THE ENFORCERS VERSUS THE OLIGARCHS: A SLUGGISH CIVIL WAR INSTEAD OF AN ELECTION CAMPAIGN

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What does the regime actually want from Mikhail Khodorkovsky? In recent days, the Russian papers have offered their readers an incredible number of possible answers to that question. And the number of further questions raised in the process is likewise incredible.

The latest issue of “Kommersant-Vlast” magazine includes a collection of quotes from Russian VIPs on the YUKOS affair. Those from the business sector were the most decided in their opinions.

Sergei Lisovsky, chairman of the board at Mosselprom: “Being summoned for questioning by the Prosecutor General’s Office is normal for business executives in Russia. Life has its ups and downs; one may go bankrupt or rise over time to a position close to the authorities. So what’s happening to Khodorkovsky now is the fate of a regular Russian entrepreneur.”

Konstantin Babkin, chairman of the board of the Novoe Sodruzhestvo industry group, says the regime’s purpose is to make Khodorkovsky renounce his political ambitions: “This move is meant to show Khodorkovsky and all other business leaders who’s the boss.”

Viktor Glukhikh, president of the International Congress of Industrialists and Entrepreneurs, says Khodorkovsky is being warned against acting in a way the regime considers overly-independent: “So that he shouldn’t follow the example of Roman Abramovich, who’s bought the Chelsea soccer club. They’re hinting to Khodorkovsky that he ought to play by the rules.”

Alexander Volovik, chairman of the board at the B-Gaz-C oil and gas company, is even more pessimistic: “The regime is testing its strength on Khodorkovsky. If Khodorkovsky can be broken, everyone else can be utterly crushed. The business sector has begun to fear what is happening in Russia.”

As expected, the politicians asked to comment were more circumspect.

Duma Deputy Speaker Vyacheslav Igrunov: “From the viewpoint of the authorities, the strongest business leader ought not to be the strongest politician at the same time. If he comes to understand that, all the problems will vanish.”

Yabloko leader Grigori Yavlinsky: “This is a political purge before the elections. Those behind this act of intimidation want to teach a lesson to all other business leaders.”

There is a perceptibly moralistic tone in the comments of people from the executive branch.

Governor Alexander Tkachev of the Krasnodar territory: “I see nothing surprising about the fact that the authorities have some questions for Khodorkovsky. To paraphrase a famous saying: You can’t do business in society and be free of society.”

This idea was followed up by Governor Vladimir Platov of the Tver region, who said the regime’s goal is to ensure that Khodorkovsky “should use his money appropriately. So that he supports the correct parties in the election campaign – not whichever parties he wants to support.”

A more global assessment of the situation was provided by Yevgeny Satanovsky, head of the Russian Jewish Congress, who said that the regime wants from Khodorkovsky “what the Americans once wanted from Rockefeller. They sought to make it clear that Rockefeller was less important than America. But Khodorkovsky has become an individual who is comparable to the state.”

In fact, the techniques for globalizing any possible problems to affect Russia’s largest oil company (which will control the world’s fourth-largest hydrocarbon reserves after its merger with Sibneft) had been thought through in advance by YUKOS itself.

The “Kommersant” newspaper reports that YUKOS and Menatep have already activated a special emergency management system they developed to cover force majeure circumstances.

In the event that “something happens” to Mikhail Khodorkovsky, his responsibilities would automatically be distributed among his deputies. Day-to-day mangement of the company would pass to Yuri Bychkov, former president of YUKOS-RM and now a Federation Council senator. Corporate strategy would be taken over by Vasili Shakhnovsky, president of YUKOS-Moscow.

However, at the next stage (should “something happen” to Bychkov and Shakhnovsky as well), management functions would pass to citizens of other countries. “Kommersant” did not succeed in finding out their names; it is only known that one of them is a citizen of Norway.

The plan for managing the company’s finances: in the event that Mikhail Khodorkovsky is unable to carry out his duties, they will be taken over immediately by YUKOS financial director Bruce Misamor, a citizen of the United States.

According to “Kommersant”, Khodorkovsky’s designated replacement for controlling the largest stake in YUKOS is Platon Lebedev. Next in line is Yuri Golubev, chairman of the YUKOS board; he is currently filling in for Lebedev as head of the Menatep Group. At the end of this management chain is Lord Jacob Rothschild – who, among other things, is president of the Institute for Jewish Research. Moreover, “Kommersant” reports that Lord Rothschild has a number of joint projects underway with Menatep Group and YUKOS shareholders: for example, along with former US secretary of state Henry Kissinger and former US ambassador to the Soviet Union Arthur Hartman, Lord Rothschild is on the board of the Open Russia Foundation, a charity established by YUKOS.

The meaning of these plans is quite evident. Nevertheless, experts consulted by “Kommersant” disagreed on how effective such a protection system would be for YUKOS. Some consider it entirely feasible: “Since an attack by law enforcement agencies on representatives of influential clans in international business would carry the risk of causing major international scandals.”

Other experts say such precautions are unlikely to help, since the YUKOS affair is unfolding “outside the scope of the law”.

However, none of these experts are venturing to say anything more specific, since “the ultimate goal of this campaign still remains unclear.”

This uncertainty is clearly also affecting responses to the YUKOS affair within Russia’s business community.

Throughout last week, the papers reported that the Russian Union of Industrialists and Entrepreneurs (RUIE) was preparing an appeal to President Putin. This appeal was finally delivered to the president on Friday, July 11. However, before delivering it, RUIE president Arkady Volsky explained to the media that he had personally deleted the most pointed passages from the text. Media reports showed that the appeal mentioned the topic of YUKOS only in the most general terms.

The “Vedomosti” newspaper quoted a passage from the final version of the appeal: “The actions of certain politicians supported by a number of security and law enforcement figures, against the backdrop of the election campaign and its inevitable populist slogans, are aimed at undermining the stability Russia has achieved, revising the outcomes of privatization, and creating an image of entrepreneurs as the enemy.”

Arkady Volsky’s meeting with the president on Friday was also attended by some Duma faction leaders, Cabinet ministers, State Council presidium members, and representatives of public organizations. Many of those present were fairly harsh in what they said about the YUKOS affair – but only after the meeting. During the meeting itself, according to “Vedomosti”, no one ventured to ask any direct questions about criminal investigations against YUKOS or whether Platon Lebedev may be released.

“Nezavisimaya Gazeta” emphasizes that the president “immediately made it clear to his guests that he would like to take the discussion away from the YUKOS scandal and onto the broader topic of consolidating all constructive forces in society.” The guests were happy to respond to their host’s preferences: “Practically no one wanted to discuss the latest actions of the security and law enforcement agencies.” And President Putin himself didn’t say the word “YUKOS” at all.

As a result, news agencies as well as those present at the meeting differed in their assessment of the president’s outlook on this issue. According to “Nezavisimaya Gazeta”, the Kremlin’s press service says Putin’s words were most accurately reported by RIA Novosti: “Of course I’m opposed to arm-twisting and detention cells. On the whole, I don’t consider that to be an appropriate way of handling economic crimes. If such crimes are committed, we must fight them; but not through the use of detention cells, on that point I agree. On the other hand, this also has to be fought. We cannot be guided by the fact that some people are throwing up their hands about somebody being detained. That’s wrong; it’s the wrong reference point, a completely inaccurate reference point. But this also has to be fought.”

“Nezavisimaya Gazeta” offers the following interpretation of this philippic: “Lebedev should be released from detention, but the investigation into the YUKOS case and similar cases should be continued.” However, everyone present at the meeting heard only what they wanted to hear in the president’s words. After the meeting, Arkady Volsky expressed his hope that “the conflict would be resolved in a civilized manner.” Communist deputy leader Valentin Kuptsov declared decisively that first of all, the Communist Party does not see any political undertones in this affair; and secondly, “it is important for such measures not to be random or selective.”

Yet the very next day, Volsky added fuel to the fire. In a television interview, after making a number of entirely liberal statements like demanding respect for private property, Volsky said that he categorically disapproves of Roman Abramovich’s purchase of the Chelsea football club in England. After reprimanding the governor of Chukotka for spending money “made from Russian citizens” on “an unprofitable club abroad”, Volsky went on to speculate that the underlying reason for this deal is the existence of “a small town” near London where “members of the former president’s family” reside.

The “Vremya Novostei” newspaper commented: “How can a person with views like these uphold the interests of big business or any kind of business in Russia (after all, these companies also “make money from Russian citizens”) or work to attract foreign investment (since investment decisions should apparently be based on one’s place of residence)? It’s an interesting question, and one to which there appears to be no answer.”

Igor Bunin, general director of the Political Techniques Center, shared his interpretation of the business community’s stand with the “Vedomosti” newspaper.

Bunin says that the tone of the RUIE appeal to the president, as well as the circumstances in which it was delivered, are evidence that the oligarchs are fully prepared to compromise with the regime. Bunin noted: “After all, they didn’t write anything like ‘All business leaders are united in outrage at the actions of the security and law enforcement agencies which are taking hostages from the business sector.’ Instead, it was more like an appeal to their lord the emperor: ‘We beg you to note the behavior of certain people who are preventing us from performing our duties as your loyal subjects.'”

In Bunin’s view, an offer to “come to an agreement” is clearly apparent here: “An agreement that will have to involve money as well as words.”

As support for this view, “Vedomosti” quotes “a source from the RUIE staff” who confirms that the letter to the president was planned from the start to be “an opening for dialogue with the authorities” rather than a display of confrontation.

Meanwhile, as “Vedomosti” also reports, discussion has begun within the political elite about whether Russia’s oligarchic system can be dismantled without casting doubts on property rights or scaring off foreign investors.

“Vedomosti” notes that the need for such an operation was set out by Yabloko leader Grigori Yavlinsky after the meeting with the president. Yavlinsky said that the oligarchs have become “a vast braking mechanism” for Russia – moreover, this mechanism “is not politically neutral.”

“Vedomosti” expresses grave doubt about whether “removing this brake without any negative consequences for the whole economy” is a realistic objective. At the very least, various business groups have become so closely interwoven with government that removing any one of them would automatically lead to the rise of another.

“Kommersant-Vlast” clearly sets out the positions of the opposing sides in the current campaign of the Prosecutor General’s Office against the oligarchs: the start of the campaign is linked to the publication of the notorious National Strategy Council report, titled “An oligarchic coup is being prepared in Russia.”

The report was given to Putin by Igor Sechin, head of Putin’s secretariat and deputy head of the presidential administration. According to “Kommersant-Vlast”, the ideologue behind the report was political consultant Stanislav Belkovsky – currently working for Sergei Bogdanchikov, head of the Rosneft oil company.

“Kommersant-Vlast” sums up the report in the form of two key conclusions. Certain oligarchs are a danger to the regime: Mikhail Khodorkovsky, Mikhail Fridman, Vladimir Potanin (the latter delivered a public apology for his past mistakes soon after the report was published). But there are also some oligarchs who are not dangerous: for example, the report names Vladimir Evtushenkov, owner of the Sistema company.

The report’s second conclusion is a logical extension of the first: the dangerous oligarchs are dangerous because they are “buying up future members of the Duma.” And that’s a direct threat to the president, since a Duma controlled by the oligarchs would shape legislation to its own advantage, regardless of the wishes of the executive branch. Thus, the president would be like a British monarch: reigning, but not ruling.

According to “Kommersant-Vlast”, the person who handed Putin this “loyalist denunciation” of the oligarchs – Igor Sechin – has long been identified in the media as a leader of the Kremlin faction known as “the St. Petersburg security people”. “Kommersant-Vlast” proposes an alternative title: FSB, Inc.

Another leader of this group is Viktor Ivanov, the Kremlin’s personnel manager. The group also includes FSB director Nikolai Patrushev and Prosecutor General Vladimir Ustinov, as well as a number of their deputies.

According to “Kommersant-Vlast”, some in the business community believe these “enforcers” would not be averse to becoming oligarchs themselves; however, they still lack the “financial weight” for this (political weight is not a problem).

The St. Petersburg people control the defense sector; however, by their standards, the defense sector’s resources are not enough; “moreover, practically all the money comes in from abroad.” The financial capacities of Gazprom are also insufficient, obviously; though it has been controlled by the St. Petersburg security group for two years, ever since Alexei Miller became the chief executive. Yet Miller has been unsuccessful in bringing the finances of Gazprom under his own control. Moreover, Gazprom’s position is far from brilliant: its debts to Western creditors stand at $14 billion, or one-third higher than its annual exports.

In this context, the interest shown in the oil sector by the “enforcement wing” of Putin’s entourage becomes clear.

However, says “Kommersant-Vlast”, the security and law enforcement people are not seeking a direct revision of privatization outcomes; they don’t have enough effective managers capable of providing good administration of any assets restored to state ownership.

Thus, it is not ruled out that the conflict between tycoons and the government may be resolved by a mutual compromise, to which both sides are aiming. The inconsistency of the position of the RUIE gives the president room to maneuver: “If he decides not to continue the attack on tycoons, he may pretend that nothing special has happened.” Lebedev will be set free, and there will be no new victims. Besides, Prime Minister Mikhail Kasianov has announced that it is an excessive measure to jail an executive whose guilt is not proven yet.

However, “Kommersant-Vlast” does not venture to predict the outcome of the clash between security officers and tycoons. “Kommersant-Vlast” states that Russian business does not have the weapons needed to win. It also notes, “There might end up being no business left in Russia at all.”

The only prophecy that “Kommersant-Vlast” makes is that Putin’s regime is doomed to a chain of conspiracies, capable of putting an end to the notorious stabilization of which the Kremlin is so proud today. “Kommersant-Vlast” says: “A regime that is essentially a constitutional monarchy but does not have a monarch capable of making decisions independently is doomed to conspiracies.” The origin of these conspiracies seems obvious: “Whoever is the last to leave the superior’s office is the person who gets carte blanche.”

The “Moskovskie Novosti” weekly continues this topic. “Moskovskie Novosti” Editor-in-Chief Viktor Loshak says: “It is known that YUKOS executives had information about preparations for Lebedev’s arrest and the current operation in general. However, Kremlin officials were reassuring them, saying: ‘This can’t happen, we won’t let it take place.’ What happened next, including the arrest, searches, and the pressure over YUKOS and Sibneft, makes one reassess the influence and closeness to the president of Chief of the Presidential Administration and leader of Kremlin liberals Alexander Voloshin.”

Loshak quotes an anonymous tycoon who is trying to remain neutral in this situation: “The power in the Kremlin has been replaced.” Loshak says that today the administrative steering wheel is in hands of the Igor Sechin-Viktor Ivanov duo. Loshak comments: “It is generally believed that the Presidential Administration has two wings – security officers and liberals – and that our common journey into a bright future is possible only with these two wings. But the trouble is that these wings are waving in opposite directions. And even if they are balanced, the government machine will stand still.”

“Novaya Gazeta” observer Yulia Latnina has an even more radical opinion about this situation. In her view, the interference of security agencies in the economic process in any country means a catastrophe for that country. She states: “Security agencies take part in politics and the economy of a modern state only in one case: when the country is ruled by a junta.” Latynina notes that this happens in the same way all around the world: “Under slogans about protecting the interests of the common people and fighting the rich, the wealth of the nation is either concentrated in the hands of junta members and their relatives, or is sold to foreigners at next to nothing. Foreigners appear because security officers are bad at business, and business needs to be well-managed in any case. Members of the junta view private enterprise as a threat to their influence.”

Therefore, in the view of Latynina, it is not so difficult to predict further developments in this situation. She states that even now “there is a sluggish civil war underway in Russia instead of an election campaign.” Therefore, ambitious economic tasks such as the doubling the GDP may be forgotten.

But the main result is that even if the campaign against YUKOS was planned as an election strategy, the security and enforcement faction will fail to win the elections. First, business will not wait “until it is eviscerated – it will flee to the West with all its money.” Russia will finally become a complete pauper, and the Communists will win in that impoverished state.

Besides, security officers are not sinless either. Their opponents may recollect many incidents, from the “Three Whales” furniture chain scandal to $340 million spent on restoring the Kremlin’s Constantine Palace when Russia was living in poverty. When governing clans start to accuse one another of corruption, the Communists win.

The “expropriation of expropriators” slogan is obviously extremist. Therefore, only extremists, i.e. the Communists, can will the election campaign under this slogan.

To crown it all, Latynina states, “In a country where the generals are eviscerating oligarchs, lieutenants will start eviscerating everyone.”

No one will vote for security officers in a country that hates cops: people will vote for the Communists. Thus, Latynina concludes that security and enforcement people will not come to power by legitimate methods. “So they will have to retain power by other methods. These methods are known as a junta.”

However, as Dmitry Oreshkin, head of the Mercator group, states in “Moskovskie Novosti”, the security and enforcement faction has now committed so many follies that the Kremlin may well recall a Russian saying about a helpful fool being worse than an enemy.

Indeed, only the leftists can take advantage of such scandals, since the security faction has adopted from the left this stale election campaign gimmick of fighting “bloodthirsty oligarchs”. In all likelihood, says Oreshkin, the Kremlin will look back and try to smooth over the places where it has gone to extremes. However, as Oreshkin notes, all this has happened before in Russia, and people have not forgotten “this way of tightening and loosening the screws, when after each operation things feel easier than yesterday but harder than the day before yesterday.”

But who could foresee that today, at a rather vague time of the “new stagnation”, an election campaign could take such exotic forms?

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