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The Return of Putin: A Novel Argument for How the U.S. Should Respond

We’re supposed to be living in an Age of Democracy, but not every world leader, it seems, has gotten the memo. Vladimir Putin announced last week that he plans to return to the Russian presidency next year, and he could stay there for two more six-year terms, until 2024. Putin has been Russia’s dominant ruler since 2000—the last three years, as Prime Minister, nominally junior to his protégé, Dmitri Medvedev, the current president, but only nominally. Medvedev, as suspected, turned out only to be a seat warmer.

So the mask is off, and Putin and Putinism stand triumphant. There are no other political actors of consequence in Russia. Nor is there any immediate prospect of a “Russian Spring.” Boosted by high oil prices, the Russian economy has performed reasonably well. Putin himself remains fairly popular—certainly more popular than was his democratic predecessor, Boris Yeltsin. What to do now?

While it’s doubtless tempting for Washington to deliver a few tired lectures about the virtues of freedom and democracy and leave it at that, there’s a much better way to target the vulnerabilities of Putin. Instead of dispensing sermons, Washington should play the role of muckraker and mount an information-oriented campaign of unpleasant truth telling. And that campaign should be directed at the dark beating heart of the Putin regime—in which Putin can best be understood not as a conventional government leader but as CEO of a shadowy and increasingly global financial empire that might be called “Kremlin, Inc.”

KREMLIN, INC. REPRESENTS the second phase of Russia’s evolution since the collapse of the Soviet Union in 1991. In the first phase, a new class of oligarchs took advantage of a weak, alcoholic leader (Yeltsin) and a weakened state to build their own rival fiefdoms. Ordinary Russians despised the business barons, with their arrogant manners and flamboyant displays of wealth at a time when government struggled to pay pensioners on time. Putin, an ex-KGB Colonel, exploited their resentment in his drive to reassert the authority of the state—and, going one step further, his Kremlin seized large swaths of an economy dependent on oil and other natural resources. The result was a massive redistribution of assets from the oligarchs to the Kremlin.

It is one thing to have a state re-taking, or nationalization, of property, which economic and political circumstances can sometimes justify. In the case of post-Soviet Russia, a good argument could be made that the ill-gotten assets of the oligarchs deserved to be returned to state coffers, with the assets then re-sold to private investors in a fair, transparent bidding process. But that’s not what happened when Putin came to power. Instead of a nationalization of property guided by rule of law, the re-taking of assets suggested a rogue operation in which the beneficiary was not the state, but a ruthless band of state oligarchs led by Putin himself.

The defining example of this trend was the toppling of the billionaire oil baron Mikhail Khodorkovsky—the uppity Oligarch who dared question Putin’s authority. After Khodorkovsy was arrested in 2003 on charges of fraud and tax evasion, authorities seized his most lucrative oil subsidiary and, through a convoluted series of transactions involving an obscure front company, deposited it in the hands of a Kremlin-controlled firm, Rosneft, operated by a longtime Putin advisor. The Kremlin’s own top economic advisor at the time branded this murky property transfer “the scam of the year” and said “we used to see street hustlers do this kind of thing. Now officials are doing it.” (The aide later quit his job.) Eight years later, with Khodorkovsky still sitting in jail, basic questions remain unanswered, not the least of which is: Who are the beneficiaries of the assets held by Rosneft?

“Operation Khodorkovsky,” meanwhile, is just one example of the workings of Kremlin, Inc. And the U.S. government, to its analytical credit, does, in fact, appreciate that an understanding of the Kremlin’s business dealings is central to an understanding of Putin and his plans for the next twelve years. “According to U.S. diplomats,” The Guardian recently reported, “his main motivation for carrying on is to guarantee the safety of his own assets and those of his inner circle.” In other words, Putin realizes that to give up his position as Kremlin ruler is to make Kremlin, Inc. vulnerable to a hostile takeover by some rival Russian faction. Such is the cutthroat nature of Russian politics.

THIS LINE OF INQUIRY may sound like fodder for investigative journalists, not policymakers in Washington. But consider this: Exxon Mobil Corp. and Rosneft recently signed a deal in which Exxon agreed to invest in the exploration of Arctic-region Russian oil fields with Rosneft, with Rosneft, in turn, getting an opportunity to purchase stakes in Exxon projects, including oil fields in Texas. The deal was signed at Putin’s Black Sea vacation home, with Kremlin, Inc.’s chief looking on. It remains an open question whether Putin is watching after the asset streams of the Russian state or his own.

An open question, and an important one: As Jonathan Winer, a former deputy assistant secretary of state for international law enforcement, explained to me, “Anytime you have a lack of transparency in a government with systematic embedded corruption, then you have a regime on which you cannot rely for anything, period, because their public commitments and private commercial activities may be 180 degrees opposed to each other.”

Washington’s analysis surely is buttressed by hard knowledge about Kremlin, Inc. After all, the U.S. government possesses the world’s largest intelligence-collection net, it has tools like wiretaps, and it has skilled Russian watchers at places including the State Department’s Bureau of Intelligence and Research. No journalist or private investigator can match these capabilities. But what Washington has not done—yet—is provide a public accounting of Kremlin, Inc.

To be sure, the reason for such discretion is no doubt political. The Obama administration entered office bent on a pragmatic reset of relations with Russia on matters of mutual interest. For Washington now to disclose what it knows about Kremlin corruption would no doubt rock the diplomatic boat. Still, the fallout might not be as bad as one might imagine. Putin is the ultimate realist. He has cooperated with Washington on matters like battling the Taliban in Afghanistan not because the U.S. avoids pointed criticism of his regime, but because Islamic militancy represents a serious threat to Russia’s soft southern underbelly in Central Asia and the Caucasus. He plays a weak geopolitical hand well—but the hand is still weak.

Whether through dissemination of sensitive information in private briefings to journalists—as seems to be happening daily these days, with respect to Washington’s truculent “ally,” Pakistan—or through the government’s publication of its own White Paper on Kremlin, Inc., the truth should come out. After all, the benefits could be considerable. The Russian people may have mixed feelings about democracy, but they are surely interested in knowing into whose pockets the money from oil and other businesses may be going. As seen recently in the ouster of Mubarak, the question of who owns and benefits from state assets is a politically explosive one.

Washington, in the 1990s, was complicit in the making of the Putin counter-revolution through an overly-enthusiastic embrace of the unpopular Yeltsin at a time when the first generation of oligarchs was ravishing Russia. Now it can do the Russian people a real favor: Publish Putin’s bank account.

Paul Starobin, a former Moscow bureau chief of BusinessWeek, is the author of After America: Narratives for the Next Global Age.