Al-Ahram Weekly Online   20 - 26 November 2003
Issue No. 665
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Fall of the oligarchs

The arrest of Russia's richest tycoon on charges of fraud and tax-evasion has raised hairs on many a head at home and abroad, reports Shohdy Naguib from Moscow

Mikhail Khodorkovsky
Mikhail Khodorkovsky
photo courtesy of Echo Moscow
Mikhail Khodorkovsky, 39, head of the YUKOS Oil-and-Gas company, was arrested by a special task force when his plane landed in Siberia, and was promptly taken to Moscow where he is now held in detention. There he was confronted with seven criminal counts, including fraud and tax evasion. This swift development, hardly unexpected, has given rise to a major controversy both at home and in the West.

To penetrate today's concerned headlines on the matter, it is important to review the transition of the country from bitter non-communism to a no less odious oligarchical capitalism after the collapse of Soviet Union. Formally speaking, the transfer of state property to private hands was accomplished through the privatisation of Soviet assets in the 1990s. What is usually referred to as the "period of initial capital accumulation" was actually rampant corruption gnawing away at ex-Soviet property. The awesome Soviet bureaucracy, vilified for its opposition to "free enterprise", promptly became the willing accomplice to the plunder of the country's resources by a handful of individuals in the presidential court. These semi-shadowy figures lurking at the helm of power during the Yeltsin era, usually referred to as the Semya (the Family), became post-Soviet Russia's business elite.

Exercising a firm hold on the mass media, the Semya was capable of discrediting all kinds of ardent patriotic and left-wing opposition while effectively backing the political elite favourable to them that upheld "liberal Western values", at least on its banners. What is now known in the West as the "Russian free press" is indeed liberal by the grace of being subservient to corporate liberalism, but otherwise is extremely manipulative and oppressive of opposition voices. The mass media's orientation played a crucial role in Putin's succession to power and the semblance of a "national accord" is also maintained mainly by its partisan projections.

The people that brought President Putin to power were aiming at establishing a political compromise between themselves and various political and economic elites. This compromise is based upon an agreement that, on the one hand, there is not going to be any revision of the outcomes of privatisation, while on the other, that business tycoons are to refrain from meddling in politics. There is a general consensus that, while being gradually eroded, this arrangement nevertheless gives Russia necessary stability and promotes popular confidence in the state.

During the four years of Putin's presidency Russia has seen a substantial centralisation of power in the face of separatist tendencies. Russian diplomacy was able to skilfully avoid the pitfalls of international politics, while the economy finally gained "investment-grade status" from Moody's Investors Service. Firmly steering a Western course, Putin, the icebreaker, has confidently allied Russia with the anti-terrorist fleet of his personal friend George W Bush. At the same time, arm-twisting in Chechnya has produced obedience in this war-torn federal offshoot. Putin's policy of "managed democracy" is in full swing with December's parliamentary elections approaching and presidential elections scheduled for spring. The techniques, however, that gave Putin the presidency in 2000 are not going to work this time. Despite his popularity he has no sure guarantees of winning a second term.

A look at Russia's political Olympus reveals four contending powers sitting on its summit. First, the group of tycoons or the "oligarchs" associated with the Semya, better understood as the freelance oligarchs. Second, Anatoly Chubais, the energy tycoon. Third, Khodorkovsky (oil-and-gas production). Fourth, the presidential team of trusted apparatchiks carefully picked from Putin's old St Petersburg cronies. The object of their immediate contention is the parliament to be elected in December. Lobbying through the parliament against the Kremlin's prerogative looks to be the only way for the business tycoons to exert their will if Putin is reelected.

Left-wing opposition is also a political force that cannot be dismissed. The most prominent and united force on the left of Russian politics is the Communist Party (KPRF). It is currently radically reformed, including a thorough face-lift at the hands of young and enthusiastic political technicians. Amongst them is Ilya Ponomarev, the young and successful IT guru behind the stunning achievements of Khodorkovsky's YUKOS. It is now believed that Khodorkovsky's aggressive funding of a wide spectrum of political parties, among them the KPRF, on the eve of the parliamentary elections triggered his arrest. The criminal charges he faces could be levelled against any of the heavyweights of Russian business, for no fortune in the country is clean. Plenty of incriminating evidence can be produced at the Office of the Prosecutor General against any one of them. Had the young and ambitious tycoon kept to his business of managing a highly successful company, while staying safely out of politics, he would not have found himself in such serious trouble.

Faced with high nerves at home and abroad, President Putin kept repeating the mantra of "no deprivatisation". "I am strongly against a revision of privatisation, despite the fact that the results are not perfect. I am certain that it will lead to serious negative changes both for the economy and in the social field," he confirmed repeatedly. Indeed, the media insinuates that such a development would put the country on the verge of civil war. According to Stanislav Belkovsky, director of the National Strategy Council, "the power in Russia is accumulated in the hands of large anti- national corporations." In his view, it is a blessing that the corporations do not exercise control over the state security apparatus and the military, a situation which allows him to hope for a process of national revival that will effect true democracy in Russia. Such an interpretation is popular among ordinary people and regional elites. For them, the prospect of the rule of multinational corporations carries with it the threat of the disintegration of the Russian Empire and the ultimate marginalisation of its fragments on the outskirts of a global village.

The "dictatorship of law" that President Putin vowed to establish is now framed by the EU leaders' appeal to exercise "a fair, nondiscriminatory and proportional application of the law by the Russian authorities". The lawyers of YUKOS are preparing to take the case of the company's owner Khodorkovsky, and his previously arrested partner Platon Lebedev, and a security chief, to the European Court of Human Rights and even initiate an unprecedented complaint to the UN.

Meanwhile, the persecution of key YUKOS figures continues. Two weeks ago the Krasnoyarsk Regional Court annulled the election of Vasily Shakhnovsky, a major shareholder in YUKOS, to the Russian senate from the remote northern region of Evenkia. Apparently Shakhnovsky was hastily trying to obtain parliamentary immunity that would protect him from the charge of having evaded taxes back in 1998.

Past judicial action against media moguls Vladimir Gusinsky and Boris Berezovsky ended with both seeking refuge abroad. They were stripped of their assets and the TV channels they virtually owned ended up in the government's hands. Both of them hold Israeli passports, yet Berezovsky, the "grey cardinal" of Russian politics, chose to seek asylum in UK. This was ultimately granted after an extradition trial. From this position he is sparing no effort to attack Putin's tyranny. During the Russian president's recent visit to the US in the company of the newly elected Chechen President Ahmad Kadyrov, a group of human rights activists led by Berezovsky took out an advertorial in The New York Times listing a number of tough questions that President Bush should ask his guests. Apparently such tactics do not play well, for the presidents parted as even greater friends than they were before, while back in Russia, the outrage at Berezovsky's attack only further alienated him from the general public.

Khodorkovsky resigned as Yukos Sibneft CEO last week and his place was taken by Russian-born American citizen Simon Kukes. The government freeze of some 40 per cent of YUKOS shares was followed by threats to suspend its operating rights to key oilfields after a complaint issued from an environmental agency brought the company's activity to a standstill. Political parties that relied on YUKOS funding are hastily trying to make ends meet, while its various educational and philanthropic activities are now under the threat of closure. Another major YUKOS shareholder, Leonid Nevzlin, who was recently installed as the head dean of the Russian State Humanitarian University after the company promised to donate to it a badly needed 100 million dollars, quietly left Russia in September after initial charges of fraud were directed at him, and is obtaining citizenship in Israel.

Khodorkovsky's earlier statements regarding the 2008 presidential elections race that he intends to contest was a bold step towards the legal abyss he now faces. Beyond his current residence in the purgatory of the Russian prison system, his partly Jewish origins may also raise the odds against him becoming the future leader of Russia. However, since Russia is a multi-national and a multi-confessional country, such an event can not be ruled out. Perhaps Khodorkovsky could even help alleviate the anti-Semitic malady that plagues the Russian people by taking a consistent and valiant stand against it in his bid for power.

There is another aspect to the YUKOS controversy which has wider implications for the global oil-and-gas markets. Khodorkovsky's policy was to sell as much as possible of the raw petrol to Western markets, while the government's plan is to coordinate the level of the country's exports with other major oil producers like the members of OPEC. The fusion of YUKOS and Sibneft this year implied that the bulk of Russia's oil production would end up in the hands of Western shareholders -- effectively foiling any attempt on the part of the Russian government to influence prices on the global oil market. Thus, to the Western liberals, the arrest of Khodorkovsky is confirmation that "Vlad" Putin is set on establishing an Oriental type of despotism in Russia.

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