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BusinessWeek Online
July 23, 2003
Out to Get the Richest Russian?
Pro-American energy magnate Mikhail Khodorkovsky of oil giant Yukos is under a fierce legal attack. Why? He offers some answers here

Oil baron Mikhail Khodorkovsky, Russia's richest man, now finds his handsome, 40-year-old head in a vise. And the screws are getting tighter. On July 2, federal prosecutors arrested and jailed his principal business partner, Platon Lebedev, on property-theft charges related to a 1994 fertilizer company privatization. Then Yukos, the Moscow-based oil company of which Khodorkovsky is chairman, was raided by investigators who hauled away records while armed security police in black masks kept guard. Now, prosecutors are probing possible tax violations as well as the murders of political and business figures who clashed with Yukos back in the 1990s.

Somebody, it seems, really doesn't like Khodorkovsky, even though an aide to Russian President Vladimir V. Putin denies any political motivation to the legal barrage -- which followed a public declaration by the tycoon of his intention to bankroll liberal political parties often critical of the Kremlin. Meanwhile, worried investors have been selling Yukos shares over concerns that the legal attacks could derail Yukos' growth as one of Russia's most dynamic companies and delay or even kill its planned merger with sister Russian oil company Sibneft. The government has yet to give its formal blessing to that deal (see BW Online, 5/21/03, "A Russian Oilman's Global Ambitions").

Khodorkovsky is known for his pro-U.S. views and advocacy of a strategic energy partnership between U.S. and Russia (see BW Online, 3/14/03, "A Plea to Back America"). But Washington seems reluctant to intervene. And his own countrymen appear to be enjoying his discomfort: Opinion polls indicate that most Russians still regard oligarchs such as Khodorkovsky, who obtained Yukos in a murky mid-1990s privatization auction, as bandits.

At least Khodorkovsky hasn't lost his sense of humor. When BusinessWeek Moscow Bureau Chief Paul Starobin showed up at Yukos headquarters on July 21 for an exclusive hour-long chat, he found the tycoon inspecting a small desk clock sent over as a gift by the communist-leaning, state-owned, daily newspaper Rosiiskaya Gazetta. Just checking for hidden microphones, Khodorkovsky joked. He found none.

Hmm. Maybe the clock, which was adorned with a wooden carving of the double-headed eagle, the Russian state symbol, was intended to send a message -- that his time was up? Or could it just be a simple gift? Nah. Nothing in Russia is ever that simple. Edited excerpts of the interview follow:

Q: This crisis for your business empire seemed to begin with the arrest of your partner, Platon Lebedev, on July 2. Is that right?

A: The crisis started earlier, about three months ago, when the General Prosecutor's office held a meeting at which they discussed the issue of pressing us. There were some representatives from other [government] bodies. Three weeks later, Mr. Lebedev was arrested.

Q: Was any official from the Kremlin at the meeting you're describing?

A: I won't comment on that.

Q: It sure looks like you're being squeezed. What do you think is the driving motive?

A: There are some people in law-enforcement bodies who traditionally dislike independence [from the state] in any organizations, whether they be commercial or nonprofit or political parties. They dislike huge and independent business, and they consider that their task is to bring us to heel. They don't realize that they are damaging the country.

Q: Let's suppose you're right. What do such people want from you? Do they want to take over your company, do they want your money, your property? Do they want you to leave the country?

A: I don't know in what way they want me to show my admiration for the security services. But I do know that inside the law-enforcement bodies, not everyone agrees with what is going on, and there are many people who think that in the given cases, many things contradict the law.

Q: But why are the law-enforcement people coming at you so hard? Let's leave aside your plan to fund liberal political parties. Did you do anything else that might have angered Putin or the people around him? There's street talk that you were angling to break up state-controlled Gazprom, which the Kremlin views as part of Russia's crown jewels.

A: Nobody in our country makes any large steps without consulting the government on any matters dealing with Gazprom or other major business affairs. That's why, if we decided to do anything, we would have to get government approval.

Q: So how do you get your head out of the vise?

A: The only place I can go to complain is the President. I have asked for permission for a meeting, but we haven't met yet.

Q: Do you expect to get this meeting?

A: I won't discuss that.

Q: Do you still expect the authorities to approve the Yukos-Sibneft merger?

A: The merger is occurring and will be completed.

Q: You seemed to run first to the American side for help. First you briefed the U.S. ambassador to Russia, Alexander Vershbow, on Lebedev's impending arrest. Then you attended Vershbow's American Independence Day party at his official residence, Spaso House. Then you flew to the States to attend the Sun Valley (Idaho) business powwow as a guest of former Democratic Presidential candidate Bill Bradley. And then you flew to Washington for meetings with officials including Democratic congressman Tom Lantos of California and Energy Dept. Secretary Spencer Abraham. Just what do you expect the U.S. political Establishment to be able to do for you?

A: I do not need any support from the U.S. because I am sure we will be able to solve our problems ourselves. The only thing I wanted to tell the U.S. ambassador was our position on all the issues. We have a lot of American shareholders [in Yukos], and in Russia we are a sort of poster-child company, a symbol of where the Russian economy and business culture is headed. The U.S. Secretary of Energy is interested in the prospects of advancing the Russian-American energy dialogue, and I told him that there are no serious threats to that dialogue at this moment.

Q: The opinion polls indicate that ordinary Russians are mostly enjoying your discomfort, that they want to see the hated oligarchs suffer.

A: I am not sure that many people in America like Bill Gates. There is one tactical and one strategic issue here. The strategic issue is this. If we [in Russia] continue hounding rich people and kicking them out of the country, if we always follow the wishes of our population on this, then we will not move far from our primordial cave. And we will never turn into a rich society because rich people are necessary for the success of everyone in society.

As for the tactical point, the communists will always express this [anti-rich] position more clearly than any others. And as a result, such a campaign against oligarchs will only lead to the communists getting more votes.

Q: But isn't there a basic issue of justice here? Most ordinary people in Russia believe the oligarchs stole the country's wealth. Did you do anything back in the 1990s that you should not have done?

A: I played according to the rules of that time.

Q: Were there any rules at that time?

A: Of course, there were some. Of course, those rules could have been better. Then we could have avoided some current problems.

Q: Are you planning to stay in Russia? Where are your wife and kids right now?

A: My wife is here [in Russia] with three of our children.

Q: So you're not planning to flee the country, as did the oligarchs Vladimir Gusinsky and Boris Berezovsky back in 2000 when they faced a similar kind of pressure?

A: No. I won't let [the authorities] hope.

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