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Storm over Russian Billionaire's Arrest

When Russia's richest man was snatched from his plane at gunpoint by government agents in masks and put in jail on charges of fraud and tax evasion, some cried foul and some cried fair. And nearly everybody pointed the finger at President Vladimir Putin, who called for calm.

The arrest of Mikhail Khodorkovsky in Siberia on Saturday sent shock waves through the business community, which feared a crackdown on other oligarchs, the term used for Russia's business elite that emerged from the ashes of the Soviet Union.

Liberal politicians warned of a threat to democracy while the Russian press called it the end of capitalism. The Russian stock market took a dive on Monday, only to rebound on Tuesday.

Meanwhile, Khodorkovsky remains behind bars at the Matrosskaya Tishina prison in Moscow, where the plotters of the failed 1991 hard-line coup against the last Soviet president, Mikhail Gorbachev, were held. According to Russian law, suspects can be jailed for two months before trial but a court must approve any extension of the term.

From robber baron to exec 

Khodorkovsky, the head of Russia's largest oil company, Yukos, used to say that he represented three generations of capitalists rolled into one: a robber baron who made a massive fortune during Russia's Wild West of the mid-1990s, when he and a few well-connected individuals bought up Russia's industries on the cheap; a successful manager who led his company through the often lawless days of Russia's early market reforms to become a legitimate, transparent, tax-paying oil company deserving the respect and investment by the foreign business community; and finally a billionaire philanthropist, using his great wealth to fund Russian universities and social programs.

But in the run-up to parliamentary elections in December and presidential elections next March, Khodorkovsky had begun using this great personal wealth -- estimated by Forbes at US$8 billion -- to fund political parties opposed to Putin, and most analysts believe this to be the reason Khodorkovsky was arrested.

While the allegations against him may well be true, they are economic crimes, which were common in the 1990s, leading many, including the US State Department, to suspect that Khodorkovsky is being punished selectively.

"We are concerned about the potentially negative implications for the rule of law," State Department spokesman Richard Boucher said on Monday. "Recent events do raise questions as to whether the law is being applied selectively, and naturally, these events raise doubts on the part of companies doing business in Russia and among potential investors," Boucher told reporters.

Over the line?

"Khodorkovsky apparently overstepped the red line," said Lilia Shevtsova, a political analyst with the Moscow Carnegie Center, referring to the tacit agreement Putin made with Russia's oligarchs when he came to power nearly four years ago.

They could keep the property they had bought in the dubious privatization deals of the mid-1990s, as long as they paid their taxes and kept out of politics. Two other oligarchs, Vladimir Gusinsky, who owned the country's first independent TV channel, and Boris Berezovsky, another media magnate, didn't follow the agreement and chose to leave Russia rather than face arrest. Khodorkovsky has said he will not go into exile.

Other analysts maintain that Putin's response was understandable in a country where business and politics are intertwined.

"Khodorkovsky was financing anyone who would take his financing, obviously in return for something, which is probably voting the way he instructed them to vote in the new parliament," said Bill Browder, an oil industry analyst with Hermitage Capital Management.

Khodorkovsky was forming a sizeable political bloc, including members of the Communist Party, that would have voted his way on key issues affecting the oil industry, including against any efforts to raise taxes or increase state control.

He also planned to build his own oil pipeline, directly threatening the state's monopoly on oil exports.

"With that type of scenario, Putin was basically faced with a very dramatic political challenge from somebody outside even the political sphere - a rich guy using his money for political influence," Browder said.

"It's like Bill Gates deciding he's going to spend a billion dollars on buying members of Congress, Democrats and Republicans, to vote with him on software issues. Would George Bush have allowed that to happen? Would Bill Clinton have allowed that to happen? I don't know. But I think that we would have seen a quite aggressive response in America to that kind of infringement from rich people in the political process, from either the law enforcement agencies or from the political establishment."

Presidential ambitions

Many analysts suggested Khodorkovsky was looking even beyond the presidential election in 2004, which Putin will surely win, to the presidential elections of 2008.

"This is about the approaching struggle for the succession of power. It's not only about 2004, it's about 2008," Shevtsova said.

While some have speculated that Khodorkovsky has presidential ambitions, it is more likely that he was maneuvering to influence the choice of the next president. That, in itself, would threaten the Kremlin, which likely intends to orchestrate the choice of Putin's eventual successor, just as it orchestrated Yeltsin's handing over of power to Putin.

New Kremlin faction 

Some Russian analysts have warned that the arrest illustrates the dominance of Putin's former KGB colleagues in the Kremlin. They are viewed as more skeptical about the virtues of free-market policies as well as of democracy in general. The competing factions are seen as former Yeltsin officials who are closely tied to the oligarchs, and the liberal reformers from St. Petersburg, Putin's hometown.

The faction of former KGB colleagues, which the Russian press has nicknamed "Siloviki," or "the power ministers," was believed responsible for the heavy-handed tactics used to arrest Khodorkovsky.

The international business community expressed alarm over the arrest of the boss of Russia's most transparent company.

But Browder said the concerns were misguided. "They're not going after him because he had good corporate governance. It just so happened that he had good corporate governance because he wanted to maximize the value of his company. They're going after him for his political activities," he said.

If the Russian market continues to rebound, as it did on Tuesday, Khodorkovsky's arrest may not cause the economic backslide some predicted.

"The market is, I wouldn't say booming, but it is certainly recovering quite nicely," said Roland Nash, chief head of Equity Product Group at Renaissance Capital investment bank. "After the first shock it's beginning to differentiate between an attack on Khodorkovsky and an attack on the economy more widely."

Browder believes there will be no long-term damage. "The playing field has always been unpredictable," said Browder. "It's no more unpredictable now than it was three weeks ago or three months ago."

Still, most analysts agreed that Khodorkovsky's arrest has serious implications for Russia. "I think it emphasizes that Russia's a young democracy ... has weak public institutions that are blunt instruments to implement policy and can often look very ugly, and I think that's what we saw over the weekend," Nash said.

"Putin wanted to get Khodorkovsky out of politics, and it turned out that the way he can do that involved sending two busloads of FSB agents in ski masks onto his plane," said Nash.

But Shevtsova believes the implications are more serious. "After this, it will be very difficult to believe that Russia has a democracy and a transparent situation for business," said Shevtsova. "So to some extent, Khodorkovsky's arrest just made things more clear."

(China Daily October 29, 2003)

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