Putin arrested Russia’s richest man as a warning to the others

I first met Mikhail Khodorkovsky several years ago, just after he had embarked upon his amazingly rapid conversion from shady, highly-suspect oil billionaire to famous, philanthropist oil billionaire. The location was the Moscow home of a Russian friend who might be best described as a democracy activist, and the occasion was Khodorkovsky’s first meeting with Richard Perle, a member of the Pentagon’s Defence Policy Board.
Khodorkovsky didn’t say much – you don’t get to be a Russian billionaire by being overly talkative – but he was clearly impressed. He was then just beginning to realise that there might be a connection between the promotion of civil society in Russia, which he had just started to do, and the approbation of the political and business establishments in the West, which he very much wanted. To put it bluntly, he was interested in improving his company’s reputation (and share price) abroad, in part by promoting freedom of the press, freedom of speech and the political opposition at home.
In the years since, Khodorkovsky’s philanthropic activities have spread far beyond Russia, as has his network of contacts. He now appears regularly at the “masters-of-the-universe” conferences that American CEOs throw for themselves in mountain resorts every summer, where he is listened to with the respect that rich men show for one of their brethren. In Washington, where it is relatively cheap to buy goodwill, he has donated money to the Library of Congress – which threw him an elegant reception last autumn – as well as to just about every think-tank in town. As a result of all this charitable giving, Khodorkovsky now has friends. He sees Henry Kissinger when he is in New York, Jacob Rothschild when he is in London, and is doubtless on first-name terms with half a dozen American members of Congress.

But Khodorkovsky has tried to clean up the image of Yukos, his oil company, as well. He made the company’s accounts more transparent, for the first time, and he hired Western managers. This wasn’t altruism either. Among other things, the company’s own public records show that that Khodorkovsky himself, a former activist in the Communist youth movement, owns some $8 billion worth of Yukos stock, more than a quarter of the total. Lately, there has been serious talk of a merger between Yukos and Exxon/Mobil, something that would have been unthinkable if Yukos’s accounts had remained as murky as those of most Russian companies. If such a merger were ever to take place, Khodorkovsky, a bespectacled man in his early forties, would personally own a big chunk of the largest oil company in the world.
All of which is a roundabout explanation for the shock that Khodorkovsky’s arrest has caused in Russia and abroad. In part, it is true, many are simply surprised. Last weekend, masked men boarded his plane while it refuelled on a Siberian runway, whisked Khodorkovsky back to Moscow and threw him into an ordinary criminal prison. Within days, Russian prosecutors had frozen his Yukos stock, giving no legal justification for doing so. It isn’t every day that a billionaire falls so far and so fast.
More importantly, the arrest is widely seen as the culmination of a power struggle within the Kremlin, between a faction that wanted to let big business control the Russian economy, and the faction, coming from the old KGB, that wants to return to much greater state control. Although the Russian authorities have said that the arrest is linked to tax evasion, that charge just is not credible. I have no doubt that Khodorkovsky broke tax laws, and probably plenty of other laws – Yukos once had a distinctly dirty, even murderous reputation – but so has everybody else. If the Kremlin were arresting businessmen for corruption, it would have plenty of candidates to choose from. Why single out Khodorkovsky?
Khodorkovsky’s growing financial and political power, combined with his good foreign connections, seem a much better explanation. Whether the struggle was really about the fact that he funded opposition political parties – an explanation he says he does not believe – or simply about the fact that his enormous wealth allowed him to ignore Kremlin orders, it now appears that the forces of the old KGB have won. There are other signs of struggle as well: this week, one of President Vladimir Putin’s advisers, Alexander Voloshin resigned. Voloshin was long thought to be an opponent of the former KGB officials who came to power along with President Putin, a former agent himself.
Nor is Khodorkovsky’s arrest an isolated incident. In fact, it follows on a long series of legal changes, clearly designed to suppress and intimidate whatever political opposition remains, in Russia. With a few exceptions, President Putin’s entourage did not kill or imprison journalists, they simply took over the ownership of major television stations and newspapers, leaving the genuinely independent writers to operate on the fringes. In another incident, the Kremlin recently took control of Russia’s most prestigious polling agency, removing a source of objective information. Instead of threatening all businessmen who didn’t co-operate, the Kremlin has picked on one or two, including Boris Berezovsky, who now lives in London, in order to intimidate the rest.
Instead of shutting down independent groups and associations, the secret police intimidates them, sending agents to ask them questions and flip through their files. Westerners are not banned, but it has become remarkably difficult for foreigners to get a Russian visa. For the most part, these were all remarkably subtle activities, and President Putin’s Western friends, notably George W Bush and Tony Blair, found them easy to ignore. No foreigner was going to protest about the ousting of a pollster, however well-known, and few were going to interest themselves in the ins and outs of Russian media ownership laws. The President of the United States is not going to protest if a KGB official starts silently shadowing the offices of a small environmentalist organisation.
But the arrest of Khodorkovsky takes the assault on free society, and on capitalism itself, to a different level. For all of President Putin’s rhetoric about economic reform, the Kremlin appears to have been remarkably uninterested in the impact Khodorkovsky’s arrest would have upon the Russian stock market, which sank by more than 10 per cent last week, and upon foreign investors’ confidence in the country. The rouble plunged too, as investors now expect capital flight, which had slowed in recent years, to pick up pace once again, as other rich men make their preparations to flee.
A clear choice has been made, in other words: the Kremlin now cares more about winning its political battles than it does about the economic welfare of the country. And President Putin is not afraid to let everyone know it, either.