BATTLE OF THE BANKERS

By PAUL QUINN-JUDGE/MOSCOW

In the old days of the Soviet Union, Communist ideologists taught the simpleminded notion that the bourgeois capitalist world was run by small groups of monopolists who manipulated governments and the news media from the comfort of their wood-paneled offices.

Now, in the new Russia, the half-dozen or so richest men in the country seem to be living out that teaching. These new oligarchs, all fabulously rich thanks mainly to their intimacy with the country's democratic leaders, control as much as half the country's gross domestic product and many of the most powerful media outlets. Last year they played a major role in the re-election of President Boris Yeltsin. To say, as many Russians do, that the oligarchs run the country is an exaggeration. To say they would like to is closer to the truth.

But their power and wealth are so great, their control of the economy so pervasive and their rivalries so bitter that Yeltsin is trying to bring them to heel, declaring that the state is going to again assume more control of the economy. Yeltsin, whose re-election campaign was generously funded by the new oligarchs, warned that he would not tolerate "any effort by businessmen and bankers to exert pressure on the government." Yeltsin's words echoed those of Anatoli Chubais, his abrasive First Deputy Premier, who said recently that Russia could not allow "two or three or five major financial institutions" to run the state.

The declarations by Yeltsin and Chubais signaled the start of a bitter and potentially crucial power struggle between the government's young Vice Premiers, Chubais and Boris Nemtsov, on the one hand, and several of the most powerful oligarchs on the other. While Yeltsin instructed both sides in what is now known as the bankers' war to cool it, the war has instead heated up. Last week came news that one of the warring oligarchs had been questioned by Interior Ministry investigators and that one of his Russian-American associates had had his Russian visa confiscated as he left Moscow and had been placed on a list of immigration "undesirables."

When the Soviet Union collapsed in 1991, most people expected a burgeoning of political parties to fill the vacuum left by the communists. Parties did emerge, but in the tightly controlled presidential system that was hand-tailored for Yeltsin what counts is access--to the President, to his few closest aides and family members, and to half a dozen or so top government officials.

And it is money that fuels that access. Most of the oligarchs got started in the late '80s with money whose origins remain murky. There have been repeated allegations--and repeated denials--that the new millionaires received their start-up capital from the Communist Party, the KGB or other giants of the old system. In any event their companies did well during the privatization of the Russian economy in the early '90s. Perhaps their biggest break came in 1995. Nearly bankrupt, the government offered shares in some of the country's biggest concerns, like oil and mineral resources. The oligarchs gained control of one enterprise after another at huge discounts from their real value.

In the current struggle between the business tycoons and the government, three figures stand out: Boris Berezovsky, one of the world's richest men; media magnate Vladimir Gusinsky; and one of the youngest bankers, Vladimir Potanin, who has aligned himself with Chubais. Of these, perhaps the most controversial is Berezovsky, 51, the billionaire entrepreneur who has survived assassination attempts and unproved murder accusations to become a shadowy influence in the Yeltsin entourage. Once an academic specializing in the theory of computerized management systems, Berezovsky was recently ranked 97th in Forbes' listing of the world's 200 richest people, with wealth estimated at $3 billion. After starting his business career selling cars in the late '80s, he quickly built an empire that includes substantial interests in oil, the airline Aeroflot, luxury cars and banking. Berezovsky has major investments in several of the country's main newspapers as well as Russia's largest TV network, ORT. Nominally state-owned, ORT has received funding from Berezovsky and is said to have been run by a longtime Berezovsky associate.

According to Berezovsky, the formula for political power is simple: power equals brains, money and people. And, he adds modestly, "we are the only ones in Russia who have all three." By "we" he means himself and his fellow financiers and entrepreneurs. Berezovsky admits to a love for the south of France, Corsica, beautiful women and Formula One motor racing. He keeps his home life a secret, though he is known to have five children ranging in age from about 25 to one year.

After his Mercedes car was blown up in 1994 by a remote-controlled bomb, Berezovsky left the country for a while and took Israeli citizenship. He gave that up last year when he was appointed deputy secretary of the national security council, a position that gives him access to defense and security policymakers. Berezovsky firmly believes in the old communist teaching that oligarchic elites run countries. The trick, he explains, is to identify them and win them over. Thus he has used former Reagan mediameister Mike Deaver as a public relations consultant in the U.S. and has actively courted such movers and shakers as former Assistant Secretary of State Dick Holbrooke. At home he has forged a close working relationship with Yeltsin's daughter and the President's chief of staff.

While Berezovsky has taken the lead in the conflict with Chubais and Potanin, he has been supported by Gusinski, another member of the business oligarchy. Gusinsky, 46, started out as a theater director in the provinces, worked on Ted Turner's Goodwill Games and gradually moved into business, making his Most Bank a major name in Russian finance. His personal fortune is estimated at $400 million. Recently he has concentrated his attention on his media empire, which includes the major TV channel, NTV; a radio station; the newsmagazine Itogi and one of Russia's main dailies, Segodnya. Gusinsky spends a good part of his time in Spain and London. When in Moscow he is said to live in an elegant estate on the edge of the city. With wealth and influence comes danger. Like the other members of the Russian business elite, Gusinsky never moves without a security entourage. When he plays tennis on weekends, as many as 15 armed guards patrol the courts.

Berezovsky and Gusinsky now find themselves at war with a man they had considered a junior member of the oligarchy, 36-year-old Vladimir Potanin. His bank, Unexim, is one of the largest financial institutions in the country. It was reportedly founded on the ruins of the giant Soviet-era foreign-trade system, and Potanin once worked in the Soviet Foreign Trade Ministry. Potanin's fortune is estimated at $700 million. He recently acquired control of the country's most respected daily newspaper, Izvestiya, whereupon some 40 journalists, including the editor, quit to start their own newspaper--in all probability to be funded by Berezovsky.

During last year's presidential campaign, the oligarchs combined forces to make sure Yeltsin won. They provided strategists, logistics, uniformly positive media coverage of Yeltsin and, of course, money--lots of it. "It was made available as needed," recalls a banker. "Someone from the campaign would say, 'We need $700,000,' and it would be delivered." This banker scoffs at the rumor that Yeltsin spent $100 million. "No more than $30 million, I'd guess," he says.

And until this past summer the top oligarchs amicably divided the privatization spoils among themselves. But when, in July, the state offered a 25% share in the giant firm Svyazinvest, the state telecommunications monopoly, Potanin upset the applecart. Using a stake of almost $1 billion obtained from international investor George Soros, Potanin outbid Gusinsky. This was a shock.

Both Berezovsky and Gusinsky denounced the Svyazinvest sale through their TV stations and newspapers. But Chubais sided with Potanin, declaring the Svyazinvest sale fair and honest. The Chubais-Potanin alliance particularly inflamed Berezovsky, who launched a campaign of biting criticism against both men. Chubais's aides responded by denouncing Berezovsky. "He's made his money by bullying," says an official sympathetic to Chubais. "He's angry because he's found someone he can't buy."

In turn, Berezovsky characterizes Chubais as a Bolshevik who is trying to impose a new form of authoritarianism on Russia. As is frequently the case in modern Russia, the fight has taken on an undertone of menace. Chubais says he has received at least one death threat, a claim that Berezovsky has characterized as a publicity stunt by Chubais supporters. An official of the Federal Security Service, the successor agency to the KGB, refused a request to comment on the severity of the dispute. "It is too dangerous," he told TIME. "The wolves are fighting, and we are watching."

Reformers applaud Chubais's determination to rein in the political influence of some banks. But at the same time many wonder why Chubais is favoring Potanin's Unexim Bank, turning it into an economic "state within the state," in the words of newspaper columnist Otto Latsis. The answer is simple: power.

The present fight between Chubais and the bankers is not just about who controls the economy in the next couple of years; it is also about who rules Russia after the year 2000, when presidential elections are due. Until now the oligarchs had clearly planned to have a major hand in electing the next President. They might well have put forward one of their own. In fact, Potanin, energetic, smart and articulate, is already being talked about as a future President, though he denied any such ambitions in an interview with TIME. Chubais, meanwhile, wants at least to be Prime Minister. But to succeed in politics one needs lots of money and media. Potanin has the money and is acquiring the media. By forming an alliance with Potanin, Chubais is not only weakening the other oligarchs. He is also creating his own independent political base.

The bankers' war, with its attack articles and smears in various financier-controlled media, has taken its toll. It has deepened the impression, widespread in the West, that Yeltsin's Russia is in danger of becoming what U.S. researchers recently called a "criminal-syndicalist state" controlled by an alliance of corrupt politicians, businessmen and crime bosses. It has shattered the credibility of the media, which for a few brief years following the collapse of the Soviet Union had a reputation for independence and integrity. And it has damaged the standing of the young reformers, Chubais and Nemtsov. Alexander Oslon, who polls every week for the presidential administration, takes a bleak view of the war. Says he: "This will be a conflict without winners."

--Reported by Yuri Zarakhovich and Andrew Meier/Moscow

With reporting by YURI ZARAKHOVICH AND ANDREW MEIER/MOSCOW