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M oscow, February 2003. A bolt from the blue: President Putin appoints a new deputy minister of internal affairs and head of GUBOP, the Central Agency for Combating Organized Crime. He is Nikolai Ovchinnikov, a modest, low-profile deputy of the state duma who never speaks at its sessions, has no known involvement in its legislative work, and appears to be politically inert. He isn’t even one of Putin’s former cronies from Saint Petersburg, which in terms of current appointments policy is unusual. After the announcement, Ovchinnikov gives an interview saying he will do his best to be worthy of the president’s trust and that he sees his mission as being to reduce corruption “to a minimum” and to ensure that the “healthy sector of society” is no longer at the mercy of the criminal minority. These are splendid sentiments, so why does the new deputy minister’s pronouncement give rise to such merriment in the Urals?

Let us look at his new job. Where does it rank in Russia’s bureaucracy?

The director of GUBOP occupies no ordinary position in Russia. This is a key portfolio in the power structure. In the first place, organized crime—the Mafia—is rooted in monstrous corruption, and permeates everyday life. We say in Russia that where money talks, it can’t be silenced.

In the second place, the office carries so much clout because of its history. One of our country’s top bureaucrats and power brokers, a man who has stayed afloat under Yeltsin and now under Putin, is Vladimir Rushailo.[8] Formerly minister of internal affairs, recently he headed Russia’s National Security Council. He began his career as director of GUBOP. When he was appointed minister of internal affairs, he maintained an interest in his old field and did his utmost to beef the agency up. He inflated its staffing levels relative to other agencies and gave its officers sweeping powers, allowing them to carry out operations involving the use of force without prior approval, unlike other sections of the police. He also actively advanced his political appointees out of the agency and into the highest offices of state, with the result that nowadays “Rushailo men” are a factor to be reckoned with in the law-enforcement ministries. Their numbers are comparable only with the Petersburgers, as those who worked with Putin in Saint Petersburg and who followed him to various bureaucracies in Moscow are known, and the “Cheka men,” products of Putin’s old stomping ground, the KGB.

If we look at Nikolai Ovchinnikov the man, everything about his appointment to GUBOP seems respectable. He deserved the office. According to his official record, before entering the duma, he had been a provincial police officer for thirty years. At the time of his election as a parliamentary deputy, he was chief of police in Yekaterinburg, which is no sleepy provincial center nostalgic for past glories. It is the capital of the Urals, the hub of Sverdlovsk Province, which in turn is the Urals’ major industrial region. When Yeltsin invited the regions of Russia to “take as much sovereignty as you want,” there were serious plans to create a republic of the Urals, with Yekaterinburg as its capital. The city’s chief of police was a celebrity known to all of Russia. The Urals are a region of great mineral wealth and possess natural and industrial resources sufficient for any country to survive on. Additionally, Yekaterinburg is traditionally the turf of one of the most powerful Mafias, formerly of the Soviet Union and now of Russia. Its official designation is the Uralmash crime syndicate. Whether he likes it or not, the top police officer of Yekaterinburg finds himself combating the Uralmash Mafia.

As might be expected, a good deal of important information is not to be found in Ovchinnikov’s official service record—perhaps, indeed, anything that really matters. What kind of police chief was he? What priorities did he set? Which elements of the Mafia did he prosecute? What were his achievements? And what was the result: What kind of place was Yekaterinburg under Ovchinnikov, and what kind of place is it today?

It is not my wish to show how a police officer in the Urals rose to giddy heights in Moscow. I am much more interested in that phenomenon of Russian life known as corruption. What, in fact, is corruption? What constitutes the Russian Mafia—not as it was under Yeltsin but as it is in the Putin era? And why has Putin advanced the career of Ovchinnikov? If we analyze the way in which Ovchinnikov came to be appointed as Russia’s principal champion for combating the Mafia, we can identify the guiding principles behind appointments under Putin and his administration.

The story goes back a long way.




On September 13, 2000, a news story rocked Russia. At the time, the second Chechen war was being waged, and Putin had been appointed prime minister because, unlike the other candidates, he was willing to start the conflict. In Yekaterinburg one of Russia’s largest engineering enterprises, the Uralkhimmash Corporation, its output used throughout the Russian chemical industry, was seized by the Mafia. Citizens armed with baseball bats, supported by the Yekaterinburg OMON Special Police Unit, burst into the factory’s administrative offices, caused major disorder there, and attempted to install their own director in place of the incumbent, Sergey Glotov.

Urals television duly showed the local Communists shouting, “Hurrah! The people are taking power into their own hands! Down with the capitalists!” The local trade-union leaders repeated the slogans, declaring the seizure of Uralkhimmash a “workers’ revolution” and promising that similar revolutionary renationalizations would spread throughout the country in the near future.

Although nothing was heard from President Yeltsin, nobody was surprised, because he was known to be ill. As the newly appointed prime minister, Putin was also silent. In fact, Moscow was silent. Vladimir Rushailo, then minister of internal affairs, had nothing to say in public about police officers under his authority who had stormed an enterprise on behalf of one of the sides in a dispute.

Moscow’s failure to comment spoke volumes. In Russia, such events don’t just happen. But nobody in the capital was talking.

By the evening of September 13, the workers’ revolution had quieted down somewhat; the old Uralkhimmash management, unwilling to step down, had barricaded itself in the director’s office. At this point, a veritable armored column, an armada of dapper black Jeeps, swept into the factory grounds. The special police respectfully made way for them.

From one of the Jeeps stepped a nondescript, rather short citizen wearing a good suit, expensive spectacles, and several gold chains. He was an archetypal New Russian, his face ravaged by a recent drinking spree. On his progress to the director’s office, he enjoyed the protection of a powerful bodyguard provided by the Yekaterinburg police. The special police forcibly cleared the way for them; the workers moved back grudgingly.

“Pashka’s spoiling for a fight again. He’s here for a showdown,” the Uralkhimmash employees muttered.

“Pavel Fedulev, the leading industrialist of our province and deputy of the Yekaterinburg Legislative Assembly, is attempting to restore justice in accordance with court rulings,” broadcast Yekaterinburg television, switching from shots of the concerned expression on the face of the leading industrialist to the bloodied faces of the enterprise’s defenders. Iron bars were now to be seen among the baseball bats.

The citizen in designer glasses proceeded inside and presented the beleaguered management of Uralkhimmash with a pile of documents, court rulings showing that he, the bearer, was co-owner of the enterprise and that it was his intention to install as director a person of his choosing. Accordingly, all unauthorized persons were to vacate the premises.

The citizen sat down, uninvited, in the director’s chair, his brazen demeanor reflecting his proprietorial status. After a time, during which the displaced management acquainted itself with the documents he had brought, he received a torrent of abuse (which left him unfazed) and a different collection of documents and court rulings showing that the present director was in fact the real director.

To make sense of this situation, we must embark on a further excursion into Yekaterinburg’s recent history. How did a society develop in which the seizure of such a large enterprise as Uralkhimmash was possible? And who is Pavel Anatolievich Fedulev? And why, when I asked all sorts of people in Yekaterinburg what on earth was going on, did I always receive the same reply: “It’s all Fedulev’s doing”?




Ten years ago, when Yeltsin was in power and democracy, as we said then, was on the rampage, Pashka Fedulev was a small-time hoodlum, extortionist, and thug. In those days Yekaterinburg was still called by its Soviet name, Sverdlovsk. Major criminal brigades were operating there, carving out their spheres of influence, but Pashka was not associated with any of them. He was a sole trader. Although he had criminal offenses trailing behind him like a bridal train, the militia did not go after him because Fedulev was small fry. In those years such individuals were jailed not because of the crimes they committed but because it was “time to put them inside,” if they failed to reach agreement with other hoodlums, spoke out of turn, or, in general, tried to throw their weight around. Behavior of this sort was not in Pashka Fedulev’s repertory. At that time he was amenable to reason.

In the early 1990s, Pashka became a businessman, like the majority of his comrades. Pashka, however, was poor. He had no access to the funds of the criminals’ central bank, despite the fact that Yekaterinburg, famous for its underworld, had one of the largest such banks in the country. As a small-time hoodlum, Pashka did not qualify for credit and thus had to accumulate his own capital. This he duly did.

Fedulev built up his capital quickly with a fiery home-produced vodka called “palenka.” The mechanism was simple. In the remoter towns and villages of Sverdlovsk Province there had existed, since the Soviet period, a number of small liquor factories. In the early Yeltsin years they, like the other state-owned factories of the era, began to fall apart; there came a time when anybody could buy, for a nominal sum placed directly in the hands of the director, as much liquor as he could drive away.

Of course, doing so was flagrant theft from state factories, but at the time it was considered a normal feature of post-Soviet life. People were starving, and, to feed themselves, half the country robbed the other half, to nobody’s surprise. People were surviving as best they could; their efforts were considered to be business, which was what we had been dreaming of.

The point of buying the liquor was that the spirit, which cost virtually nothing, could be diluted with water, poured into bottles and sold instantly as cheap vodka. Excise duty had not yet been thought of, and the police, even if they had wished to do anything, were powerless in the battle against Palenka. In any case, they did not wish to interfere, since they, too, preferred survival by any means available, which meant participating in illegal business. The underground vodka purveyors paid the police to protect them from their competitors.

This was when Pashka Fedulev, crook and bootlegger, first made the acquaintance of Nikolai Ovchinnikov, police officer. Like everybody else at the time, Ovchinnikov was eager for money. Police officers’ wages were wretched, and frequently not paid at all. So Pashka and Ovchinnikov apparently came to an understanding. The officer would not notice what Pashka was doing, and Pashka, more successful by the day, would not forget Ovchinnikov. The policeman began to have more than enough for his daily bread and butter.

The moment finally arrived when Pashka’s accumulated capital was sufficient for him to start playing a bigger and, more important, legal game. His trajectory has been typical in Russia: just as every soldier dreams of becoming a general, so every little crook dreams of graduating into legal big business.

It was, and still is, a peculiarity of the economy that there are three conditions for success in big business. First, you have to initially get a slice of the state pie—that is, a state asset as your private property. This is why the vast majority of big businessmen in Russia are former members of the Communist Party nomenklatura or the Young Communist League, or were party workers.

The second condition is that, once you have been successful in appropriating state assets, you stay close to the government—that is, you bribe, or feed, officials regularly. The kickbacks should guarantee that your private enterprise will prosper.

The third condition is to make friends with (i.e., bribe) the law-enforcement agencies.

Not being in a position to meet the first condition in the early days, Fedulev nonetheless concentrated on the second and third.




A certain Vasily Rudenko, deputy director of the Yekaterinburg’s Criminal Investigation Unit and a friend of Ovchinnikov, lived in the city. Everybody knew Rudenko, whose position required that anyone who wanted to succeed in business needed to keep on his good side. Rudenko weeded the personal files of new businessmen (and erstwhile gangsters), in effect relieving them of their criminal pasts.

Fedulev, too, was drawn to Rudenko. This period was not the most straightforward in Pashka’s life. He had already made a reputation in Yekaterinburg as a liquor baron and was being invited to sponsor local almshouses and orphanages. He was flying to Moscow for weekends to enjoy the nocturnal entertainments now provided there, taking with him (a special privilege, testifying to his intimacy with the authorities) officials of the provincial administration. As a result, it was time to set about cleaning up his image. Pashka no longer needed to have the documentary record of his criminal past preserved in the archives of the Yekaterinburg police.

No sooner decided upon than done.

Fedulev was introduced to Rudenko by a man named Yury Altshul. All who knew Altshul remember him warmly, even with admiration. Not originally from the Urals, he had been sent there by the motherland. Altshul was a soldier, a military spy; he had arrived in the Urals as captain of a special operations company of the GRU (the Central Intelligence Directorate of General Headquarters, Russia). The unit had been pulled out of Hungary after the Berlin Wall came down, when the army group in the west was disbanded.

Altshul retired from the army and stayed on in Yekaterinburg. The country was not paying its servicemen, and Altshul couldn’t wait to go into business. Like many other members of special units who left the army at that time, he set up a private security service, as well as a private detective agency and a charity for veterans of special units.

In Russia there are many such organizations, built on the ruins of the army. Any large city has its veterans, whose main occupation is to protect its traders. Fedulev thus became one of Altshul’s clients, and it was the former GRU officer who helped Pashka, through the agency of Rudenko, to delete his picaresque past from the computer database of the Yekaterinburg police. Pashka’s wish had come true.

Altshul was soon not only Fedulev’s bodyguard but his trusted lieutenant. It was he—astute, decisive, and educated, unlike Fedulev—who introduced the latter to the Urals stock market. Pashka soon found his footing there and became an adept player. Because he was short of money, he allied himself with Andrey Yakushev, famous in the mid-1990s as director of the Golden Calf, a successful Urals company.

Together with Yakushev, Fedulev was successful in buying up the shares of a number of enterprises, including the Yekaterinburg Meat Processing Factory, the largest such operation in the Urals. The scale of the meat deal brought Pashka to within an inch of the status of a Yekaterinburg oligarch, with corresponding access to the provincial governor, Eduard Rossel.

At this point it became evident that Fedulev did not like to share success. He was able to form alliances to overcome difficulties but was unwilling to include others in the financial and social spoils. Now, for the first time in his career, word got out that he had hired a hit man, and the mood in Yekaterinburg became ominous. People were afraid of Fedulev, recognizing that he had outgrown his earlier limitations. That is how it is in Russia now: you kill someone, you gain respect.

Around this time, Fedulev borrowed a large sum of money from Yakushev for another deal. Although the transaction yielded a profit many times in excess of the stake, Pashka categorically refused to repay the debt. Yakushev wasn’t pressing him, but in any case he had no opportunity to do so: on May 9, 1995, in the entrance to his own house, in front of his wife and child, Andrey Yakushev was shot dead.

A criminal case? Well, yes. A case was opened, and it even has a number: 772801. The prime suspect was said to be Fedulev.

Then what? Then nothing. A case with this number sits in the archives to this day. It is still open, in the sense that nobody investigated it or is currently looking into it. There were to be other similar cases involving Fedulev in the years to come, and every time the same thing happened—or, rather, didn’t happen. Everybody in Yekaterinburg who had any involvement with Fedulev knew that he had made his most profitable investment yet: he had bought the city police force, and it would henceforth loyally shield him from any awkwardness.

This is the period when Rudenko and Ovchinnikov became Pashka’s constant partners. They helped him to grow into a new Urals industrialist and to increase his fortune. It appears they may have used the technique that had been tried out on Yakushev.

One day Fedulev offered to cooperate with another Yekaterinburg oligarch, Andrey Sosnin. Fedulev and Sosnin pooled their financial resources and pushed through a speculative campaign on the Urals stock market that to this day remains unparalleled in its size. Sosnin became the owner of a controlling share in the region’s prime enterprises—in effect, of its entire industrial potential, which had been created by several generations of Soviets, beginning during the Second World War, when the largest and most important factories of the European part of the Soviet Union were evacuated to the Urals. Among the enterprises of which Sosnin and Fedulev gained a significant measure of control as a result of their speculative coup were the Nizhny Tagil Metallurgical Complex and the Kachkanar Ore Enrichment Complex (both of international renown), Uralkhimmash, Uraltelekom, the Bo-goslovskoe Ore Agency, and the three hydrolytic factories in the towns of Tavda, Ivdel, and Lobva.

The takeover was a major success for the businessmen, of course, but what about the state? Neither Sosnin nor Fedulev had development in mind for these enterprises. The provincial officials carried the two speculators shoulder high, not asking what they were planning to do with the factories, just anticipating their share of the proceeds. Corruption was attaining new heights. The two companions left nobody disappointed. They shared what they had stolen, because these were people they could not afford to disappoint.

And then came the moment to divide the spoils between themselves: Which goodies should each of them receive? The earlier pattern was repeated. Shortly thereafter, Andrey Sosnin died from a gunshot wound. Another criminal case was opened on November 22, 1996—No. 474802 this time—and the main suspect was again Fedulev and… and nothing.

It’s not much good having connections if they don’t work when you need them. By the time Sosnin was murdered, Fedulev’s police friends were among the more prosperous of Yekaterinburg’s citizens. Everyone could see that the richer they became, the more successful their patron, Fedulev, was in business. Case No. 474802 was closed. It was not even archived; it was simply forgotten.




Besides the Urals factories of which, by the end of the 1990s, Fedulev had seized control, he had achieved something even more significant. Yekaterinburg is primarily Uralmash, the most important institution in the Urals. Not Uralmash the vast machine-tool factory but the Uralmash crime syndicate, the largest Mafia grouping in Russia, a detachment many thousands strong with a strict hierarchy and representatives at every level of the state. It is one thing to bribe officials and bump off your partners but quite another matter to come to terms with the crime bosses of Uralmash. In 1997, Fedulev pulled that off, too. He joined forces with Uralmash to complete the buy up of the shares of the Tavda Hydrolytic Factory. The transaction made a lot of sense for Fedulev, who was leading a life of luxury and found himself short of cash for gambling on the stock market. Uralmash had money, it had the Trough bank. The only real surprise is that the bank’s managers decided to do business with Fedulev, knowing the kind of maverick he was.

The reason why Fedulev and the Uralmash bosses were so interested in hydrolytic factories is that they produce spirit, from which Palenka vodka is made. There is tremendous demand for spirit in Russia, and it costs next to nothing to produce. Owning a spirit-producing facility is the perfect way to make fantastic profits in return for a minuscule investment, and the profits are in ready cash, don’t involve credit, don’t go through the banks, and are invisible to the Tax Inspectorate.

Accordingly, Fedulev and the Uralmash bosses bought 97 percent of the shares of the Tavda factory. They then proceeded to asset-strip it in a fairly standard way: both partners set up firms, assets were transferred away from the factory to those firms, the shares were divided, and the firms were then either wound up or took over the manufacturing activity. It became clear that the hydrolytic plant as such no longer existed.

Soon after the deal was completed, Fedulev broke the initial agreement on the proportions due and did not even allow Uralmash representation on the new board of directors, which he packed with his appointees.

Why? He wanted to be the first among the first and needed to shake off all partners, even the highly influential Uralmash. Incredibly enough, he got away with it. The Uralmash bosses did not shoot him, as might reasonably have been expected, but simply slunk off.

The reason for their leniency was simple. When the Tavda factory was taken over, Fedulev enjoyed more than just links with the police. He was, to all intents and purposes, in charge of the provincial police force. He had excellent personal relations with Governor Rossel. It was Pashka who decided on the most senior police appointments, choosing, for example, who would head the provincial UBOP agency, the top anticrime official whose job was to combat Fedulev himself and organized crime in general. That person turned out to be Rudenko. And Pashka had Nikolai Ovchinnikov appointed chief of police for Yekaterinburg.

The Uralmash bosses were made from the same mold, however, and they had ties of their own to pit against those of Fedulev. The day eventually came for them to lock horns, when a Uralmash squad arrived at the Tavda factory and took the property back by force of arms. Fedulev responded in full measure. A special rapid-reaction police unit was deployed, and the state’s police paramilitaries were ready to use force as well.

But against whom? It turned out that it was against other police paramilitaries. Those going head to head in the fight at the Tavda factory were not so much the heavies of the Fedulev and Uralmash gangs but the forces of the people behind them. On Fedulev’s side were Rudenko and Ovchinnikov with one unit of armed police. On the other side were Uralmash, supported by the head of the entire provincial police force, General Kraev, and the police under his command. In other words, those on either side of an armed standoff over the illegal division of the province’s property were the police forces at the disposal of those whose task it was to maintain the rule of law.

How did the Ministry of Internal Affairs in Moscow react? The agency presented the matter as a conflict within the police force in Yekaterinburg, as a personality clash between Kraev, on the one hand, and Rudenko and Ovchinnikov, on the other. Kraev and Rudenko were removed from their posts. Kraev was publicly accused of having close links with the Uralmash crime syndicate (although his career later led to deputy director of the Russian prison system), while Rudenko was declared to have been the victim of an irreconcilable power struggle against the most serious criminal group in the Urals. As the wronged party, he was transferred to Moscow, where the minister of internal affairs, Vladimir Rushailo, had him appointed director for UBOP in Moscow Province. Since then, that agency, under Rudenko’s direction, has been causing alarm bells to ring in the capital.

Back in Yekaterinburg, meanwhile, there were vacancies to be filled in the wake of Rudenko’s departure. The staffing of the Urals UBOP was arranged personally by Fedulev. Rudenko’s replacement as director was Yury Skvortsov, not only Rudenko’s right-hand man but someone to whom all of Fedulev’s affairs had been confided over many years. As Skvortsov’s first deputy, Fedulev appointed a certain Andrey Taranov. In the Urals, he was believed to be the protector (or “roof”) within the police force of Oleg Fleganov, the region’s leading supplier of wines and spirits. Fleganov was key to the marketing of bootleg vodka, since most of it was sold through his retail network. The other deputy whom Fedulev chose for Skvortsov was Vladimir Putyaikin. His task was to purge the ranks of the police throughout the province. He began by forcing out anybody who still had anything to say against the Mafia and anybody who refused to work under the tutelage of Fedulev.

The servile Putyaikin set to work with a will. We shall give just a single example of how he went about it. On one occasion Skvortsov demanded documentary evidence from Putyaikin regarding who in the police was working against Fedulev. Putyaikin had no such documents. That night he took home a young member of the UBOP team, got him drunk, and demanded that he should immediately denounce any of his colleagues who were opposed to Fedulev and his stooges in the police. The young officer refused to be an informer, whereupon Putyaikin appears to have bullied him into shooting himself with his service revolver.

“This is unbelievable!” I hear my reader cry.

Believe me, it fits the picture. This is exactly how, during the Yeltsin years, organized-crime syndicates were born and grew to maturity in Russia. Now, under Putin, they determine what happens in the state. It is precisely to them—powerful, influential, and superrich—that the president is referring when he says that any redistribution of property is impossible and that everything should stay as it is. Putin may be God and czar in Chechnya, punishing and pardoning, but he is afraid of touching these Mafiosi. Money is in play here beyond the dreams of most of us, and the price of a life, or a man’s honor, is peanuts when the profits are counted in millions.




With the coming of the Fedulev group, the Urals stopped living by the rules, to use the criminal jargon that has found such fertile soil in Russia that even the president employs it in his speeches.

I asked people in the streets of Yekaterinburg whom they respected: Governor Rossel? Fedulev? Chernetsky, the city’s mayor? Their answer: “Uralmash.” Taken aback, I asked them how they could respect crooks. The answer was simple: “They live by their thieves’ law, but at least they have laws. The new crooks do not even observe those.”

This is what we have come to: respect for one Mafia in preference to another, because the one is much worse than the other.

Let us go back to 1997. Fedulev had the Yekaterinburg police in his pocket and had taken over the illegal vodka market. He continued to play the stock market and defrauded a certain Moscow firm—not just any old firm, but one that belonged to the consortium of a well-known metropolitan oligarch who was sponsoring Yeltsin and his family. In those days to try to defraud him was tantamount to committing suicide. Twice the firm reported fraud to the Sverdlovsk UBOP, but any information that could embarrass Fedulev was blocked there, and the CID refused to open a criminal case. Only after the intervention of the prosecutor general’s office was Criminal Case No. 142114 opened: in Moscow, not in Yekaterinburg. Fedulev went on the lam. An all-Russia arrest warrant was put out for him.

Remember Yury Altshul, the former spy who became Fedulev’s minder? Remember that all who knew him spoke of him as a thoroughly decent person, a man of his word and entirely fearless?

Having set up his own detective agency and security firm, Altshul continued to provide the Russian security services with intelligence. Information passed by him to the prosecutor general’s office and the FSB put several big wheels of the Urals underworld behind bars. Altshul did, however, have a particular obsession: the struggle against the Uralmash crime syndicate. Although the idea may seem bizarre, this was exactly what drew Altshul to Fedulev.

Faced with an all-Russia warrant for his arrest and knowing about Altshul’s idée fixe, Fedulev summoned him for a talk. Fedulev was afraid that during his enforced absence, Uralmash would take control of the two other hydrolytic factories in Sverdlovsk Province in which he maintained an interest. Fedulev asked Altshul to defend, by any means at his disposal, Fedulev’s interests against Uralmash. In return, he promised Altshul 50 percent of the profit from the Lobva Hydrolytic Factory, which he was in the process of completing his takeover.

Altshul went off to Lobva, a town with nothing apart from the hydrolytic factory. There he observed the deliberate running down of the factory’s production capacity. Altshul could not help asking himself why Fedulev was buying up so many shares.

Before Fedulev had become involved, the Lobva factory had been operating fairly successfully. Once he began transferring its assets to his other companies, they started selling or processing spirits illegally. The money from these sales naturally came back to the Lobva factory through his companies’ accounts, but not in full. Month by month, Fedulev sucked the factory dry.

When Altshul arrived at Lobva, the workers had not been paid for seven months. The factory was one step away from bankruptcy. Because the community had developed around the factory, without it the town would die.

At this point, Altshul decided to act on his initiative rather than on Fedulev’s behalf. He gave the workers his word that he would restore order and that as a first step there were two individuals the workers would not see at the factory again, because Altshul would not let them through the door. They were Sergey Chupakhin and Sergey Leshukov, Fedulev’s hatchet men.

Chupakhin and Leshukov had formerly been officers of the Serious Fraud Office of the province’s Directorate of Internal Affairs. They were also personal friends of Vasily Rudenko and colleagues of Nikolai Ovchinnikov, and had left the police in order to look after their financial interests in Fedulev’s businesses.

Some time passed before Fedulev was finally arrested—in Moscow, naturally. Even from his isolation cell he did everything he could to influence the course of events in Yekaterinburg. Members of the police who were under his control (Rudenko was, after all, in Moscow by now) arranged for Altshul to come, on Fedulev’s summons, to see him in prison. At this meeting, Fedulev insisted that Altshul should hand the management of the factory back to Chupakhin and Leshukov. Not wishing to lose his share in the business, Rudenko was demanding this of Fedulev.

But Altshul refused and flew back to Yekaterinburg, with Rudenko following in his wake. Altshul was summoned to the UBOP for a talk, and there Rudenko insisted that he give up the Lobva factory.

Again Altshul categorically refused. A couple of days later, on March 30, 1999, the former army spy was shot in his car. A criminal case was opened, this time No. 528006. Once again the prime suspect was Fedulev. This was the third criminal case in which he was implicated in contract killings, but can you guess what happened? Nothing. Case No. 528006 was shelved, like the others.

Fedulev’s calculation was criminally simple: with Altshul out of the way, the factory was his. Altshul, however, had left a friend and deputy in Lobva: Vasily Leon, another ex-spy and special operations veteran. Leon categorically refused all the demands from Fedulev’s people that he should get out.

The Rudenko-Chupakhin-Leshukov trio presented Leon with a compromise, or rather an offer not meant to be refused. Leon could stay on as director, but Chupakhin and Leshukov would return to handle the wholesale side of factory liquor sales, which was what really mattered. The three didn’t just ask Leon to agree; they intimidated him. He was openly summoned by Skvortsov, Fedulev’s head of the UBOP, who did his best to cow Leon into submission. In the meantime, Rudenko had been further promoted and transferred to the Ministry of Internal Affairs.

The third source pressuring Leon was a certain Leonid Fesko, a friend of Rudenko’s and another high-ranking police official in Sverdlovsk Province. Fesko was shortly to depart for Moscow to manage the so-called Defense and Aid Fund for Members of the Sverdlovsk Province UBOP. Funds like it were a familiar institution for legally transferring illegal payments, bribes, and bonuses; they had been devised by gentlemen like Fedulev in the mid-1990s. Large numbers of them still exist.

Fesko later became Fedulev’s deputy for security and discipline in the enterprises Fedulev’s Mafia controlled. In emergencies, if competitors were turning up the heat, it was Fesko’s job to mobilize the special operations police units to crush the resistance. It was Fesko, in fact, who masterminded the seizure of Uralkhimmash in September 2000.

In 1999, however, Vasily Leon showed his defiance. But then, in December of that year, Yevgeny Antonov, an agent from Skvortsov’s entourage, claiming self-defense, shot Leon’s chief assistant, the very person who supervised the wholesale marketing of liquor at the Lobva factory. According to the official written statements about the events leading up to the shooting of his colleague that Leon made to the FSB in the aftermath of the killing:


In mid-January [2000] I had a conversation with Sergey Vasiliev, departmental head of UBOP. He complained stridently that by my presence at the Lobva factory I had deprived UBOP of financing. He further said, “You have stolen the Trough of the FSB, UBOP, and other security agencies of the province.” Vasiliev categorically demanded that I should work with them. I asked what that work would consist of, and Vasiliev replied, “You are to bring money here!”


Every line of Leon’s statements testifies to a criminal case that should at least have been opened. Once again, however, things got bogged down. Appeals by Leon to the prosecutor general’s office, the Ministry of Internal Affairs, and President Putin himself produced not the slightest reaction.

Nevertheless, great concern was shown for the fate of Fedulev. In January 2000, on the personal instructions of Vasily Kolmogorov, deputy prosecutor general of Russia, Fedulev was freed from prison. Just like that.

On his return to Yekaterinburg, the authorities welcomed him like a conqueror. Governor Rossel showered favors upon him. On Rossel’s initiative, Fedulev was declared Urals Entrepreneur of the Year. Following his spell in jail, the shooting of Altshul, the intimidation of Leon, and the murder of his colleague, Fedulev had attained the exalted status of Yekaterinburg’s leading industrialist. From this time on, the mass media of the Urals invariably used this formula when writing about him. A little later, Fedulev was elected a member of the Provincial Legislative Assembly, thereby receiving parliamentary immunity.

If we step back a bit and look at the bigger picture, what do we see? Fedulev is a Urals oligarch, a member of the provincial legislature, a major property owner. What really matters, though, is that he is the founder of what the Russian criminal code calls an organized crime syndicate. By the autumn of 2000, when Uralkhimmash was seized, which is where we came in, Fedulev’s syndicate had all the attributes of a fully fledged Mafia entity. The only snag was that, with Russian corporate law, at best, unclear, the godfather was in prison, and while he was there, his factories and industrial complexes started slipping out of his control. The syndicate panicked: “What about our money?” At that point, Fedulev was released.




Fedulev’s release from prison was a turning point in the modern history of the Urals. As soon as his release became public, even before he returned to Yekaterinburg and before his countless hugs from Rossel, those in the know realized that matters were not straightforward. There was going to be a redistribution of property, and Fedulev was expected to make it happen. He had been released for good reason—certainly so that he could get back what he had controlled before but also so that those working for him (and perhaps whoever he was working for) should again receive their remittances.

Fedulev did not disappoint his supporters. His first priority on being freed was to restore his control of the Lobva Hydrolytic Factory.

Here is how he did it. As Vasily Leon put it in a statement to the FSB: “Fedulev informed me that previously matters had been resolved through the law courts: privatization, acquisition of shares. Now, however, things were settled by force.”

Leon’s statement is dated February 2000. At that time, he presented the FSB with a written request for help to resist the Mafia. He asked to be protected from blackmail by an organized crime syndicate. First, he was being blackmailed by members of the provincial UBOP, who were pressuring him to leave the Lobva factory in favor of Fedulev. Second, he was being blackmailed by Fedulev himself, who, on his release from prison, demanded not only that Leon leave but that he should pay Fedulev $300,000 in compensation.

Leon’s request went unanswered. The state renounced the rule of law and left the factory to be torn apart by the Mafia.

On February 14, 2000, Fedulev decided to set up a committee of creditors of the Lobva factory. He did so by personal invitation despite having no legal authority. His aim was to push out the factory’s current management and replace it with one under his control.

Of the five principal creditors, Fedulev managed to bend only two to his wishes. A forged proxy then appeared from a third creditor, thereby providing a quorum. This committee adopted the resolution Fedulev required: that the meeting of creditors should be held not in Lobva but in Yekaterinburg, at Fedulev’s office. Nobody made any bones about why it had to be held there. If some of the real creditors suddenly turned up, they would need to be stopped, and cordoning off the office would make doing so a simple matter.

As the day of the meeting approached, Rudenko flew in from Moscow. The main issue he and Fedulev needed to resolve before the meeting was what to do about Leon.

Twenty-four hours before the meeting, on February 17, Fedulev sent a couple of his employees to the UBOP. These two gentlemen were well known there, because for many years they had been coming in for questioning as suspected hit men in the sluggish investigation into the murder of one of Fedulev’s partners. On this occasion these heavies wrote a denunciation to the UBOP claiming that Leon had extorted $10,000 from them. In a single hour, with a rapidity unheard of in the Russian legal system, a criminal charge was brought against Leon, naturally without any preliminary investigation, recorded interview, or checking of facts. Simultaneously, a police car was cruising the streets of Lobva giving out flyers to the effect that Leon was evading arrest and could no longer be regarded as the factory’s managing director.

The day of the creditors’ meeting in Fedulev’s office arrived. Everything began, quite properly, with registration. The entrance, corridors, and offices were under the control of men in police uniform armed with assault rifles, the guys from the UBOP. Seemingly nothing could derail Fedulev’s strategy.

But then something unforeseen did happen. Galina Ivanova, the representative of the factory’s trade-union committee, who had a right to be present at the meeting on behalf of the factory’s workforce, suddenly pulled a power of attorney out of her handbag. It was an immensely valuable proxy from the main creditor; Leon, while on the run, had found time to prepare it. The proxy represented 34 percent of the votes, so how Ivanova voted would determine the outcome.

Fedulev gave the order and Ivanova was removed to the UBOP offices, by plainclothes UBOP officers mingling with the crowd in the hall. She was held for precisely three hours and twenty minutes, until Fedulev called to say that the registration had been completed.

Alexander Naudzhus was Vasily Leon’s deputy. Here, taken from his official statement to the FSB, is how he describes events during the night after the meeting:


I arrived at the factory at about 22.30. At about 1.30 I went to sleep. At 4.30 I was awakened. The door to the factory management offices had been broken down, also the grilles on the windows. There were a lot of armed people around, and about 30 cars and a bus. We were allowed through to the management offices, where the factory’s security officers were standing with their hands up. They were being guarded by people with assault rifles and wearing police uniforms. Oleshkevich, a UBOP lieutenant, was sitting at the table. I went into the office of the commercial director. Fedulev was sitting there. I asked, “On what grounds has this occupation taken place?” I was shown the minutes of the creditors’ meeting and the contract with the new director. The contract was unauthentic.


Thus was the joint operation of Fedulev and the provincial UBOP to illegally seize the Lobva Hydrolytic Factory crowned with success. There were manifest violations of the law and ultra vires actions by civil servants.

As we look back from the heights of 2004, the fourth year of the dictatorship of law proclaimed by Putin, who has been called to account? Nobody. Not so far, at least. Today the Lobva factory ekes out a miserable existence. Fedulev has sucked it dry and moved on, as was to be expected. In 2000, having reconquered Lobva and acquired a pile of cash during the following months (since there was no one to stop him), Fedulev started moving in on the minerals market. The first item on his menu was Kachkanar.




The internationally known Kachkanar Ore Enrichment Complex is one of Russia’s national assets. It is one of the few enterprises in the world that mine ferro-vanadium ore. Its output provides an essential component for blast-furnace smelting. In our country, at least, not a single rail for the railways network would have been produced without the factory.

In the mid-1990s, like many other important Russian enterprises, the Kachkanar OEC was subjected to a succession of privatization measures that left it financially crippled. The situation became particularly dire in 1997—98. At this point, Fedulev became chairman of the board of directors and proceeded, as he always did, to emasculate the enterprise. By the end of 1998, Fedulev had brought Kachkanar to the point of bankruptcy, and only the arrest of the Urals Entrepreneur of the Year made a revival possible as other shareholders became able to play an active part. They hired a team of knowledgeable managers under the direction of Dzhalol Khaidarov, and large-scale investors appeared on the scene.

In 1999 the enterprise was transformed. Production rose to capacity, the net asset value increased, the workers began to be paid their wages again. Kachkanar’s situation was similar to that of Lobva’s. The town had grown up around the plant, and ten thousand people, almost the entire working population, were employed there.

The results of the recovery were obvious: the plant’s shares again became sought after on the stock market.

In his entourage almost every Russian provincial governor has the kind of individual that Yeltsin had in Putin: an astute and loyal assistant, proclaimed as his patron’s heir apparent because someone is needed to cover the principal’s back when he retires from the political arena, to ensure his continuing financial well-being and personal security.

For Eduard Rossel, governor of Yekaterinburg, this person was Andrey Kozitsyn, the Copper King of the Urals, who managed the smelting factories of Sverdlovsk Province. As the next election for governor approached, Yekaterinburg saw Copper Kozitsyn expand into the iron industry, under Rossel’s patronage, of course. Rossel was not going to be governor forever, so with reelection time approaching, he took steps to concentrate the juiciest bits of Urals industry in Kozitsyn’s hands.

As you may recall, one of Fedulev’s first visits in Yekaterinburg after his release from prison was to Governor Rossel. What they talked about we do not know exactly, but immediately after the audience, Fedulev transferred, to a trust managed by Kozitsyn, his shares in two enterprises, the Kachkanar OEC and the Nizhny Tagil Metallurgical Complex. To all appearances this was a straightforward deal between Fedulev and the governor. Fedulev bought himself the right to do as he pleased in the province, and Kozitsyn moved in on Kachkanar.

It has to be said that at that moment Fedulev’s ownership was down to only 19 percent of the shares of the Kachkanar complex, and even those were a bit suspect, as we shall see. Because the shares transferred to Kozitsyn did not confer control, it wouldn’t be easy to parachute in a director of their choosing. In any case, the managers, headed by Khaidarov, opposed the new Fedulev-Kozitsyn invasion and had the owners of 70 percent of the shares behind them.

What was to be done? Usurpers use force to get their way. At the end of January 2000, the Kachkanar complex was seized by armed men. There was shooting, there were forged documents, and the law-enforcement agencies were actively involved in the mayhem. In fact, the melee was a repetition of the scenario used at the Lobva Hydrolytic Factory. There was also active noninvolvement on the part of Governor Rossel, just as in Lobva. At dawn on January 29, the complex was vouchsafed a new director, Andrey Kozitsyn, and Pavel Fedulev strolled proprietorially through the empty offices of the management. Plus ça change…

It was clear, however, that the power of these cuckoo birds would last only until the first shareholders’ meeting, which could simply throw them out. The insurgents concluded that they should make two moves: not allow a shareholders’ meeting and bankrupt the enterprise as soon as possible, to deprive the shareholders of their powers. Under Russian legislation, shareholders of an insolvent enterprise become nonvoting owners.

Fedulev and Kozitsyn prevented the meeting by a method successfully practiced in Chechnya. They simply blocked off all entry to and exit from the town. The shareholders on their way to the complex, accompanied by the dispossessed managers, were stopped at police checkpoints. How was that possible? Easy! Sukhomlin, the mayor of Kachkanar, issued Emergency Directive No. 14, banning the entry into Kachkanar of “citizens from other cities.” All the shareholders and managers of the complex came from cities other than Kachkanar.

It was ridiculous, of course, a farce, but a farce taking place in real life. The shareholders’ meeting was not held, and the partners in crime set about implementing the second half of their plan: the artificial bankrupting of the Kachkanar OEC.

How was this to be done, since the complex was functioning successfully?

Kozitsyn took a credit of $15 million from the Moscow Business World Bank, secured on the assets of the complex. He had no trouble getting it, because who would not like to get their hands on the Kachkanar plant? Equipped with this credit, he issued promissory notes from the enterprise. The money was invested not in the complex but in another of his businesses, Svyatogor—also located in Sverdlovsk Province—supposedly to create a joint enterprise. The next step was for Kozitsyn to seemingly transfer the Kachkanar promissory notes to Svyatogor.

Why “supposedly” and why “seemingly”? Well, none of these transactions actually took place. All the transfers were virtual, and the promissory notes from the complex ended up in the hands of a tiny firm. This firm, a front, was registered at the address of a modest Yekaterinburg apartment apparently belonging to a woman who subsequently, despite everyone’s best efforts, could not be traced; this virtual proprietor was instantly transformed into the main creditor of the most influential ferro-vanadium producer in the world. How? The ephemeral firm bought the complex’s promissory notes for 40 percent of their nominal value and promptly presented them to the enterprise for payment at 100 percent. It then declared the enterprise bankrupt because it could not buy back its promissory notes at 100 percent of the nominal value. In this way, the phantom woman was found to have 90 percent of the votes at the creditors’ meeting. This fraud was played out brazenly under the nose of the provincial government: the creation of a straw creditor and an artificial debt, and the theft of millions of dollars from the real owners of the enterprise, who found themselves without any rights to the assets or refund of their investments.

While this was going on, an around-the-clock guard was mounted in Kachkanar by the provincial UBOP to avoid any annoying intrusions like a new Galina Ivanova, chairwoman of the trade-union committee. The guard was the same group as in Lobva when the factory there was seized.

A thief nobody stops becomes bolder. Which brings us back to Uralkhimmash. Just as Lobva was followed by Kachkanar, so Kachkanar was followed by Uralkhimmash. In September 2000, that enterprise, too, was seized by force of arms, following the same scenario. During 2001, there was a quiet stifling of the shareholders by artificially bankrupting the enterprise, again with the indulgence and connivance of the authorities. The “managed democracy” proclaimed by Putin was on the march.

Or perhaps it was just cowboy capitalism under the management of Mafia syndicates that had the law-enforcement agencies, a corrupt bureaucracy, and a tainted judiciary in their pockets.


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