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Analysis: Khodorkovsky in court again

Posted by Kris Roman on February 23, 2009

mikhail-khodorkovsky-bgby John C.K. Daly

British Prime Minister Winston Churchill once famously described the Soviet Union as “a riddle wrapped in a mystery inside an enigma.” While Kremlinologists during the Cold War attempted to discern the military intentions of the “Evil Empire,” since 1991 the focus has shifted to attempting to discern the patterns of Moscow’s energy policies.


Energy analysts will soon have a chance to sharpen their skills again as a Moscow court has ordered that Mikhail Khodorkovsky be sent to Moscow from a detention center in Siberia to face trial on new charges next month in Moscow’s Khamovnichesky district court.

Mikhail Borisovich Khodorkovsky is the former Yukos chief executive and oil tycoon convicted in May 2005 on six of seven charges of embezzlement, tax evasion and fraud. He received a nine-year sentence, which he has been serving in Krasnokamensk in east Siberia’s Chita region near the Chinese border, about 3,000 miles east of Moscow. Khodorkovsky’s former associate Platon Lebedev will also face new charges. Interfax news agency reports that Moscow City Court press secretary Anna Usacheva said, “Preliminary hearings in the new trial of Khodorkovsky and Lebedev have been set for March 3.”

In the aftermath of the 1991 dissolution of the Soviet Union, Khodorkovsky emerged as the most prominent of the new generation of Russian “oligarchs,” business entrepreneurs who first began to emerge during General Secretary Mikhail Gorbachev’s perestroika policies. Khodorkovsky, who used his connections as a deputy head of his university’s Komsomol (Communist Youth League) branch to launch his capitalist career in the mid-1980s, had by 1988 built an import-export business with an annual turnover of about $10 million.

The following year, Khodorkovsky used his connections and profits to create Menatap Bank. Khodorkovsky’s career really took off under President Boris Yeltsin, when massive amounts of former state property were sold to well-connected individuals at fire-sale prices. In Khodorkovsky’s case, in 1995 this meant his bidding for the Yukos oil company under a controversial “loans for shares” program, where the oligarchs advanced loans to the state in return for state property. Khodorkovsky, harboring global ambitions, was one of the first oligarchs to seek foreign investment in order to build a worldwide business and so actively courted Western energy firms, most notably Amoco for assistance in developing the Siberian Priobskoye oil field. Amoco spent $300 million before Khodorkovsky squeezed them out of the deal.

While the 1998 collapse of the ruble temporarily set back Khodorkovsky’s plans, he was also the most prominent oligarch to realize the value of the Western media in promoting his business, and he actively courted its attention by making the appropriate reforms at Yukos to attract Western investment. Under Khodorkovsky, Yukos undertook a number of innovations widely applauded in Western business circles — acknowledging his controlling interest, publishing the names of shareholders and accounts, mollifying the Kremlin by paying taxes and stockholders by issuing large dividends. Further integrating his company into the Western energy community, Khodorkovsky adroitly hired many senior executives from large Western oil companies and, burnishing his image, also undertook philanthropic causes. The Western media was sufficiently impressed that it lionized Khodorkovsky as the model of the new Russian “biznesmen.” By 2003, Khodorkovsky was the richest man in Russia.

So, what happened? In a word — ambition.

As his wealth grew, Khodorkovsky developed a parallel interest in politics. By 2003, Khodorkovsky was providing fiscal assistance to several Russian parties across the political spectrum, ranging from the Western-leaning Yabloko (Apple) Party to the Communist Party of the Russian Federation and reportedly even the pro-Kremlin Edinaia Rossiia (United Russia) Party, supporter of Vladimir Putin.

Putin, who became acting president when Yeltsin unexpectedly resigned on Dec. 31, 1999, handily won election the following year but from the outset pursued a very different agenda from his predecessor. The decade since the collapse of communism had seen hyperinflation ravage the bulk of the Russian population while the oligarchs had gained their riches from fraudulent and shady deals involving the misappropriation of state property. Putin, whose KGB background had given him a pragmatic and realistic assessment of the country’s problems, made a point of curbing the excesses of the oligarchs, which won him genuine popularity among the population. While most of the oligarchs preoccupied themselves with legitimizing their ill-gotten gains, Khodorkovsky decided to dabble in politics, apparently feeling that his Western popularity insulated him. In hindsight, a clash was inevitable as both men sought to model the post-Soviet Russian economy in their own image.

For all of his business acumen, Khodorkovsky forgot in his arrogance one simple truth: In the decade following the end of communism, no one could legitimately become a billionaire in Russia except through shady deals that could not stand up under scrutiny. Accordingly, Putin had in his arsenal the tax police, which he could unleash at any time against an oligarch with absolute certainty that his business affairs were most assuredly not in order. And, as noted earlier, given the rampant capitalist greed that the oligarchs displayed, such a move boosted Putin’s popularity.

Following Khodorkovsky’s arrest in October 2003, the oligarchs shifted into major damage-limitation mode, shifting their focus from stealing more to hanging on to what they had. The Western business community expressed outrage, but like Gutman handing over Wilmer to police in “The Maltese Falcon,” the outrage quickly faded as Khodorkovsky was viewed as a necessary sacrifice in light of the ongoing and bigger temptation of Russia’s vast energy riches. Putin made an example of Khodorkovsky, and it is notable that the remaining oligarchs have abandoned their political pretensions in favor of husbanding their wealth and buying foreign football teams while Western energy firms seeking access to Russia hasten to make sure that the Kremlin is “in the loop.”

Khodorkovsky’s travails served notice that the Kremlin would again direct Western investment rather than Russia’s now cowed oligarchs, whose previous depredations would make even Bernie Madoff blush. And for all its outrage five years ago, the Western business community has come to realize that Putin’s government has restored a sense of order and regularity to business deals, even if Western businessmen’s dreams of vaster riches dealing one-on-one with “biznesmeny” have been downsized. While Putin’s government has made no significant moves to renationalize property, his government has reasserted its interest in what it regards as strategic sectors of the economy, much as Lenin with his 1924 New Economic Policy allowed limited capitalism to flourish while the state retained control of the “commanding heights” of the economy.

As Khodorkovsky, once the richest man in Russia, prepares for next month’s court appearance, he might ponder the meaning of the Russian proverb, “They come into the courtroom in a suit and leave with no trousers.”


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