The Arrest of Mikhail Khodorkovsky

The arrest of Mikhail Khodorkovsky, the oil magnate who is Russia’s richest man, is a turning point in Russia’s post-Soviet history.

Ever since acceding to the presidency, Vladimir Putin has worked to concentrate power in his hands and those of the clan of former KGB officers who are his close supporters. He has strengthened his domination of the executive branch and the State Duma, eliminated independent national television and put pressure on the independent press.

With the arrest of Khodorkovsky, however, he has now also taken steps to make sure that the nation’s oligarchs do not support any political candidate except those backed by the regime. The result is an attempt to put the nation’s corruptly acquired wealth in the service of a single political faction, choking off even nascent political opposition and completing the transformation of Russia into a controlled society with a permanent political leadership.

Khodorkovsky would hardly qualify as an international cause celebre if the issue were him alone. Like the other Russian oligarchs, he amassed a fortune in the Yeltsin years on the strength of insider information and corrupt ties. There is no better example of how this worked than the methods through which he obtained the controlling packet of shares in the Yukos Oil Company, which controls 2 per cent of the world’s oil reserves.

Khodorkovsky’s bank, Menatep, was put in charge of the auction of Yukos shares and eliminated all competitive bidding. Khodorkovsky then purchased the company for $159 million, $9 million above the starting price. The value of Yukos today is estimated at $15 billion.

Unlike the other oligarchs, however, Khodorkovsky has attempted to break the mold of the Yeltsin era oligarchy.

Khodorkovsky was the first of the Russian oligarchs to understand that the Russian rules of bandit capitalism were unacceptable internationally and to try to transform his business into something that was acceptable. He made Yukos completely transparent, declared his income and introduced Western standards of accounting and corporate governance.

The result was that the value of Yukos stock rose dramatically and Yukos appeared on the brink of attracting as much as $25 billion in foreign investment from Exxon-Mobil for a 40 per cent stake in the company.

This financial success, however, may have been the first step in Khodorkovsky’s downfall. The Russian bureaucracy actually depends on businessmen’s violations and hidden assets in order to facilitate a steady flow of bribes.

More important, in addition to behaving like a Western businessman, Khodorkovsky, began to insist on independence in politics. He started to finance all of the opposition parties, not only Yabloko and the Union of Right Forces but even, to a degree, the communists. In doing so, he significantly increased his influence in the State Duma, a body dominated by deputies loyal to Putin, contributing to political pluralism.

It was this readiness to be politically independent that brought Khodorkovsky into confrontation with Putin.

After he became president in 2000, Putin made a deal with the oligarchs according to which he would ignore the methods by which they amassed their wealth as long as they stayed out of politics.

In fact, the oligarchs under Yeltsin had not so much participated in electoral politics as used their wealth to bribe members of the executive branch and the Duma in order to receive favorable decisions from government.

Eliminating this type of political participation, however, was apparently not what Putin had in mind. What he meant was that the oligarchs would be safe in their corruptly acquired wealth as long as they made no attempt to challenge the present government. And it was this assumed commitment that Khodorkovsky violated by trying to play an independent political role.

Khodorkovsky has now resigned the presidency of Yukos and there is speculation that he may try to run for political office, perhaps even for president. He spoke openly before his arrest of the need to change Russia into a parliamentary republic and is reported to have suggested himself for the post of prime minister, an idea that may have further outraged Putin.

There is little chance, however, that the Putin leadership is willing to create opportunities for Khodorkovsky or someone like him to emerge as a force in politics. Not only have major, recent developments, the fixed elections in Chechnya, Smolensk and Ingushetiya, and the closing of TVS, the last independent television station, demonstrated a will to eliminate independent centers of power but there is ample reason to believe that the present leadership has as much to fear from an examination of the past as the oligarchs do.

It is all but forgotten now that Putin rose to power as a result of the Second Chechen War. The war, in turn, was made possible by the bombings of Russian apartment buildings in 1999. The bombings were blamed on the Chechens but when a bomb similar to the ones that destroyed apartment blocks in Moscow, Buinaksk and Volgodonsk, was discovered in the basement of an apartment building in Ryazan, the persons who placed the bomb were found to be agents of the FSB (Federal Security Service).

If the Putin government were to be forced into opposition, there would be opportunities for a new government to investigate the provenance of the 1999 bombings, as well as many other issues. It is for this reason and others that the arrest of Khodorkovsky was no aberration. The government fully intends to force the oligarchs to keep their money out of politics and allow the political parameters in the country continue to be set exclusively by the inheritors of the KGB.

This article appeared in National Review Online on November 6, 2003