washingtonpost.com Two Visions for Russia And One Battle of Wills Oilman Has History of Defying Putin
By Susan B. Glasser and Peter Baker Washington Post Foreign Service Wednesday, November 5, 2003; Page A01
MOSCOW -- Mikhail Khodorkovsky didn't have to be subtle. He was Russia's richest man, a billionaire eight times over. So last spring, when he decided he wanted the country's oil production law changed, he simply refused to take no for an answer.
His lobbyists swarmed over the State Duma, the lower house of parliament. He channeled millions of dollars to a wide collection of political parties, according to lawmakers, and many critics asserted publicly that some funds ended up in the pockets of individual lawmakers.
During floor debate, a lawmaker was interrupted while speaking for the legislation when another passed him a mobile phone. Khodorkovsky's team was on the line with instructions on what to say. The Duma speaker, Gennady Seleznev, a former Communist, later told President Vladimir Putin about the incident, according to a source. "Putin was extremely angry," the source said.
Within months, Khodorkovsky would feel the force of Putin's anger. The fight over oil production legislation proved just one more step on a collision course between Russia's richest man and its most powerful man. For a president whose guiding philosophy was "managed democracy," Khodorkovsky was becoming unmanageable.
In the 10 days since Khodorkovsky's arrest on charges that he bilked $1 billion from the government, Putin has faced the most serious political and economic crisis of his four years in office. Russia has been consumed by debate about the country's commitment to the rule of law and about the rising influence of the fellow KGB veterans Putin has brought into the Kremlin.
The confrontation is a story of two men with starkly competing visions for Russia, each willing to risk a full-blown crisis and unwilling to share power no matter the consequences. The conflict could lead to Khodorkovsky challenging Putin for the presidency in next March's election, according to a source close to the situation.
Their confrontation ended a truce that Putin brokered with Khodorkovsky and other tycoons, known as oligarchs, after taking office in 2000. Khodorkovsky chafed at the political limits Putin imposed on business leaders and, during the past 18 months, defied the president time and again. He intervened in foreign policy with plans to send oil to the United States and China, clashed publicly with Putin over corruption and funded opposition political parties that branded the president a dictator in the making.
According to some members of the Khodorkovsky camp, he made particular enemies of a few influential KGB veterans in the Kremlin by exposing a rigged state purchase of an oil firm.
Perhaps the most offensive move, in Putin's view, was a secret plan to change Russia into a parliamentary political system with Khodorkovsky as the powerful new prime minister. Sources close to Khodorkovsky confirmed that he floated the idea, which would require constitutional changes. It was so daring that many Moscow insiders could not believe that he and his team would have been foolish enough to back it.
"They were going around saying, 'We can do whatever we want,' " said one of Khodorkovsky's chief allies, who spoke on condition of anonymity. "Putin simply wanted to demonstrate who's the boss here."
Today, Khodorkovsky sits in a four-man cell in one of Moscow's most notoriously overcrowded prisons, eating fish soup for breakfast. His company, YukosSibneft, has lost $7 billion in market value, and the state has frozen 40 percent of its shares in a move virtually without precedent in post-Soviet Russia.
Putin has serious troubles too -- his closest aide has resigned in protest over the arrest. The president has been publicly opposed by his prime minister, his economic boom is in jeopardy as Russia's stock market plummets, and he has been widely criticized in the West for appearing to single out a political enemy for prosecution.
"It's definitely very personal," said one political operative who knows both men. "Yukos and Khodorkovsky had too much power. They were a threat."
Seeking Sway in the Duma
The origins of the clash can be traced to a meeting over tea in the Kremlin in July 2000, when the newly elected president summoned the top names of Russian capitalism for a get-real session. Under his predecessor, Boris Yeltsin, the oligarchs had virtually run the country and Putin was determined to stop it.
The deal was simple, he told them. Stay out of politics and the government will not interfere with your winnings from the often corrupt privatizations of the 1990s. Most agreed, suitably intimidated as they watched Putin run the two who didn't, media moguls Boris Berezovsky and Vladimir Gusinsky, out of the country.
But Khodorkovsky was different. Though strangely shy in public settings, the former Communist youth leader was not easily intimidated. He had employed ruthless tactics to build his own bank and take over the state's Yukos oil company in an auction that the state had hired him to organize. During his rise, he cut out minority shareholders, defaulted on foreign loans and sued regulators who dared to interfere.
Long before his 40th birthday, he had amassed an $8 billion fortune and decided it was time to clean up his image. He began courting Western investors, reforming his business practices and giving large sums of money to charities. Celebrated abroad, he became, as one analyst put it, "Mr. Russian Oil."
At home, he began approaching a broad range of Duma party leaders in April 2002 with a project, according to sources. He would pour tens of millions of dollars into their party accounts in advance of the Dec. 7, 2003, parliamentary elections. Many agreed, and he gave millions of dollars to Yabloko and the Union of Right Forces, the two most progressive parties, as well as Putin's party, United Russia. Several of his partners planned to run on the Communist and United Russia party lists.
Khodorkovsky wanted to assemble a bloc that would give him sway in the Duma, the sources said. Until his arrest, he had thought he could never be elected president because he is Jewish. Therefore, the sources said, he would change the system. "He was speaking openly that he would be prime minister in this system," said one person who discussed it with Khodorkovsky. "His team is crazy. They started talking about it openly."
Word got back to Putin, according to insiders. However unlikely the idea might have been, the Kremlin took it seriously. Putin does not tolerate much open opposition. His team has shut down television stations, stripped power from regional governors and removed rivals from election ballots.
A Lecture and a Reply
This February, Putin summoned Khodorkovsky and other oligarchs to the Kremlin. Instead of acting politely deferential, the oilman gave his host a lecture. "Corruption in the country is spreading," Khodorkovsky told the president in a session later shown on Russian television.
He quizzed Putin about a deal in which state-owned Rosneft oil company was buying the smaller Severnaya Neft for $600 million, a price that he contended was excessive. The implication was that the reason for the high price might be that someone was improperly benefiting from the deal.
Putin responded with a rare show of public anger. Yukos, he reminded KhoAfter his
two year stint in the army, Kirienko worked as a foreman at the Krasnoye
Sormovo shipyard. Later, he was elected secretary of the local Komsomol (Young
Communist League) committee, and was soon appointed first secretary of the
Gorkii regional Komsomol committee. In the late 1980s, Kirienko became the
director general of the AMK youth concern.ble for at least half the party's budget, a source said. Some politicians and analysts estimated that Khodorkovsky steered as much as $100 million to the parties.
Khodorkovsky's team has said the contributions were cleared with the Kremlin. But by talking about them so openly, Khodorkovsky broke the no-politics pact yet again, Kremlin insiders said. The unspoken rule is "to do it illegally -- all the big companies without exception pay money to political parties. But people do not like to talk out loud about it," said Gleb Pavlovsky, a Kremlin political consultant. "Yukos violated this taboo."
Over the next few months, Khodorkovsky launched his campaign in the Duma against oil production-sharing agreements, a type of deal foreign companies often prefer when they do business in Russia. Khodorkovsky has argued that they are not needed in Russia; Yukos would stand to get more business with their demise. The Duma eventually scaled back the system.
He also bucked the Kremlin by backing the United States in the war with Iraq and sealed his own oil deal with China promising construction of a new pipeline, even though pipelines are the province of state-owned Transneft.
Now both Rosneft and Transneft were furious with Khodorkovsky, as were some legislators and Kremlin officials, insiders said. According to the Khodorkovsky camp, some aides stoked the fire by feeding Putin false intelligence reports. "They created the impression that Khodorkovsky was taking on the president, that he was disrespectful, that he considered himself on par with the president," a source allied with Khodorkovsky said.
In the faction-ridden Kremlin, the situation soon became part of a broader struggle among presidential aides. "There is a very serious internal discussion among Putin's elite about the future development of the country," Pavlovsky said, adding that the KGB faction believes "the president must take power beyond the political and business elites."
Soon that faction, led by KGB veterans Viktor Ivanov and Igor Sechin, found a way to voice its sentiments in public. Stanislav Belkovsky, a political consultant with close contacts in the Kremlin, caused a sensation in May with a report warning that oligarchs were preparing a coup d'etat to make Khodorkovsky prime minister. "We considered it a danger and threat to the Russian state," Belkovsky said later in an interview.
Putin used the report to send a message. According to sources, Kremlin officials arranged it so that the first questioner at a news conference a month later would ask about Belkovsky's supposed "oligarchic revolution." Putin answered that Russia should not "allow individual business people to influence the political life of the country in their own corporate interests."
"Those who disagree with this principle," Putin added, should remember that others had tried and failed, a reference to Berezovsky and Gusinsky. "Some are gone forever and others are far away," Putin said ominously.
Khodorkovsky ignored the hint, and the government came down hard. On July 2, prosecutors arrested one of his closest partners, fellow Yukos billionaire Platon Lebedev, on charges of fraud involving a decade-old privatization deal.
Khodorkovsky responded with a strategy of maximum public confrontation. All over the country, Yukos put up billboards. "We're Together," they trumpeted. On the company's Web site, a new feature appeared: "Target Yukos!" In interviews, Khodorkovsky took an increasingly strident tone against the Kremlin, at one point saying Putin might return to the "stagnant swamp" of Russia's "totalitarian" past.
Privately, Khodorkovsky tried to find a negotiated solution. He called a longtime adversary, Alexander Dubrovinsky, and asked him to contact prosecutors to see if compromise was possible. In reaching out to Dubrovinsky, Khodorkovsky selected a lawyer who had sued him several times but who might have more credibility with prosecutors.
" 'If they lay down all their cards, I'll lay down my cards,' " Dubrovinsky recalled Khodorkovsky telling him. He went to prosecutors, he said, but the effort failed. "They were not willing to put down their cards."
Khodorkovsky appeared to grow fatalistic. He knew he could leave the country and escape prosecution, as Berezovsky and Gusinsky did. But he refused to go. On Oct. 11, he met with some of his attorneys. He knew what was coming and, according to attorney A. John Pappalardo, declared himself ready.
"He said, 'There are worse things than going to jail.' "
Two weeks later masked commandos stormed aboard his private plane in Siberia and hauled him off to prison.