[A-List] Russia: capitalism's new frontier

["Michael Keaney" <michael.keaney@xxxxxx>]

Private Eye

No. 1065, 18 - 31 October 2002

In the City

The Iraq crisis has presented a golden opportunity to Russia's new
generation of oligarchs -- the successors to the pioneer robber barons who
pillaged under Yeltsin, eager to be seen as respectable in the west -- and
especially to Russia's oil companies who are of increasing importance in the
world market.

Russia is now the world's second biggest supplier; and it also has interest
in the fate of Iraq's large oil fields; two reasons for Russian companies to
be onside as far as Washington is concerned. Which may go some way to
explain a rumoured discreet meeting last week at the White House between
President Bush and Mikhail Khodorkovsky who runs the Yukos oil group.
Khodorkovsky was said to have flown in and out by private jet from Moscow.

Russia would be a crucial player in the oil price in the event of a US
invasion of Iraq resulting in any form of Arab embargo. Russia is also keen
to protect its economic interests with Iraq. And Bush needs Russia's
President Putin not to use his UN Security Council veto to block any
resolution that would have him the opportunity for war.

Billionaire Khodorkovsky, Russia's richest man, is close to Putin. He is
also interested in supplying oil to the US (a trial shipment was made on 4
July) and he is looking to list Yukos shares on Wall Street. So he and
former oilman "Dubya" would have had a lot to talk about.

The new Russian oligarchs are eager to distance themselves from what went on
in the 90s when there were widespread allegations of state-sponsored theft,
organised crime links and massive diversion of untaxed billions into
offshore tax havens. Russia, they say, is no longer the Wild East where the
well-connected elite always gets the mine (or oil field) and everyone else,
especially foreign investors, gets shafted.

This image clean-up is crucial if those major Russian companies like Yukos,
with ambitions to tap into western capital markets, are to succeed. Like
Yukos others are looking to obtain Wall Street listings too. So that
requires more transparency about shareholdings and accounts. Balance sheets
in Russia are even less believable than those in the US.

Khodorkovsky, who has also discovered philanthropy as a way to polish his
reputation, has been the target of allegations of asset stripping both in
Russia over how he came to control Yukos (a series of auctions of state
assets widely believed to have been rigged) and by minority Yukos investors.
He was also embroiled in the Bank of New York scandal through the role of
his Menatep bank in payments totalling hundreds of millions paid through
Bank of New York accounts. Menatep collapsed in 1998. Most of the money
funnelled through the Bank of New York was capital flight and tax evasion;
but some was certainly linked to Russian Mafia figures such as Semion
Mogilevich. Khodorkovsky denies any wrongdoing or mafia links.

Some Russian companies -- not Yukos -- also need to deal with the flurry of
embarrassing civil litigation in the US brought by business rivals or
aggrieved investors with their colourful allegations of fraud, contract
killings and mobster friends. Right now most of the leading corporate
investigation firms are engaged by one side or another in such litigation
seeking to prove or disprove the allegations that would effectively prevent
any funding exercise or American depository receipts issue.

But cosying up to Russian oligarchs is always a cynical exercise in
political pragmatism on one side and economic advantage on the other. Two
former oligarchs -- Boris Berezovsky and Vladimir Gusinsky -- came to
realise that when they fell out with Putin.

Because the British government was keen to have Putin as a friend,
especially after 11 September, it made clear to both Berezovsky and Gusinsky
last year that they might be arrested if they came to Britain. Russia had
threatened warrants seeking the arrest of both billionaires for fraud and
money laundering. Berezovsky and Gusinsky denied any criminal offences and
described the warrants as politically motivated. After the signing of a new
extradition agreement, Russia urged that both should be arrested. To avoid
any embarrassment their lawyers were advised they should not visit Britain.

The Blair government went even further with Gusinsky, refusing a request to
renew his residence permit in Gibraltar or to grant him a British passport
after he fled Russia. The Media Most tycoon was at that time living in
Spain. He now travels on an Israeli passport.

Once the terrorism crisis pased it was decided that Putin no longer needed
to be mollified. So Berezovsky is now based in London, from where he mounts
attacks on Putin helped by more than £1bn largely held in City banks.
Clearly he has been advised he no longer faces arrest and extradition.
Whether he will be allowed to be so public in his criticism now that Putin's
support is required on Iraq -- witness last week's visit by Tony Blair to
lobby the Russian president -- remains to be seen. As does the future links
between the US and Khodorkovsky.