by John M. Curtis
(310) 204-8700

Copyright November 2, 2003
All Rights Reserved.

eneath the Armani suits, the five-feet-six-inch, balding Russian President Vladimir V. Putin lurks a hardcore KGB man, whose strong-arm tactics mirror a sad history of despotism, tyranny and, ultimately, totalitarianism arising from World War II. Following that tradition, Putin ordered his secret service to track down and arrest Russia's richest man, 40-year-old billionaire Mikhail Khodorkovsky, the head of his country's largest oil company, Yukos. Khodorkovsky no longer snacks on Beluga caviar, sipping on fish soup in prison, charged with tax evasion, fraud and embezzlement. Khodorkovsky's arrest marks a disturbing turning point for entrepreneurs, whose assets—and lives—are now fair game for the Kremlin. “It is important for Russian authorities to dispel concerns that this case is politically motivated,” said National Security Council spokesman Sean McCormack.

      Plunging eight-percent, nerves hit Russia's stock market, worried that publicly traded companies were not immune to government mischief. Only two months ago, Putin shut down Russia's last independent polling agency, firing its 72-year-old director, respected sociologist Yuri A. Levada. Last year, Putin closed TV6, Russia's only TV station critical of government policies. In 2001, Putin seized NTV, Russia's last independent TV station, driving its owner Vladimir A. Guzinsky into exile. “For me and many of my colleagues in Moscow, there is simply no doubt that this is an indication of antidemocratic developments in Russia,” said Vladimir Shlapentokh, a Michigan State sociology professor. Without access to the courts, investors can't be assured that the state won't arbitrarily abscond corporate property. Khodorkovsky, a known critic, supported candidates opposed to Putin's reelection in March 2004.

      Slowly but surely, Putin has reversed democratic gains started under the last Soviet premier Mikhail Gorbachov under “perestroika” and finally realized with President Boris Yeltsin. After the Berlin Wall fell in 1989 and the Soviet Union collapsed in 1991, state agencies were privatized, making instant millionaires out of ambitious entrepreneurs, known as Russia's oligarchs. Though reticent, the State Department questioned whether Khdorkovsky's arrest was politically driven or part of a broader plan to reverse Russia's newfound freedoms and flaunt the rule of law. “This statement is a continuation of a notorious policy of double standards,” said Russian Foreign Ministry spokesman Alexander Yakovenko, dismissing criticism and highlighting U.S. corporate scandals at Enron and elsewhere, where American CEOs lounge on beaches not rot in jails.

      Putin has cleverly put the latest crackdown in the context of pursuing corruption, not threatening Russia's fledgling democracy or free markets. Unlike America, he proved to the State Duma, or lower house of parliament, and to the Russian people that no one—including corrupt billionaires—is above the law. “It is at the very least, tactless and disrespectful toward Russia,” said Yakovenko, responding to stinging criticism that Putin's actions smacked of politics and reversed years of democratic reforms begun under the Russian Federation. Since getting elected in 2000, Putin has installed many of his old KGB cronies in key positions in his government, the Kremlin and the State Duma. Persecuting Khodorkovsky because he tried to lobby members of the State Duma to affect the outcome of parliamentary sent chills through the Russian and international investment community.

      Putin can't have it both ways: Privatizing certain industries and, when it suits his needs, appropriating those assets for state use. No investor or stock exchange can thrive when the state arbitrarily seizes assets, plays politics or can't pay its bills. Financial markets must be reassured that privatized industries are not subject to Putin's whims. Reports indicate that Putin decided to get Kihodorkovsky when he considered selling ExxonMobil 40% of Yukos, Russia's largest oil company. Incarcerating Khodorkovsky prompted Putin's longtime chief-of-staff Alexander S. Voloshin to resign under protest. Voloshin was the Kremlin's strongest voice for free trade, countering the influence of the siloviki, a shadowy group of former KGB loyalists stuck on old Soviet ways. Concerned that 25% of Russia's wealth could fall into American hands was enough for Putin to go after Khodorkovsky.

      Oligarchs like Khodorkovsky went too far in believing that openness and free enterprise trump the old Soviet-style of doing business. Like most billionaires, Khodorkovsky let his wealth go to his head, instead of playing by the rules. Rather than making a killing with ExxonMobil and supporting opposition candidates, he should have placated powerful forces inside Kremlin capable of locking him up or saving his hide. “We did not privatize so that the property could be sold to the United States so that Khodorkovsky would get the money,” said Sergei Markov, an analyst with close ties to the Kremlin, suggesting that Khodorkovsky looted Yukos like his own piggy bank.
Even with the U.S. government's case against Microsoft, individuals and corporations get into trouble when blinding arrogance and obscene greed eclipse common sense. As for Khodorkovsky, Russia's richest man still wanted to get richer.

About the Author

John M. Curtis writes politically neutral commentary analyzing spin in national and global news. He's editor of OnlineColumnist.com and author of Dodging The Bullet and Operation Charisma.

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