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After Khodorkovsky verdict, Russia's Medvedev bemoans business climate

President Medvedev admits Russia's investment climate is woeful days after oil tycoon Mikhail Khodorkovsky was convicted of embezzlement in a politically tinged trial.

By Staff writer / December 29, 2010

Russia's President Dmitry Medvedev (r.) and Prime Minister Vladimir Putin attend the final meeting of the Cabinet of Ministers in 2010 in Moscow, Wednesday. After the Khodorkovsky trial, Medvedev admits that Russia has a 'very bad' investment climate.

Vladimir Rodionov/Kremlin/Reuters

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The second conviction of Russian oil tycoon Mikhail Khodorkovsky and his business partner Platon Lebedev has produced a storm of international criticism.

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But it also represents a potential setback for President Dmitry Medvedev, who is widely seen as vying with Prime Minister Vladimir Putin to become the favored presidential candidate in 2012 elections.

Mr. Medvedev promised a "war on corruption" a year ago and has said making it easier for business to invest and expand is at the top of his priorities.

A running theory in Moscow was that Medvedev, eager to show that the rule of law prevails in Russia, was uncomfortable with the second prosecution of Mr. Khodorkovsky, whose legal troubles began in 2003 when he openly challenged then-President Putin's increasingly authoritarian rule.

Ahead of the verdict, Russia analysts argued that an acquittal would show that Medvedev had prevailed, while a conviction would show that Mr. Putin – who already served two terms as president, from 2000-08 – remains Russia's real power and is likely to return to the presidency in 2012.

"It is thought that Mr Putin's comeback ... will entail further tightening of the screws and a prolonged period of enforced 'stability' which, in the eyes of his critics, means nothing but all-permeating stagnation and corruption," Russia analyst Andrei Ostalski wrote for the BBC.

'A worrying signal about the rule of law'

Few argue that Mr. Khodorkovsky and Mr. Lebedev are as pure as the snow at the Siberian prison camp they've already spent seven years in. After all, they became billionaires thanks to communist-party connections that delivered them an enormous slice of Russia's oil fields for a bargain price in the chaos of the post-Soviet collapse.

Previously convicted of fraud and tax evasion, Khodorkovsky and Lebedev on Monday were declared guilty of embezzling $27 billion from the oil giant Yukos.

Shortly before their latest sentencing, Prime Minister Putin implied that Khodorkovsky was guilty of murder (a crime he's never been charged with) and said he should "sit in jail."

Putin's public attacks on Khodorkovsky have generated a lot of handwringing about the rule of law in Russia, already ranked one of the most corrupt countries in the world and a place where over 70 percent of business claim they are victims of "economic crimes" every year.

Canadian Foreign Minister Lawrence Cannon joined the chorus of international condemnation on Tuesday, saying the conviction sends "a worrying signal about the rule of law in Russia... Political considerations should have no role in the judicial process."

Medvedev: 'Very bad' investment climate

All of this is trouble for current Russian President Dmitry Medvedev, who today addressed a business group convened to focus on streamlining investment in Russia. While he didn't mention the Khodorkovsky case specifically, he delivered bad news about Russia's overall business climate.

"This is nothing to be proud of," Medvedev told the businessmen, according to Dow Jones. "Part of the problem is, of course, [our] investment climate, which is bad. Very bad." The president pointed out that Russian companies only had 14 initial public offerings in 2010, though Putin pointed out later in the day that foreign direct investment this year has more than doubled to $40 billion since 2009's collapse.

It's a small irony that before Khodorkovsky's sentencing, he had been a crusader for more transparent corporate governance and western accounting models for Russia to attract investment and reduce corruption.

In Russia there is a lengthy reading of the verdict in court before a final sentence is handed down. In this case the verdict is 250 pages, and a lawyer for Khodorkovsky has estimated it will take until Dec. 31 for the reading to end. After then, the full new sentence for both men will be handed down. Prosecutors have asked for six more years for both, and most expect that the judge will agree.

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