(FORTUNE Magazine) – Until last year, Inkombank did business out of a crumbling former science institute on the outskirts of Moscow. Now its offices, in a lavishly renovated pre-Revolutionary mansion a stone's throw from the Kremlin, seem more reminiscent of a Medici court than the executive suite of Russia's second-largest private bank. The marbled anteroom is full of milling functionaries and bow-tied waiters serving frothy cappuccino. Inkombank President Vladimir Vinogradov, sweeping in 40 minutes late, apologizes for being detained at the Federal Assembly, parliament's upper house. A moment later a phone tinkles behind his desk. "That's the Kremlin line," Vinogradov says. "Someone must need me badly."

Vinogradov is just one prominent member of Russia's new business elite, a handful of mostly young financiers who are fast fencing in the Wild East. After getting their start running rings around the lumbering Soviet state, these latter-day robber barons are now inheriting it. They are forming new power centers, built mostly around commercial banks and natural-resources companies, that control huge swaths of the Russian economy. Already, anyone doing deals in Russia's hot short-term bond market, where trading volume totaled $100 billion last year, will have run across them. They dominate the country's trade in arms and precious metals, as well as its production of copper, nickel, and a quarter of its oil. They control the No. 1 and No. 3 television networks, the Visa bankcard network, a big chunk of the pulp and paper industry, and an increasing portion of the food processing industry.

But like most acts of creation, the establishment of a capitalist economy in a formerly Communist state has been a bit messy. The new capitalist class has emerged only after a long, and ongoing, struggle with entrenched Soviet-era bureaucrats defending their former stranglehold on the means of production. Many of these businessmen, like America's robber barons at the turn of the century, bent the rules of honest competition creating their empires. Princeton professor Stephen Cohen, writing in the Nation, dubbed them a "semi-criminalized oligarchy" that has made ordinary Russians "suffer unduly and unjustly."

That is only one side of the story. Though it's too soon to tell whether there is a J. Paul Getty or a Joe Kennedy among them, Russia's new fat cats are also providing essential financial services--including loans--to the burgeoning small and medium-size businesses visible in any big Russian city. These cottage industries support millions of ordinary Russians who are earning a decent, legitimate living. This middle class is also buying more Western products than marketers ever imagined they would--including $10 billion of imported foodstuffs alone last year. Optimism about this growth helped make Russia's stock market the hottest in the world last year despite the country's political troubles.

While no members of the business elite could have avoided contact with Russia's homegrown mafia, those looking for "gangster bankers" among the country's new economic masters will be sorely disappointed. Five years ago they made money by lending at fantastic rates--a line of work where extralegal enforcement was indispensable. Today they make it in the bond market, and tomorrow, they hope, they will make it by reselling the state property picked up on the cheap to international investors. Maintaining links with the mob, at least in its violent street-level incarnation, can only hinder those goals.

Having culled their fortunes out of the chaos surrounding the collapse of the Soviet Union, the new breed of Russian businessmen want order to consolidate their power. For this purpose, the government makes a much better partner than the mafia. "However all these people gathered their capital, they are now interested in making it legitimate," says Peter Derby, president of the American-managed Dialog Bank, a former joint-venture bank in Moscow.

In their march toward legitimacy, Russia's powerful new plutocrats are intertwining and interlocking into cartellike groups--they like to compare themselves with Korea's chaebol or Japan's keiretsu, though they have a long way to go before they earn that comparison. They're also spending a lot of their time lobbying in the corridors of power--so much so that two of Moscow's business elite have added high-level government posts to their resumes: Vladimir Potanin, who is vice premier in charge of the country's economic policy, including privatization, and Boris Berezovsky, who as deputy director of the State Security Council, oversees the fragile peace in Chechnya. At a time when most Russia watchers are wondering about the country's future in the post-Yeltsin era, this emerging new constellation of economic stars may provide some of the answers.

"Our interests are the interests of the whole society," claims Berezovsky, an outspoken and flamboyant former math professor who has risen to become head of an auto, media, and real estate conglomerate. "And," he adds, "we have gathered enough strength to defend them."

Foreign investors remain understandably skeptical of Russia's robber barons. "I'd trust these guys with my money--if I was another Russian," says Alexandre Goodwin, president of Sector Capital, a Western-financed Moscow brokerage. Moscow is, after all, still a place where the daily papers teem with reports of corpses produced in the struggle for control of some warehouse or wholesale market--or hotel (see following story). And Russia is not yet so centralized that knowing this new power bloc is a prerequisite for foreigners trying to do business here. Consumer-goods multi-nationals building plants to service the surprisingly vigorous Russian market worry far more about the local water commissioner than about any Moscow banker, for example.

But as the banking elite continues to extend its tentacles into Russia's economic infrastructure, more foreigners are going to wind up doing business with it. Among its most prominent members:

--Potanin, 36, a former Foreign trade ministry bureaucrat who founded the country's biggest private bank, Uneximbank, and the eighth largest, International Finance Corp. He also owns Russia's biggest ferrous metals producer, Norilsk Nickel, and its No. 4 oil company, Sidanco. In all, seven of Russia's 20 largest companies are considered members of the Potanin clan, tied by equity or credit relationships. These 20 account for 56% of Russia's industrial production and a much higher proportion of its annual exports, according to the Moscow economics journal Expert.

--Vinogradov, 41, whose Inkombank (No. 4 in size) has a huge branch network and interests in metals as well as a stake in the oil pipeline monopoly Transneft.

--Berezovsky, 50, who owns the national Lada car dealer network as well as the All-Russia Automobile Alliance, a company that raised $50 million in a public offering in 1993 on the so-far-empty promise to build a Russian people's car. Berezovsky and allies also control Russian public television and No. 9 oil concern Sibneft.

--Mikhail Khodorkovsky, 33, president of Bank Menatep, Russia's sixth largest. The former chemist and Communist Youth League activist recently bought and became chairman of the No. 2 oil giant, Yukos.

--Alexander Smolensky, 42, president of Stolichny Savings Bank (No. 8), which recently swallowed, pac-man style, the old state agricultural lender Agroprombank, (No. 5). Former profession: construction manager.

--Vladimir Goussinsky, 44, founder of Most-Bank, and Russia's leading press lord. A former engineer and theater director, he started the country's best TV station, NTV, and best daily newspaper, Sevodnya. He works in tandem with Most- Bank's chairman, Boris Hait, 45, a former engineer who is leading the bank's push into credit cards, securities trading, and real estate development.

--Mikhail Friedman, 33, a metals engineer, and Pyotr Aven 41, a former foreign trade minister, top officers of Alfa Bank, a somewhat smaller house that punches above its weight thanks to shrewd acquisitions--and some shrewd management decisions. Alfa recently drafted as its chairman Leonard Vid, 65, the former No. 2 of Gosplan, the massive Soviet economic planning agency. He's building valuable bridges between the young bankers and the bureaucratic old guard, former antagonists who are learning to live with each other.

These leading bankers' personal backgrounds are far closer to that of the old Soviet nomenklatura, or privileged class, than to the underworld. Potanin graduated from the Moscow Institute for International Relations, the Soviet Harvard; Khodorkovsky went to the prestigious Mendeleev Chemistry Institute. Yet they have risen because of their dogged determination to fight the hierarchy preserved by the old ruling class.

They got their start when Mikhail Gorbachev legalized commercial banks in 1988. Though banks were now legit, capital was still virtually illegal by definition, and a U.S. dollar in your pocket could earn you five years in a prison camp. As a result, commerce in the late Soviet era could work only as a more organized version of the black market, relying on criminal structures for some crude order.

Khodorkovsky, Smolensky, and Vinogradov came up from scratch in this nerve-wracking atmosphere. Khodorkovsky proved a particularly brilliant innovator, turning his Menatep--at the outset, the financial equivalent of a garage company startup--into post-1917 Russia's first public company, and using TV advertising to hawk its shares. He was one of the first to open up currency-exchange shops across Moscow when that business became legal in 1991.

The end of Soviet power and Russia's shock therapy reforms of 1992 made it easier to do business more or less legally. At this point, the smarter banks moved to escape the underworld milieu, building their own in-house security forces staffed by veterans of the KGB and police. (These forces are officially employed to fight financial fraud but can still get physical. Police files tell of a battle a couple of years ago between Uneximbank security and mobsters in the Arctic port of Murmansk, where Potanin's colleagues at Uneximbank had bought a shipyard. The Unexim team left two opponents dead, and the Murmansk capo retreated.)

In 1993, Potanin, who had left the Trade ministry, founded Uneximbank. Most of the startup capital came from dusty Soviet-era foreign trade organizations with jawbreaking names like Zarubezhneft and Tekhsnabexport, a strong indication that, as Inkombank's Vinogradov recalls, "our economic opponents had exhausted their arguments and begun to play by market rules." The flames enveloping Parliament later that year, as a power struggle between old-guard legislators and Yeltsin was resolved in the president's favor helped, drive the point home to those a bit slower on the uptake.

The government by then had adopted a watered-down voucher privatization scheme that was supposed to transfer ownership of a large portion of Russian industry to the population at large. The majority of factories ended up being given away to their "working collectives," a solution that sounded noble enough to the Communist-bred electorate. But real control lapsed to incumbent bosses, who were free to, as Most-Bank's Hait says, "privatize profit without privatizing property." These bureaucratic veterans proved harder than the mob for the young banks to overcome.

So the fledgling capitalists found other ways to make money. They sought and gained the right to act as financial agents for various government departments and programs. The idea spread like wildfire--and no wonder. The banks could usually keep the Treasury funds on deposit for at least a few months, while they earned triple-digit interest on the inflation-frothed interbank market. Time was money, and plenty of it.

The party roared away until October 1994, when the currency markets' Black Tuesday sent the ruble crashing by 25% in a single afternoon. This stunned Yeltsin into firing his Soviet-holdover central banker and appointing a new team more serious about fiscal stabilization. Tighter money hit the not-quite-privatized companies hard, but it also got some bankers thinking about ways to make a profit without hyperinflation. Their response, formulated by Vladimir Potanin in early 1995, was the "loans for shares" scheme.

This allowed them to privatize the rich natural-resources firms that had remained in state hands. To salve the antimarket types who feared the "bazaaring" of Russia's national treasures, Potanin and company called their purchases "loans" to the state in return for three-year "custody" of various valuable enterprises. To get the right to make these loans, Potanin organized "auctions" at which rival bidders were conveniently disqualified on technicalities.

No one was particularly fooled by this financial fig leaf: the banks now for all intents and purposes own the stock they gained custody of, and no one expects them to give it back when the three years are up in 1998. Instead, the banks are working at turning their investments into companies that can be sold on the stock markets--naturally, at a hefty profit that would by law have to be shared with the state.

How well did the bankers do? Potanin's Unexim bought 51% of the voting stock of Norilsk Nickel, an Arctic klondike that belches out 20% of the world's nickel supply and over 40% of its platinum-group metals, for a mere $170 million. Potanin also bagged 51% of oil giant Sidanco for just $130 million. Khodorkovsky's Menatep took 78% of Yukos, whose annual revenues are around $3 billion, for a mere $168 million, then helped its ally Stolichny buy Sibneft, another big oil firm, for $100 million (with backstage facilitating by Boris Berezovsky).

It seemed at first that the financial brat pack had gone too far. The banks that were cut out of the bidding--Vinogradov's Inkombank lead among them--demanded that the government stop the proceedings, which it did. Whole industries on Potanin's wish list, including shipping and paper, wriggled off the hook. Just afterward, the Communist Party swept the December 1995 parliamentary elections. Its showing was not hurt by the outcry over the bankers' grab for a big slice of national industry at fire-sale prices.

In retrospect, though, the loans-for-shares deals did have at least one positive outcome: They tipped the balance of power in those industries away from the entrenched industrial lobby that had been strangling the country's economy. Potanin blazed the trail again here, getting Russia's Prime minister personally to fire Norilsk Nickel's recalcitrant incumbent manager. Such Soviet-era executives, for all the faceless masses at their beck and call, were functionally never more than shop foremen. "These people's only thought," Berezovsky observes with typical bluntness, "is whether the press is stamping." Even the honest ones were plainly overwhelmed by the complexities of running a modern corporation. "We have a real owner now who is interested in profit," enthuses Anatoly Sivak, the Sidanco general director, when asked about his new boss.

If the new-wave bankers can turn these wrecks of enterprises into listed companies in New York and London, they will have earned a nice return for themselves and served their motherland too. One can estimate how much they stand to gain by looking at Lukoil, Russia's largest oil company and by all accounts its best managed. Going straight to international securities markets, Lukoil sold 15% of its stock for about $500 million. Arco bought half the equity, which nearly tripled in value over 18 months.

But before they can achieve those aims, the bankers are going to need a great deal of money--mainly other people's. A look at the balance sheets of some of the state assets shows that those fire-sale prices may have been warranted. Debts at oil firm Yukos, when Menatep took over, outweighed receivables by $1.6 billion. Norilsk Nickel is more than $1 billion in the red. Norilsk's problems, says Vsevolod Generalov, the veteran metallurgist Unexim brought in as chairman to turn the company around, "are rooted in the complete absence of an effective system of management."

Russian banks don't have enough capital to handle the problems alone. The Russian banking system's total assets are about $60 billion, or half what the oil industry needs to maintain current production levels, according to the World Bank. Smoother investment waters would presumably lure back some of the capital that has fled the country since 1991, variously estimated between $50 billion and $200 billion. But the outside world must be engaged as well.

Nor, clearly, do Russia's financial raiders yet have all the skills to manage their vast acquisitions. For all their bosses' vigorous wheeling and dealing, most of the banks have barely transcended the anarchy and lassitude of the society around them. Phones go unanswered; necessary people disappear for days at a time. Overly personalized management creates debilitating bottlenecks. Boris Hait's waiting room at Most-Bank is stuffed at 10:30 p.m. with people on errands that shouldn't require a chairman: a new advertising clip to show, an accounting detail to be checked off.

More seriously still, the banks tend to stretch their limited capital by getting clients to invest in them, as well as the other way around. Money then has to be lent back to these shareholders, whether or not they are particularly creditworthy. Several medium-size Russian banks have already gone under this way.

And the bankers scarcely operate by the Marquis of Queensbury business rules. After it complained about Menatep's winning the spoils in the state auctions, Inkombank mysteriously lost most of its business with the City of Moscow, a vital secondary patron to the young banking system. Likewise, foreigners who cross the wrong Russian can find themselves buried in impassable bureaucratic drifts.

But these flaws in the bankers' personalities are hardly the only obstacles to foreigners seeking to do business in Russia. byzantine tax and royalties schemes have also kept foreign direct investment to a trickle. A report by CS First Boston claims that Russian crude-oil producers bear four times the tax burden of their nearest competitors, in Norway. Mining companies are similarly hampered.

Though they are by and large in favor of reforms to the market that would aid their businesses, it remains to be seen how dedicated Russia's new elite is to economic liberalization over the long run. This group, after all, is not made up of ideologues. Last spring, for example, all of the new plutocrats except Vinogradov signed a petition imploring Yeltsin to cancel the presidential election and make common cause with Communist leader Gennady Zyuganov. Yeltsin's passage from the political scene could set off a new series of dramatic events. Though most of the bankers are so far keeping their cards close to their chests, Berezovsky, who engineered last year's petition, hints in an interview at "entirely legal means" for putting off the election that the Russian constitution would seem to require within three months of Yeltsin's death or resignation. He argues that Russia can't afford the "risk" of having Alexander Lebed, the tough-talking general who is a leading succession candidate, in the Kremlin.

Still, Russian business culture is cardinally improved from two or three years ago, when the best-known "investment groups" were simple con men like Sergei Mavrodi; his MMM pyramid scheme used clever TV ads to create a national investing frenzy in the summer of 1994, then disappeared with the money. Today's top dogs are audited by the West's Big Six accounting firms, vetted by the European Bank for Reconstruction and Development, and increasingly are attracting syndicated credits from the most august banks of Western Europe. Vinogradov says he will soon sell 20% of Inkombank to the EBRD and Germany's WestDeutsche LandesBank.

The jury is still out on whether this new elite can conjure a Russian equivalent of Germany's postwar miracle. But unlike the Communists they whipped and the managerial old guard they are shouldering aside, the robber barons offer at least a chance that Russia can begin fulfilling its vast economic potential. Nice guys, alas, seldom lead revolutions.