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Security Watch: November 21, 2003


21 November 2003, Volume 4, Number 46

NOTE TO READERS:
This marks the final issue of "RFE/RL Foreign Policy and Security Watch." Readers interested in continuing RFE/RL coverage of events in Russia should see "RFE/RL Russian Political Weekly," "RFE/RL Newsline," or one of our other reports listed at http://reports.rferl.org. Get comprehensive analysis and breaking news about the Russian elections at RFE/RL's dedicated webpage Russia Votes 2003-04: http://www.rferl.org/specials/russianelection
YUKOS CASE
PUTIN SEEKS TO REASSURE INTERNATIONAL FINANCIAL COMMUNITY... President Vladimir Putin told visiting International Monetary Fund (IMF) Managing Director Horst Koehler on 13 November that while prosecutors have accused senior Yukos executives of criminal activities, they remain innocent unless a court declares them guilty, NTV and RTR reported. "There is no basis to suppose that the use of laws is selective or will be selective," Putin said, according to economic aide Andrei Illarionov. Illarionov said the president told Koehler that the prosecution "must prove its case in an open and fair trial," according to Interfax. He added that Putin "stressed that [the Yukos affair] cannot be seen as aimed at reviewing the results of privatization," according to "The Moscow Times." The same day, Putin met with John Rutherford, president and CEO of Moody's Corporation, along with Moody's Vice President Jonathan Schiffer, RIA-Novosti reported. Schiffer was quoted as saying that the agency has no plan to change Russia's credit rating over the Yukos affair, which he described as a unique case. Moody's has been criticized by the competition for granting Russia an investment-grade rating just weeks before Yukos head Mikhail Khodorkovskii was jailed, sending many investors fleeing.

...AND CALLS ON BUSINESS TO RESPECT RUSSIA'S LEGAL SYSTEM. Addressing a congress of the Russian Union of Entrepreneurs and Industrialists (RSPP) in Moscow on 14 November, President Putin said that competition between business and the state to influence the courts must end, ORT, RTR, and other Russian media reported. The RSPP, which is frequently called "the oligarchs' union," claims to represent 328,000 employers, and Putin's speech was his first major appearance before the business community since the beginning of criminal investigations into senior managers at oil giant Yukos. Putin cautioned the business community to adapt to a stable legal environment and to stop calling for intervention from outside normal judicial mechanisms.

PUTIN SAYS RETURN TO PAST IS 'IMPOSSIBLE.' In his 14 November RSPP speech, Putin did not refer to Yukos by name, Russian media reported. However, he said that high-profile criminal cases provoke anxiety and alarm and inevitably cause people to wonder if Russia is returning to the past. "This cannot be," Putin said to wide applause. "It is impossible." He added that accusations that law enforcement organs are violating the law merely produce in response accusations from those organs of corruption within the bureaucracy and the business sector. He said that law enforcement organs must be reformed in transparent, public, and legal ways. Putin also pledged to see his program of administrative, tax, and financial reforms through to completion, and he promised to reorganize state monopolies controlling the national infrastructure. In his speech, Putin played both good cop and bad cop, NTV commented on 15 November. Ekho Moskvy commented on 15 November that although the business community initially seemed ready to protest the 25 October arrest of former Yukos CEO Mikhail Khodorkovskii, now it seems to lack the courage even to argue with Putin. RSPP President Arkadii Volskii announced on 15 November that the union has re-elected Khodorkovskii to its board, NTV reported. He said the decision is a manifestation of the principle of the presumption of innocence, because Khodorkovskii has not been convicted of any crime.

TOP PROSECUTOR SAYS JAILED OLIGARCH'S CASE WILL GO TO COURT IN TWO MONTHS... Deputy Prosecutor-General Vladimir Kolesnikov told a State Duma panel devoted to the Yukos scandal that the case against Khodorkovskii will be handed over to the courts within two months, RTR and newsru.com reported. Kolesnikov noted, however, that the law allows for prosecutors to extend their investigation for as long as two years. Kolesnikov told Duma deputies that the eight financial charges pending against Russia's richest magnate mean that "unfortunately, we cannot sentence him to more than 10 years," according to RTR. Kolesnikov reportedly said the $1 billion in taxes that Khodorkovskii is alleged to have evaded represent the minimum monthly salaries of more than 19 million people or minimum pensions for 49 million retirees. NTV suggested that Kolesnikov has a history of making threatening statements in prominent legal cases, but failing to deliver.

...AND KHODORKOVSKII NGO DECRIES HIS REMARKS... The Open Russia charity founded and financed by Khodorkovskii has criticized Deputy Prosecutor-General Vladimir Kolesnikov for his suggestion in the State Duma that the jailed oligarch could spend as long as two years in prison without a conviction (see "RFE/RL Newsline," 13 November 2003), "Izvestiya" reported on 13 November. Kolesnikov demonstrated that he represents "not law enforcement, but a repressive organization," the group said. The official "Rossiiskaya gazeta" the same day reported that Kolesnikov failed to identify the specific legal grounds for keeping someone like Khodorkovskii in pretrial detention for such a period. In a speech on 12 November, billionaire George Soros effectively urged that Russia be expelled from the Group of Eight industrialized countries for its "persecution" of Khodorkovskii," according to Dow Jones Business News. The Moscow offices of the Soros Foundation were raided and shut down recently, just days after Soros publicly criticized Khodorkovskii's detention on fraud and tax-evasion charges.

KHODORKOVSKII'S AMERICAN LAWYERS REMAIN IN LIMBO. Two U.S. lawyers for Khodorkovskii postponed a planned trip to Russia following alleged warnings from Russian authorities that they risked "serious problems" by entering that country, Russian and international media reported on 12 November. Sanford Saunders and John Pappalardo, of law firm Greenberg Traurig, were reportedly sent the warnings through a Moscow firm assisting in their visa requests, Interfax reported. Saunders told Reuters that the Russian firm, Visa House, was searched by the Russian Federal Security Service (FSB) last week and files for the U.S. lawyers were seized. Yevgenii Khorishko, a spokesman with the Russian Embassy in Washington, countered the same day that "these two gentlemen have valid visas...and they can enter Russia with no problem," according to Reuters. "If they had any kind of problems, the visas would have been denied for them." Reuters quoted a U.S. State Department source as confirming reports of the warnings and saying it has expressed concern to the Russian Embassy. "We regard access to legal counsel as an important part of a rule-of-law society," the source reportedly said. The chairman of the Moscow Lawyers Chamber, Genri Reznik, was quoted by Interfax as noting that attorneys who are not registered in Russia "cannot take part in our criminal judicial proceedings." He added that such regulations do not preempt consulting services, however.

PROBES ARE LAUNCHED OF YUKOS-RELATED COMPANIES. Regional prosecutors in Khanty-Mansii Autonomous Okrug have begun environmental probes into the activities of Yukos's largest petrochemical subsidiary, Yuganskneftegas, polit.ru reported on 12 November. Yukos-related companies Artikgas, UrengoiOil, and Rospan International are also reportedly under investigation in the Yamalo-Nenetz Autonomous Okrug, while prosecutors in Tomsk Oblast have launched a criminal case against Yukos affiliate Tomskneft BNK. Speaking on Ekho Moskvy on 12 November, Igor Shuvalov, the deputy head of the presidential administration, said the Kremlin is acting on public information and on the basis of principles that apply to all Russian citizens. Shuvalov added that he hopes the Yukos situation will stabilize and that the outflow of capital will stop. Khodorkovskii's recently appointed successor at Yukos, Semen Kukes, said on 12 November that fears about the company's functioning are groundless, according to the BBC. "There is a problem between Khodorkovskii and the Russian government; but we at the company take no political position," Kukes said.

FRENCH NATIONAL CLAIMS SHE WILL DISCUSS YUKOS'S OFFSHORE DEALS. A French national who claims to have been in charge of offshore operations involving Yukos said on 12 November that she intends to make public information about several jailed Yukos-related oligarchs' financial deals in offshore zones, "Vremya novostei" and other Russian media reported the next day. Elena Collong-Popova was quoted as saying she ran Yukos offshore operations on which she was ordered to pay 15 million euros ($17.6 million) in taxes by French authorities. Collong-Popova also claimed that she was sentenced to 12 months of probation by a French court after the oil giant failed to provide the taxes it allegedly owed. She vowed to divulge further information at an upcoming tax forum. A Yukos official declined to comment on Collong-Popova's allegations, according to Interfax on 12 November.

PRIME MINISTER DEFIES PUTIN BY SPEAKING OUT ON YUKOS. Speaking to journalists in Nizhnevartovsk on 14 November, Mikhail Kasyanov again violated President Putin's 27 October request that government officials not comment on the Yukos investigations (see "RFE/RL Newsline," 29 October 2003), "Kommersant-Daily," "Vremya novostei," and other Russian media reported on 17 November. Kasyanov said he has forbidden the Natural Resources Ministry from intimidating Yukos through environmental-safety inspections. "I have told [Natural Resources Minister Vitalii Artyukhov] that it is impermissible to create an atmosphere of fear around Yukos and to threaten it with the revocation of its licenses," Kasyanov said. There have been numerous reports that the ministry has been examining the license compliance of Yukos subsidiaries (see "RFE/RL Newsline," 22 October 2003). Kasyanov has also reportedly endorsed a proposal to restrict the authority of the Prosecutor-General's Office and to transfer some of its functions to the Justice Ministry, "Kommersant-Daily" reported on 15 November. On 17 November, Kasyanov, on a state visit to Finland, refused to answer questions about Yukos, saying he has already said all he has to say about the matter, utro.ru reported.

RADICALS PROTEST 'CRUDE' TACTICS IN KHODORKOVSKII CASE. A group calling itself "anticapitalists and antiglobalists" has sent an open letter to President Putin in which it describes Khodorkovskii's arrest as a "crude punitive measure," globalrus.ru and newsru.com reported on 11 November. The signatories include National Bolshevik Party leader Eduard Limonov and the deputy editor of the anti-Western weekly "Zavtra," Vladimir Bondarenko. "It is clear that [Khodorkovskii's] detention was required not for justice but for political authorities," they asserted. "Are we again slipping into semi-feudal Oriental despotism?"

POLITICAL ECONOMY
NEW YUKOS CEO SIGNALS CHANGE OF TACK. Recently appointed Yukos head Semen Kukes said he sees no real need to merge that oil giant with a Western partner or partners, "The Wall Street Journal" and Russian news agencies reported on 10 and 11 November. Foreign oil companies are unable to offer Yukos any strategic advantages that it does not already possess, Kukes said. Before he stepped down amid the current criminal allegations, former CEO Khodorkovskii suggested that Yukos was in talks with ExxonMobil, ChevronTexaco, and other Western oil companies concerning a possible share swap (see "RFE/RL Newsline," 6 October 2003). Kukes's comments appear to contradict his early reassurances that he plans to stay the course at Yukos (see "RFE/RL Newsline," 5 November 2003). In an interview with "The Wall Street Journal," Kukes also suggested that another Khodorkovskii project will be dropped: a privately funded pipeline from Angarsk in eastern Siberia to Datsin in China. He said he believes the work of laying out that pipeline or another possible project -- from western Siberia to Murmansk -- should lie with the state. Khodorkovskii was a consistent advocate of privately funded pipeline projects.

CONOCOPHILLIPS AND LUKOIL DISCUSS MAJOR JOINT VENTURE. Leonid Krasovskii, the head of foreign investor relations for petrochemical giant LUKoil, has announced that the company's management held talks with ConocoPhillips on the possible creation of a joint venture to exploit a license for drilling at the Timan-Pechora oil field, strana.ru reported on 10 November. The oil reserves of Timan-Pechora are estimated at 1 billion barrels. A deal with ConocoPhillips would clear the way for the third-largest U.S. oil company to invest $2 billion-$4 billion in the project, according to strana.ru. The Russian state controls the largest stake in LUKoil, of roughly 7 percent, and the government hopes to maximize revenues from those LUKoil shares through their sale to retail investors, according to strana.ru.

SECRET SERVICES
DEPUTIES ASK PROSECUTOR TO GO AFTER COMMUNIST PARTY BENEFACTOR... Duma deputies on 18 November adopted a resolution sponsored by the pro-Kremlin centrists factions that appeals to Prosecutor-General Vladimir Ustinov to investigate Rosagropromstroi and its president, Viktor Vidmanov, Russian media reported. Vidmanov is on the Communist Party's party list for the 7 December elections and is considered one of the party's chief financial backers, "Vremya novostei" reported on 19 November. According to the daily, the Duma renews its interest in Vidmanov and his company every four years as Duma elections approach. Traditionally, Vidmanov is accused of embezzlement and misallocation of resources.

...ON ACCUSATIONS OF EMBEZZLEMENT AND CONTACTS WITH BEREZOVSKII. This time, deputies charged that Rosagropromstroi used millions of dollars in federally allocated funds to finance the Communist Party in 1998-99, Russian media reported on 19 November. Vidmanov has also been accused of maintaining unspecified ties with self-exiled tycoon Boris Berezovskii, who is wanted in Russia on several fraud and embezzlement charges. Some 241 deputies voted to support the appeal, according to Interfax.

FSB FIGURES LEAD THE CHARGE AGAINST COMMUNISTS... The Rosagropromstroi resolution was drafted by Duma Security Committee Chairman and former Federal Security Service Director Nikolai Kovalev (United Russia) and committee Deputy Chairman Gennadii Gudkov (People's Deputy), Russian media reported on 19 November. Speaking before the Security Committee on 17 November, Kovalev accused the Communist Party and Berezovskii of plotting against Russia, Ekho Moskvy reported. Addressing Communist deputies, Kovalev said: "You are working with Berezovskii, who is plotting against Russia and preparing to take power. I lost my position as FSB director [in 1998] for trying to stop Berezovskii's activities. Do you think it is normal to have contacts with him, especially after he was granted political asylum in Great Britain at the request of [British intelligence]?" Kovavlev's comments were endorsed by fellow committee member and former FSB and KGB officer Mikhail Grishakov.

...AS COMMUNIST LEADERS RESPOND... In a response to the Duma's resolution that was posted on the Communist Party's website (http://www.kprf.ru), party leader Gennadii Zyuganov called Security Committee Chairman Kovalov's statement "a provocation by the party of power, which is avoiding public dialogue and open debate and [instead] is using such shameful methods." "FSB General Kovalev and his Security Committee colleagues Gennadii Gudkov and Mikhail Grishakov, both also former high-ranking FSB officers, have confused the State Duma with [FSB headquarters] Lubyanka," Zyuganov wrote. Deputy Sergei Reshulskii, deputy head of the Communist faction in the Duma, said on 18 November the faction will sue all 241 deputies who voted in favor of the resolution, Russian media reported on 19 November.

...AND ACCUSED BENEFACTOR ADMITS TO CONTACTS WITH BEREZOVSKII. Rosagropromstroi President Vidmanov told journalists on 18 November that he had business dealings with Berezovskii in London in 2001-02, RTR and TV-Tsentr reported. He said the contacts were purely business and not political. "I dealt with him as one businessman to another involved in joint projects," Vidmanov said. Deputy Communist faction head Reshulskii said the Communist Party leadership did not authorize Vidmanov's contacts with Berezovskii and repeated the party's position that "Communists do not take money from enemies," kprf.ru reported on 18 November. TV-Tsentr wondered rhetorically on 18 November when having contacts with Berezovskii became a criminal offense, noting that the 1999 Duma campaign of Unity -- the predecessor to the pro-Kremlin Unified Russia party -- was financed largely with Berezovskii's money.

KGB VETERANS ASK COMMUNISTS TO DUMP FORMER PROSECUTOR. A group of KGB veterans who are also Communist Party members has sent a letter to party head Zyuganov asking him to drop former Prosecutor-General Yurii Skuratov from the Communist Party party list for the 7 December Duma elections, Russian media reported on 18 November. Skuratov resigned in 1999 amid a sex scandal that he claims was a politically motivated effort to retaliate against him for his probes into government corruption. Deputy faction head Reshulskii told apn.ru on 18 November that Skuratov was included on the party list because he knows a lot "about crime and government corruption." If he becomes a deputy and is protected by a legislator's immunity from prosecution, it will be easier for him to reveal publicly all that he knows, Reshulskii said.

MILITARY
PUTIN LAYS OUT VISION FOR MILITARY... Speaking to an annual conference of senior military officers in Moscow on 18 November, President Putin said that Russia's military must be prepared to cope with the threats of tomorrow rather than the wars of the last century, Russian media reported. "Russia needs a flexible, advanced army, ready for change and development," Putin said. Putin outlined the government's goal to switch one-half of the army to volunteer status by 2007. He added that by that time, the term of service for conscripts will be reduced to one year. He said it is important to improve the material conditions of service personnel, but stressed that material incentives "are not the entire story." He said that the average officer's salary in the pre-revolutionary army was higher than the average bureaucrat's salary, but "this did not prevent it from being defeated in the [1904-05] Russo-Japanese War and the 1917 Bolshevik revolution." Putin rejected calls to use the country's hard-currency reserves for defense needs. "This money provides the basic foundation of our economic development and...can raise up the entire country," Putin said.

...AS DEFENSE MINISTER COMPLAINS OF MILITARY'S NON-COMBAT LOSSES... Speaking after President Putin at the same Moscow conference on 18 November, Sergei Ivanov said that 337 service personnel have died so far this year as a result of non-combat-related incident and crime in the military, ITAR-TASS reported on 18 November. Thirty-five percent of those casualties were suicides, Ivanov said. He blamed the situation on the fact that commanders often assign authority in units to inexperienced soldiers elevated to the rank of sergeant. "This is why we have hazing, suicides, and mass desertions," Ivanov said. He called for improvements in military training, and said that volunteers should not be recruited but selected. "We do not need people in the army who are just looking for shelter from the disorder and problems of their personal lives," Ivanov said.

...AND DUMA APPROVES NEW LIST OF MILITARY CELEBRATIONS. The Duma on 18 November approved in its third reading the new list of military anniversaries to be marked in the armed forces, polit.ru reported. The list, which was submitted by the presidential administration, includes the anniversary of the Battle on the Ice against Teutonic knights in 1242, the anniversary of the Russian victory over the Mongols at Kulikovo Field in 1380, the 1612 liberation of Moscow from Polish occupation, the defeat of the Swedes by Tsar Peter the Great at Poltava in 1709, and the capture by Russian forces of the Turkish fortress at Ismail in 1790, among others.

FOREIGN POLICY
RUSSIA, INDIA TO EXPAND COOPERATION IN MILITARY, ECONOMIC, AND ENERGY SECTORS. President Putin received Indian Prime Minister Atal Bihari Vajpayee in Moscow on 11 November at the start of the Indian leader's three-day visit to Russia, during which representatives were expected to sign a clutch of defense and economic agreements and accords, strana.ru and other Russian news agencies reported the same day. According to strana.ru, Vajpayee was to initial a $1.5 billion contract for the delivery to India of the "Admiral Gorshkov" aircraft carrier, a contract that has taken years to negotiate. Russian and Indian officials reportedly were also to discuss the possible supply of a Russian antiaircraft missile system to defend New Delhi and India's nuclear arsenal. In the energy sector, India was reportedly seeking four more nuclear reactors from Moscow in addition to two reactors already provided for the Kudankulam nuclear-power station. Strana.ru noted that while such a deal might contravene international nonproliferation agreements and provoke serious objections from Washington, Moscow would find it difficult to resist, particularly since India is already a nuclear power. New Delhi and Moscow were also expected to discuss India's possible participation in a Sakhalin oil project and Russian oil exploration in the Bay of Bengal.

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