Amy Knight: Why Kremlin v. Khodorkovsky Still Matters

Today the Russia expert Amy Knight (author of “How the Cold War Began: The Gouzenko Affair and the Hunt for Soviet Spies“) has published a very compelling op/ed on the new charges against Khodorkovsky in the Globe and Mail.

Why Kremlin v. Khodorkovsky still matters AMY KNIGHT Why should the West be concerned about the new charges filed by Russian prosecutors this week against imprisoned Yukos oil company founder Mikhail Khodorkovsky and his associate Platon Lebedev? Because President Vladimir Putin is again using his unchallenged, autocratic powers to send a message that the Kremlin, with its total control of the country’s security and legal organs, can destroy any Russian entrepreneur who does not co-operate with its agenda. This message has alarming implications for Western governments and investors who want to do “business as usual” with Russia. Mr. Khodorkovsky, a 43-year-old father of four, has been in prison since his arrest for alleged tax evasion in October, 2003. A self-made businessman, he embarked on his amazingly successful career as a computer salesman when Mikhail Gorbachev launched his perestroika plan in the late 1980s. After establishing one of Russia’s first private banks, Menatep, Mr. Khodorkovsky acquired oil giant Yukos in 1995 as part of the controversial loans-for-shares auctions in which the government sold its oil and metal companies to financiers at rock-bottom prices. Mr. Khodorkovsky’s business dealings, which made him at one point the richest man in Russia, were hardly pristine. As he later admitted, the process by which he acquired his wealth, while not illegal, was unethical by Western standards. Like most of the other Russian businessmen who became wealthy very fast during the Boris Yeltsin years, Mr. Khodorkovsky simply took advantage of the chaos that made the Russian economy a free-for-all. In those days, he observed, “if you conducted yourself too much in a Western manner, you were simply torn to pieces and forgotten.” By the end of the nineties, Mr. Khodorkovsky had changed his ways. With a view to attracting foreign investment and globalizing his company, he introduced full transparency, including publishing Yukos’s accounts according to generally accepted accounting principles and paying all taxes legally due. So why did the Russian government decide to arrest him? After all, there were plenty of other oligarchs who became rich in the same manner and continued to thrive under Mr. Putin. Mr. Khodorkovsky was targeted by the Kremlin because he violated the rules by becoming involved in politics. In 2001, he and other Yukos shareholders established the Open Russia Foundation, which sponsored projects that promoted democratic reform. While other oligarchs, such as Chelsea Football Club owner Roman Abramovich, were funnelling cash to support the Kremlin’s political aims, Mr. Khodorkovsky donated money to opposition parties in the 2003 parliamentary campaign. Worse still, Mr. Khodorkovsky became openly critical of Mr. Putin’s “managed democracy” and the growing political influence of the siloviki (security and military officials). He said in an interview just days before his arrest: “The biggest threat is that we do not have a civil society, and so there are people, groups of people, who want to have the power in their hands, basically bypassing democratic procedures, by keeping the shell but taking out the meaning.” The Kremlin had an additional reason for going after Mr. Khodorkovsky and Mr. Lebedev. After serving half their sentences in a Siberian prison camp, the pair would have been eligible for parole this year. But the Kremlin wants them behind bars during the parliamentary and presidential elections in December and in March of 2008, and while Yukos, which is in Russian receivership, is liquidated. Hence the new charges of embezzlement and money laundering, which could carry prison sentences of up to 15 years. Tuesday, the day after the charges were announced, Mr. Putin met with a group of Russia’s leading businessmen to discuss future economic strategies. He made a point of saying: “I hope that business sees the benefits of strictly observing the established rules and the tax regime.” Mr. Putin was doubtless aware that several of those present (including his friend Oleg Deripaska, owner of aluminum giant RusAl, who has been barred from entering the United States because of racketeering) have made their money by plundering Russian assets and putting their earnings into tax havens abroad. The President’s intention was apparently to remind the oligarchs that their privileged status depends on continued loyalty to his government. Otherwise, they could suffer Mr. Khodorkovsky’s fate.