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Open season on Russia's tycoons

As the Kremlin confronts big business, experts warn of the dangers in revisiting shady 1990s privatizations.

By Special to The Christian Science Monitor / July 17, 2003


A Kremlin-ordered legal assault on Russia's largest business empire has upset the country's fragile political stability, and some experts warn that the confrontation could spiral into a major crisis.

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At the heart of the expanding police investigation into Yukos, an oil-and-banking conglomerate, are questions about the unsavory manner by which its owners - chiefly Russia's richest man, Mikhail Khodorkovsky - acquired their vast holdings through smoke-and-mirrors privatizations in the 1990s. The criminal probe broke a three-year truce in which President Vladimir Putin promised to forgive the past sins of Russia's powerful business kingpins, provided they quit meddling in politics.

Over the past week, the political attack on Yukos has drifted toward a much wider confrontation.

"If we start now to revisit privatization, it will not be easy to stop this process, and it is not inconceivable that it will lead to civil war," the Kremlin's outspoken economic counsel, Andrei Illaryonov, told Ekho Moskvi radio station Monday.

"This [Yukos affair] can easily snowball into a general campaign against the oligarchs, to redistribute or renationalize their property," says Vyacheslav Nikonov, head of the independent Politika think tank. "There are plenty of forces who favor this, including the Communists, public opinion, and the special [security] services," he adds. "The last experiment in nationalization of property, in 1917, resulted in civil war that killed 15 million people. People have a tendency to defend their property.... Russian history teaches that Russia never learns from history."

The confrontation began early this month when prosecutors arrested a top Yukos executive, Platon Lebedev, for fraud in connection with a 1994 privatization, and called in Mr. Khodorkovsky for interrogation. Khodorkovsky hit back publicly, saying that he was the victim of an "inner-Kremlin power struggle" and threatening to cut off oil supplies to Russian regions if the state continued to behave "irresponsibly." The spat has caused Yukos' market capitalization to plummet by 20 percent, or $5.5 billion.

Last week another powerful tycoon, Roman Abramovich, was accused of evading $300 million in taxes by Sergei Stepashin, head of the Russian parliament's Accounting Chamber and a close Putin ally. The implication was that Mr. Abramovich used the money he allegedly filched from the state to fund his high-profile purchase of Britain's Chelsea soccer club and lavish offers to lure top European players. Abramovich had been on the verge of merging his Sibneft petroleum firm with Yukos, a move that would create the world's fourth-largest oil company, second only to Exxon-Mobil in gas and oil reserves.

"We are asking Putin to put a stop to this conflict," says Igor Yurgins, secretary of the Russian Union of Industrialists and Entrepreneurs, which speaks for big business. The group handed Putin a letter last week, signed by several of the top tycoons, urging him to drop the Yukos probe and open a fresh dialogue with them. The letter said: "We thought that rules of the game had been established, but now they've been undermined."

When Western business moguls step across legal lines, courts are usually able to act without triggering serious social consequences. But Russia's handful of hyper-rich magnates lack the legal legitimacy and social acceptance generally enjoyed by their counterparts elsewhere. Most are wealthy today because they heisted the former Soviet economy's crown jewels through insider trading, fixed auctions, and corrupt Kremlin ties during the chaotic '90s.