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Russian executives flock to politics

Russian business executives are flocking to politics, as companies try to protect themselves against legislation that could raise their taxes, tie them in red tape, or threaten their property rights. By BusinessWeek Online’s Jason Bush in Moscow.
/ Source: BusinessWeek Online

Although Russian tycoon Mikhail B. Khodorkovsky landed in jail in October on charges of tax evasion, many observers suspect President Vladimir V. Putin really wanted to curb the billionaire’s growing political influence.

KHODORKOVSKY, after all, was financing the Kremlin’s opposition in advance of the Dec. 7 elections for the Parliament, or Duma, and lining up candidates who would back the interests of his Yukos Oil Co.

So has Khodorkovsky’s incarceration chilled Big Business interest in parliamentary politics? Absolutely not. More businessmen are vying to become Duma deputies than ever. Dmitry Orlov, a political scientist at the independent Center for Political Technologies in Moscow, estimates that 20% of the Duma’s 450 seats — about 90 places — will be filled by businessmen. Executives who are running include Viktor Rashnikov, general director of the Magnitigorsk Iron Vitali Vilchik, president of Avtovaz; and Vyacheslav Timchenko, vice-president of Tyumen Oil Co.


An additional 180 seats could go to business lobbyists likely to do their clients’ bidding on economic legislation. Execs and lobbyists are running for the pro-Kremlin United Russia party, the right-wing Union of Right Forces, liberal Yabloko, and even the Communists — a sign that securing a seat is more important than party platforms. From Lukoil to utility UES, companies are spending heavily on party contributions. Orlov estimates the total could reach $1.5 billion. “Of course, business plays a big role in party finance,” says Vladislav Reznik, a United Russia deputy.

By law, Russian companies are allowed to give a political party only $2 million per year, but the rules aren’t strictly enforced. Indeed, the Russian press is full of rumors that businesses are essentially “buying” Duma seats by financing parties that place execs or their representatives on candidate lists. The articles don’t make allegations about specific candidates, but the reputed price tag is up to $2 million per seat. Half the Duma deputies are elected from national and regional party lists based on the party’s popular vote. The other half represent local districts.

Why are so many execs hurrying into politics? Companies want to protect themselves against legislation that could raise their taxes, tie them in red tape, or threaten their property rights. “Big companies want to be in the picture and possibly influence the process,” says Igor Jurgens, vice-president of the Russian Union of Industrialists & Entrepreneurs. What’s especially troubling Corporate Russia is the rising influence of an antibusiness faction. Many nationalists say the state should grab back profits from the natural resources “stolen” by businessmen such as Khodorkovsky. Even Finance Ministry reformers believe Big Business should pay higher taxes — a likely issue on the agenda after Putin’s expected reelection in March.

With Khodorkovsky behind bars, some observers predict Big Business in the next Duma won’t try to take on the Kremlin directly, except as a last resort. Instead, natural resource companies may agree to pay higher taxes if protections for their property rights are strengthened. But it’s an open question whether the Kremlin and business can avoid a standoff in Putin’s second term.

(Copyright 2003 The McGraw-Hill Companies Inc. All rights reserved.)