[A-List] Russia: Putin vs. oligarchs

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

Jailed - but is Russia's richest man guilty only of funding Putin's
political opponents?
By Fred Weir in Moscow
The Independent, 27 October 2003

Russia's richest man awoke yesterday in a cramped cell in Moscow's
notoriously filthy and overcrowded Matrosskaya Tishina prison.

The 40-year old business tycoon, Mikhail Khodorkovsky, has swapped his villa
in the Moscow suburb of Zhukovka for a grimy jail cell shared with four
other inmates. And he is expected to spend at least the next two months in
his new quarters while Russian prosecutors pursue an expanding inquiry into
alleged fraud, tax-evasion and theft of state property by his Yukos business
empire.

Mr Khodorkovsky's supporters are crying foul, accusing Russian authorities
of political intimidation of an oligarch who finances the liberal
opposition, less than two months before elections. President Vladimir Putin,
suspected of personally approving the arrest, has said nothing.

Mr Khodorkovsky was flown to Moscow after being arrested by masked and armed
security agents who surrounded his private jet on a Siberian runway. "They
rushed aboard the plane shouting, 'FSB [successor to the KGB], drop your
weapons'," said Alexander Shadrin, a Yukos spokesman. "They used special
forces in the same way they would deal with a terrorist attack." The tycoon
was allegedly handcuffed, hooded and kicked by the agents as they bundled
him away.

The arrest on Saturday, the most daring move so far against President
Putin's political opponents, was the culmination of five months of
cat-and-mouse harassment of Yukos by prosecutors whose target is the
oligarchs.

The Russian authorities yesterday showed no signs of treating Mr
Khodorkovsky - whose personal wealth is estimated at £6.5bn - any
differently from the other prisoners in Matrosskaya Tishina prison.

"There are no grounds for any preferential treatment of accused
Khodorkovsky," Yuri Kalinin, the Deputy Justice Minister, said. "And it is
not in the law."

He did add that instead of being in a 15-bunk cell, Mr Khodorkovsky was
confined to a five-person room.

Yukos, the world's fourth-largest oil company, said the charges against its
chief executive were absurd. "We do not doubt for a moment that the entire
investigation is politically motivated," a Yukos spokesman said, complaining
about the tycoon being forced to share his cell.

The American ambassador to Moscow, Alexander Vershbow, also expressed
concern at the arrest, saying it could raise serious doubts among foreign
investors if they believed that Russian law was being used selectively.

Matrosskaya Tishina is known to human rights campaigners as the worst of
Russia's infamous pre-trial detention centres, where tuberculosis, Aids and
hepatitis are reportedly rife. Originally built as a temporary holding
centre for up to 2,500 prisoners, the north-east Moscow building, surrounded
by high barbed-wire-capped walls, currently houses 3,500.

Two of Mr Khodorkovsky's chief lieutenants have been in prison since July,
and a third top aide has fled the country. Another top Yukos official,
Platon Lebedev, is already in Matrosskaya Tishina, having been arrested in
July. He and Mr Khodorkovsky are accused of "inflicting damage on the
Russian state in excess of $1bn [£600m]". The charges against Mr
Khodorkovsky, which include fraud, forgery, theft and tax evasion, could
lead to a 10-year jail sentence. The allegations relate to the murky
decade-old privatisation of a state fertiliser company, but experts say that
the assault is aimed at punishing Mr Khodorkovsky for his backing of
opposition parties for parliamentary elections due to be held on 7 December.

"This is clearly an effort by people at the top to demonstrate that tycoons
should think twice before involving themselves in politics," said Irina
Zvigelskaya, of the independent Centre for Strategic and Political Studies.

In recent weeks police have raided a Yukos-funded orphanage, the offices of
the chief lawyer handling the company's defence and the country dachas of
several of the firm's executives. Last Thursday prosecutors took over a
Moscow public relations firm representing the liberal Yabloko party,
confiscating computers, documents and funds. Yabloko representatives said
that the seized materials were a "crippling loss" to the party's election
campaign. Mr Khodorkovsky has openly supported Yabloko, which is the main
liberal opposition party. Some experts say the oil tycoon has secretly
funded the Communist Party as well, with the aim of preventing pro-Kremlin
parties from gaining a majority in the state Duma.

"Khodorkovsky doesn't hide his interest in politics," says Alexei Kondaurov,
a Yukos executive who is running for parliament on the Communist Party
ticket. "He knows the success of business depends upon the growth of
democracy and civil society in Russia".

Besides backing opposition parties, he has funded human rights groups and
paid $100m to establish a pro-business "humanitarian university" in Moscow.
A foundation owned by Mr Khodorkovsky recently purchased the weekly
Moskovsky Novosti newspaper and appointed Yevgeny Kiselyov, an outspoken
Kremlin critic, as its editor.

Experts say a Kremlin faction of former KGB officers, close to President
Vladimir Putin, has been orchestrating the assault on Yukos. Some suggest
that they may be squeezing Mr Khodorkovsky to prevent him from selling a
share of his oil empire to a foreign corporation. Both ExxonMobil and
ChevronTexaco have expressed interest in buying a 25 to 40 per cent stake in
Yukos, a deal that could permanently place Yukos beyond the reach of Kremlin
machinations.

"I believe politics are the key motivation in this anti-Yukos campaign, but
there are a good many people within the elite who also hope it could lead to
the re-division of Yukos's property," says Ms Zvigelskaya.

Mr Khodorovsky is a former apparatchik in the Soviet Young Communist League
who moved into banking as the Soviet Union collapsed. Milking his Kremlin
contacts, he arranged for his Bank Menatep to buy Yukos's assets from the
state for around $300m in 1995. The company's market value is now over
$30bn. Despite the dubious origins of his empire, Mr Khodorkovsky has been
praised for adopting Western-style standards of corporate governance,
transparency and shareholder rights. Yukos was the first large Russian
company to make public its accounts, production figures and ownership
structure.

Last month Yukos merged with the smaller Sibneft firm, owned by the tycoon
Roman Abramovich, creating Russia's biggest oil company, producing5 per cent
of the country's GDP. Russia's "oligarchs", who are estimated to control
about 70 per cent of its economy, were warned off political involvements
after Mr Putin came to power three years ago. Two that continued to defy the
Kremlin, Boris Berezovsky and Vladimir Gusinsky, were charged with crimes
dating back to the 1990s, stripped of their property and hounded into exile.

The legal assault on Yukos began with the arrest of Mr Lebedev, a Bank
Menatep kingpin, who was charged with defrauding the state of $280m in the
1994 privatisation of the Apatit fertiliser factory. A Yukos security
official, Alexei Pichugin, was also jailed, charged as an accomplice to
murder.

Another billionaire Yukos shareholder, Leonid Nevzlin, fled to Israel last
month. Last week a leading company executive, Vasily Shakhnovsky, was
charged with evading a total of $1m in taxes.

Russia's Union of Industrialists and Entrepreneurs, which speaks for the
oligarchs, appealed to the President to end his silence on the Yukos affair,
warning of "irrevocable consequences" for Russia's already fragile business
climate. Early indications suggested that Yukos's stock will plummet when
Moscow's stock exchange opens today.

"It's not just about Yukos, it's part of the general attack on democratic
gains since Putin came to power," Mr Konduarov says. "We see in this
situation that Russia is still only a half-civilised society."

Enemies of the state?
By Hugh Macleod

BORIS BEREZOVSKY
Age: 57
Worth: $3bn
Based in: London
Granted political asylum by a UK court last month. Media baron Berezovsky
was declared Russia's richest man in 1997. Prosecutors want him for alleged
fraud involving Lada cars. Fled Russia three years ago.

VLADIMIR GUSINSKY
Age: 51
Worth: $400m.
Based in: Israel
Freed this month in Greece, after a court rejected Russia's extradition
request to face charges with Mr Berezovsky. The former cab driver made vast
sums from municipal funds on foreign exchange.

ROMAN ABRAMOVICH
Age: 36
Worth: $5.7bn
Based in: London
Facing a possible $2bn criminal lawsuit in the US over his role in the
battle for Russia's aluminium industry. He bought control of Chelsea
football club for £140m in July, and spent £100m buying star players.

VLADIMIR POTANIN
Age: 42
Worth: $1.8bn
Based in: Moscow
Said to be investing £120m in Arsenal's new stadium. Potanin was deep into
privatisation of Russia's oil industry. President of Interros, a giant
holding company which accounts for 2.5 per cent of Russia's GDP.

VAGIT ALEKPEROV
Age: 53
Worth: $1.3bn
Based in: Moscow
As the Soviet Union broke up in 1991, he was the first deputy minister of
fuel and energy of the USSR, a position he used to get into the business
himself. He became head of the Lukoil company, Russia's biggest oil
producer.