#3 - JRL 7247
July 15, 2003
Illarionov Raises Fear of Civil War
By Valeria Korchagina and Lyuba Pronina
Weighing in on the Yukos affair, presidential economic adviser Andrei Illarionov came out Monday on the side of big business and issued the gravest warning yet of the dangers of undoing the privatization deals of the mid-1990s.
"If we start now to revisit privatization, it will not be easy to stop this process, and it is not inconceivable that such action will lead to a new civil war," Illarionov said on Ekho Moskvy radio.
"It is not difficult to open a Pandora's box, but it will be very difficult to shut it," he said.
Big business is worried that the attack on Yukos, which began with the July 2 arrest of Yukos shareholder Platon Lebedev on charges of theft of state property in a 1994 privatization, indicates an intention by at least some within the Kremlin to re-examine the results of other long-ago privatizations and challenge property rights.
During a Kremlin meeting Friday with State Duma faction leaders, some Cabinet members and the head of the Russian Union of Industrialists and Entrepreneurs, or RSPP, the main lobbying group for the oligarchs, President Vladimir Putin gave little indication of where he stood on the growing investigations against the owners of Yukos.
RSPP head Arkady Volsky handed Putin a letter from the oligarchs' group asking him to defuse the attack on Yukos.
Boris Nemtsov, the leader of the Union of Right Forces, said after the meeting that he was worried by Putin's silence on privatization.
On Monday, Putin told Cabinet ministers they need to respond to the concerns expressed at Friday's meeting, but publicly at least he continued to sit on the fence.
"I consider it necessary to react to the concerns that were voiced by some of the participants of the meeting, including by representatives of the business community. We will talk about it separately," Putin said in televised remarks at the start of the Cabinet meeting.
Economic Development and Trade Minister German Gref already has spoken out, saying more than once that there are no plans in the government or in the president's team to revisit privatizations.
Illarionov, who is known for speaking his own mind without necessarily reflecting Putin's views, said Monday that in his opinion it would be best to decide on a date before which privatizations deals would not be revisited. He said it would be better to start afresh, with everyone held in accordance with the law from that point on.
"It is because either you have to review all the deals, which will just lead us to a national catastrophe and this is no exaggeration, or if you don't review all the deals, then it is an example of a selective approach, of double standards," he said in the radio interview.
Lilia Shevtsova, a political analyst with the Carnegie Moscow Center who has written a book on Putin's presidency, said it is not Putin's style to immediately make a decision.
"I believe that at some point Putin will deal with the situation. But the case is an important sign that determines the limits that the regime is putting on big business: not only not to interfere, but not to think about alternative rules of the game," Shevtsova said by telephone Monday.
"[Yukos CEO Mikhail] Khodorkovsky is the only oligarch who has very consistently begun not to think about what the president is doing and has started to think about alternative rules of the game."
Shevtsova said the Yukos case was being watched closely in the West. "It is a sign as to whether there will be a redistribution of property and to what extent the court system, the prosecutors are instruments of the Kremlin and not independent. It's a litmus test."
Yukos' lawyers on Monday accused the Prosecutor General's Office of acting illegally during its 17-hour search of the company's archives Friday.
"We consider this an escalation of illegal pressure on the company," Dmitry Gololobov, deputy head of Yukos' legal department, told journalists.
While the search warrant that was flashed to Yukos' lawyers appeared to say that investigators were looking for documents related to the case against Lebedev, they seemed intent on looking into the activities and equipment of Yukos' security department, he said.
On Monday, the prosecutor's office said guns and eavesdropping and surveillance equipment were found during the search. This was confirmed by Yukos lawyer Albert Mkrtychev, who appeared with Gololobov at a news conference, but he said the guns were imitations used for training.
In confiscating the guns, however, investigators listed them simply as Makarov pistols, and Mkrtychev said he was worried they would appear in the investigation records as real guns.
Illegal weapons possession is one of the simplest charges to bring against a suspect, and convictions can result in prison terms.
Gololobov said Yukos' security service is fully licensed and in compliance with the law.
He also said that 20 to 30 videotapes were seized during the search, but investigators did not record the content of the tapes. "And what will happen now if scenes of mass murder turn out to be on the tapes," Gololobov asked, hinting at possible evidence falsification by investigators.
The Prosecutor General's Office said the search was conducted in accordance with the law.
"It has to be noted that investigators never wear masks and do not break in toting guns," spokesman Vasily Glushchenko said in televised remarks.
Yukos' lawyers, however, said company guards were told to lie face down on the ground when investigators arrived Friday. And photographs of the raid show the investigators were accompanied by armed men in masks.
The Yukos lawyers said that they would file a legal complaint alleging procedural violations during the search.
They got some support from State Duma Deputy Alexei Melnikov, a member of the Yabloko party, who forwarded two inquiries to the prosecutor's office Monday questioning the legality of Friday's search.
The Prosecutor General's Office said Monday that it was looking into another request from a Duma deputy to investigate allegations of tax evasion by Yukos.
The letter from Communist Deputy Nikolai Daikhes alleged that a tax evasion case against Yukos was illegally closed by the Tax Police in the Urals Federal District. This is the second appeal to prosecutors from a Duma deputy alleging tax evasion by Yukos.
The Prosecutor General's Office also said Monday that its staff has confiscated a number of documents from Apatit, the fertilizer plant at the core of the case against Lebedev.
The documents, which were handed over voluntarily by Apatit management, include information on shareholders and finances, Interfax reported, citing an unnamed source.
Sergei Mironov, the head of the Federation Council, said Monday there was no need to put Lebedev in prison. "Lebedev is not a murderer who is dangerous to society. ... There is no need to jail a person since it is not clear whether the person will be convicted after all," he said, Interfax reported.
Mironov also said that Lebedev's case is damaging Russia's image and economy.
To illustrate his point that the Prosecutor General's Office was taking a selective approach in investigating Yukos shareholders and searching Yukos offices, Illarionov did not miss a chance to take a dig at his favorite villain, Unified Energy Systems CEO Anatoly Chubais.
In the past two weeks, Yukos' capitalization has dropped 20 percent for a loss of $5.5 billion as a result of the actions by the Prosecutor General's Office, he said.
"But we have another example with UES management, whose activities led to the share price dropping 60 percent and losses amounting to $11 billion," Illarionov said.
Whereas the damage to Yukos has affected only private shareholders, the losses at UES also have hurt the state, which has a controlling stake in the electricity monopoly, Illarionov said. He put the state's losses at about $6 billion.
"But the Prosecutor General's Office did not take any action and there is no ongoing investigation into it," he said.
UES spokesman Andrei Trapeznikov said Illarionov's comments "did not correspond with reality" and accused him of misinforming the investment community, Interfax reported.