#10 - JRL 7257
New York Times
July 20, 2003
Crackdown on Tycoon Shakes Up Moscow
By SABRINA TAVERNISE

MOSCOW, July 19 -- In the quiet of the Russian summer, a noisy political brawl is rewriting the rules of Russian politics.

Over the past two weeks, Mikhail B. Khodorkovsky, Russia's richest man and one of its most powerful, has watched as federal prosecutors hit his oil company and his allies with a flurry of criminal charges, including theft of state property, tax evasion and even murder. In a piece of Russian-style police theatrics, masked officers toting automatic weapons raided his office archives.

The investigations have confounded even the most seasoned Russia experts. President Vladimir V. Putin, a former K.G.B. spy, has established credentials as a market reformer. The economy, under his leadership, is stronger than it has been in half a century. Gone were the days of collapsing governments. Why, they ask, would Mr. Putin risk destroying his considerable achievements over a political wrangle?

"People's theory about Mr. Putin has been challenged by this," said Michael McFaul, senior associate at the Carnegie Endowment for International Peace. "They're saying: `Hey maybe we don't quite have him pegged yet. Maybe we don't really understand what is going on here.' "

Mr. Khodorkovsky, in his brand-new 20-story corporate headquarters, has his own theory. The attacks, in his opinion, were engineered by a small group of aggressive bureaucrats with security service backgrounds in Mr. Putin's entourage.

"What we are seeing is the most repressive and aggressive part of the bureaucracy in its dying throes," said Mr. Khodorkovsky in an interview. "We got over communism in 1996. Now the last sickness is the absolute power of the bureaucratic system."

Many liberal supporters of Mr. Putin agree. Yulia Latynina, a novelist and political columnist, talks of a creeping coup of former K.G.B. officials who oppose market liberals in the government and who may be trying to seize power in the Kremlin.

"It's a historic event," said Ms. Latynina. "Our president has to choose. Either it's a couple of greedy stealing officials that happen to be his personal friends, or the market."

Many political analysts say that Mr. Khodorkovsky's real sin was political. Russia will hold parliamentary elections in December, and the tycoon and his allies had been pouring millions of dollars into parties opposed to the Kremlin. Mr. Putin himself is running for re-election next March, and while no one believes he could lose, Mr. Khodorkovsky's donations could have made it more difficult for him to prevail in the first round of voting.

"Putin wants to show Khodorkovsky who is in charge," said Boris E. Nemtsov, leader of the Union of Right Forces, a political party. "He wants the oligarchs to be afraid."

Mr. Khodorkovsky's move into politics violated an implicit agreement between Mr. Putin and the tycoons who grew rich from the lawless privatization of the 1990's. The president agreed not to inquire into the origins of business fortunes on the condition that these oligarchs would stay out of politics.

Two who made their money in the media, Vladimir A. Gusinsky and Boris A. Berezovsky, refused to play along, and both now live abroad. In the fight, Mr. Putin muzzled free news organizations. But there was little sympathy in Russia for the two men, who had used their television stations to promote their commercial interests.

Since the July 2 arrest of Mr. Khodorkovsky's close business associate, Platon Lebedev, on charges of fraud, the authorities have begun seven investigations into people or companies affiliated with Mr. Khodorkovsky. That has sliced $7 billion off the value of his oil company, Yukos.

The raids have sent a chill through Russia's political and business elites. It is not that people think Mr. Lebedev, who is charged with violating a privatization contract in 1994, was wrongly accused. The state's property sell-off was so tainted that all of the tycoons could fairly be accused of similar crimes, many of them believe. The concern, instead, was that any one of them could be next.

"When government can jail someone on its own personal initiative, that's scary," said one tycoon. "Everyone is thinking: `This could happen to me. Tomorrow they could arrest me because I crossed the street in the wrong way.' "

That fear has serious implications for Russia's recent economic revival. The tycoons, for all their sins, had in recent years begun to overhaul Russia's sagging, Soviet-era industries. After years of funneling profits and assets abroad, Russian businessmen started to reinvest. Tycoons like Mr. Khodorkovsky hired foreign managers and began to tap into international capital markets. The revival was so robust that even foreign companies were persuaded to invest.

New uncertainties about property rights could destroy this new-found trust, Mr. Nemtsov said. "Putin has started to play a dangerous game," he said. "But in the end, he must choose. Either it's economic growth or a long fight over privatization."

Weak property rights are at the heart of Mr. Khodorkovsky's struggle. Property owners here safeguard their claims by forging friendly relations with those in power. When the network shifts through new elections, even rich and powerful businessmen have trouble defending themselves.

Mr. Putin denies any role in the attacks, but few here believe him. Two other tycoons said in interviews that they were certain that Mr. Putin gave the order for the crackdown. Others said that Mr. Putin merely allowed the investigations to take place and that they got out of control.

Gleb Pavlovsky, a political adviser to the presidential chief of staff said, "Everyone knows that the prosecutor could not make this decision without the support of some group within the president's entourage."

The question now is how far will the crackdown will go. It is likely to strike a chord with ordinary voters, many of whom are poorer, or feel poorer, than during Soviet times and despise Russia's tycoons for getting rich in the corrupt property sell-off.

In Moscow over the past two weeks, most just watched -- and wondered -- over the events. "Things were going too well," said Dmitri Volkov, senior editor for Otechestveniye Zapiski, a bimonthly literary journal in Moscow. "That's bad for Russian politics."