Newsweek - 11.10.2003

 

Newsweek

Take Down

A Russian billionaire bites the dust.  All politics? But of course

By Michael Meyer
 
A true parable of power and paradox in the new Russia: One day a mighty oligarch was visited by a rabbi. With his enormous wealth, would he help support the synagogue in Moscow? “I am not Jewish,” said the oligarch. “But your father is Jewish,” the rabbi replied. “That does not make me Jewish,” said the oligarch. 

In time, the oligarch runs into trouble with “the vertical power,” as the Kremlin and its ministries are known in Russia. Federal prosecutors begin asking awkward questions about the provenance of his $8 billion fortune. The oligarch goes to America, where he cultivates influential people who he thinks can help in his fight, many of them Jewish. He represents himself as Jewish, a victim of official anti-Semitism and state repression. This makes the chief of the vertical power exceedingly angry; in fact, visitors who meet him at the time describe him as “incandescent” with rage at being so publicly—and, to his mind, falsely—besmirched. Through one of these visitors, he sends a message to the oligarch. Persist, and I shall ask my friend the rabbi to expose you—you and your Jewishness of convenience.

The chief, of course, is Vladimir Putin. The oligarch is Mikhail Khodorkovsky, head of the giant Yukos oil company and Russia’s richest man. The rabbi is Berel Lazar, chief rabbi of Russia. Put him aside, for now. All eyes are fixed on Putin and Khodorkovsky. Their conflict is deeply personal. Yet when agents of the Russian security agency, the FSB, seized the oligarch at gunpoint in a commando-style raid—charging him with tax evasion, fraud and embezzlement—all Russia slipped into crisis. The stock market gyrated. Foreign investors, riding high after three boom years, turned suddenly skittish. Khodorkovsky himself awaits trial in a Moscow jail; authorities late last week froze his controlling interest in Yukos, possibly to be auctioned off. Putin insists all this is a purely legal matter but no one believes him. Kremlin insiders and folk in the street alike see it for what it is: a titanic struggle for money and power that reveals deep divisions within Russia’s ruling elites and raises troubling questions about the country’s future.

The affair began over the summer, when authorities arrested a pair of Khodorkovsky’s top lieutenants, and quickly escalated. Armed police have lately raided Yukos’s offices, consulting firms, even a school funded by the company. Yet the charges themselves are something of a mystery. No one doubts that the origins of Khodorkovsky’s fortune are dubious, as are those of other oligarchs. Their billions were conferred upon them by the state under the privatizations of national industries during the Yeltsin years, largely for fear that they would otherwise fall to the still-powerful communists. (Former president Mikhail Gorbachev contemptuously calls them “appointed billionaires,” and argues forcefully that Putin is right to “draw a line between big businessmen working for the country—and oligarchs who are abusing it.”) Still, if the state made these men, it is hard to prosecute them for breaking the law in acquiring their wealth, especially in a chaotic era when there was virtually no law.

More, Yukos is clean by Russian standards. Alone among businessmen, Khodorkovsky has run his company under Western standards of transparency. He hired American or European managers, issued the country’s first audited financial statements, appointed an independent board of directors—and prospered. Yukos became Russia’s largest oil company and the poster child for a new generation of foreign investors looking to do business in Russia. ExxonMobil and ChevronTexaco have been negotiating a stake in the company worth up to $25 billion. The Kremlin’s putsch against Khodorkovsky threatens not only that deal but the entire economic climate of Russia—growth, investment, even the country’s political stability. So what’s going on?

Kremlinology has returned with a vengeance. Commentators and politicians of every stripe are dissecting the Kremlin’s motives and speculating about Putin’s role and intentions. One theory suggests it’s all politics. Among other sins, Khodorkovsky is widely said to have broken a pact between Putin and the oligarchs, sealed early in his presidency: stay out of politics, and authorities will not meddle in your business. According to this conventional wisdom, Yukos flouted the rule by openly contributing money to opposition parties competing in Russia’s Dec. 7 parliamentary elections, threatening to create a voting block large enough to check Kremlin legislation. There were even rumors that Khodorkovsky might harbor ambitions to supplant Putin, despite the fact that most Russians, living in poverty, hate rich men.

Another theory points to politics of a different sort—infighting at the Kremlin. On one side are the so-called Petersburgers, largely ex-FSB security officers who came with Putin from the KGB or worked with him in St. Petersburg, where he was deputy mayor before becoming prime minister in 1999. By repute, these “statists” yearn for the days when Russia was a great power. They are suspicious of America and the West, wary of big business and democracy and seeking to reassert government control over the economy and society—and they are increasingly exerting their power. Opposing them is a camp of liberal reformers inherited from the Yeltsin era, supported by Khodorkovsky and other big businessmen, which in recent years has promoted tax reform, private property, free-market capitalism and Western-style civil society. Most important, it was behind Putin’s successful effort to restore fiscal discipline and nurse Russia back to economic health after the debilitating crash of 1998. In the struggle for ascendancy between these factions, Putin has played the arbiter, not taking sides and beholden to neither. But with the attack on Yukos, this thinking goes, Putin cast his lot with the Petersburgers. Khodorkovsky was a threat—and an affront—not only to Putin, personally, but to the state. Because he would not back down, Putin took him down.

And so it goes. To these speculations can be added others. Some say the struggle between the FSBers and the reformers is less about ideology than money. “Under Yeltsin, everyone got rich. Now the FSB types think it’s their turn,” says a businessman in Russia, citing reports that Kremlin insiders engineered the scandal in order to grab a chunk of Yukos for themselves—if not carve it up altogether. There are mutterings about anti-Semitism, especially among the Petersburgers. “All they talk about is the rich Jews who stole the country’s money,” says Pavel Felgenhauer, an independent political analyst, noting that most of the country’s oligarchs are in fact Jewish. Still others speculate that Putin himself is up to dirty tricks. One rumor suggests Putin seeks a big win in the Duma so that he’ll have a big enough majority to amend the Constitution and award himself a third and possibly fourth term in office, even though he has repeatedly said he will step down when his time is up in 2008—assuming, almost automatically, that he is re-elected in the March presidential ballot. “This guy will not stop,” predicts a source close to the old Yeltsin group, worrying that Russia’s future is an accelerating erosion of democracy and civil rights. Once Khodorkovsky is gone, he warns, Putin will go after other enemies of the state. “This is Stalinism with a capitalist face.”

Perhaps only in Russia could all these theories be true, at least in part. Khodorkovsky himself discounts some of the more sinister of the speculations, among them that he’s been targeted because of Jewishness. “I don’t regard anti-Semitism as a big problem in Russia today,” he said at a conference in Washington last month, perhaps mindful of Putin’s warning and not wanting to further anger the president. He also believes his contributions to rival political parties fail to fully explain the Kremlin’s actions. Most oligarchs give money to various parties, he says; in fact, he claims to have cleared his contributions with the Kremlin, albeit with the friendly reformers with whom he is associated.

The threat from the FSB faction within the Kremlin, however, is deadly serious. In an interview shortly before his arrest, Khodorkovsky told NEWSWEEK that the attack against him and Yukos has been orchestrated by a “small but influential group” associated with “law enforcement” and the intelligence services. He claimed to know “for a fact” that government prosecutors, abetted by the FSB, have “fabricated” evidence against him and his company and, off the record, cited specific examples that his lawyers will present in court. Khodorkovsky stopped short of implicating Putin. “Of course he must have given his OK,” he said, even as he held open the possibility that some of what has taken place occurred without the president’s full knowledge.

Others are not so charitable. Nothing of this magnitude could happen without Putin’s active involvement, most Russian analysts believe. The upcoming elections to Parliament are key, they add. At stake is the agenda for Putin’s second term. No one knows precisely what that might be, but there are tantalizing hints. In an interview with NEWSWEEK and other American publications before the Camp David summit in September, Putin spoke of making big business “more socially responsible.” Translation: higher taxes on natural-resources companies, chiefly to finance needed infrastructure and social investments, and possibly a larger role for government in corporate management. Among Khodorkovsky’s transgressions, Putin noted last week, was his failure to consult the Kremlin in his merger negotiations with the Americans. Message: even in the new Russia, business is still expected to be subservient to government.

However the case evolves, it’s clear that Russia’s political future is up for grabs. If Putin is indeed thinking of extending his term in office—or transferring the powers of the president to Parliament, with himself as a future prime minister, as yet another theory goes—then he would need a hefty parliamentary majority. If he is not thinking along these lines, on the other hand, the next few years will be dominated by debate and political maneuvering over who will succeed him. Will the next president be handpicked by Putin and the Petersburgers, or will he be selected more democratically, either by Parliament or direct election? In this context, Khodorkovsky is widely seen as a hero of democracy. By funding opposition parties, he says, he is only doing what is “normal” in any modern society—sponsoring alternate voices and encouraging political diversity. “This is the main problem,” he told NEWSWEEK. The FSB faction of the Kremlin “wants to elect one of theirs in 2008. To assure this, any alternative candidates must be cut off from their base of support. Hence the business community must know its place and play ball. My powers are small, but I am not afraid to try to stop this. And I am not alone.”

It would be wrong to portray Khodorkovsky as a pure champion of democracy or an innocent victim of state injustice. He is notoriously ruthless in business, and he is not a born democrat. A political commentator for one of the country’s biggest newspapers, for instance, tells how Khodorkovsky and Yukos pay off editors to kill negative stories and plant their own in their place. “I have never felt any pressure from the Kremlin,” he adds. “I do feel it, very seriously, from Khodorkovsky.” There is also the matter of the oligarch’s famous arrogance, an in-your-face independence that, at times, seemed almost to dare authorities to move against him. Boris Nemtsov, cohead of the Union of Right Forces, one of the parties Khodorkovsky supported, recalls warning him that, in all of Russian history, there is not a single instance of an individual beating the state in a conflict of power. Said Khodorkovsky: “I will be the first.”

The big question is what happens next. It’s hard to imagine, at this point, Khodorkovsky’s remaining as head of Yukos. And already there are ominous signs that the attack on Yukos will spread. Late last week FSB agents searched the offices of a Siberian subsidiary of United Energy Systems, the national electric utility run by Anatoly Chubais—a former Yeltsin politician and parliamentary candidate who has harshly criticized the government’s handling of Yukos. Earlier in the week Putin’s chief of staff Alexander Voloshin, another Yeltsin intimate, was forced out. Some Russian media portrayed this as a resignation in protest of Kremlin policy; in fact, it was recognition that he, too, has been targeted, according to several sources. On Friday Russian Prime Minister Mikhail Kasyanov entered the fray, expressing his “deep concern” and reportedly ignoring a direct warning from Putin not to interfere. He is also a Yeltsin holdover—and, if rumors are true, may soon be gone. Taken together, it is hard not to see this as a wholesale Kremlin housecleaning, with Yukos as the catalyst. “Putin came to power after promising the Yeltsin men a four-year grace period,” says former U.S. ambassador Stephen Sestanovich. With that almost up, he asks, is it any accident that the old guard is on the way out?

It’s unclear what this might portend for foreign business and the future of reform. Putin has long spoken of “managed democracy,” by which he means relative freedom in private life and business but without challenge to his leadership. Judging from events, Russia can expect more of the same—with an emphasis on “managed.” But therein lies Putin’s dilemma. Those who know him say he cares about two things above all—protecting the powers of the state, and improving the lives of ordinary Russians. Russia owes much of its stability and solid economic growth over the past few years to the so-called Putin Effect, with its emphasis on order, fiscal discipline and welcoming attitude toward Western business. He is thus fully aware of the risk he runs in attacking Yukos. Without a strong economy and generous foreign investment, there can be no improvement in daily life.

Putin is thus unlikely to grant his FSB faction free rein. He himself has gone out of his way to characterize the Yukos affair as a “special case.” In his interview with NEWSWEEK, he all but ruled out a general re-examination of the privatizations of the ’90s, which would throw Russia’s economy into turmoil. Significantly, the vast majority of Russians support Putin. They like him personally; they trust him to want what they want. Few shed any tears for distressed oligarchs, and most harbor no worries about democracy. “Yes, there are legitimate complaints about strong-arm tactics. But that’s what Russia requires just now—order and control,” says Rabbi Lazar, echoing a common view. “Russia is not ready for full democracy. Nor would any government in the world let businessmen take over the country.”

It’s precisely these sentiments that divide Putin—and some 70 percent of Russians—from Khodorkovsky. Ordinary Russians may indeed care little about civil society, Khodorkovsky concedes. But he predicts that one day they (and perhaps Putin) will wake up to the fact that Russia cannot grow into a dynamic, modern and prosperous country without it. He will fight for that, he says. “And I will never go into exile.”

The irony—and tragedy—of the Yukos affair is that Putin and Khodorkovsky are the weirdly twin sides of the same coin. In the end, Russia needs both of them.