The Kremlin Strikes Again

First there was Gusinsky; then came Berezovsky; now it’s Khodorkovsky’s turn to face the Kremlin’s fickle wrath. The list of media moguls and industry titans that Russian President Vladimir Putin has tried to arrest continues to grow. This time it looks like Putin is after the brass ring—Mikhail Khodorkovsky, Russia’s richest man and owner of OAO Yukos, the fourth largest oil company in the world. As in earlier arrests, the Russian government claims that the oil tycoon violated regulations during the fast-and-loose privatization of Russian industry in the 1990s. And, as in earlier arrests, the decision to prosecute has little to do with tax evasion or fraud.

Certainly, violators of Russian law should be prosecuted fairly and uniformly. Just because Khodorkovsky controlled a large portion of the Russian oil industry is no reason to grant him carte blanche to defy the law. But the timing of the industrialist’s arrest—he has been more critical of the Kremlin of late and appeared to be considering a presidential run—and Putin’s demonstrated penchant for strong-arm politics make it impossible to believe that Khodorkovsky is sitting behind bars right now because of tax evasion. Indeed, if anything, Khodorkovsky has done more to promote responsibility and transparency in Russian industry than any other industrialist in the country. Most Western observers consider him the model Russian businessman—he adopted a responsible Western-style business strategy long before transparent corporate governance was popular in Russia.

But by now, Kremlin persecution of Russia’s powerful oligarchs has become routine: An obscenely rich Russian criticizes the president, often on his own TV station; Putin sends ski-masked officers from the Federal Security Service—the successor organization to the KGB—to confiscate assets and arrest the upstart; and the oligarch either escapes abroad—usually to London—or languishes in prison until he accedes to the president’s demands. Khodorkovsky hasn’t gotten past the languishing-in-prison stage, and, unlike his predecessors, it looks as though he will stand and face the trumped-up charges against him without swearing fealty to the president. For the crime of challenging Putin, Khodorkovsky could spend the next decade or so in jail.

Khodorkovsky’s likely imprisonment is not just a tragic prospect for Russia’s wealthiest individual. Russia will lose its most trusted entrepreneur, which will make foreign investors more cautious. It has taken years for the Russian economy to buck the perception of dysfunctional cronyism; the latest ham-fisted attack on the most prominent Russian industrialist—and its seizure of 44 percent of Yukos—only makes the business climate more unpredictable and unattractive. Indeed, capital has once again started to flee from the country, and it now looks as though an anticipated merger of Yukos with Exxon Mobil is on the ropes.

Putin’s latest power grab also throws Russia even farther off the path toward liberal democracy. Though the government threw up a shoddy facade of legality, every time the Kremlin goes after a political enemy for tax evasion, it chips away at the impartial rule of law. If the president wants to purge Russian industry of those who took advantage of privatization, he should go after all of the profiteers. But Putin would never do that—it would upset too many investors, foreign and domestic. Instead, he just waits until the oligarchs start to speak up. So in Russia, for the time being, justice is not blind—it has 20-20 vision.