I had the opportunity to meet Russian oligarch Mikhail Khodorkovsky in person several times near the end of 2002 and in the first half of 2003, at the height of his success and the beginning of his downfall. He was pleasant company and appeared to me to be a very intelligent person and quite self-contained rather than impressing his position.
Then-Russian president Vladimir Putin was present at all of those meetings and there was no sign whatsoever of any hatred between them or even animosity. Their conversations were very businesslike and to the point; they shook hands, didn’t hesitate to smile and applaud one another. Such was the case, for example, when in the first half of June 2003 Khodorkovsky donated $100 million to the Russian university system.
Nevertheless, the rift that emerged in the following months and years didn’t come as a surprise to me. Khodorkovsky was a far more complex person than he appeared, and the other sides to his character were not evident. His actions and deeds were part of the socio-political mechanism of Russia in the 1990s, in which there was an almost complete absence of morals and law.
Komsomol, banker, billions
A very good colleague of mine, a lawyer from Lichtenstein and in his time also a prominent state official, pointed out several of Khodorkovsky’s traits, based on personal experience. Sometime in 1988, four Russians approached him with a request to establish a company in Lichtenstein, which they wanted to use to export Russian furniture. One of them was Khodorkovsky, who at the time was the head of the Center for Cross-Sector Science and Technological Programs (MENATEP) of the Moscow Komsomol (the Communist Union of Youth).
Their Lichtenstein firm wasn’t involved in the export of furniture and never dealt in anything material. From the outset, the firm functioned as a front for the transfer of “Komsomol money” from the Soviet Union. When it emerged that it was basically a criminal operation — and moreover when one of Khodorkovsky’s three associates disappeared without any explanation — my acquaintance immediately broke off all contacts with Khodorkovsky and stopped representing the firm.
According to my colleague’s account, Khodorkovsky very quickly realized how to make easy money, and he had no qualms with the moral or legal/criminal aspects. It was state money and the state was “communist” after all; he wasn’t at all concerned that the money wasn’t his and that he had acquired it illegally. The fact that other Russian oligarchs founded their fortunes in a similar manner surely cannot serve as an argument that they shouldn’t or couldn’t face criminal charges.
This money and other finances acquired in a similar manner served as the startup capital for Khodorkovsky’s business. And he didn’t hesitate to call the bank that he founded with this money MENTAP! The fact that other Russian oligarchs, albeit less famous today, founded their fortunes in a similar manner surely cannot serve as an argument that they shouldn’t or couldn’t face criminal charges.
Khodorkovsky rose to prominence in the same unscrupulous, unethical and immoral way at the beginning of the 1990s during the privatization of state firms. He bid in a whole series of tenders from which he acquired huge assets for which he paid just a small fraction of the real value. Given how intelligent and how well-educated he is, there’s no doubt that Khodorkovsky was fully aware of the wrongdoing of his activities.
One of the cases that was investigated was the privatization of the Apatit enterprise. The well-known chemical manufacturer with huge property assets was sold in a Dutch auction (i.e., it was sold underpriced). Six or seven firms placed offers and it was sold for under $50 million, whereas the original asking price was $250 million. It transpired from the investigation that all the firms that bid belonged to Khodorkovsky, and that the same people were in the statuary organs of all those companies.
There were hundreds, maybe thousands of such auctions and all of the participants acted in the same, or a similar way. But is that a reason for the law not to be applied — albeit with a delay and possibly selectively— for such fraudulent conduct? The participants must have proceeded with full knowledge of this risk. However, such conduct became the norm in “business” in Russia in the 1990s, and thus they ceased to view it as illegal and ignored the risks.
Khodorkovsky was uncompromising
In February 2003, Khodorkovsky signed a contract with Roman Abramovich to buy his oil firm Sibneft and merge it with his own oil company, Yukos, which by then had already become the largest Russian oil company. Following the merger of the two companies, Khodorkovsky and his partners (by then just two, Platon Lebedev and Leonid Nevzlin) became the owners of more than 40 percent of extractable oil reserves in Russia. At that time, intense negotiations were taking place with American partners on their entry into Yukos.
There was also the fact that having become a giant company whose activities were dependent on foreign custom, many foreign professionals worked in the company (in extraction, trading and also accountancy). Many Russian employees completed courses and training in leading American and British universities and top companies. But this was certainly not because Khodorkovsky had decided to do business correctly and fairly, as many journalists now claim. It was an objective requirement, all the more so because Americans were due to become shareholders in the company.
And it was this fact that could not escape the attention of representatives of state organs. Khodorkovsky was warned repeatedly that he could not sell a majority stake in the firm to Americans or put them in charge of the management. It was the head of the tax authority of the Russian Federation who informed me about this decisive moment. Khodorkovsky didn’t take the warning seriously and insisted on the sale of a majority stake to foreigners. This presented a real threat to Russia’s strategic interests.
Readers from the Czech Republic, Germany, the US or Australia may well retort that, since it was his firm, he could do what he liked with it. But such issues were (and still are) resolved in an altogether simpler way with the privatization of “strategic” companies in the Czech Republic: It was simply decided that such firms were (and are) forbidden fruit for subjects “from east of Břeclav.”
It’s sure that if any minister went against this decision and decided to sell any such firms to Russians (if legally possible), he would face legal proceedings. Just take, for example, the hysteria and “strategic prattle” in the Czech Republic over the expansion of Temelín nuclear power plant. And that belongs to ČEZ, which is majority-owned by the state, as is the transmission network, while the energy market in Europe is fully liberalized.
What were the representatives of the Russian state to do in such a situation when presumably other owners of strategic natural resources and sectors —coal, iron ore, metallurgy for example—could follow suit? Mikhail Khodorkovsky was warned that such a sale would be unacceptable. When he remained adamant, a proposal was put to him to keep the money he had in his companies abroad (to which — just like the other entrepreneurs/oligarchs in natural resources and metallurgy — he sold oil below world market prices and they then sold to end customers at the market price) and sell Yukos and Sibneft to state-owned Gazprom.
Khodorkovsky rejected the offer. Abramovich, on the other hand, immediately announced that his deal with Khodorkovsky signed in February 2003 was invalid and cancelled the transaction worth $11.5 billion.
The final “warning” was the arrest of Platon Lebedev in July 2003, but not even this convinced Khodorkovsky of the seriousness of the situation and the decision by the state (here we can say Putin), to intervene. At that time not only was he warned that over years (the “pre-Putin” years, it should be said) he had committed crimes for which he could be punished, a major tax inspection was conducted in his major companies. He didn’t take heed and he was arrested on Oct. 28, 2003.
Russia’s future was at stake
The stand-off between Vladimir Putin’s government and Mikhail Khodorkovsky was on a knife’s edge. But the stand-off was not just with Khodorkovsky. Arkady Volsky (once labeled the boss of the oligarchs) told me about several meetings of the bosses of the leading natural resource and metallurgic companies where they discussed how they should react to the situation that had arisen. They came to the conclusion that a conflict with Putin would result in total chaos, not only in Russia but also on global markets and Russia would be the loser.
It must be taken into account that the overwhelming majority of the so-called oligarchs are in mineral resources and metallurgy and that the export of those resources from Russia has a major influence on world demand. Nevertheless, a hiatus in exports would first and foremost have a catastrophic impact on the Russian economy and whole regions of Russia.
In this respect, one can agree with the continually repeated thesis that “….the cause of the dispute between Putin and Khodorkovsky was the oligarch’s attempt to influence politics.” Nevertheless, I’m convinced that that was only a consequence of the situation that emerged in the 1990s under Boris Yeltsin when the privatizations — more accurately “stripping” of the strategic parts of the economy — took away the means for any form of future political leadership in Russia to influence the economy, politics and strategic interests of the country more intensively. The extraction of raw materials and their primary processing fell into the hands of just a few dozen individuals who, according to the law, could do what they liked with their companies and sell them to who they liked.
Each Russian president (irrespective of name) and every government had to find a modus vivendi with the leading oligarchs. They had to find a way how to return the main sectors of the economy, the privatization of which weakened Russia’s political significance and strategic position in the world, under at least partial state control, while at the same time leave the owners of the strategic sectors “in peace” to conduct business. The Khodorkovsky case was simply a result of necessary action. Khodorkovsky is neither innocent, nor a victim of the will of President Putin. His trial is not a trial as such, but a fight for his human rights.
In the Khodorkovsky case, the Russian state and judiciary without any doubt purposely exploited his illegal transgressions in order to set the ramifications for the coexistence of the state executive power with the oligarch owners of strategic natural resources and branches of industry. As such, it was probably the only opportunity how to gradually put the Russian economy and socio-political system on its feet without threatening the existence thereof—including the very existence of Russia within its current borders — following the economic and social chaos of the 1990s.
Khodorkovsky is neither innocent, nor a victim of the will of President Putin. His trial is not a trial as such, but a fight for his human rights. The legal system in the US for example, would almost certainly have sent him to jail for many more years for his deeds as was the case with Bernard Madoff, for example. And they would have tried him immediately and much quicker because they would have only considered his criminal deeds.
Nevertheless, it’s evident that the course of both of Khodorkovsky’s trials, the way they were conducted and also the way in which the essence of the crimes was substantiated must be placed within the context of contemporary Russia and the country’s recent past. Khodorkovsky is definitely guilty and Putin could not remain completely innocent.