Outside, Looking In

On a hot June evening in 1994, a group of wealthy businessmen gathered for dinner in a private club at an elegantly restored 19th-century building in central Moscow. The host was Boris Berezovsky, and the guests included some of the men who, like Berezovsky himself, would go on to become known as Russia's oligarchs--businessmen who got rich in part because of their hard-wired connections to Boris Yeltsin's Kremlin.

For the host, the evening would be a pivotal one in his extraordinary rise to influence in post-Soviet Russia. Among the guests were Naina Yeltsina, the wife of the president, and the younger of their two daughters, Tatyana Dyachenko. Though they had been in Moscow by then for several years, their deep provincial roots were evident that night. Both wore dowdy, Soviet-era dresses. And when Tatyana descended into the dining room, she gawked at the elegance of the tapestries adorning the walls. "People criticize our workers," she said, according to one of the guests present, "but see, they can do quality work when they put their minds to it." Berezovsky politely informed her that the tapestries were Italian-made.

Berezovsky sensed opportunity that night, and he grasped it. Tatyana sought to raise money for a new children's hospital in Moscow. She wanted the businessmen to help. All professed support, but only one followed through. Boris Berezovsky bought everything the clinic needed, and later that year stood next to Tatyana Dyachenko when it officially opened. He had charmed and impressed Dyachenko, and she let the people she was closest to know it. Boris Berezovsky had made the first of what he would later call the best investment anyone could make in post-Soviet Russia: "an investment in politics."

Six years later, Berezovsky is learning another lesson. In Russia, no investment--not even going long politicians--is guaranteed. It is not the first time, Berezovsky concedes, that he had made a mistaken bet on a politician. But this one may be the biggest to go wrong. Having amassed a fortune via stakes in formerly state-owned companies, and having burrowed so close to the Yeltsins that he would become known as a member of "The Family" (the clan plus a handful of nonrelated cronies), last year Berezovsky was instrumental in putting an obscure career KGB agent in a position to succeed the ailing president. Dr. Frankenstein, meet Vladimir Putin. Last week, recoiling at what he describes as the "authoritarian" tendencies of the new president, Berezovsky denounced Putin, resigned his seat in Parliament, called for an amnesty into all investigations into the shady privatization deals of the 1990s and said he would try to form an opposition movement (box).

The impetus for Berezovsky's break with the Kremlin is clear: Putin's intensifying scrutiny of the oligarchs. The investigation into media magnate Vladimir Gusinsky continues, and the government is also threatening tax-evasion charges against executives of Lukoil and seeking to undermine the conditions of the privatization of the country's largest metal-producing company. That all of this has Berezovsky's attention is not surprising. In an interview last year, after Putin had been named prime minister, Berezovsky defended him as "a liberal." He said Putin was unconcerned with media criticism and he insisted Putin would not take back private property from its owners, no matter how messily acquired. "By all means, these are signs of liberal views," he said.

Three months into Putin's presidency, those words seem painfully--and uncharacteristically--naive. Ask anyone who knows Russia's uber-oligarch to describe him, and the words are all the same: cunning, practical, irrepressible. And very, very smart. Born in Moscow in 1946, Berezovsky grew up in what was, by Soviet standards, reasonable comfort. His father was chief engineer at a chemical plant and his mother was a researcher at a pediatric institute. Berezovsky was a good student, but the Soviet-era quotas on the number of Jews admitted to elite universities relegated him to a second-tier school, where he studied electronics and computing. "He was an outstanding organizer and problem solver," recalls fellow student Aleksandr Mandel. "He always had fat notebooks and a big intellect." By 1967, Berezovsky had completed his graduate studies in mathematics. One of his later papers was titled "Decision-Making Theory in Conditions of Multiple Variables and Incomplete Information"--not a bad description for doing business in the post-Soviet chaos.

By most accounts Berezovsky made his first serious money in the early '90s. As an executive at a company called Logovaz, he suggested that the company take over the retailing of Russian Zhigulis, the most popular sedan in the country. Smart move: tax loopholes enabled dealers to buy them for almost $3,000 less than their retail price.

In 1993 he got his first opportunity to impress Boris Yeltsin. Berezovsky had become friendly with Valentin Yumashev, a young Kremlin author whom Yeltsin treated as the son he never had. Yumashev wanted to get Yeltsin's second book ("Notes of a President") published quickly. Berezovsky helped get the job done in Finland. Both Yumashev and Yeltsin were impressed. At that point, according to former Yeltsin aide Aleksandr Korzhakov, Yumashev did "everything he could" to connect Berezovsky with the Kremlin elite. And after befriending Dyachenko in 1994, Berezovsky never let up. By 1995, Berezovsky had effectively become the first family's financial adviser. It was he who helped arrange the purchase of a house the Yeltsins could use in Cap d'Antibes, where Berezovsky himself has a huge mansion.

Berezovsky did well by the Yeltsins, and they in turn did well by him. Between 1995 and 1997, he either acquired or gained control of assets like ORT, the national television network that he has used ruthlessly to flog his own political agendas; Sibneft, a giant oil company, and Aeroflot, the national airline.

The difference between Berezovsky and the other oligarchs surrounding the Yeltsin court was simple: chutzpah. He had more of it than any of the others, a fact that he practically revels in. In an interview with NEWSWEEK last week, he said he views most of his fellow oligarchs as "frightened rabbits"; after all, in the era of post-Soviet privatization, only Berezovsky thought of privatizing the First Family. And once the deal was struck, he used his insider status with one goal in mind: as he himself put it in a 1997 interview, "to make sure my wealth will be protected."

He has done so relentlessly, extending his hooks wherever he could. A former senior Kremlin official recalls arriving in Moscow from the provinces in 1997, when Berezovsky was "at the height of his powers. He immediately offered to help me financially, give me a 'free loan'."

The formula was simple: invest in Russian politicians, expand your business empire. According to former deputy prime minister Boris Nemtsov, in the summer of 1997 Berezovsky walked into his office with a document signed by the then Prime Minister Viktor Chernomyrdin naming Berezovsky the chairman of Gazprom, the country's biggest and most powerful gas company. Nemtsov was then responsible for the government's 40 percent stake in Gazprom, and Berezovsky needed his signature, too. Nemtsov refused to sign and promptly left on an official visit to Beijing. "Suddenly," Nemtsov recalls, "like Mephistopheles in his black suit, Berezovsky showed up in China, following the delegation around, still trying to get me to sign." Nemtsov continued to refuse, and Berezovsky went to war. "He told me that from then on I was his personal enemy," Nemtsov says. And he proved it. ORT began a relentless anti-Nemtsov campaign on its news programs, and the once popular young politician watched his approval ratings plunge.

It was a sign of things to come--and may yet be a cautionary tale for Vladimir Putin. In 1999, left-leaning former prime minister Yevgeny Primakov (whom Berezovsky helped appoint in 1998 and then, when he turned against the oligarch, sack in spring of 1999) seemed poised to succeed Yeltsin. He and his allies were openly hostile to Berezovsky. "They were going to hang us," says ORT anchorman Sergei Dorenko. So the Family, and the media Berezovsky controlled, moved into action: night after night they trashed Primakov and his ally, Moscow Mayor Yuri Luzhkov. At the same time--the late summer of 1999--the Family made Putin prime minister and prepared him to take power, ostensibly to defend the Family's interests. Sources say Berezovsky was initially wary of the former KGB man when he was running its successor agency, the FSB. But Berezovsky was won over when Primakov as prime minister asked Putin to put the businessman under surveillance. Putin refused. He then showed up at a large birthday celebration for Berezovsky's wife at a time when Primakov was out for blood. Berezovsky would later acknowledge that that took guts. When Putin became prime minister, and the new war in Chechnya broke out, Berezovsky watched Putin's once negligible popularity ratings move up swiftly. At that point, he thought, an even bigger investment in Vladimir Putin looked like a no-brainer.

It has not turned out that way. Berezovsky still has one key high-ranking connection in the Kremlin--a former business associate and current chief of staff named Aleksandr Voloshin. But Putin's key allies, FSB chief Nikolai Patrushev and security-council chief Sergei Ivanov, are, like him, career intelligence officers who are not exactly fans of Boris Abramovich Berezovsky. He may yet use ORT and his other media properties to try to turn public opinion against them. But few other politicians, seeing the way the political winds are blowing, are likely to join Berezovsky in open opposition. Last week, as Berezovsky was bolting from their ranks, the Duma's other members were passing every bit of legislation Putin had put in front of them (including a bill to strip now powerful regional governors of their power and assign it to Putin's Kremlin). One former senior Kremlin aide believes Putin's political goal is simply to distance himself from Berezovsky--something he has now almost accomplished. Some of Berezovsky's rivals raise the possibility that the oligarch will leave the country. Berezovky says he has no such intention--even as the returns on his most recent political investment slowly disappear.