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Putin benefits from magnate’s woes

The arrest of Russian billionaire Mikhail Khodorkovsky caused alarm worldwide. But it hasn’t hurt President Vladimir Putin or his party ahead of this weekend’s parliamentary elections. NBC’s Judy Augsburger reports.
/ Source: NBC News

Russian billionaire Mikhail Khodorkovsky is languishing behind bars in Moscow — and could remain in prison for up to two years while his case is pending. If convicted of tax evasion and fraud, the founder of the oil giant Yukos could be sentenced to up to 10 years in jail. But while his plight has caused alarm overseas, where political leaders and commentators have viewed the arrest as a ploy by an authoritarian Vladimir Putin to silence a deep-pocketed critic, it has done little harm to the Russian leader.

IN FACT, in the run-up to an important election to the Russian lower house, the Kremlin-backed party, United Russia, seems set to strengthen its control of the Duma.

The public has mostly stood by Putin, who enjoys consistently strong ratings in opinion polls.

Ordinary Russians have their own reasons to resent Khodorkovsky; he became amazingly rich at a time when the majority of Russians became miserably poor.

Yet, the Kremlin’s reasons for arresting the oil magnate remain a matter of debate and speculation.


The richest man in Russia took on the most powerful man and lost, according to Andrei Piontkowsky of the Center for Strategic Studies.

“It’s clear that Khodorkovsky is a personal political opponent of Putin, that Putin wants to send him to prison for a long time, and possibly to gradually destroy the Yukos empire,” Piontkowsky said.

“Putin wants to get him out of the way, but he also wants to achieve a second goal: to use this excellent example to make all the other businessmen obedient. To demonstrate to them that any one of them could be arrested at any moment, and therefore total political loyalty is demanded of each one.”

The Russian business community was all too happy to comply, according to observers who watched Putin’s speech last month at the annual congress of the Union of Russian Industrialists, of which Khodorkovsky was once chairman. He was greeted with rapturous applause, and nobody protested the arrest of Khodorkovsky.

As one Russian paper put it, “They asked for dialogue and got a monologue.”

“It’s clear that all of Khodorkovsky’s colleagues, that entire congress of industrialists, handed over Khodorkovsky. They made a new deal with Putin that the words ‘Khodorkovsky’ and ‘Yukos’ will not be mentioned at all,” Piontkowsky said.


Many undoubtedly watched with alarm a televised statement by Deputy Prosecutor General Vladimir Kolesnikov on the eve of the congress, in which he expressed regret that Khodorkovsky could not receive more than a maximum 10-year prison sentence. He added, “Those who are not in jail yet should think hard about what they are doing.”

According to Piontkowsky, “The businessmen sure thought hard about it. They thought about it overnight and decided.”

Such statements as the deputy prosecutor’s “inspire a certain fear, to put it mildly,” Igor Yurgens, vice president of the industrialists union, told Russian NTV television. “I haven’t heard anything like it even in the more difficult and less democratic times we’ve lived through.”

However, the Kremlin has made clear since Putin came to power in 2000 that business should not mess with federal politics, according to Vyacheslav Nikonov of the Politika Foundation. “In Russia if you want to do business you should not be hostile to the Kremlin, simple as that.”

Nikonov maintains that the Kremlin may not have intended events to go this far with Khodorkovsky.

“The original intent from the very beginning, since May, when Khodorkovsky started his presidential campaign, was to convince him to quit federal politics and there were many hints that he should do that,” Nikonov said. “He didn’t do that. I don’t think that anyone had any intention to keep him in jail forever. But with all the fuss around the case, I think for Putin and for the attorney general’s office there is now no other way but to make it a whole legal procedure.”

Nikonov added he saw little hope for Khodorkovsky. “I don’t think there will be a deal. There was a possibility for a deal after the arrest, but I don’t see it now. I don’t think he has any cards to play. He could have confessed his mistakes in May or June or October, but it looks like he won’t. He is acting as a man who is going to defeat the Kremlin. A very strange strategy.”


Whatever other intentions the Kremlin may have had, Khodorkovsky’s arrest has boosted Putin’s popularity; though Putin’s approval rating is already so high that he was in no need of of a pre-election stunt.

Approval of Putin’s policies rose to 82 percent late last month compared with 73 percent before Khodorkovsky’s arrest on Oct. 21, according to the independent polling institute VTsIOM-A.

The campaign against Yukos is “the main reason” for the surge in Putin’s popularity, according to Leonid Sedov, a sociologist with VTsIOM-A.

A poll published by another polling agency, the Romir Institute, found that 54 percent of those questioned approved of Khodorkovsky’s arrest, with only 13 percent disapproving and 29 percent saying they did not care one way or the other.

While Putin appears set to sail into a second term in the presidential elections in March, he would certainly welcome a boost for his United Russia party ahead of the elections Sunday.

One of Putin’s methods of maintaining control over the political process relies on a compliant Duma that easily passes the legislation the Kremlin designs or desires.

Putin was reportedly irked by Khodorkovsky’s efforts to fund opposition parties and buy votes outright in the Duma.

The interests of the oil business and the Kremlin often collided. Those observers who maintain that the Kremlin’s goal all along was to regain control over the profits from the oil industry point to this week’s latest blows to Yukos:

With Khodorkovsky safely behind bars, the Duma moved last week to pass legislation to raise taxes on oil exports, against which Khodorkovsky and Yukos had lobbied. The Duma also moved to close tax loopholes that Yukos and other oil companies use to cut their taxes in half.

And in another blow to Yukos, the smaller Sibneft oil company said Friday it was suspending its merger with Yukos.

Analysts told Reuters that top Sibneft shareholders, led by the well-connected oil tycoon Roman Abramovich, want to seize the advantage at Yukos, given the arrest of its founder and a mounting investigation into its tax affairs.


Putin supporters claim that the Kremlin’s goal is to make Russian oligarchs more socially responsible, to force big business to contribute more to the federal budget. This in turn would allow the state to raise pensions or help raise the standard of living for average Russians in other ways.

Sergei Markov of the Center for Political Studies told NBC that the Kremlin is in essence calling for a new social contract with the oligarchs, demanding that they become better citizens and start contributing more revenue to Russia instead of squirreling away profits offshore.

The new American managers at Yukos may fulfill big business’s tax obligations to the state more responsibly than the previous ones, according to Markov. “The irony is that now the Americans who are running Yukos may turn out to be better Russian patriots than the Russian oligarchs were,” Markov said.

Putin detractors point out that the Kremlin could dismantle or redistribute the Yukos empire, but this would not mean that Russia’s oil wealth would be spread more evenly among the population.

It would only mean that a new group of Kremlin-connected power brokers would take control of the company and take the profits, according to these critics. They point to the Kremlin faction of former KGB officers, the so-called “Siloviki” group, which is expanding its power base at the expense of the Boris Yeltsin-era government operatives.

The Siloviki are not just hard-line ideologists, they are also eager businessmen, according to Piontkowsky.

“In our country, power and money is the same thing. The oligarchs of Yeltsin’s generation are leaving, and now, another group, the Siloviki, is rising. They are all businessmen. Yes, they have convictions that the state should be strong, but they also have their own strong economic interests.”

NBC’s Judy Augsburger is based in Moscow.