How rich are the oligarchs?
Among the richest people on earth. They amassed vast fortunes by buying up the former Soviet Union's state assets in privatizations organized by then-president Boris Yeltsin in the mid-1990s. In 1998, just 12 oligarchs controlled more than half of Russia's economy. Today, Russia boasts 17 billionaires (only three nations have more), many still in their 30s. Roman Abramovich, whose interests span oil, airlines, and media, is worth $12 billion, yet is only 36. Oleg Deripaska, who owns Russia's largest aluminum plant as well as car- and aircraft-manufacturing businesses, is just 35.
Are they all members of the old Soviet elite?
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Some are former Soviet-era bosses who gained ownership of the businesses they once controlled. These so-called "Red directors" include Vagit Alekperov of Lukoil and Vladimir Bogdanov of Surgutneftegaz, respectively Russia's second- and third-largest oil companies. Others—like Mikhail Khodorkovsky, the recently jailed former boss of Russia's largest oil company, Yukos—had official positions in the Communist Party. But most oligarchs relied on ties not to the old regime but to Yeltsin. Abramovich, an orphan from Lower Volga, became a crony of Boris Berezovsky, the "gray cardinal" behind Yeltsin and himself a leading oligarch until he was forced to flee to London to escape corruption charges. Deripaska is married to the daughter of Yeltsin's former chief of staff.
How did they acquire their companies?
In the early 1990s, Yeltsin tried to apply "shock therapy" to the failed Soviet economy by privatizing key hard-currency-earning industries such as oil, gas, and metals. A 1992 decree gave every Russian working in a company to be privatized a voucher worth 10,000 rubles to buy shares in that company. But the task of auctioning these businesses was given to Yeltsin cronies, who rigged the auctions to enable them to pick up the businesses for a pittance, and who took advantage of the ordinary worker's eagerness to accept cash for his shares. Khodorkovsky, via his bank, Menatep, was able to buy Yukos, now worth $30 billion, for $168 million.
How did they consolidate their position?
The immediate effect of the shock therapy was to plunge the economy deeper into crisis, and by 1995 the government desperately needed more money. Yeltsin turned to his newly rich cronies for loans, secured by shares in still more state assets. When the government defaulted on the debts, the oligarchs cleaned up again. In 1998, Russia defaulted on more debts and the ruble crashed. Domestic banks collapsed, scaring off foreign investors. The oligarchs then picked up more businesses for next to nothing. That's why some of their empires span a bewildering number of industries. Until he was forced into exile, Berezovsky owned a TV station; most of the national airline, Aeroflot; and the country's largest carmaker.
How are the oligarchs viewed in Russia?
With hatred. In a recent poll, 88 percent of Russians said the oligarchs accumulated their fortunes dishonestly. In 1992, Abramovich was charged in connection with the disappearance of 55 rail cars full of diesel fuel. (The criminal investigation was dropped after the case was transferred to his hometown of Ukhta.) Deripaska is the subject of a U.S.-based lawsuit that charges him with racketeering in connection with the attempted takeover of a paper and pulp mill. Platon Lebedev, billionaire director of the Menatep group, which now controls Yukos, is in jail, charged with stealing a stake in a fertilizer company in 1994.
How do the oligarchs spend their money?
Most combine extraordinary private opulence with conspicuous philanthropy. Abramovich owns a luxury yacht and his own Boeing 767. But he is also governor of Chukotka, in the far east of Russia, and claims to have spent $200 million of his own money in the region. Under Khodorkovsky, Yukos spent around $150 million a year on educational projects and good causes, and Khodorkovsky himself has invested a lot of money in Open Russia, a nonprofit organization that promotes social causes. But many oligarchs have also taken part of their fortunes out of Russia and invested in safer European and U.S. markets. Berezovsky, for example, owns two estates in Britain and two in France.
Why are they now under attack?
Some claim the crackdown is inspired by anti-Semitism: Most oligarchs are Jewish, including Abramovich, Mikhail Fridman, Khodorkovsky, and Berezovsky. Putin claims that Khodorkovsky's arrest is simply an example of the government's punishing tax evasion and corruption. But foreign investors fear the arrests are politically motivated: When Putin became president, he made a deal with the oligarchs that he would leave them alone provided they kept their noses out of politics. Khodorkovsky—who has been funding opposition political parties—is paying a price for reneging on that deal.
The rise of an oligarch
Mikhail Khodorkovsky began his business career in the early days of perestroika, importing PCs and selling them to Soviet ministries. Soon he was importing components and assembling the computers in Russia; by the late 1980s, he employed 5,000 people. But he started growing seriously rich after setting up Menatep, the first investment bank in Russia since the Revolution. With Menatep, Khodorkovsky bought ailing companies, turned them around, and sold them. Khodorkovsky's big break came with Menatep's acquisition of Yukos in 1995. He was able to do this, as he told the London Independent, because Boris Yeltsin was desperate for money. The oil companies hadn't paid taxes for three years and production had collapsed. At Yeltsin's urging, Khodorkovsky bought control of Yukos from its Communist bosses, and later—in a dubious auction—bought the government's stake, for $168 million. But there was a catch. To win the deal, he had to agree to repay $3.2 billion owed by Yukos in back taxes, and to do that he had to borrow from the arms industry. "They made it extremely clear," he said, "that failure to repay those loans would cost me my life."
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