Russia defends billionaire's arrest as move on corruption

Country's stocks, bonds, currency fall on news

October 28, 2003|By Douglas Birch | Douglas Birch,SUN FOREIGN STAFF

MOSCOW - With Russia's stocks, bonds and currency plunging because of the arrest of Russia's richest man, the Kremlin maintained yesterday that the detention of Mikhail B. Khodorkovsky, the head of Yukos Oil, was a blow against corruption, even as critics warned that it threatened to reverse the country's halting progress toward democracy.

President Vladimir V. Putin, sounding surprised and exasperated by the reaction in financial markets and the press, defended yesterday what he described as the independent actions of prosecutors and judges.

"Everyone should be equal before the law, irrespective of how many billions of dollars a person has on his personal or corporate account," he said during a televised Cabinet meeting. "Otherwise, we will never teach and force anyone to pay taxes ... and defeat organized crime and corruption."

He said the arrest of Khodorkovsky, a billionaire who has helped finance opposition political parties and human rights groups, should not be viewed as an attack by the state on private property. "I suggest that all speculations and hysterics over the situation should be stopped," he said.

Critics of the government described the arrest of Khodorkovsky as an effort to silence one of the Kremlin's most powerful and outspoken political foes.

In a story headlined "The Last Battle," the newspaper Izvestia warned that the arrest could "become a turning point in the history of Russia. This concerns not only Russian business, but the whole of society."

The 40-year-old businessman, whose personal fortune is estimated to be $8 billion, was seized early Saturday by masked troops at an airport in Siberia where his private jet had stopped to refuel.

He was charged with fraud, tax evasion and forgery, taken to Moscow and locked in a five-man cell in the Matrosskaya Tishina jail, a few miles northwest of the Kremlin. If convicted of all the charges, Khodorkovsky could receive up to $1 billion in fines and 25 years in prison.

Russia's main stock exchange fell 12.5 percent by the end of the day, while Yukos shares lost nearly 20 percent of their value. Russian bond prices fell sharply, in another indicator of nervousness about the country's politics and economy.

Andrei Vinkov, a financial journalist with Expert magazine, said those behind the Yukos investigation had not understood the impact that it could have on Russia's economy.

"I don't exclude the possibility that a political scandal will grow into an economic crisis," he said. "This is quite possible taking into account the scale of the Yukos," which controls more than 18 billion barrels of proven energy reserves.

Exxon Mobil Corp. had been negotiating to buy a 40 percent stake in Yukos-Sibneft, worth an estimated $25 billion, but those talks are almost certain to be delayed.

In recent interviews, Khodorkovsky insisted that the government's aggressive investigation of Yukos had nothing to do with law enforcement and everything to do with politics. He had vowed not to be intimidated, saying he would fight any charges rather than follow the example of prominent businessmen who fled the country.

"If I have to choose between property and civil rights, I would choose civil rights," he told Izvestia a few hours before his arrest. "Because one cannot secure property without those rights."

Khodorkovsky had talked about eventually running for president, and in the campaign for Dec. 7 parliamentary elections he contributed money to opposition political groups, including the liberal Yabloko party. A court has ruled he remain in custody until at least Dec. 30 - well after voters choose a new parliament.

Two days before Khodorkovsky's arrest, prosecutors searched the offices of the Agency of Strategic Communications, a political consulting company that works for Yabloko, and seized party documents. The company director told the business daily Kommersant that prosecutors wanted to warn Yabloko's members to stop supporting Khodorkovsky.

The billionaire wasn't the first Yukos figure to be arrested. Platon Lebedev, a major stockholder, has spent almost four months in Moscow's Lefortovo prison while under investigation for an alleged fraud in the 1994 privatization of a fertilizer plant.

On Friday, prosecutors brought charges against another major Yukos stockholder, the billionaire Vasily Shakhnovsky, for allegedly evading about $970,000 in taxes between 1998 and 2000. But an independent Web news site,, reported that government officials in the remote Evenk Autonomous District in northern Siberia had hastily elected Shakhnovsky to the district's seat in the Russian Federation Council, or Senate, a move that could give him immunity from prosecution.

Though Russia's police and courts have a centuries-old tradition of subservience to political leaders, Putin said yesterday that no political pressure was brought to bear in Khodorkovsky's case.

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