By Fu Longshan
To understand how the KGB—the Soviet Committee for State Security (Komitet Gosudarstvennoy Bezopasnosti)—executed its “elegant” transformation from a Communist Party “sword” into an economic oligarchy controlling Russia’s destiny, one cannot rely on official histories alone. One must instead examine the disintegration of communist totalitarianism itself and trace the inner secrets of the Kremlin.
When a communist regime collapses, the decisive factor is often the behavior of its security services.
A preplanned retreat: the KGB’s ‘Noah’s Ark’ strategy
According to leaked records from top-secret Communist Party meetings and testimony from former senior Soviet officials now living abroad, as early as the mid-to-late 1980s the KGB leadership under Yuri Andropov—and those who succeeded him—had already concluded that the highly centralized planned economy had reached a dead end.
Before the August 1991 coup attempt—the “August 19 Incident”—the KGB had begun secretly transferring Communist Party assets, state gold reserves, and foreign currency overseas through complex money-laundering networks. These funds were entrusted to carefully selected KGB “agents,” typically foreign-trade officials or informants with intelligence backgrounds. This is why, after the Soviet Union collapsed, these individuals were suddenly able to mobilize hundreds of millions of dollars to purchase oil fields, mineral resources, and other strategically vital assets at fire-sale prices.
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Years before the Soviet state formally disintegrated, the KGB’s First Chief Directorate—its foreign intelligence arm, now known as the SVR—had already initiated a systematic “retreat plan.” A key figure was Leonid Veselovsky, a KGB colonel responsible for overseeing the transfer of Communist Party assets under the orders of Deputy KGB Chairman Philip Bobkov.
The KGB established hundreds of so-called “joint ventures,” selling Soviet oil and gold to offshore companies at roughly five percent below market price, then reselling those commodities in Western markets at full value. The resulting margins were funneled into offshore accounts via Soviet-linked banks abroad, including Eurobank in Paris, Moscow Narodny Bank in London, and Wozchod Handelsbank in Switzerland. These profits became what later came to be known as the “disappeared party assets.”
Through Switzerland, Jersey, Luxembourg, and Cyprus, the KGB constructed multilayered networks of shell companies. The most notorious example was Fimaco, a Jersey-registered firm that at one point in the 1990s controlled tens of billions of dollars in Russian central bank foreign exchange reserves.
In the late 1990s, the Bank of New York was embroiled in a money-laundering scandal involving as much as $7 billion in Russian funds—an episode that revealed the prevailing Western attitude toward these “red funds:” do not ask where the money came from.
A ‘technical strike’ by the instruments of violence
At moments of regime collapse, the alignment of the security apparatus is decisive. In August 1991, when hardliners attempted a coup, elite KGB units—including the Alpha Group special forces—refused orders to storm the Russian parliament building where Boris Yeltsin had taken refuge. The reason was straightforward: they had already reached understandings with emerging political forces, opting for a “bloodless transition” in exchange for immunity and priority access to privatization.
During those crucial days, the KGB rapidly sealed off and destroyed large volumes of archives that could have threatened its own transformation, while deliberately preserving compromising files on newly rising businessmen and politicians. This ensured that even amid political chaos, the security services retained a form of “nuclear deterrence” over Russia’s economic future.
Monetizing power
The so-called “Gold of the Party” did not truly disappear. It was converted into thousands of offshore accounts, shell corporations, and anonymous capital circulating through Western financial systems. When that money flowed back into Russia, it no longer bore the label of party property. It returned disguised as “foreign investment” or “private wealth,” deployed to support specific political factions.
The KGB distributed these funds to selected “white gloves”—the first generation of Russian oligarchs. Using this capital, they exploited the 1990s “loans-for-shares” privatization program to acquire Russia’s core energy assets, including Gazprom and Rosneft, at symbolic prices.
According to leaked internal meeting records, during his tenure as deputy mayor of St. Petersburg, Vladimir Putin issued large numbers of export licenses through the city’s Committee for External Economic Relations. In practice, this converted state resources into political funds for a specific security-service network. That money later became the financial foundation enabling Putin to succeed Boris Yeltsin, suppress regional power brokers, and buy off military and bureaucratic elites. The former intelligence officer thus reemerged as a “new tsar,” presiding over assets worth trillions.
At the same time, large numbers of mid-level KGB officers were ordered to “transition” en masse into newly established banks and import-export firms. Officially, they served as security chiefs or consultants; in reality, they functioned as political commissars overseeing capital flows. In St. Petersburg, Putin played a central role in integrating economic liberalization with the security apparatus, issuing licenses and forging alliances with organized crime and newly minted elites to complete the initial phase of primitive accumulation.
A widely circulated “shadow cabinet” list specified which state-owned enterprises were to be taken over by which “Chekists in suits.” This arrangement later produced what became known as the siloviki—a power bloc drawn from the security services whose members are simultaneously state officials and immensely wealthy energy magnates.
An authoritarian system, repackaged
This transformation appeared instantaneous because the KGB never truly disappeared. It merely concluded that controlling people through money was more efficient and more durable than controlling them through the Gulag. What had once been the violent extraction of citizens’ freedom became the financial extraction of national wealth.
Following the failure of the August 1991 coup, several high-ranking party officials in charge of finances met similarly inexplicable ends. These deaths are widely believed to have been silencing operations designed to sever financial paper trails.