The Wall Street Journal

      February 23, 2005


In From the Cold
 A Friendship Forged in Spying
 Pays Dividends in Russia Today
Top Dresdner Banker's Ties
 To Putin Go Back to Days
 When They Were Agents
Recruiting During the '80s

February 23, 2005; Page A1

As one of Russia's most influential foreign bankers, Matthias Warnig is in
the limelight these days. Under his leadership, the Russian division of
Germany's Dresdner Bank AG has become a top Moscow deal maker. This month,
OAO Gazprom, the world's largest natural-gas concern, nominated him to its

Less well-known is Mr. Warnig's past as an agent of East Germany's dreaded
secret police, known as the Stasi, and his web of personal and professional
ties to Russian President Vladimir Putin. According to Stasi documents
reviewed by The Wall Street Journal, Mr. Warnig left the East German
intelligence service in 1989 with the rank of major. During the 1980s, when
Mr. Putin served in East Germany as a KGB agent, Mr. Warnig helped him
recruit spies in the West, according to former colleagues of the two men.

After the Soviet Union fell in 1991, the two once again joined forces, this
time to promote the spread of capitalism. Mr. Warnig, fresh out of
management training at Dresdner, was sent to open a new operation in St.
Petersburg, Russia, where Mr. Putin worked in the mayor's office, drumming
up foreign investment. The bank got involved in Mr. Putin's personal life,
underwriting some trips to Germany. When Mr. Putin's wife suffered a car
accident, Dresdner flew her to a German hospital.

Neither Mr. Putin nor Mr. Warnig has been accused of improprieties in the
awarding of the investment-banking contracts. Moreover, Dresdner's aid to
the Putins doesn't appear to have violated any Russian laws.

Still, the murky past shared by the two men underscores the shadowy
interplay between businessmen and former intelligence operatives in today's
Russia. Mr. Putin himself served more than 15 years in the KGB and later
headed its successor, the FSB. Since taking over the Kremlin in 2000, he
has presided over an unprecedented influx of ex-KGB men into the upper
echelons of power -- men whose formative years were spent learning how to
undermine the West's interests.

Prominent among the ex-KGB officials who now pace the Kremlin's corridors
are Defense Minister Sergei Ivanov, Interior Minister Rashid Nurgaliev and
FSB chief Nikolai Patrushev, as well as the heads of Russia's arms-export,
defense-procurement and drug-enforcement agencies. A close Putin aide and
former KGB man, Viktor Ivanov, serves on the board of flagship airline OAO
Aeroflot. A favorite parlor game in Russia is to divine which other senior
officials and businessmen have suspicious gaps in their résumé that suggest
a past with the intelligence services.

This has coincided with rising worries in the West about Russia's direction
under Mr. Putin. Since coming to power he has closed opposition media,
abolished regional elections for governor and moved to dismantle oil giant
OAO Yukos with a zeal that has aroused major concerns about Russia's
investment climate. On Monday, U.S. President George W. Bush warned that
Russia "must renew a commitment to democracy and the rule of law." He is
scheduled to meet with Mr. Putin in Slovakia tomorrow.

It isn't surprising that Mr. Putin would turn to veterans of the KGB and
friendly intelligence services to get things done. In the eyes of many
Russians, the agency's former operatives still have an aura of cool
efficiency and patriotic self-sacrifice. Men who risked their lives as
spies during the Cold War developed special bonds of loyalty that carry
over into post-communist times. Mr. Putin has openly celebrated his KGB

Former Stasi officials, by contrast, were often stigmatized in
post-unification Germany because people saw them as representatives of a
hated police state. East Germans believed that the Stasi spied on people in
schools, at work and in church.

A spokesman for Dresdner, which is now a unit of German insurer Allianz AG
and Germany's third-largest bank, said Mr. Warnig's personnel file was
examined last year after a query from The Wall Street Journal and no
mention of the Stasi was found. "We don't plan any additional action," said
the spokesman, Bernhard Blohm. "We have to protect our employee."

Through a London-based spokesman for Dresdner's investment banking unit,
Dresdner Kleinwort Wasserstein, or DrKW, Mr. Warnig declined to comment.

Still, an official at DrKW acknowledges Mr. Warnig's past Stasi service was
known within the unit. He added that press inquiries into the matter could
endanger Mr. Warnig and his family. An Allianz spokesman referred questions
to Dresdner and DrKW.

A Kremlin spokesman, while confirming many aspects of this account, denied
that Messrs. Warnig and Putin worked together as spies. He said they didn't
meet until the early 1990s in St. Petersburg and that their relationship
was "strictly business." Mr. Putin, he added, wouldn't be available for an

The story of the Putin-Warnig relationship has been pieced together from
intelligence records and personal correspondence, as well as interviews
with the two men's friends and colleagues. Stasi documents seized by
citizen groups after the fall of the Berlin Wall indicate that Mr. Warnig,
now 49 years old, joined the East German Intelligence Service in the 1970s.

He quickly built up a reputation as a top recruiter of spies in West
Germany, according to Frank Weigelt, who says he was Mr. Warnig's former
supervisor and co-worker on important cases. "Warnig's genius was to use
personal friendship, rather than ideology, as the motivation for
cooperation," Mr. Weigelt said. He enlisted at least 20 agents in West
Germany in the 1980s to steal military rocket and aircraft technology,
according to Mr. Weigelt, who spoke in a series of interviews between
November 2004 and February of this year. Today Mr. Weigelt answers phones
and does back-office work in a small business in Berlin.

In Dresden, Mr. Putin, a fluent German speaker, was also a recruiter, but
for the KGB. Starting in 1985, Mr. Putin's job was to enlist potential
undercover agents capable of operating without diplomatic support on enemy
territory, according to Vladimir Usoltsev, a former KGB officer from Mr.
Putin's unit, who says he shared a Dresden office with Mr. Putin between
1985 and 1987.

Recruiting Operation

According to Mr. Weigelt, Mr. Warnig was sent to Dresden in October 1989 --
a month before the Berlin Wall fell -- to cooperate informally with the
KGB. The Soviet security agency was running an operation in the city to
recruit key Stasi members, with an eye toward getting its hands on their
West German spies.

Klaus Zuchold, a former Stasi officer who says he was recruited by Mr.
Putin to join the KGB, says he didn't know Mr. Warnig by name but
recognized him in a Dresdner Bank photo presented to him by The Wall Street
Journal. Mr. Zuchold says that Mr. Warnig was in one of several KGB cells
Mr. Putin organized in Dresden.

Mr. Warnig's cell, which Mr. Putin set up after the fall of the Berlin
Wall, operated "under the guise of a business consultancy" but was actually
recruiting agents for the KGB, Mr. Zuchold said. Each of the agents was
urged to found his own business to fund his spy operations, according to
Mr. Zuchold, who now runs a small security-guard firm. According to Stasi
pension records, Mr. Warnig drew an agency salary of 25,680 East German
marks in 1989, or roughly $3,000 at market exchange rates.

Irene Pietsch, a German banker's wife who says she befriended Mr. Putin's
wife, Lyudmila, in the early 1990s, says Russia's future first lady once
commented that it was much easier to get on with East Germans than West
Germans. In a conversation over coffee in Hamburg in 1996, Mrs. Putin cited
Mr. Warnig as an example, Mrs. Pietsch says.

"She said we all grew up in the same system, and that Volodya and Warnig
worked for the same firm," says Mrs. Pietsch, using Mr. Putin's nickname.
"I asked her what she meant. She said Matthias was in the Stasi, and
Volodya the KGB. I was quite surprised by her candor." She says Mrs. Putin
told her Mr. Warnig and her husband worked together in Dresden in the 1980s.

The friendship between Mrs. Pietsch and Mrs. Putin is chronicled in dozens
of faxed messages and letters she received from Mrs. Putin, some of which
were reviewed by The Wall Street Journal. The letters reveal the two women
shared an intimate friendship, in which they speak openly about their hopes
and fears, families and friends. Copies of the letters indicate that Mrs.
Putin faxed them from St. Petersburg City Hall, the Kremlin, and Mr.
Warnig's offices at Dresdner.

Shortly after the collapse of the communist regime in East Germany, the KGB
closed down most operations in Germany and Mr. Putin went back to his
hometown, Leningrad, which later reverted back to its pre-revolutionary
name St. Petersburg. In "First Person," a book of autobiographical
interviews published in 2000, Mr. Putin says he quit the KGB in 1991 after
more than 15 years with the agency, a move he described as the "toughest
decision of my life."

Bernard Walter, Dresdner's retired former CEO, who in the early 1990s was
responsible for the bank's operations in Eastern Europe, says he hired Mr.
Warnig during their first meeting in 1990. He says the former spy presented
himself as an employee of the East German Economics Ministry. That was the
cover story he also used for his espionage operations in West Germany,
according to Mr. Weigelt. At the time, East German functionaries were
highly sought after by German firms looking to expand into the Soviet
Union. They often spoke Russian and had close ties to Soviet officials. "I
thought he was well-educated and very excited about working in the West,"
Mr. Walter said.

Mr. Walter says he had no knowledge of Mr. Warnig's Stasi past. Like more
than 3,000 other employees hired by Dresdner Bank in the former East
Germany, Mr. Warnig signed a questionnaire in which he denied any
connection to the Stasi, according to Mr. Walter. He added that he would
never have hired him if he'd suspected Mr. Warnig served in the agency.

In Russia, by contrast, ex-KGB agents face little public opprobrium. Mr.
Putin himself has never concealed his affinity for former spies. In "First
Person," he said he once told the German consul in St. Petersburg: "I
understand you've got a campaign going against former employees of state
security, they're being caught and persecuted for political reasons, but
these are my friends, and I will not renounce them."

In 1990, Mr. Putin took a job as an adviser to St. Petersburg city boss
Anatoly Sobchak. As head of City Hall's external relations committee from
June 1991, Mr. Putin was the most important contact for Western businessmen
in Russia's former imperial capital.

Soon, events conspired to make him even more valuable. In August 1991, an
attempted hard-line coup against Soviet leader Mikhail Gorbachev ended in
victory for the reformers grouped around Boris Yeltsin, the Russian
president. Foreign companies sniffed new opportunities as Soviet communism
crumbled. That month, Mr. Walter says he sent Mr. Warnig to St. Petersburg
to look into setting up an office. It opened in December 1991.

Officials in St. Petersburg could see Mr. Putin and Mr. Warnig were
acquainted. "It was Putin who introduced me to Matthias," says Sergei
Belyaev, former deputy mayor in charge of privatization. "It was obvious
from the start they had comradely relations."

Mr. Warnig's ties to Mr. Putin were a big asset. "You needed a license to
start a business, and Putin signed all the licenses," says Dieter
Mankowski, head of the German Industry and Trade Association office in St.
Petersburg in the early 1990s. "To do business...you needed a protector.
This could be a crime syndicate or it could be a state official."

At the time, Mr. Sobchak dreamed of turning St. Petersburg into Russia's
financial capital, and was eager to lure foreign banks to the city. Over
the next two years, Messrs. Walter and Warnig held talks with St.
Petersburg officials -- including Mr. Putin -- on opening a branch there,
in a joint venture with Banque Nationale de Paris. City Hall helped
BNP-Dresdner get the impressive granite palace in St. Isaac's Square that
had once been the Imperial German embassy. The bank opened its doors in
September 1993. Dresdner's advantage in Russia was solidified shortly
afterward when Russia imposed a moratorium on the registration of
foreign-owned banks.

Big Favor

The following year, Dresdner leaped at the chance to do the Putin family a
big favor. Mrs. Putin fractured her spine and the base of her skull in a
car accident in Russia. Dresdner spokesman Mr. Blohm says Mr. Putin
telephoned Mr. Walter after the accident and asked the bank to assist his
wife. The bank responded immediately "for humanitarian reasons," Mr. Blohm
said. He said the bank paid for Mrs. Putin to be airlifted to a special
clinic in Bad Homburg, Germany, and covered part of the rehabilitation
costs. Mr. Blohm declined to specify the total amount of the assistance.

"If Dresdner hadn't made the arrangements, numerous other companies would
have offered," said Mr. Mankowski. "The medical system in St. Petersburg at
the time was atrocious."

The bank also says it paid for Mr. Putin to make two trips to Hamburg,
where he gave talks to local businessmen.

In 1995, the Putin family suffered a setback when its dacha burned to the
ground. According to Mrs. Pietsch and a biography of Mr. Putin by German
author Alexander Rahr, the fire also consumed a suitcase full of cash.

According to Mrs. Pietsch and Mr. Mankowski, Dresdner subsequently paid
travel and living expenses for Mr. Putin's two daughters, Maria and
Katerina, so they could attend public schools in Hamburg. Handwritten
letters from Lyudmila Putin to Mrs. Pietsch show that Mrs. Putin saw the
schooling as a chance for the girls to practice German in a native-speaking
environment. "I hope the three of us will be in Hamburg (I mean me and the
children), if the arrangement with the school works out," Mrs. Putin wrote
in 1996.

A Kremlin spokesman and a Dresdner spokesman denied Dresdner organized
trips to Germany for the Putin daughters. But the Kremlin spokesman
acknowledged that Mr. Putin had made a number of trips to Hamburg to attend
conferences bringing together German and Russian municipal officials, and
that the trips were paid for by "the German side."

Today, such payments by private companies to government officials might be
interpreted as illegal bribes under both German and Russian law. But at the
time, they were common features of business life in Russia, where
government officials drew tiny salaries. Germany didn't outlaw such
payments until 1999, when an international convention on corruption came
into force, according to Peter Eigen, chairman of Transparency
International, a Berlin-based anticorruption organization.

As the 1990s wore on, Dresdner became a major force in Russian business,
cementing its relationship with Gazprom, the sprawling, state-owned gas
monopoly. Mr. Walter acted as the company's adviser for six years until
2000. Dresdner was global coordinator when Gazprom first sold its shares to
international investors in 1996 and advised Ruhrgas AG on its acquisition
of a 2.5% stake in Gazprom from the Russian government in 1999.

In January 2001, Dresdner bought the U.S. banking firm Wasserstein Perella
& Co. and merged it with its investment banking arm to form Dresdner
Kleinwort Wasserstein. Shortly after Allianz bought Dresdner in April 2001,
Wasserstein Perella co-founder Bruce Wasserstein left the firm.

Mr. Warnig, meanwhile, was settling into life in Russia. "When I first met
him, he was all Radeberger beer and sausages," said one former colleague.
But he quickly improved his Russian, and bought a country house in
Lodeinoye Pole, about 120 miles from St. Petersburg. The Putins were
frequent visitors there, according to the banker's friends.

"He became more Russian than the other foreigners," says Mr. Belyaev.

In 2002, after years moving between jobs in Dresdner's Moscow and St.
Petersburg offices and a stint in Germany for additional training, Mr.
Warnig settled in the Russian capital as head of Dresdner Bank ZAO, the
bank's Russian unit. In the summer of 2003, the local DrKW office was
merged into Dresdner Bank ZAO leaving Mr. Warnig the whole group's top
executive in Russia.

Meanwhile, Mr. Putin was also moving up the ranks. He'd got a job as a
minor Kremlin bureaucrat shortly after Anatoly Sobchak was defeated in the
mayoral elections of 1996. But the then-president, Boris Yeltsin, spotted
him as a rising star, and in less than two years he was named to head the
FSB, the domestic intelligence agency.

It was a time when Mr. Yeltsin was beset by corruption scandals, ill health
and threats from increasingly powerful rivals. But Mr. Putin remained
resolutely loyal to the ailing president, and was rewarded with the job of
prime minister in 1999. Then as Russia ushered in the millennium, Mr.
Yeltsin bowed out of politics and anointed Mr. Putin as his successor.

As Mr. Putin was catapulted to power, Mr. Warnig's friendship proved
helpful to the bank, especially after the new president began appointing
old colleagues from St. Petersburg City Hall to senior government posts.
"He has connections to all the ministries," says Stefan Stein, head of the
St. Petersburg branch of the German chamber of commerce. "He knows when
projects are coming up and he can get favorable terms. He's the man who
opens doors for Dresdner."

>From the late 1990s, Dresdner's investment banking unit worked for the
Russian government valuing big oil and coal companies slated for
privatization. It also stepped up ties with Gazprom, where Alexei Miller,
Mr. Putin's former St. Petersburg deputy, became CEO in 2001. In 2003, DrKW
and Morgan Stanley were lead managers in placing $1.75 billion of Eurobonds
for the gas company -- the largest-ever emerging-market corporate bond

Dresdner also took on highly sensitive government assignments. Last summer,
Dresdner became involved in the government's assault on oil giant OAO
Yukos, once Russia's most successful private company. In August, with the
oil company's founder Mikhail Khodorkovsky on trial for tax evasion and
fraud and Yukos staggering under a multibillion-dollar back tax bill,
Russia's Ministry of Justice commissioned DrKW to value Yukos core asset
Yuganskneftegaz as court bailiffs prepared to sell it. Many Western
analysts viewed the sale as a politically motivated expropriation designed
to destroy Mr. Khodorkovsky, who had been funding opposition parties.

The trophy mandate was awarded without any competitive bidding, rival banks
say, even though Russian law requires tenders for most government
contracts. Mr. Putin's press office denied the Kremlin had anything to do
with the decision. DrKW says it was chosen because "we have strong sectoral
knowledge and execution skills, and our work is done to the highest
professional standard."

At the time, investors feared the government would try to sell the Yukos
unit at a firesale price to a state-controlled company. But in its report,
DrKW said Yugansk was worth at least $15 billion, a figure close to the
market consensus.

The justice ministry ignored that advice, instead seizing on the lowest
figure cited in the report, $10.4 billion -- a sum DrKW said was "overly
conservative." Fearing for its reputation, DrKW took the unusual step a few
days later of publishing key parts of its valuation on the Internet. The
unit was finally sold on Dec. 19 to an obscure shell company, Baikal
Finance Group, for $9.3 billion. Days later, Baikal was acquired by
state-owned OAO Rosneft. DrKW wasn't involved in financing the deal.

DrKW is advising Gazprom on its merger with Rosneft -- another job awarded
without any open bid, other banks say. As is typical in large transactions,
Gazprom later hired Citigroup and Deutsche Bank to provide fairness
opinions that would reassure investors.

This month, Gazprom nominated Mr. Warnig to the company's board. Management
portrayed the move as an effort to bring in more independent directors and
make the company more transparent. But some Gazprom investors were
unimpressed. "How can he be considered an independent director if Dresdner
is doing all the big evaluations for Gazprom?" asked William Browder, head
of Hermitage Capital Management and a leading investor in Russia.

Mr. Putin and Mr. Warnig still meet, occasionally dining together at the
president's country residence, though not as often as they used to, friends

"A bank is all about relationships," says a former colleague of Mr. Warnig
from his days in St. Petersburg in the 1990s. "Warnig was in the right
place at the right time."

R. A. Hettinga <mailto: [EMAIL PROTECTED]>
The Internet Bearer Underwriting Corporation <http://www.ibuc.com/>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'

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