Kremlin vs. the Oligarchs ; the Excesses of Russia's Rapid Privatization Have Come Back to Haunt the Nation's Tycoons

Article excerpt

Is he a political prisoner, or just a rich crook getting a belated taste of justice?

For the past month Mikhail Khodorkovsky, Russia's richest man, has been sitting in Moscow's squalid Matrosskaya Tishina remand prison on tax evasion and fraud charges while that very debate has swirled around him.

For supporters of the Kremlin, Mr. Khodorkovsky is the dean of Russia's arrogant "oligarchs" who manipulated their way into fabulous riches during the lawless 1990s. Impatient to modernize and energize his country's economy, President Vladimir Putin is using Khodorkovsky to warn the wealthy that they must win the legitimacy of their property by helping to rebuild Russia.

For many human rights activists and Western analysts, Khodorkovsky's fate is another sad chapter in Russia's thousand- year history of arbitrary power, in which an all-powerful Kremlin sets - and changes - the rules at will.

Both sides may have a good case.

Khodorkovsky's troubles stem from his disputed acquisition of the Yukos oil empire during the quick-and-dirty privatizations of the 1990s.

In the legal void after the collapse of the USSR, virtually every Russian committed some infractions, such as tax evasion, smuggling, or currency violations. That leaves just about everyone legally vulnerable today, should tax auditors or prosecutors decide to dig up the past.

But the oligarchs, who today control an estimated 70 percent of the economy, are a special case. Often with nothing more than a vague decree signed by then- President Boris Yeltsin, this small coterie of Kremlin insiders gained control over the crown jewels of the former Soviet economy through a series of rigged auctions known as loans-for-shares.

"If Putin decides tomorrow to put everyone in prison, including his wife, it would be easy," says exiled oligarch Boris Berezovsky, who reigned as Russia's richest man until the Kremlin drove him out of Russia, using a variety of threatened criminal charges, three years ago.

At a meeting with 800 business leaders in Moscow Nov. 14, Mr. Putin made his clearest statement yet that the Khodorkovsky case is an isolated example. At the same time, he laid down tough marching orders for Russian capitalists: "[Businesses] must aim their efforts at developing a system of new social guarantees for the population in line with the new demands of the time," Putin said. "We must make the lives of the people economically sound, so they have plenty to live on."

Oleg Kiselyov, Russia's leading steel tycoon, commented: "It is clear that businesses must cooperate with the state, or it will be impossible for them to exist."

Yet even Kremlin supporters agree that it's a problem - more than a decade after the fall of communism - that the country's direction still depends on the will of a single man. "The key question that faces us in this situation is: How do you establish rule of law?" says Sergei Markov, head of the Center for Political Studies, a Kremlin- connected think tank. "No one has an answer for that."

Riches and responsibility

Mr. Markov, whose center is Kremlin-funded and who has so far accurately forecast the course of the campaign against the oligarchs, insists that Putin is not trying to destroy the rich but to prod them into more patriotic avenues of economic activity. "Whatever form privatization took in the '90s, there was an underlying social contract: People were given property in order to improve the economy and raise the population's living standards," he says.

Markov points to Khodorkovsky's rumored plans to sell a stake in Yukos to a US oil company and the recent purchase of Britain's Chelsea soccer team by another oligarch, Roman Abramovich. "It's not part of the deal to sell Russia's natural assets to foreigners or buy English football clubs," he says.

Opinion surveys show that Khodorkovsky is loathed by most Russians, who regard him and other super-rich individuals as villains. …