Source: Carnegie
The Big Shakedown on Russian Business
By Masha Lipman
Originally published in The Washington Post, July 10, 2003
MOSCOW -- Mikhail Khodorkovsky is an oil magnate and, by most accounts, Russia's wealthiest man. He is also having some difficulty with law enforcement. Late last week he was summoned to the chief prosecutor's office for interrogation regarding the activities of some of his associates. Of course, this kind of thing isn't unique to Russian business executives; Westerners have seen many important people led away in handcuffs over the years. But in the case of Khodorkovsky's associates and other prominent business executives here, it's not so much a matter of the rule of law as it is of what might be called shakedown justice. This mock justice compromises the credibility of the Russian president when he pledges that Russia is a lawful state. It is also detrimental to Russia's economic development. It threatens to stultify the country's efforts to attract badly needed foreign investment.
Several cases have been opened recently against people associated with Khodorkovsky's big and successful oil company, Yukos. The allegations include embezzlement, fraud and murder. Two people are in jail, one of them being Platon Lebedev, a billionaire and a co-holder of Yukos's controlling stake. Yesterday the prosecutor's office was also reported to be examining an alleged case of tax evasion by Yukos. (Also yesterday, the U.S. Embassy in Moscow formally asked the Russian government to explain its investigation of Khodorkovsky, according to a senior U.S. diplomat.) Theories abound as to what may be behind the shakedown, or nayezd, as this action is being commonly referred to in the media and among professional analysts. Nobody among them believes that the case against Lebedev, or any of the other cases related to Yukos, is a purely legal matter. In attacking Khodorkovsky and his company, the prosecutor's office and the state security agency, the FSB, appear to be acting on orders from somebody with huge political clout.
Khodorkovsky believes that Yukos was picked as a target because it's a world-class
company and, especially after its recent proposed merger with another Russian
oil giant, a tasty morsel attractive to a number of people in this country.
Ultimately, Khodorkovsky claims, this is a struggle for power "between
different wings in the inner circle of Vladimir Vladimirovich Putin." He
offers no details to back up this allegation, but there is no doubt that whoever
is attacking him would have to be very highly placed.
Early in his tenure as Russia's president, Putin announced as his guiding principle
the "dictatorship of the law." But at the same time, the prosecutor's
office and the FSB were used by the Kremlin to attack Putin's nemesis, media
tycoon Vladimir Gusinsky (for whose company, I should note here, I worked for
a time). The campaign against Gusinsky and his associates lasted more than a
year and included various intimidating actions: raids by masked security agents,
searches, arrests and investigations. The cases mostly fell apart, but the tactics
worked: Gusinsky was forced to leave Russia, and his media business was ruined.
Similar methods were used against another business tycoon, Boris Berezovsky,
who currently lives abroad. As a result, people who felt they weren't getting
their fair share of the goodies saw the benefits of "hiring" law enforcers
to improve their position against a competitor, or just to extort money.
Igor Yurgens, vice president of the Russian Union of Industrialists and Entrepreneurs,
a group of business tycoons, said in a recent interview that his organization
gets "dozens or hundreds" of calls from provincial businessmen who
complain of similar -- if much more small-time -- shakedowns. They tell stories
of visitors calling on local businessmen and informing them that their businesses
had not been properly registered some nine years before. The unfortunate entrepreneur
then has a choice of paying the extortionists money or facing "variants,"
which means, according to Yurgens, "the use of law enforcement bodies with
the purpose of redistributing property." In a similar fashion, Khodorkovsky's
attackers may hope to rectify what they believe has been unfair distribution
of the oil business or, for that matter, of political power.
Khodorkovsky may still be able to defend himself and defeat his attackers.
He claims the president feels no hostility toward him. Because Putin is sure
to be reelected next year, Khodorkovsky said, the current struggle is about
"who's going to be in the second echelon of his team." If Khodorkovsky's
guess is right and it is indeed a faction in the Kremlin -- not the president
himself -- going after him, his connections, money, reputation and skilled advisers
may be enough to repel the attack. But however this affair turns out, it will
have little if anything to do with proper judicial procedure. The general understanding
in Russia is that in cases such as this, the ultimate decision is made not in
the courtroom but at the top level of the Kremlin.
Certainly one would think that Putin would be concerned if indeed his top aides
are using law enforcers to engage in self-seeking pursuit of power and wealth.
But there is an even more important reason why he should worry about this sort
of thing. Putin has for some time emphasized the need to lure foreign capital
to Russia. He has not had much success. During his grand visit to Britain recently,
the Russian president did his best to tout his country's "favorable conditions
for investors." The question is: How interested are foreign investors going
to be when they see that even a world-class business cannot feel secure in Russia
or expect to get justice in a court of law?
Masha Lipman, editor of the Moscow Carnegie Center's Pro et Contra Journal,
writes a monthly column for The Post.