|"These guys are criminals on an outrageous scale," says one American businessman who supplies parts to Avtovaz. "It's as if Lucky Luciano were chairman of the board of Chrysler." This businessman had to make big payments to a Lausanne, Switzerland-based company called Forus Financial Services, which he says is owned by Avtovaz managers.|
The host of the lavish affair? A wealthy Russian car dealer named Boris Berezovsky.
Ronald Lauder probably did not know that his host is a powerful gangland boss and the prime suspect in Russia's most famous murder investigation. Explains Lauder: "The invitations went out in President Yeltsin's name."
That Berezovsky can thus play cozy with Russia's president explains a lot of what is happening in Russia these days. Russia is a bubbling cauldron of criminal organizations — Sicily on a giant scale. Last year some 40,000 people were murdered in Russia and 70,000 disappeared — probably never to be heard of again. The murder rate in Russia is three or four times higher than in New York City.
Assassination is a tool of business competition. Scores of business leaders and media personalities have been killed. Ivan Kivelidi, a banker and founder of the Russian Business Roundtable, was murdered last year by poison (an obscure nerve toxin) applied to the rim of his coffee cup. Neither this nor any other of Russia's most famous contract killings has been solved.
In this violent world Boris Berezovsky looms like a giant shadow. Berezovsky recently claimed that he and six other top businessmen control 50% of the Russian economy. He is certainly one of the country's first dollar billionaires. His base is Logovaz, Russia's largest car dealership, but this is only the most visible tip of a golden iceberg.
In a recent interview with Forbes Berezovsky said: "Russia is undergoing a redistribution of property on a scale unprecedented in history. No one is satisfied — neither those who got nothing, nor those who got something, since even they feel they did not get enough."
Berezovsky is clearly one of those who never feels he has enough.
This summer Forbes reporters traveled 700 miles east of Moscow, to the place where Boris Berezovsky made his first millions: the Volga River town of Togliatti. This is home to Avtovaz, Russia's largest automobile manufacturer. There, eight years ago, Berezovsky founded Logovaz, taking the giant automaker as partner and reinforcing the relationship with cross-shareholding and numerous joint ventures.
What's his role today in the giant auto company? When Forbes asked Avtovaz President Alexei Nikolaev about his ties to Boris Berezovsky, the industrial manager and his aides exchanged worried looks. "We no longer have direct links with Logovaz," Nikolaev mumbled.
Mumbling — or silence — is a normal response when someone brings up the name Berezovsky.
What is undeniable is that in addition to his auto dealership Berezovsky controls Russia's biggest national TV network. His control was solidified shortly after the first chairman of the network was assassinated gangland-style. Berezovsky was immediately fingered by the police as a key suspect, but the murder remains unsolved two years later.
Why did the police fail to follow up? Possibly because they were afraid of where the trail would lead if they looked too closely. In Russia today gangsters thumb their noses at the police because they have protection from the very top.
And the gangsters, in turn, are often necessary for the men at the top. Such is the Russian business environment today that the men at the top often have use for the shadowy army of killers and thugs who work further down in the scale of corruption, running prostitutes and protection rackets. The old KGB, a gangster outfit itself, used to call this side of things "wet affairs." Every large business in Russia today has its own department of wet affairs.
Me, a gangster? Berezovsky is quick to take the moral high ground. "The Western press portrays Russia unfairly," he says. "Russian business is not synonymous with the Mafia."
But isn't the government powerless to bring any of the thousands of mobsters to justice? Oh, yes, says Berezovsky, but don't blame him. "In the government," he says, "there are many people who are criminals themselves."
Berezovsky should know. He stands close to political power. He organized Russia's most powerful bankers in support of President Yeltsin's presidential campaign earlier this year. "It is no secret that Russian businessmen played the decisive role in President Yeltsin's victory," says Berezovsky. "It was a battle for our blood interests."
Berezovsky and friends did whatever was necessary to prevent the Communists from gaining a victory. The Yeltsin campaign is facing allegations of massive financing violations. Legally, each party's campaign was limited to $3 million. The Yeltsin campaign is estimated to have spent at least $140 million.
As in the U.S., most people in Russia who give big money to political campaigns hope for favors. The difference is that in Russia the payoff is often very direct. After Yeltsin's reelection Berezovsky was appointed deputy secretary of the National Security Council, the body responsible for coordinating military and law enforcement policy.
The fox now guards the chickens.
In appearance and in background, Berezovsky is no thug. Boasting a Ph.D. in applied mathematics, the 50-year-old Berezovsky says he spent 25 years doing research on decision-making theory at the Russian Academy of Sciences. He speaks nervously, articulately, waving a hand still scarred from an assassination attempt two years ago.
He first appeared on the business scene in 1989, when he started Logovaz for automaker Avtovaz. The original purpose was to develop management software, but Berezovsky moved quickly into selling cars. Within four years he was the largest Avtovaz dealer in the country, accounting for more than 10% of its Russian sales.
While Berezovsky waxes rich, however, Avtovaz is, by his own statement, "in terrible shape." Why? Many parts and even whole cars are simply stolen from the factory, only to turn up soon after in criminally connected auto dealerships. The stolen cars are usually in very good shape. Not so with cars ordered directly from Avtovaz or from independent dealers, which often arrive with windshields smashed, wiring pulled out or tires slashed.
Asked about the problem of gangsters controlling his dealer network, Avtovaz's president, Alexei Nikolaev, admits: "The problem exists."
To understand the economics of the problem, examine the pricing structure. Dealer markups are huge: Avtovaz sells the typical Lada sedan to the dealer for about $4,800; but the dealer sells the car to the consumer for $7,500. In short, the dealer, not the factory, makes the profit.
Not only do the dealers make most of the money, they even finance themselves with company money. It works like this: To get a car in Russia, a consumer usually must pay upfront. However, the dealer often doesn't pay the factory until long after he has sold the vehicle.
Not only were the dealers in control of large amounts of other people's money, they were making huge inflationary profits. During 1992-94, inflation often reached 20% a month; thus, by delaying payment to Avtovaz for, say, three months, a dealer ended up paying half price for his cars.
In the past two years, with the ruble stabilizing, a dealer could invest his cash in three-month Russian T bills, which, until recently, had annualized dollar yields of 100% or more.
Currently dealers owe the carmaker some $1.2 billion, about one-third of the company's sales.
Why does Avtovaz continue to sell to the gangster-dealers who are bankrupting the company? Carrot and stick. The carrot: an envelope full of cash to car executives. The stick: a bullet in the head.
"These guys are criminals on an outrageous scale," says one American businessman who supplies parts to Avtovaz. "It's as if Lucky Luciano were chairman of the board of Chrysler." This businessman had to make big payments to a Lausanne, Switzerland-based company called Forus Financial Services, which he says is owned by Avtovaz managers.
And who is the biggest car dealer of them all and a key figure in Avtovaz? Boris Berezovsky.
In 1993 Berezovsky launched another project, grandly entitled the All-Russian Automobile Alliance (AVVA). AVVA sold $50 million worth of bonds to Russian investors, promising to pay them back with new cars at some future date. The idea was to use the money to set up a new assembly line for Avtovaz cars.
Not until 1996 did AVVA begin investing in a small assembly operation in Finland. For nearly three years, in other words, Berezovsky had the AVVA money to play with as he pleased.
While AVVA investors waited in vain for their cars and Avtovaz slid deeper toward bankruptcy, Berezovsky acquired $300 million worth of prime real estate in Moscow and St. Petersburg. He bought one of Russia's most respected newspapers, Nezavisemaia Gazeta, a popular newsmagazine and part of a new TV station called TV 6. He has acquired at least 80% of Sibneft, one of Russia's largest oil companies.
"Oil is good security for loans," he says. "Owning an oil company opens the door to acquiring other businesses." Acquire them for what? To run? Or to loot?
Russia's national airline, Aeroflot, is one of the country's top export earners, but it has cash problems. Same story as with autos: The travel agents get paid up front by the customers, but pay Aeroflot either very slowly or not at all. They get the float; Aeroflot gets questionable receivables, which, if paid at all, get paid in depreciated currency.
Now meet Aeroflot's deputy director, Nikolai Glushkov. This gentleman has an interesting background. He was convicted in 1982 under Article 89 of the Russian criminal code (theft of state property). Later Glushkov served as head of finance for Avtovaz and was one of the founders of Logovaz. In short, an associate of Berezovsky. Are Glushkov and Berezovsky in cahoots to siphon money from Aeroflot? The parallels with Avtovaz are certainly striking.
According to Moscow police reports, Berezovsky started his auto dealership in close collaboration with the powerful Chechen criminal gangs. Presumably they provided him with physical protection—a "roof," as it's called in Russian slang.
But two years ago the Solntsevo gang began to muscle in on the Chechens' control of the Moscow auto market. When the Russian gangsters approached Berezovsky about an alliance, he is reported by one police detective to have said: "I already have a roof. Talk to the Chechens."
The "conversation" between the Russian and the Chechen gangsters over the Moscow auto market took place outside a Logovaz showroom, near the Kazakhstan Cinema. In the ensuing gun fight, six Chechens and four Russians were killed.
Berezovsky says he remembers the 1994 shootout but doesn't know what it was about.
Shortly after, Berezovsky barely escaped death himself. He was being driven out of his office complex, sitting in the back of his Mercedes 600, with his driver and bodyguard in the front, when a remote-controlled car bomb exploded next to the car, decapitating the driver. Berezovsky got away with burns to his hands and face. A few days after that, the headquarters of Berezovsky's Obedinenyi Bank were bombed. No culprits were ever identified. They rarely are in Russia. Says Berezovsky: "I am not one of those people who seeks vengeance."
Maybe not, but people who have stood in his way have sometimes met bloody ends. The most famous death came with Berezovsky's move into TV broadcasting.
Two years ago Vladislav Listiev was Russia's most popular talk show host and its most successful TV producer. Listiev had recently persuaded the government to privatize Channel 1, Russia's biggest nationwide TV network. In early 1995 Listiev was named head of the reorganized company, now known as ORT (Russian Public Television).
The government kept 51% of ORT; a group of well-connected businessmen got the rest. Leading the businessmen was Berezovsky, who acquired 16% of the stock for a mere $320,000.
Listiev had no intention of being a figurehead. He decided to clean up the network's unsavory connections. His main target was Sergei Lisovsky, a 36-year-old advertising man who made his first fortune from a chain of Moscow discotheques. These glittering dives were known as good places to procure drugs. They were a haunt of Russia's crime bosses.
From discos, Lisovsky moved into advertising. To buy time on any of the top five Russian TV channels you must go through Lisovsky or an allied company. Here, as in cars and airline tickets, the middleman seems to have captured the float. This year advertisers will pay about $80 million to buy time on ORT. The money goes first to the media sales company, which then pays the network. But companies like Lisovsky's Premier SV were keeping most of the money while government subsidies (some $250 million) were keeping the TV network operating.
Lisovsky's business has been connected with some unsavory characters. One of Premier SV'S founding shareholders, Sergei Antonov, has been arrested by the Moscow police on racketeering charges. The chief financial officer of Premier SV, according to police investigations, is Alexander Averin. Known in the underworld as "Avera Junior," Averin is important for his family connections — his older brother, Viktor, is the right-hand man of "Mikhas," a former hotel waiter, now boss of the notorious Solntsevo Gang; Mikhas was recently arrested on money laundering charges in Switzerland.
This was the crowd that Vladislav Listiev, the TV producer, decided to take on.
On Feb. 20, 1995 Listiev announced that he was breaking Lisovsky's advertising monopoly and instituting a temporary moratorium on advertising until ORT could work out new "ethical standards."
"I knew he would be killed — the people he was dealing with were totally criminal," says one close friend of Listiev's. Two weeks later Listiev was gunned down by professional assassins at the entrance to his apartment building. Forbes has obtained documents on the case from the organized crime unit of the Moscow police department.
According to these documents, Listiev knew that he was a marked man. He knew law enforcement authorities in Russia are powerless against the kind of opposition he faced. So Listiev gathered a group of his closest friends and explained the reason he might be killed.
This is the tale he told them.
When Listiev announced that he would be ending the advertising monopoly, Lisovsky demanded $100 million in damages. Listiev found a European company (name undisclosed) willing to buy the ORT advertising franchise. Listiev asked Boris Berezovsky to act as transfer agent and hand over the $100 million to Lisovsky. Berezovsky took the cash and stalled Lisovsky; he would get his money in three months, Berezovsky explained.
Thus the reforming Listiev was caught between two ruthless characters. He paid with his life.
Now Berezovsky effectively controls ORT with 36% of the network's voting stock, and Lisovsky is again the sole agent for its advertising. In June Sergei Lisovsky was caught by security guards as he was coming out of Russian government headquarters with $500,000 stuffed into a cardboard box. The matter is still "being investigated."
The public outcry over Listiev's death was immense. Thousands of mourners showed up at his funeral. But the subsequent investigation was a tragic farce. Lisovsky's and Berezovsky's offices were searched by the police immediately after the murder.
Five months later the federal prosecutor's office announced that it had closed the Listiev case, and identified the names of both the people who ordered the killing and those who had carried it out. The very next day the prosecutor's office recanted, saying that the investigation was continuing. Two months later the prosecutor-general was fired and thrown in jail on charges of corruption.
Berezovsky denies that he had anything to do with Listiev's killing. He blames unnamed advertising and production companies that were being hurt by Listiev's reorganization of the network.
Did Berezovsky adopt a low profile after the killing? No way. This spring, Berezovsky emerged as a participant in the National Sports Fund, a charity organized by Boris Yeltsin's tennis coach to benefit sports in Russia. Over the past several years the organization has received billions of dollars in revenues from the duty-free importation of alcohol and cigarettes. When at least $100 million went missing earlier this year, the organization was revealed as a massively corrupt racket. Its privileges were withdrawn and the tennis coach was sacked.
The president of the fund was Boris Feodorov, a close ally of Berezovsky. Feodorov gave a newspaper interview in which he claimed that he was being victimized by criminal organizations within President Yeltsin's administration.
In June, before the interview was published, Feodorov was shot and repeatedly stabbed by unknown assailants in Moscow. He survived and fled to Western Europe. Apparently that interview was so close to the truth as to threaten the gangsters and their higher-up accomplices.
Is Boris Berezovsky the godfather of Russia's godfathers? It sure looks that way.