Russia!

03.19.13

How Did Cyprus Get So Bad?

Masha Gessen, New York City, March 2012 ()

How did Cyprus' banking sector get so over-stretched? To the point where its banks hold deposits worth eight times more than the island's total economy? The answer is an answer about Russia, not Cyprus. The Financial Times explains (paywalled) this morning that Cyprus is more than a place where rich Russians stash cash. Cyprus is a place through which Russian transactions flow in order to avoid Russian tax and Russian law, such as it is.

What kind of transactions? In a review last year of a new biography of Vladimir Putin, Anne Applebaum cited an example. The example, narrated by Masha Gessen, is sourced to:

[M]arina Salye, a liberal St. Petersburg politician who was chairwoman of the Leningrad City Council’s committee on food supplies in 1991 (and who died at age seventy-seven on March 21 of this year). At that time, [Anatoly] Sobchak was the mayor, [Vladimir] Putin was his deputy, and Leningrad, now renamed St. Petersburg, ran out of food. The Soviet economic system was imploding, there had been a tobacco riot and a sugar riot, and the city council negotiated the purchase of several trainloads of meat and potatoes. Salye was sent to Berlin to sign the contracts, as Gessen relates:

“And when we get there,” Salye told me years later, still outraged, “and this Frau Rudolf with whom we were supposed to meet, she tells us she can’t see us because she is involved in urgent negotiations with the City of Leningrad on the subject of meat imports. Our eyes are popping out. Because we are the City of Leningrad, and we are there on the subject of meat imports!”

The meat never appeared. The money Salye thought was earmarked for the purchase—90 million deutschmarks—disappeared.

Subsequently, Salye discovered that Putin, who then headed the mayor’s “Committee for Foreign Relations,” had been responsible for that swindle as well as many others. She learned that Putin, a trained lawyer, had knowingly entered into a dozen legally flawed contracts on behalf of the city, mostly involving the export of timber, oil, metals, cotton, and other raw materials. As Salye explained:

The point of the whole operation was this: to create a legally flawed contract with someone who could be trusted, to issue an export license to him, to make the customs office open the border on the basis of this license, to ship the goods abroad, sell them, and pocket the money. And that is what happened.

Although she couldn’t track most of the contracts, she did find documentation proving that Putin had arranged, at a minimum, for the export of some $92 million worth of commodities in exchange for food that never arrived. She wrote her findings into a report for the Leningrad City Council, which passed it on to Sobchak, with a recommendation that he fire Putin and his deputy. Salye also passed the report to President Yeltsin’s comptroller, who interviewed Sobchak and then passed the same conclusions on to President Yeltsin. “And then,” writes Gessen, “nothing happened.” The story died.

The Leningrad City Council did not get rid of Putin. Instead, Putin—or rather Mayor Sobchak—got rid of the Leningrad City Council, which was dissolved by administrative fiat not long afterward. Salye left politics. In 2000, she wrote one final article about Putin’s years in St. Petersburg. Its title: “Putin Is the President of a Corrupt Oligarchy.” That was her last public statement on the subject. Not long afterward she was so badly scared—by something—that she ran away. Gessen found her ten years later, living in a tiny village twelve hours’ drive from Moscow. Even then she wouldn’t tell Gessen what or who had frightened her. And there, once again, the story ends.