The Arrest That Proved a Turning Point

By Catherine Belton
Staff Writer

Former business partners of Mikhail Khodorkovsky will remember the day of his arrest three years ago Wednesday as a turning point toward state control.

But Khodorkovsky himself will spend the third anniversary of his Oct. 25 arrest meeting with lawyers and packing goods at his Chita region prison camp.

The nation's former richest man will spend the day as usual with a wake-up call at 6 a.m. from his bunk in the bleak barracks of prison camp Yag 14/10 in the uranium-mining town of Krasnokamensk. He will pack goods for most of the day and then talk for four hours with his Moscow lawyer, Anton Drel.

Drel, who also met with Khodorkovsky on Tuesday, said his client's physical condition looked to be worsening. "I did not see any serious change in his character over these three years," Drel said by telephone from Krasnokamensk. "But I can't say he looked good. He looks worse and worse. He is very pale."

As Khodorkovsky appears to be weakening, the man he once challenged, President Vladimir Putin, is at the height of his powers. Putin will go live on television Wednesday to field questions in a phone-in show.

The Kremlin's legal attack has routed Khodorkovsky's Menatep business empire and sent his business partners either to jail or scurrying into exile in Israel or London in fear of arrest. His empire, once worth more than $30 billion, lies in ruins with Yuganskneftegaz, Yukos' former main production unit, now in state hands. The rest of the company will go under the hammer in bankruptcy proceedings.

The Kremlin has sought to portray the onslaught as a justified attack on a corrupt empire over financial crimes, while critics claim it is political retribution for the challenge Khodorkovsky posed to Putin's hold on power.

Khodorkovsky's dawn arrest at gunpoint on a Novosibirsk runway led to a huge shift in the way the country was run. In the wake of Khodorkovsky's arrest, Putin radically sped up his drive to consolidate power and clamp down on opposition. At the same time, the state has renationalized swathes of the economy, and enabled other key industries to be consolidated into national champions headed by Kremlin-friendly tycoons.

"The arrest let the genie out of the bottle. The state has taken control of everything," said Alexander Temerko, a former Yukos vice president and a Khodorkovsky ally for nearly 20 years. "The level of political and economic freedom has been radically curtailed."

"The arrest was a turning point for the expansion of the state. As a result, we have moved from having a market economy to having a half planned economy based on the state," said Vladimir Ryzhkov, one of the few independent deputies remaining in the State Duma. "After the Yukos affair and the arrest of Khodorkovsky, the country has ... turned to a system of state capitalism.

After state oil firm Rosneft took over Yuganskneftegaz via a bargain auction in December 2004, Gazprom followed suit a year later to take over Roman Abramovich's Sibneft. As the holdings of the state in the oil sector have climbed from 4 percent of output to more than one-third, the state has moved to bring other sectors of the economy under its control, such as carmaker AvtoVAZ and VSMPO-Avisma, the world's biggest titanium producer. Now foreign oil ventures, including the Shell-led Sakhalin-2 venture, face pressure to hand over more control of projects to state energy companies.

Khodorkovsky's arrest came three weeks after he signed a protocol of understanding with ExxonMobil to sell a significant chunk of his shares in Yukos, Temerko said.

"It was also a turning point in the behavior of business, Ryzhkov said. "If before business could support the opposition because this was the norm in the 90s, after the arrest business came to understand that the condition for staying in business is absolute loyalty to the Kremlin."

"The arrest also created an atmosphere of fear. Now anything is possible," he said. "Everyone is frightened."

International lawyers, now representing Khodorkovsky from the safer vantage point of the United States, said Tuesday that they had documented a "campaign of intimidation," beatings, jailings and other threats aimed at silencing Khodorkovsky's Russian lawyers. They said efforts to have Khodorkovsky's lawyers disbarred last year and the jailing of other members of his legal team were in breach of the Constitution, the European Convention on Human Rights and the rule of law.

"While Khodorkovsky sits in prison he relies more than ever on his lawyers to get the message out," Sanford Saunders, a defense lawyer for Greenburg Traurig, said by telephone from Washington. "Article 48 of the Russian Constitution guarantees people the right to counsel. It is sacrosanct to any country that adheres to the rule of law. The Russian government is completely disregarding it.

"When his lawyers can't speak freely without fearing for their lives, it really does become impossible for him," said Charles Krause, a spokesman for Khodorkovsky.

While Krause has been denied a visa to enter Russia since the beginning of the year, Khodorkovsky's international defense lawyer, Robert Amsterdam, was expelled from the country last year.

Khodorkovsky's Russian lawyers have fared far worse, they said.

Mikhail Zhidkov, a lawyer representing Alexei Pichugin, the Yukos security chief convicted of organizing a series of contract killings and attempted murders, was attacked and beaten in October 2005, the U.S. defense lawyers said, while many representing Khodorkovsky faced attempts to have them disbarred following the collapse of his appeal last year.

Khodorkovsky was sentenced to eight years in a prison camp in May 2005 after a trio of judges found him guilty of large-scale tax evasion and fraud.

While other defense lawyers such as Drel and Karina Moskalenko have had their offices searched, others from Khodorkovsky's legal team have been jailed or forced to flee the country in fear of arrest.

Yukos lead counsel Vasily Aleksanyan was arrested earlier this year, just days after he agreed to head the company's Moscow office in a bid to prevent it breaking away from the company's London-based managers. Svetlana Bakhmina, a mid-ranking Yukos lawyer and mother of two children, was jailed in December 2004. Others, such as Pavel Ivlev and Dmitry Gololobov, have fled.

"This is an effort to go after anyone providing legal assistance to Khodorkovsky," John Pappalardo, another U.S.-based lawyer, said by telephone from Washington. "This is part of an effort to make this go away. It is insufficient to put Khodorkovsky in Chita and [Khodorkovsky business partner Platon] Lebedev above the Arctic Circle."