Analysis: punished for his political ambitions

Jeremy Page, The Times' Moscow correspondent, explains why the Kremlin sought to destroy the Russian oil magnate Mikhail Khodorkovsky.

"The 11-month trial of Mikhail Khodorkovsky reached its climax today after the judge began to deliver the verdicts against the founder of the Yukos oil empire.

"He was one of a dozen businessmen who used their connections in the Kremlin to buy the crown jewels of state industry at way below market value, in a series of questionable privatisation deals after the Soviet Union's collapse.

"The former Communist Party activist bought Yukos's oil and gas fields for $350 million in 1995 in an auction arranged by his own bank, Menatep. Within less than a decade, the company was worth $40 billion and Mr Khodorkovsky was Russia's richest man, with a personal fortune of $15 billion.

"The dismantling of his business empire sends a powerful message to the men who pulled off similar deals, including Roman Abramovich, the owner of Chelsea Football Club, who founded the oil giant Sibneft. In the late 1990s they became known as the 'oligarchs' because of their fabulous wealth and enormous influence in the Kremlin under President Boris Yeltsin.

"At the time, Kremlin officials argued that the State needed the cash to pay salaries and prevent the Communist Party from making a comeback. The oligarchs' companies would become the new pillars of post-Soviet industry, they said. Yet soon the oligarchs became notorious for their lavish lifestyles. They outmanoeuvred minority shareholders and business partners and directed billions of dollars offshore.

"When Vladimir Putin became President in 2000, he resolved to rein in the oligarchs and reassert the Kremlin's authority over big business. He struck an unofficial deal with the oligarchs not to interfere, as long as they paid taxes and did not meddle in politics.

"The first two to fall foul of Mr Putin were the media barons Boris Berezovsky and Vladimir Gusinsky. When they refused to reach an agreement, they were stripped of their businesses and forced into exile.

"Next was Mr Khodorkovsky. He angered Mr Putin by funding opposition parties and hinting at running for President. Last year Russian prosecutors and tax police began a legal assault on Yukos, which culminated in a bill for $27.5 billion in taxes that they said the company had avoided illegally.

"Mr Khodorkovsky was arrested at an airport in Siberia in October 2003 and charged with tax evasion and massive fraud. He faces up to ten years in prison if convicted.

"Foreign investors and governments were shocked by Mr Khodorkosky's arrest, as he had turned Yukos into Russia's best-run company by hiring Western managers and introducing Western standards of corporate governance. However, the move played well with the Russian public, who see the oligarchs as thieves who robbed the country of its natural wealth.

"The Kremlin has always denied that the case is political, but it has issued a warning to the oligarchs that the rules of business have changed. They are expected to repay taxes that they had avoided through legal loopholes, and to pour more money into social projects of the Kremlin's choosing.

"The remaining oligarchs have fallen into line, with some making high-profile 'patriotic' investments. Mr Khodorkovsky remains defiant, but the price he is paying is clear to all."

(From The Times, 5.16.2005)