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Business Interests Fearful in Russia

November 02, 2003|Robyn Dixon | Times Staff Writer

MOSCOW — Mikhail Khodorkovsky, the billionaire head of the Russian oil giant Yukos, recently described himself as having three lives: first as a credulous Communist youth leader, then as an unethical businessman who rose fast and cut out small shareholders, and finally as an honest tycoon who gave money to charity and adopted Western business standards.

Now Khodorkovsky, 40, has begun an uncertain fourth life -- in a jail cell, sipping thin fish soup and facing tax evasion, fraud and embezzlement charges.

Compared to Khodorkovsky, real estate agent Vitaly, 46, is a minor player; he prefers to leave his second name unstated in these uncertain times. Like all Russian businessmen, big and small, he is watching Khodorkovsky's fate with trepidation -- because the oil tycoon was the first entrepreneur in the nation to open his company accounts and ownership structure to public scrutiny.

"My business is about 20% legal, that is open," Vitaly said. "I was thinking about going more open than that. But now I am amazed at myself. How could I have been so dumb? How could I have forgotten where I live?" He was referring to Khodorkovsky's arrest and the subsequent government freeze on more than 40% of Yukos stock.

"I won't have such a fit of craziness again," he added. "I am afraid I will have to go back into the dark. The more open you are, the more questions you get from the tax police, the economic crimes department and even the fire safety inspector who comes and checks your office or shop and always gets away with a bribe."

Vitaly's gut reaction might not be rational -- the charges against Khodorkovsky relate to his activities in the mid- to late 1990s, before he cleaned up his act and opened his books in a bid to attract foreign investors. But it is an instinctively Russian response, born of the uncertainty of successive lives under socialism, free-for-all privatization and the current system that President Vladimir V. Putin terms "managed democracy."

"I hope to God that Khodorkovsky was picked out because of his political ambitions and that will be the end of it," Vitaly said. "But something tells me that this is not the end and we should be ready to expect the worst. In Russia you always expect the worst from the authorities."

Vitaly's reaction illustrates how the Khodorkovsky case could affect Russia's business and political climate in unpredictable ways.

In the 1990s, if you asked the size of a company's profit, the growled reply would be that it was "a commercial secret." Khodorkovsky changed that, realizing that the key to success was attracting investment from abroad.

But the events of the last week may well affect many small and medium-size businesses on the verge of opening up their books, said Mikhail Berger, editor of the liberal Yezhenedelny journal."Their reaction is simple. They are going back into the shadows with their books and their taxes," he predicted.

The move against Khodorkovsky sent alarming signals in a nation that has also recently seen the shutdown of independent TV stations and the election of Putin's favored candidates to office amid allegations of intimidation, irregularities and, in the case of Chechnya's presidential election, vote rigging.

The worries about increasing authoritarianism in Russia also coincide with the rise of the siloviki, former Putin colleagues in the KGB, whom he installed in the Kremlin and in other powerful posts. Many see them as being behind the arrest of the oil baron, who has been funding opposition candidates.

Putin's presidency has been plagued by a sense of ambiguity -- the sense that after three years, no one is entirely sure what he stands for, even when he insists on his support for a liberal market.

The Yukos case appears typical: Putin assured a meeting of foreign investors that there would be no anti-business campaign. But he also said he would not rein in prosecutors, unless they acted illegally -- leaving open the possibility that other businessmen could be jailed for offenses like those Khodorkovsky was accused of, which had been common in the 1990s. It is this ambiguity -- enough to give the siloviki maneuvering room -- that has investors trembling.

With business leaders and pro-market figures expressing strong concerns about the arrest and the stock freeze, Putin's hands-off stance sends a strong message not just to Russian business, but also to law enforcement officials all over the country, on how the government treats businessmen.

"An attack on business has just been called on, at the top federal level. We can only imagine how doggedly regional officials and power structures will respond to this call," said analyst Mikhail Delyargin, until recently a government economic advisor and now at the Moscow think tank Globalization Programs Institute.

The Bush administration has watched the developments with disappointment and worry.

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