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Russia: Businesses Big And Small Feel Khodorkovskii's Pain

  • Sophie Lambroschini

Most observers do not deny that Yukos boss Mikhail Khodorkovskii may indeed be guilty of the crimes of which he now stands accused -- fraud and tax evasion going back to the mid-1990s. They also note, however, that hundreds of Russian businessman could face the same changes if prosecutors put their minds to it -- in the "wild 90s," they say, there was simply no legitimate way of doing business. The vast legal void allowed a select few to get rich quick. But it has also left them vulnerable to prosecution -- often at the instigation of business or political rivals.

Moscow, 27 October 2003 (RFE/RL) -- Many people versed in the ways of Russian business say the country's post-Soviet legislature is so arbitrary that no law can be implemented faultlessly. Moreover, they say, that's the way the authorities like it -- since they, too, can be arbitrary in the way the laws are enforced.

In the case of Russia's richest man -- oligarch Mikhail Khodorkovskii, who was arrested during the weekend -- prosecutors have leveled charges befitting any of the entrepreneurs that profited from the grab-and-run privatization frenzy of the mid-1990s.

Khodorkovskii, the head of the Yukos oil giant, stands accused of personal and corporate tax evasion, falsifying documents and theft. In all, state prosecutors say Khodorkovskii and his associates have cost the state more than $1 billion in lost revenue.

According to prosecutors, Khodorkovskii and fellow Yukos shareholder Platon Lebedev -- who was himself arrested in July -- are accused of defrauding the administration of Murmansk in the 1994 sell-off of the Apatit fertilizer factory by selling its products at cut-rate prices to offshore firms, lowering Apatit's pretax profit by $200 million. The two also stand accused of organizing an offshore tax evasion scheme in 1999 and 2000 that cost the state $556 million. Khodorkovskii is personally charged with failing to pay $1.7 million in income tax and pension fund contributions. A third Yukos official, multimillionaire Vasily Shakhnovskii, has also been accused of withholding $1 million in back taxes. He now faces three years in jail for using what, in 1997, was a very common tax evasion scheme: setting up subsidiaries in so-called "closed" Russian cities -- Soviet-era cities linked to the military-industrial complex -- which did not have to pay taxes to the federal budget.

Many businessmen say the actions of the Yukos officials are not considered cheating, but merely profiting from imperfect legislation or any of the other loopholes available in the 1990s. The Russian business community has reacted hotly to Khodorkovskii's arrest.

The Union of Industrialists and Entrepreneurs (RSPP) and the Delovaya Rossiya business support group yesterday issued a general condemnation of what it called "the authorities' gross mistakes." In an earlier statement, the groups also distinguished between "malicious tax delinquents" and people like Khodorkovskii, "who had the courage to make their businesses transparent" in later years.

RSPP Vice President Igor Yurgens said in an interview this summer that the Yukos affair appeared to have sent "a signal to law enforcement agencies all over the country" to "suddenly crack down on businesses on different pretexts." He said the number of complaints from businesspeople in the regions has shown a marked increase.

The Opora small business association also signed yesterday's declaration objecting to Khodorkovskii's arrest. Solidarity with an oligarch may appear surprising, coming from small-scale businesspeople whose everyday work is light years away from Khodorkovskii's life as a globe-trotting multimillionaire. But Opora spokeswoman Svetlana Nugumanova explains that small-business owners feel the problems facing the Yukos chief are very reminiscent of their own. "The problems of big and small businesses only seem different at first glance," she says. "In fact, they have quite a few problems in common. The difference is the level at which the state will interfere in the affairs of private small or big businesses," Nugumanova said.

In Khodorkovskii's case, analysts say, the crackdown may be in response to his attempts to weaken the power base of Russian President Vladimir Putin. Oligarchs dating from the era of former President Boris Yeltsin have largely kept the peace with Putin by paying taxes and steering clear of politics. But the Yukos chief has openly financed the opposition Yabloko Party and has attempted to challenge the state monopoly on major energy pipelines.

Other observers have speculated that Khodorkovskii's arrest may be an attempt to seize control of Yukos, which cost the businessman $200 million in 1994 and is now worth some $14 billion. Nugumanova says businesses and politicians often use state agencies to gain an upper hand against their rivals, big and small. "[They do it] to get something from the businessman," she says. "So the controlling [state] agencies and the law enforcement agencies become a weapon in the hands of your competition -- whether on the level of small business or, as we have seen these past few days, on the level of big business," Nugumanova said.

Nugumanova lists the authorities small-business owners often have to deal with. She says while a big-time oligarch may be called in for questioning by the Prosecutor-General's Office, "small business have run-ins with law enforcement people on an everyday basis -- whether the local policeman, the person who comes to make some kind of inspection with no legal right, or after an anonymous denunciation."

Nugumanova explains that the question of guilt is often secondary, because it is almost impossible to fully abide by the letter of the law. From taxes to fire safety, she says, Russian regulations are rife with loopholes. "If he wants to, any civil servant will always find a reason to find fault with a businessman, and [the businessman] doesn't have to be a delinquent, he can be an honest taxpayer."

Khodorkovskii is hardly the first oligarch to be squeezed by the state. Three years ago, prosecutors accused Vladimir Potanin, head of the Interros investment holding, of defrauding the state when he paid a bargain rate for Norilsk Nickel -- the world's number-two nickel producer. The purchase came at the time of the notorious "loans-for-shares" deals set up to add revenues to the Yeltsin administration's empty coffers.

Another former oligarch, Inkombank head Vladimir Vinogradov, was accused by the Audit Chamber of cleaning out the bank's funds during the ruble crisis of 1998. But unlike Khodorkovskii, neither oligarch was thrown in jail. Potanin paid back what the state demanded, and Vinogradov left the country. Khodorkovskii, who wore his contempt for the Kremlin on his sleeve, was not likely to prove as conciliatory. A leading Russian legal expert -- Sergei Pashin, who co-authored the country's first post-Soviet judicial regulations -- says Khodorkovskii's arrest hardly comes as a surprise. "After all," Pashin says, "this is a country where you're thrown in jail for stealing a sack of potatoes."