Putin's People

Putin's People Plot Summary

Introduction

In the winter of 1991, as the Soviet hammer and sickle flag was lowered from the Kremlin for the final time, a young KGB officer named Vladimir Putin was burning documents in Dresden, East Germany. While the world celebrated the end of communism and the triumph of liberal democracy, Putin and his colleagues were already preparing for what would come next. This moment marked not just the collapse of a superpower, but the beginning of one of history's most remarkable institutional resurrections – the transformation of the Soviet security apparatus into the backbone of a new Russian state. The journey from Soviet collapse to Putin's empire reveals how networks of former KGB officers methodically positioned themselves throughout Russia's economy and government, creating what can only be described as "KGB capitalism" – a system where political power and economic wealth are fused under the control of security service veterans. Through this historical narrative, we discover how Western financial institutions unwittingly facilitated this transformation, how the security services adapted capitalist methods to serve imperial ambitions, and how the system Putin built now challenges the very Western order that once declared victory in the Cold War. For anyone seeking to understand modern Russia, the origins of its confrontation with the West, or the vulnerabilities of democratic systems to authoritarian influence, this journey provides essential insights into one of the defining geopolitical developments of our time.

Chapter 1: The Soviet Twilight: KGB's Strategic Preparation (1985-1991)

As Mikhail Gorbachev introduced his reforms of glasnost and perestroika in the mid-1980s, few could have predicted the Soviet Union's rapid disintegration. Yet within the KGB, particularly its foreign intelligence directorate, a remarkable adaptation was already underway. Forward-thinking officers recognized that the Soviet system was unsustainable and began preparing contingency plans for what would follow. This wasn't ideological conversion but strategic repositioning – preserving networks of influence and resources that could survive regime change. By 1990, these preparations had accelerated into concrete action. KGB officers established joint ventures with Western companies, created shell corporations in Europe, and began moving Communist Party funds offshore. A directive signed by Gorbachev's deputy in August 1990 ordered the creation of an "invisible economy" for the Party, instructing officials to invest hard currency resources through trusted "friends" with minimal visible connections. When investigators later searched the apartment of Nikolai Kruchina, the Communist Party's property chief who mysteriously fell to his death in August 1991, they found documents outlining a system of "trusted custodians" who would secretly manage Party funds after the collapse. In cities like Leningrad (soon to be renamed St. Petersburg), KGB officers cultivated relationships with emerging entrepreneurs from the Communist Youth League. Young businessmen like Mikhail Khodorkovsky and Mikhail Fridman were granted special privileges to establish cooperatives and import computers – all under KGB supervision. These entrepreneurs became the first generation of post-Soviet oligarchs, though many would later break free from their former masters. Meanwhile, a young KGB officer named Vladimir Putin returned from his posting in Dresden to work in the Leningrad mayor's office, where he would control foreign economic relations and build crucial connections. The failed coup attempt against Gorbachev in August 1991 accelerated the Soviet collapse but also the KGB's preparations. As Boris Yeltsin stood atop a tank outside the Russian White House defying the hardliners, significant portions of Soviet state wealth had already been transferred to networks controlled by KGB-connected businessmen. When Yeltsin formally dissolved the Soviet Communist Party, the formal structures disappeared, but the networks remained intact. As one former KGB officer put it, they decided "to blow up their own home" because they understood a transition was inevitable. By December 1991, when the Soviet flag was lowered from the Kremlin, the foundations for what would later be called "KGB capitalism" had been laid. The revolution that ended seven decades of Communist rule was largely bloodless because many within the system had already secured their position in the new order. While Western observers celebrated the triumph of liberal democracy, a shadow network of former security officers was positioning itself throughout the emerging Russian economy, waiting for the right moment to reassert control.

Chapter 2: St. Petersburg Laboratory: Crime, Commerce and Control (1991-1996)

The chaotic years following the Soviet collapse provided the perfect laboratory for the emerging system of KGB capitalism. Nowhere was this more evident than in St. Petersburg, where Vladimir Putin served as deputy mayor under Anatoly Sobchak. While Sobchak delivered rousing speeches about democracy and market reforms, Putin quietly built a power base through control of licenses, permits, and export quotas. His position as chairman of the city's foreign relations committee gave him authority over all international trade – a crucial chokepoint in Russia's emerging market economy. St. Petersburg's strategic port became ground zero for the alliance between former KGB officers and organized crime that would define Russia's transition. After the legitimate director of the Baltic Sea Fleet was removed on trumped-up charges in 1993, Putin's associates moved in. Ilya Traber, a former Soviet submariner with connections to the Tambov organized crime group, took control of the port. Vladimir Kumarin, the Tambov leader who lost an arm in a gang war, created the St. Petersburg Fuel Company with Putin's blessing. Meanwhile, Gennady Timchenko, an alleged former KGB operative who had studied with Putin, established a monopoly on oil exports through the port's terminal. The violence of this period was extraordinary. When officials attempted to recover city assets or challenge the new power structures, they often met violent ends. Mikhail Manevich, the city's property chief, was shot dead by a sniper after trying to recover the city's stake in the port. Other officials faced similar fates. Even Mayor Sobchak, after leaving office, died under suspicious circumstances shortly after criticizing the looting of state assets. As one businessman from that era explained: "The bandits were like the infantry for them. They would take all the risks." At the center of this emerging system was Bank Rossiya, a modest financial institution that would later become the cornerstone of Putin's economic power. Its shareholders included Putin's closest associates from the KGB: Yury Kovalchuk, Andrei Fursenko, and Vladimir Yakunin. They formed the Ozero dacha cooperative, building luxury homes on Lake Komsomolskoye north of St. Petersburg. This lakeside community became both a literal and figurative foundation for the network that would eventually control Russia – a brotherhood bound by shared secrets and financial interests. For Putin and his KGB colleagues, this alliance with organized crime was justified as necessary to restore order amid the chaos of the Soviet collapse. But its real purpose was to create what in Russian criminal parlance is called an "obschak" – a common cash pot or slush fund that could be used both for personal enrichment and for strategic operations. This fusion of security services, organized crime, and state power became the template for how Putin's Russia would be run. By 1996, when Putin was suddenly appointed to a senior position in the Kremlin in Moscow, he had established a tight-knit network of loyal lieutenants who controlled St. Petersburg's most strategic assets and cash flows. This network would follow him to Moscow and eventually expand its control nationwide. The model developed in St. Petersburg – where political power determined economic outcomes and where the lines between state, business, and criminal enterprises were deliberately blurred – would soon be applied to Russia as a whole.

Chapter 3: Operation Successor: Engineering Putin's Rise (1999-2000)

By the summer of 1999, Boris Yeltsin's presidency was in crisis. His health was failing, his approval ratings had plummeted to single digits after the 1998 financial crash, and a coalition of political opponents led by former Prime Minister Yevgeny Primakov and Moscow Mayor Yury Luzhkov was threatening to take power in the upcoming elections. Most dangerously for Yeltsin and his inner circle (known as "the Family"), prosecutors were closing in on corruption scandals that reached the president's immediate family. The most threatening investigation centered on Mabetex, a Swiss construction company that had won billions in contracts to renovate the Kremlin. Swiss prosecutors had discovered credit cards issued to Yeltsin and his daughters, with bills paid by Mabetex. When Russian Prosecutor General Yury Skuratov pursued the case aggressively, the Kremlin counterattacked. A compromising videotape showing a man resembling Skuratov with prostitutes was broadcast on state television, with FSB Director Vladimir Putin publicly confirming its authenticity. This demonstration of loyalty impressed Yeltsin's inner circle, who began to see Putin as a potential successor who would protect their interests. On August 9, 1999, Yeltsin shocked the nation by appointing Putin as prime minister and naming him as his preferred successor. What followed was a carefully orchestrated campaign to transform Putin from an obscure bureaucrat into a national hero. The pivotal moment came in September 1999, when a series of apartment bombings killed over 300 people in Moscow and other Russian cities. Putin immediately blamed Chechen terrorists and launched a military campaign against the breakaway republic. His decisive response and tough rhetoric ("We will waste them in the outhouse") resonated with a population traumatized by the bombings and humiliated by Russia's diminished global status. Questions about the bombings emerged almost immediately. When residents of an apartment building in Ryazan discovered suspicious sacks in their basement, local FSB officials initially confirmed they contained explosives. But after the incident made national news, FSB chief Nikolai Patrushev claimed it had merely been a "training exercise" with sacks of sugar. Years later, investigators who pursued this angle ended up dead, imprisoned, or exiled. Regardless of their true origin, the bombings created the perfect conditions for Putin's political rise. On December 31, 1999, in another shocking move, Yeltsin announced his resignation, making Putin acting president. Behind this dramatic handover lay a bargain: Putin would guarantee immunity for Yeltsin and his family, and preserve the financial empires of their allies. The presidential election in March 2000 was a formality. Putin refused to campaign, dismissing electoral politics as "an absolutely shameful business." He won easily in the first round with 53% of the vote. At his inauguration in the newly restored Grand Kremlin Palace, Putin spoke of uniting the Russian people and preserving "all the best from our history." But the KGB men who had engineered his rise had different plans. As Putin joked at an FSB celebration that year: "The group of FSB operatives assigned to work undercover in the government have successfully accomplished the first stage of their task." Behind his smirk lay the reality: the KGB's long-planned restoration had begun.

Chapter 4: Taming the Oligarchs: The Yukos Affair (2000-2004)

Vladimir Putin's first term as president witnessed a fundamental reconfiguration of power in post-Soviet Russia. Having secured political control, he moved to establish dominance over the economic sphere by confronting the oligarchs who had amassed enormous wealth and influence during the Yeltsin years. This campaign reached its climax with the destruction of Yukos Oil and the imprisonment of its chairman, Mikhail Khodorkovsky – a watershed moment that established the rules of the new order. The confrontation began shortly after Putin's inauguration. In July 2000, he summoned twenty-one of Russia's most powerful tycoons to the Kremlin for a televised dressing-down. Sitting at the head of the oval table in the ornate Ekaterinovsky Hall, he told them they had only themselves to blame for the wave of tax-police raids and criminal probes. After the cameras left, he made the new rules clear: stay out of politics, or else. Later that day, at Sergei Pugachev's suggestion, Putin hosted the oligarchs for a more informal gathering – at Stalin's dacha outside Moscow, where the dictator had once drawn up lists of enemies to be purged. Most oligarchs quickly fell in line. Vladimir Gusinsky and Boris Berezovsky, who controlled independent television networks that had criticized Putin, were forced into exile after refusing to surrender their media holdings. Others, like Roman Abramovich, demonstrated their loyalty by selling strategic assets to the state at the Kremlin's request. But Mikhail Khodorkovsky, Russia's richest man and head of Yukos Oil, chose a different path. He continued funding opposition parties, advocating for greater transparency, and negotiating to sell a significant stake in Yukos to ExxonMobil – which would have given a Western company control over strategic Russian resources. In October 2003, armed agents stormed Khodorkovsky's private jet during a refueling stop in Siberia. He was arrested on charges of tax evasion and fraud, beginning a legal process that would eventually dismantle Yukos and send him to a Siberian prison camp for ten years. The company was broken up and its main production unit, Yuganskneftegaz, was sold in a rigged auction to a mysterious shell company that was quickly absorbed by the state oil company Rosneft, headed by Putin's former KGB colleague Igor Sechin. The Yukos affair sent shockwaves through Russia's business community and foreign investors. It demonstrated that in Putin's Russia, economic power was ultimately subordinate to political power. The message to other oligarchs was clear: they could keep their wealth as long as they stayed out of politics and remained loyal to the Kremlin. As one tycoon put it: "If they tell you to jump, you ask how high on the way up." The era of independent oligarchs challenging state power was over. For Putin and his circle of former KGB officers, the Yukos affair represented more than just a political victory. It marked the beginning of a massive transfer of wealth from private hands to state-controlled companies dominated by Putin's associates. Rosneft, Gazprom, and other state champions expanded their control over strategic sectors, while figures like Gennady Timchenko and the Rotenberg brothers – all with close personal ties to Putin – became billionaires through state contracts and preferential access to resources. By 2004, the outlines of Putin's new system had become clear. What emerged was not simply an authoritarian state, but a hybrid form of "KGB capitalism" that fused elements of the market economy with the networks and methods of the Soviet security services. This system was designed not only to enrich Putin's inner circle, but to project power and reassert Russia's position on the world stage. The wealth generated by Russia's vast natural resources would no longer primarily benefit private individuals but would serve the strategic objectives of the state – as defined by Putin and his security service allies.

Chapter 5: The Obschak System: Black Cash Networks (2004-2008)

As Putin consolidated his political control over Russia, a sophisticated financial infrastructure emerged to serve the regime's needs. At its heart was the concept of the obschak – a term borrowed from the criminal underworld that refers to a common fund used for the benefit of the group. In the context of Putin's Russia, it became a system for generating, managing, and deploying black cash for both political and personal purposes. The foundation of this system was laid with the takeover of Bank Rossiya, a modest St. Petersburg financial institution with roots in the final years of the Soviet Union. Under the leadership of Yury Kovalchuk, Putin's close associate since the 1990s, Bank Rossiya began acquiring valuable assets from Gazprom, the state gas monopoly, often at suspiciously low prices. The process accelerated after 2004, when Bank Rossiya quietly purchased Sogaz, Gazprom's insurance company, through obscure intermediaries. This was followed by the acquisition of Gazprom-Media, which controlled several television channels and newspapers, and eventually Gazprombank, Russia's third-largest bank. These transactions transferred billions of dollars in assets from state control to entities connected to Putin's inner circle. According to former insider Sergei Kolesnikov, who later fled Russia and became a whistleblower, the network of companies behind Bank Rossiya served as a slush fund that could be tapped for both strategic regime projects and Putin's personal benefit. The most visible manifestation of this was the construction of an opulent palace on the Black Sea coast, nominally owned by a businessman but built for Putin's personal use. Parallel to these domestic operations, Putin's associates established a network of offshore companies and trading firms that captured revenue from Russia's energy exports. The most prominent example was Gunvor, an oil trading company co-founded by Gennady Timchenko, another longtime Putin associate from St. Petersburg. From modest beginnings, Gunvor grew to handle up to 40 percent of Russia's seaborne oil exports, with revenues exceeding $70 billion by 2007. The U.S. Treasury would later state that "Putin has investments in Gunvor and may have access to Gunvor funds." The black cash generated through these channels served multiple purposes. It funded election campaigns and pro-Kremlin political movements, both in Russia and increasingly abroad. It provided resources for intelligence operations and influence activities that bypassed official state budgets. It financed luxurious lifestyles for regime insiders, including the construction of palatial residences. Perhaps most importantly, it created a system of mutual dependency and complicity that bound the elite together. This financial infrastructure operated in parallel to Russia's formal economy and state institutions. It allowed the regime to function according to informal rules rather than legal procedures, with decisions made through personal connections rather than official channels. The result was a hybrid system that combined elements of a modern state with practices more commonly associated with organized crime. As one insider put it, "The country is ruled as a personal fiefdom, where the nominal owners of property are no more than temporary custodians acting at the pleasure of the true ruler." By 2008, when Putin temporarily stepped aside as president in favor of his chosen successor Dmitry Medvedev (while remaining prime minister), the obschak system was firmly established. It would prove remarkably resilient in the face of subsequent challenges, including Western sanctions. More importantly, it provided the financial foundation for Russia's increasingly assertive foreign policy and its eventual confrontation with the West.

Chapter 6: Londongrad: Western Financial Complicity (2000-2014)

As Russian wealth flowed westward in the 2000s, London emerged as the destination of choice for both legitimate investment and more questionable funds. The British capital's transformation into what critics called "Londongrad" or "Moscow-on-Thames" represented one of the most visible manifestations of Russia's integration into the global financial system – and one of the most problematic. The influx began in earnest after Roman Abramovich purchased Chelsea Football Club in 2003 for £140 million. This high-profile acquisition, followed by lavish spending on star players, made Abramovich a celebrity in Britain and helped normalize the presence of Russian money in the UK. Other oligarchs soon followed, buying up prime real estate in Mayfair, Belgravia, and Knightsbridge, sending their children to elite British schools, and becoming fixtures on the London social scene. The City of London's financial services industry eagerly embraced this new source of business. Law firms, accountants, real estate agents, and private banks competed for Russian clients, often asking few questions about the origins of their wealth. The UK's regulatory regime, with its emphasis on "light touch" oversight, made London particularly attractive. So did the country's libel laws, which could be used to silence critics, and its investor visa program, which offered residency rights in exchange for investment. Russian companies also flocked to the London Stock Exchange, raising billions through initial public offerings (IPOs) and secondary listings. Between 2005 and 2014, Russian firms raised more than $15 billion on London markets. The first wave consisted mainly of private companies seeking capital and legitimacy. But increasingly, state-controlled entities like Rosneft and VTB Bank also sought London listings, despite concerns about their governance and political connections. When Rosneft – which had acquired Yukos's assets through legally questionable means – listed on the London Stock Exchange in 2006, Western investors overlooked concerns about the rule of law in favor of potential profits. British authorities largely welcomed this influx, seeing it as evidence of the City's global appeal and a source of tax revenue and jobs. Prime Minister Tony Blair's government actively courted Russian investment, while his successor Gordon Brown continued the approach. Even after the 2006 poisoning of Alexander Litvinenko, a former FSB officer turned critic who was killed with radioactive polonium in London, the UK's response was muted, with economic considerations trumping security concerns. For the Putin regime, the embrace of Russian money by Western financial centers offered multiple advantages. It provided a safe haven for wealth accumulated through questionable means. It created a constituency in Western countries with a vested interest in maintaining good relations with Russia. And it offered opportunities for influence operations, as Russian money flowed to political parties, think tanks, and cultural institutions. By 2014, when Russia annexed Crimea and Western countries imposed sanctions in response, the entanglement was so extensive that it complicated efforts to pressure the Putin regime. London, in particular, was reluctant to take measures that might drive away Russian business. As one British official was caught saying on a leaked document, the UK should "not close London's financial center to Russians." This hesitation reflected not just economic self-interest but also the success of Russia's strategy of using financial integration as a shield against political pressure. The Londongrad phenomenon thus represented both an opportunity and a vulnerability for the West. While it gave Western countries potential leverage over the Russian elite, it also created dependencies that could be exploited by the Putin regime. The assumption that economic integration would lead to political liberalization in Russia proved to be a dangerous miscalculation – one that would have profound consequences when relations deteriorated after 2014.

Chapter 7: Imperial Resurgence: Ukraine and Global Ambitions (2014-2016)

Russia's annexation of Crimea in March 2014 and its subsequent support for separatist forces in eastern Ukraine marked a dramatic escalation in Putin's challenge to the post-Cold War international order. These actions, which effectively redrew Europe's borders by force for the first time since World War II, were the culmination of a long-simmering conflict over Ukraine's geopolitical orientation and Russia's place in the world. For Putin and his inner circle, Ukraine held special significance. Beyond its strategic importance as a buffer state, Ukraine was central to Russia's historical self-understanding and imperial identity. Putin had famously described the collapse of the Soviet Union as "the greatest geopolitical catastrophe of the 20th century," and the separation of Ukraine from Russia was, in his view, one of its most painful consequences. As he would later tell a Russian audience, "Ukraine is not just a neighboring country for us. It is an inalienable part of our own history, culture, and spiritual space." The immediate trigger for the crisis came in late 2013, when Ukrainian President Viktor Yanukovych – who had won the presidency in 2010 with Russian support – abruptly abandoned plans to sign an Association Agreement with the European Union. Instead, he accepted a $15 billion bailout from Russia. This reversal sparked massive protests in Kyiv's Maidan Square, which escalated into violent confrontations with security forces. In February 2014, after dozens of protesters were killed by snipers, Yanukovych fled to Russia, and a pro-Western interim government took power. Russia responded swiftly. Within days, unidentified armed men – later acknowledged by Putin to be Russian special forces – seized key installations in Crimea. A hastily organized referendum, held under military occupation, approved Crimea's accession to the Russian Federation. Meanwhile, in eastern Ukraine's Donbas region, armed separatists, backed by Russian "volunteers" and military equipment, took control of government buildings and declared independent "people's republics" in Donetsk and Luhansk. The West's response included economic sanctions targeting key individuals and sectors of the Russian economy, suspension of Russia from the G8, and increased military support to Ukraine. But these measures failed to deter Russia or reverse its territorial gains. By September 2014, when a fragile ceasefire was negotiated in Minsk, Belarus, Russia had effectively established a frozen conflict in eastern Ukraine that could be used to pressure Kyiv indefinitely. The Ukraine crisis revealed the full maturation of the system Putin had built since coming to power. The financial networks established through Bank Rossiya and offshore entities provided resilience against Western sanctions. The media empire controlled by Putin's associates delivered a carefully crafted narrative that portrayed Russia as defending ethnic Russians against Ukrainian "fascists." The security services, restored to their central place in Russian governance, executed complex hybrid warfare operations combining conventional military force, information warfare, and political subversion. Beyond Ukraine, Russia's imperial ambitions were increasingly evident in other theaters. In September 2015, Russian forces intervened in Syria to prop up the Assad regime, establishing Russia as a key power broker in the Middle East. In Libya, Russian mercenaries from the Wagner Group – controlled by Putin associate Yevgeny Prigozhin – supported the warlord Khalifa Haftar. In Venezuela, Russian state companies invested billions to support the Maduro regime against American pressure. Most dramatically, Russia launched an unprecedented campaign of interference in Western democratic processes. The 2016 U.S. presidential election saw Russian military intelligence hack Democratic Party servers and release damaging emails through WikiLeaks, while the Internet Research Agency – another Prigozhin operation – conducted sophisticated social media campaigns to exacerbate political divisions. Similar operations targeted elections across Europe, supporting populist and nationalist movements that challenged the European Union and NATO. By 2016, the system of KGB capitalism had evolved from a domestic power arrangement into an instrument of global influence. The networks established during the Soviet collapse, strengthened during Putin's consolidation of power, and enriched during the oil boom years were now being mobilized to challenge the Western-led international order. The KGB restoration was complete, and its imperial ambitions were increasingly evident on the world stage.

Summary

The rise of Vladimir Putin and the restoration of KGB power in Russia represents one of history's most remarkable instances of institutional survival and adaptation. What appeared to the West as the collapse of the Soviet security apparatus was in fact a strategic retreat and transformation. The KGB's foreign intelligence directorate recognized the inevitability of change and prepared accordingly, creating networks of front companies, offshore accounts, and trusted custodians that preserved their influence through the chaotic transition period. When Putin emerged as Yeltsin's successor in 1999-2000, it marked not a random occurrence but the culmination of a long-planned operation to restore the security services to power. The system that emerged under Putin combined elements of market capitalism with the methods and networks of the KGB, creating what might be called a "hybrid authoritarian state." This was not simply about personal enrichment, though Putin's inner circle certainly accumulated vast wealth. Rather, it represented a strategic vision where economic power served geopolitical aims. The billions flowing through Russian state companies and oligarch-controlled businesses became tools for projecting influence, corrupting Western institutions, and undermining rivals. The West, complacent after "winning" the Cold War and eager to benefit from Russian investment, failed to recognize that the KGB had not disappeared but evolved, learning to use capitalism as a weapon in its long-standing conflict with the United States and its allies. This historical trajectory offers a sobering lesson about institutional resilience and the dangers of declaring victory too soon in geopolitical struggles that span generations rather than election cycles.

About Author

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Catherine Belton

Catherine Belton is an investigative correspondent for Reuters. She worked from 2007-2013 as the Moscow correspondent for the Financial Times, and in 2016 as the newspaper's legal correspondent. She has previously reported on Russia for Moscow Times and Business Week. In 2009, she was shortlisted for Business Journalist of the year at the British Press Awards. She lives in London.

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