lived.
As the Soviet Union fell apart, St. Petersburg held its first city council election and a group of democratic activists known as the “informals”, who had forged a bond as an early protest movement in the Gorbachev era, were elected. Intellectuals and idealists, the informals had little practical experience governing and the city they were now tasked with running was on the brink of disaster.
The newly empowered but overwhelmed activists turned to Anatoly Sobchak. In the elections held under glasnost, Sobchak was elected to the Congress of People’s Deputies. Sobchak was a sharply dressed law professor with a penchant for public speaking who had advocated for market reforms during the late Soviet period, though like Gorbachev he wanted to reform the USSR, not end it.
The politically ambitious Sobchak would not prove to be the reformer the activists on the city council had hoped for. Sobchack was first elected chairman of the city council and then mayor of the city. Years earlier he had taught a young law student by the name of Vladimir Putin.
Putin was appointed as Sobchak’s advisor on international affairs in May of 1990, a position that he held until June of 1991, when he was promoted to head of the Committee for External Relations.
In August, the KGB initiated a coup against Gorbachev, attempting to save the Soviet Union. The coup failed and set off a series of events which culminated in the dissolution of the Empire in December.
While Putin claims to have not supported the coup and even to have submitted a letter of resignation to the KGB, biographers have pointed out that his official story contains too many inconsistencies to be taken seriously. Both Putin and Sobchak spent the days of the coup positioning themselves to survive no matter the outcome.
During his time in the St. Petersburg mayoral administration, Putin surrounded himself with a core group of followers who would rise with him to the highest levels of political and economic power in Moscow following his ascent to the Presidency.
Many of these individuals were friends and colleagues of his from the KGB. Others came from organizations including Russian military intelligence (Gavnoye Razvedvatel’noye Upravleniye, the GRU), the Communist Youth League Komsomol, or businesses that had worked with Putin in St. Petersburg.
The circle of men from the security forces that currently form the inner power circle around Putin are known as the siloviki, translated as “men of force,” or “strongmen.”
Vladimir Putin’s Rise in St. Petersburg, Official Corruption, and the Tambovskaya Bratva
While working in the mayor’s office, Putin was implicated in a number of corruption scandals. In the fall of 1991, shortages in Russia had reached a crisis point and with the onset of winter there were worries that Russian citizens were at risk of starvation.
Russian authorities arranged for natural resources to be traded abroad in exchange for food. Marina Salye, a member of the St. Petersburg city council, was tasked with traveling to Berlin to arrange for several tons of meat and potatoes to be delivered to St. Petersburg. However, when she arrived, she was stunned to discover that contracts for the delivery had already been arranged for by Vladimir Putin and, the Germans insisted, the food had been delivered.
The food, however, never arrived in St. Petersburg. In late 1991, Putin had requested permission from Moscow to barter at least $120 million worth of Russian state-owned assets, though Salye claimed that he received over a billion dollars worth of assets.
Salye established a commission to investigate Putin’s role in the disappearance of over 90 million deutschmarks worth of food. Dozens of shoddy contracts were discovered, the signing of which were overseen by the legally trained Putin.
The food contracts, a majority of which were prepared incorrectly thereby making them unenforceable in court, were signed by Putin months before he had received official permission to do so.
The penalties established for non-delivery ranged from no penalty at all to between 1–5%. Commissions for the companies handling the goods on the other hand, ranged from 25–50%.
Much of the commission money, awarded to companies with links to Putin and the Mayor’s office, simply disappeared. It was further discovered that the contracts used faulty exchange rates to maximize profits.
Salye ultimately accused Putin of establishing an elaborate kickback scheme during a time of near starvation in St. Petersburg that allowed handpicked companies to receive commissions on transactions in which they did not live up to their end of the bargain.
Salye believed the food that was originally meant to be delivered St. Petersburg was instead delivered to KGB contacts in Moscow to aid them in preparation for the coup.
A KGB foreign intelligence agent Felipe Turover, who worked with Putin in St. Petersburg, told Catherine Belton that the money was pooled in black slush funds accessible to Putin and his peers in the intelligence services.
In one of Sobchak’s earliest decrees, he legalized gambling in St. Petersburg ostensibly to tax the new gaming ventures to pay for social programs. Putin, in addition to his responsibilities in licensing all foreign economic activity in the city, was now a casino mogul.
He established a municipal joint-stock company named Neva Chance which would own 51% of each new casino established in the city. Dozens of city owned buildings were converted into casinos. However, instead of earning profits through rent, Neva Chance owned shares in each casino. The profits were never realized.
The casino partners Putin entered into business with were largely composed of ex-KGB officers and members of organized crime outfits. These managers laundered the cash profits of the gambling establishments then inaccurately reported losses to the city, thus walking away with the profits while the city received nothing.
One of the organizations that participated in the casino scam was St. Petersburg’s most powerful organized crime outfit, the Tambovskaya Bratva. The group was founded in the Tambov region by Vladimir Kumarin (AKA Vladimir Barsukov) in 1988.
Kumarin was known in St. Petersburg as the Night Governor. While the group initially engaged in traditional criminal activities such as drug trafficking, organized theft and racketeering, following Gorbachev’s Law on Cooperatives it established fronts of newly formed legitimate businesses.
Putin and his cronies in the KGB, including the oligarch and billionaire Gennady Timchenko, who attended the Red Banner Academy with Putin, assisted a Tambovskaya associate named Ilya Traber in his seizure of St. Petersburg’s sea port and the Petersburg Oil Terminal.
Traber and others linked to the Tamboskaya own and operate a complex web of businesses and money laundering operations across Western Europe in places like Monaco, France, and Spain. Investigators believe that Putin himself profits off these activities to this very day.
A Tambovskaya-linked private security company called Baltik-Escort was established to protect both Sobchak and Putin. Founded by Roman Tsepov and Viktor Zolotov, both of whom were involved in the casino scam, the service was not only staffed by multiple members of local criminal groups but served as a liaison between the mayor’s office and Vladimir Kumarin as well as Aleksandr Malyshev, the head of the Malyshevskaya criminal organization.
Kumarin also profited handsomely from another Putin-licensed company, the Petersburg Fuel Company, which was given exclusive rights to supply fuel to St. Petersburg.
In 2001, Newsweek obtained documents that showed Putin sat on the board of a German-Russian firm the St. Petersburg Real Estate Holding Company (SPAG). A German Federal Intelligence Agency (BND) investigation completed in 1999 reported that SPAG was involved in money laundering activities for the Tambovskaya as well as Columbia’s Cali cartel.
In 1997 Mikhail Manevich, a SPAG board member, was assassinated and his wife wounded by a sniper as they were driving to work on Nevsky Prospekt in St. Petersburg. Rudolf Ritter, the founder and head of SPAG, was arrested by authorities in Liechtenstein on May 13th, 2000, four days after Putin’s inauguration. Ten days after his arrest, the company announced that Putin had stepped down from the board. US officials used the BND’s SPAG report to place Russia on an international money laundering blacklist.
Vladimir Kumarin was involved in two subsidiaries of SPAG, Znamenskaya and Inform-Future, both of which were personally licensed by Putin. Kumarin co-owned these subsidiaries with Vladimir Smirnov, who had registered SPAG with Putin in 1992.
Smirnov had met Putin in Germany and headed one of the companies Putin had licensed that was involved in the Oil-for-Food scandal. Tens of millions of dollars in city loans were funneled through these subsidiaries to develop properties, some of which sat empty or were never completed.
Putin and the OZERO Cooperative
Upon his return to St. Petersburg in 1990, Putin purchased a dacha on the shores of Lake Komsomol’skoye, located north of the city. Six years later in 1996, he and seven of his closest St. Petersburg-based associates established the Ozero Dacha Consumer Cooperative (Ozero is Russian for “Lake”). The man listed in legal documents as the head of the cooperative was the SPAG-linked Vladimir Smirnov.
Another member of the Ozero board was the KGB colleague of Putin’s named Vladimir Yakunin, who Putin later installed as the billionaire head of Russian Railways.
Others included Nikolay Shamalov, Yuri Kovalchuk, Viktor Myachin, Sergei and Andrei Fursenko. The group built themselves small mansions next to one another and security was provided by Rif-Security, which was owned by Smirnov and Tambovskaya head Vladimir Kumarin.
In establishing the Ozero Cooperative and a linked bank account that could be accessed and used by all of its members, Putin could be given money directly and yet avoid the appearance of impropriety as the money was officially being passed through the cooperative.
The financial institution used by the Ozero Cooperative is Bank Rossiya. Founded in 1990, the initial largest shareholder of Bank Rossiya was the Communist Party of the Leningrad Oblast and it may have served as a money laundering vehicle for the KGB. The bank’s initial capitalization of 1.5 million rubles was provided by Nikolai Kruchina, the CPSU financial manager who met his end by leaping out his window.
Following the coup, Bank Rossiya’s accounts were briefly closed. However, Putin began working with the bank as early as his first week in office, when he used his position in the mayor’s office to funnel city money into the St. Petersburg World Trade Center, a joint-venture with Bank Rossiya.
Shortly thereafter, three members of the Ozero Cooperative, Yuri Kovalchuk, Andrei Fursenko and Vladimir Yakunin stepped in as early investors. They were shortly followed by two other members of the Ozero Cooperative, Nikolay Shamalov (whose son, Kirill, is married to Putin’s daughter) and Andrei Fursenko’s brother Sergei.
In 2013, Bank of Rossiya’s assets were estimated by The Financial Times to be worth up to $11 billion. In 2014, following the Russian invasion of Crimea, the first financial institution placed under US sanctions was Bank Rossiya, which Obama officials described at the time as the “personal bank” of Putin’s inner circle.
The Panama Papers leak of 2016 established that even as of today, the vast financial resources of a tribute network flow through Bank Rossiya and eventually, most assume, make their way to Putin. Many accounts are in the name of Sergei Roldugin, Putin’s childhood friend and godfather to his daughter.
Additional Bank of Rossiya investors included Sergei Kuzmin and Gennadey Petrov, the latter of whom was indicted by Spanish prosecutors for being a member of the Tambovskaya.
Putin-linked Crime and Corruption Abroad: The Tambovskaya Bratva in Spain
Years later, after Putin had risen to the Russian presidency, evidence of his links to organized crime began to emerge in unexpected places. In the fall of 2010, the largest leak of confidential documents in US history at the time was posted online by the anti-secrecy organization WikiLeaks. 251,287 US diplomatic cables were released, some dating as far back as 1966. Then US Secretary of State Hillary Clinton denounced the leak.
“This disclosure is not just an attack on America’s foreign policy interests,” Clinton stated. “It is an attack on the international community: the alliances and partnerships, the conversations and negotiations that safeguard global security and advance economic prosperity.”
In the aftermath of the mass disclosure, American foreign policy was thrown into damage control mode. Embarrassing revelations had to be dealt with. Delicate relationships needed to be mended. Apologies and explanations were issued to heads of state and influential leaders who were snubbed. In some cases, diplomatic staff were reassigned.
But Cablegate did more than simply spill secrets about foreign leaders and countries. The leaks revealed that the men and women of the American diplomatic corps often possessed a subtle and nuanced understanding of the regions in which they were posted, and that among them were talented writers with an eye for colorful detail and irony.
10MADRID154_a, as it is labelled on the WikiLeaks database, is one of those quarter million documents leaked online. The cable is designated SECRET, the second highest level of US classification, and NOFORN, meaning providing the information contained within to foreign nationals is strictly forbidden.
10MADRID154_a reveals that on January 14th, 2010, State Department officials received a “detailed, frank” briefing in Madrid from José “Pepe” Grinda Gonzalez, a Spanish special prosecutor for corruption and organized crime. The cable describes Grinda’s comments as “insightful and valuable, given his in-depth knowledge of the Eurasian mafia and his key role in Spain’s pioneering efforts to bring Eurasian mafia leaders to justice.”
José Grinda was already a legend in anti-organized crime law enforcement circles. His prosecutions had led to the conviction and imprisonment of Zakhar Kalashov, a Georgian crime boss with suspected ties to Russian intelligence who operated out of the Spanish port city of Alicante.
In the leaked cable, Kalashov is described as “the most senior mafia figure jailed outside of Russia.”
Kalashov’s arrest was part of a much larger Spanish law enforcement effort, over the course of which the symbiosis between Russia’s government, intelligence apparatus and organized crime groups was revealed in vivid, disturbing detail.
Grinda was assigned to work on Russian mafia related cases in March of 2006. A year earlier, Spanish authorities conducted three sweeping operations against Eurasian mafia networks operating in the country code-named Avispa, Troika and Variola.
The operations resulted in the arrest of over 80 Russian crime figures across Spain. Spanish police made use of extensive secret surveillance, recording over 230 wire taps. Through the conversations they intercepted, they compiled a list of Russian politicians, prosecutors and military officers communicating with members of organized crime.
Spain’s idyllic beaches and affordable real estate had been a draw for Russian organized criminals since the 1990s. Long a destination for British retirees and Germans on holiday, Spain’s coastal enclaves experienced a wave of new arrivals from the former Eastern bloc: Russians, Ukrainians, Georgians and Armenians, among others.
A subset among them were members of organized crime groups which were exploding in size and sophistication in the countries of the former Soviet Union. Some were fleeing the rampant gang wars erupting across the streets of Russia in the 90s. Some were ex-KGB or Russian military veterans. Quite a few had emerged from athletic circles in the former USSR, wrestlers, boxers and weightlifters who had provided the muscle for mafia groups in their home countries and had now struck out abroad.
Grinda and his colleagues noticed a pattern. The infiltration of Russian organized crime into Spain unfolded in distinct phases and revolved around the accumulation of social, political and financial power. It was the same model organized crime groups had used in Russia, and they were now exporting it abroad.
In the first phase, the Russians arrived in Spain flush with money generated by criminal activities conducted elsewhere, making them difficult to prosecute. They would then use that illicit money to buy legitimacy.
“The first thing they try and do after achieving economic profits is to try and legitimize themselves,” Grinda said in an interview with The American Interest. “In Spain, the people who are most corrupt do two things: First, they buy an incredibly luxurious mansion to show they are there. Second, they buy a soccer team.”
Grinda further explained how the Russian mafia goes about developing social cache, “first in their little town, and then [expanding] into creating foundations — charities, legal foundations, medical foundations. And then they will say they are philanthropists. They say that they take care of people.”
In the next phase, political power is established by seizing control over the awarding of public contracts. This was less about financial gain and more about establishing relationships with politicians. Public officials are bribed to award certain public works contracts to mafia-linked contractors and before they know it they are not only reliant on the mafia to complete high profile projects but are now compromised by them.
“In other words, they are insinuating themselves into the political world. And once there, they can get legislation changed” Grinda explained, describing how the process unfolded in Russia. “We have detected in our investigations that Russian crime organizations, that this power has meant that criminals have been able to make officials purge their criminal records. And the worst is when they actually create their own political parties.”
The third and final phase Grinda describes is compromising the financial sector. Using Western law firms and financial experts alongside respected banks and other financial institutions, Eurasian organized crime groups inject and effectively launder billions of dollars into the international financial system.
By this point, so entwined are they in the legitimate institutions of national power, the criminal organizations effectively cease looking like mafias at all. More remarkable still, they’ve now developed potentially compromising relationships with individuals at the highest levels of governmental and finance.
Spanish authorities were shocked by the high level Kremlin and Russian intelligence contacts many of the mobsters they were investigating enjoyed. Gennady Petrov, a leading figure in the St. Petersburg-based Tambovskaya Bratva criminal organization, was arrested in Mallorca in 2008. Petrov’s rise in the St. Petersburg underworld coincided with that of a then little known deputy mayor by the name of Vladimir Putin.
Spanish wiretaps recorded that Petrov was in contact with a deputy Russian prime minister and at least five members of Putin’s cabinet. Petrov is also a member of the board of directors of Bank Rossiya, which was described by members of the Obama treasury department in 2014 as, “the personal bank for senior officials of the Russian Federation.”
Grinda’s battle with Russian organized crime and its government patrons, which had won extensive plaudits and praise from the FBI, piqued the interest of US diplomats. So on January 14th, 2010, State Department officials invited Grinda to meet with them in Madrid and speak openly and honestly about his assessment of the threat these groups posed.
As the 10MADRID154_a cable records, he did that and more. Speaking in what he believed was a highly classified briefing at the time, José Grinda told the American diplomats that: “[H]e considers Belarus, Chechnya and Russia to be virtual “mafia states” and said that Ukraine is going to be one. For each of those countries, he alleged, one cannot differentiate between the activities of the government and OC [Organized Crime] groups.”
The cable continues: “Grinda suggested that there are two reasons to worry about the Russian mafia. First, it exercises “tremendous control” over certain strategic sectors of the global economy, such as aluminum… The second reason is the unanswered question regarding the extent to which Russian PM Putin is implicated in the Russian mafia and whether he controls the mafia’s actions. Grinda cited a “thesis” by Alexander Litvinenko, the former Russian intelligence official who worked on OC issues before he died in late 2006 in London from poisoning under mysterious circumstances, that the Russian intelligence and security services… control OC in Russia. Grinda stated that he believes this thesis is accurate.”
Alexander Litvenenko was a former KGB agent who had worked for a unit dedicated to fighting organized economic crime. He clashed with Putin early in his Presidency and ultimately fled to London. While there, he maintained some questionable allegiances and some of his claims about Putin have yet to be substantiated. However, when Grinda met with him in London in June 2006, much of what Litvinenko told him corresponded with facts that had been unearthed by ongoing Spanish investigations.
Litvenenko told Grinda that Russian organized crime was fundamentally entwined with the state, similar to the model Putin established while he was the deputy mayor in St. Petersburg. Furthermore, the Russian security services had largely absorbed various Russian mafia organizations and used them to pursue state purposes.
Grinda persuaded Litvenenko to testify as a witness in upcoming legal proceedings in Spain. However, by the end of the year, Litvinenko was dead. He was given tea laced with the radioactive isotope polonium. Within days, Litvinenko’s hair fell out, his body withered away, and seventeen days after he had ingested the poison, he died of massive organ failure.
Over a decade has passed since Grinda’s secret briefing with the State Department. Grinda’s war against the Russian mafia in Spain continues to grind forward. In April of 2019, he was sniffing out a Spanish real estate connection to a €200 billion Russian money laundering scandal currently rocking capitals and national banks from the Baltic states to Scandinavia.
For his troubles, Grinda has had three separate contracts placed on his head and now travels everywhere under armed guard. A now deceased Spanish lawyer accused Grinda, without evidence, of being a pedophile. Grinda claims to have evidence that his accuser was paid off by a Russian minister, and is suing for defamation.
“These cases are like a long-distance race,” Grinda told ProPublica in 2017. “We are telling them: not here. We don’t want you here.”