Justice tinged with greed and politics


Russia: The trial of a billionaire oil executive, almost certain to end soon with a conviction, divides the elites and rattles foreign investors.

April 24, 2005|By Douglas Birch | Douglas Birch,SUN FOREIGN STAFF

MOSCOW - Under different circumstances, the 10-month trial of the businessman who was once Russia's richest man might have been regarded as a triumph of law and order over privilege and power.

Instead, human rights campaigners say, the trial of billionaire Mikhail B. Khodorkovsky, former chief executive of the Yukos oil company, has been a glaring case of Russian justice warped by greed and Kremlin politics.

As early as Wednesday, Khodorkovsky and fellow defendant Platon Lebedev, another major Yukos shareholder, will file into a cramped Moscow courtroom and hear the verdict of the three-judge court. Both defendants face almost certain conviction, their lawyers concede, and up to 10 years in prison on charges of fraud, forgery, embezzlement and tax evasion.

They have been stripped of much of their wealth. Yukos, which a bank they controlled bought from the state in 1995 for a fraction of its value, was hit with a $28 billion bill for back taxes last year. In December, Yukos' main oil-production unit was sold for about half of its estimated worth. It is controlled by a state-owned oil company run by one of President Vladimir V. Putin's top aides.

But the Kremlin's victory has come at a cost. It has rattled the confidence of foreign investors, divided the nation's political and business elites and undermined the Bush administration's outlook on President Vladimir V. Putin's commitment to free markets and the rule of law.

"It's done a lot of damage to the country," said Andrei Piontkovsky, director of the Center for Strategic Studies in Moscow. "The amount of capital outflow from the country last year was, according to different estimates, $20 billion, four times as much as in the previous year."

Before the government partly dismantled it last year, Khodorkovsky's Yukos was Russia's largest oil company. It had 100,000 employees and produced 1 million barrels of oil a day, 11 percent of Russia's production and 1 percent of production worldwide.

Oil is by far the most important industry in Russia. The World Bank estimates that it accounts for a quarter of the economy. Critics say control of Russia's oil riches, not alleged violations of the tax and criminal codes, motivated the cases against Yukos and Khodorkovsky.

The legal assaults, analysts say, were initiated by the "men of power," or siloviki, former KGB and security officials appointed by Putin to top Kremlin positions.

That, at least, is Khodorkovsky's view. "The whole country knows how, by whom and why the scandalous Yukos case was organized," he told the court in his closing statement April 11. "It was created by certain influential people with the goal of seizing for themselves Russia's most successful oil company, or, more precisely, the profits from the company's cash flow."

Some analysts say the Khodorkovsky case could accelerate Russia's slow retreat from democratic reform. "These people - Putin's friends - gained property through the use of power," said Yulia Latynina, a political commentator for Ekho Moskvy radio. "Now the only way they can keep that property is to keep hold of the power. This lays the economic ground for dictatorship."

Prosecutor Dmitry Shokhin says Khodorkovsky led a conspiracy to cheat the state of billions of dollars in taxes. "The scale of the fraud and the structure of the criminal group headed by Mikhail Khodorkovsky and Platon Lebedev are unique," he said outside the courtroom April 11.

Khodorkovsky and Lebedev were not the only entrepreneurs close to the government of former President Boris N. Yeltsin to earn windfall profits. Dozens of "oligarchs" purchased fabulously valuable state assets for next to nothing in dubious auctions in the mid-1990s.

Shortly after Putin came to power in 2000, he reassured the oligarchs that the Kremlin would not seek to re-nationalize their industries. But he warned the businessmen to steer clear of politics and pay their taxes. The implication was clear: To get along, they would have to go along.

Khodorkovsky seemed to chafe at those restrictions. In a January 2003 meeting between Putin and Russian entrepreneurs, Khodorkovsky publicly rebuked the president for corruption. Later, the billionaire hinted that he might run for president and began channeling money into opposition parties.

By summer 2003, the government began moving against Yukos executives. Lebedev was arrested in July. Khodorkovsky was detained that October, when his private jet touched down for refueling at a Siberian airport. Both defendants have been in jail without bail since then.

Arrest warrants were issued for other Yukos executives, and 22 Yukos shareholders and ranking executives fled Russia, including Dmitri Golobolov, chief of Yukos' legal department. With Golobov out of reach, authorities arrested his deputy, Svetlana Bakhmina, on Dec. 10.

The 35-year-old mother of two has been held without bail since then on charges of embezzlement and misappropriation of funds. Bar associations in the United States and Europe have protested.

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