Yukos Founder Khodorkovsky Faces 10 Years

The Kensington Review has followed Russia's great saga, Yukos, with the belief that this is merely the re-enactment of a traditional Russian theme. In particular, it is a struggle between the Tsar and the Boyar nobles, with President Putin and the economic oligarchs playing the respective roles. This morning, the west awoke to a Russia with the Tsar in charge. A judge is reading to Mikhail Borisovich Khodorkovsky, formerly the richest man in Russia, the verdict in a court case against him. He's about to get what Alexandr Solzhenitsyn called a 10-ruble note -- a 10-year prison term.

Mr. Khodorkovsky will have earned his jail sentence ostensibly for fraud and tax evasion. There is a substantial body of opinion, shared here, that he got into trouble with President Vladimir Putin for essentially challenging the president's authority. There is further opinion, largely unknown in the west but firmly believed here as well, that Mr. Khodorkovsky got his money illegally and immorally, and he deserves his 10 ruble note. Much like getting Al Capone for tax evasion, the Russian government has nailed a crook for whatever it could.

In his defense, it must be noted that he had created a very transparent corporation (which could only help Russia as an example) and was not the target of any criminal proceedings until he started funding political parties (including the Communists). He, then, bought the rights to publish the Moskovskyie Novosti (Moscow News) newspaper, hiring Yevgeny Kiselyov (an anti-Putin investigative journalist of no small talent) as editor-in-chief. That happened on September 5, 2003, and Mr. Khodorkovsky was arrested on October 25, 2003 as his plane landed in Angarsk, East Siberia, to refuel during an inspection tour of Yukos facilities. Some sources say 15 members of the FSB (the new spelling of KGB) dressed in black combat fatigues stormed the jet while scores of others surrounded the plane. Bad theatre, Russian style.

On the other side of the scales, one must review just how he got his money in the first place -- misappropriation of property. He formed his first business, a private cafe, in 1986 under the authority of the Young Communist League (Komsomol) of which he was a member. This was legal under Mikhail Gorbachev's program of perestroika, or restructuring. However, one must ask, would he have received permission to do this without his standing in the Komsomol? Most likely not. The profits of this entity went to Mr. Khodorkovsky and his partners and not to the Komsomol. They began importing computers, brandy and other luxury goods using their connections in the government to secure the necessary licenses and permissions. By 1989, he and his pals had enough money to buy a banking license and started Menatep Bank, one of the first private banks in Russia since 1917. Menatep resources were used to expand the import/export business. In 1990, the bank was widely suspected of helping Communist Party officials steal Soviet Treasury funds before the USSR went out of business in 1991.

His bank's position improved once the Communist Party gave up power, and he got clients like the government of the City of Moscow, the Russian Ministry of Finance, the State Taxation Authority, and the Russians Arms Export Agency. The money here was as dirty as the bank roll of a Colombian drug-lord. It was Menatep's money that allowed him to buy Yukos Oil from the state. Menatep bid $350 million for 78% of the company, valuing the firm at $450 million. A higher bid was rejected, which smells to this day of a fix. Two years later, Yukos was listed as a $9 billion company. Not even Warren Buffet is good enough at business to grow a company that quickly. Instead, it is clear that the company was horribly undervalued, and it is likely that Mr. Khodorkovsky influenced the bureaucrats who sold the state's property to him. Calling a spade a spade, one suspects that he bribed his way into possession of Yukos. When the ruble collapsed in 1998, Menatep went out of business, while Yukos flourished. The state has alleged that Yukos never paid its full tax bill, and so it forced a renationalization (with clear political overtones).

The privatization of state property after the death of the USSR was not a clean, efficient affair -- certainly not like the voucher approach used so successfully in many East European countries. Instead, it was a corrupt affair of bureaucrats and those with money conspiring to make off with what were technically the assets of the people -- Ali Mazrui described a similar African practice as "From each according to his greed, and to each according to his agility." President Putin has done the Russian business sector significant damage in his political assault on Mr. Khodorkovsky, but at the same time, Mr. Khodorkovsky's money wasn't ever really his in the first place. His case merely proves Honore de Balzac correct -- "Behind every great fortune is a crime."


© Copyright 2005 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.
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