MOSCOW—A scandal of Watergate proportions is rocking Moscow. It threatens Russia’s economic revival and endangers President Vladimir Putin’s long-term political survival. Russians are calling it a signal event in their country’s history, comparable to Stalin’s purges of the 1930s or the Soviet invasion of Prague in 1968.
The cause of the controversy is the headline-grabbing arrest last weekend of Mikhail Khodorkovsky, a leading oil tycoon and, according to Forbes, the richest person in Russia. The state prosecutor’s office has charged him with tax evasion, fraud, and theft.
Khodorkovsky’s arrest could hardly have been more dramatic. When his plane touched down for refueling in Siberia at 5 a.m. last Saturday, federal agents wearing camouflage uniforms and black masks stormed aboard. According to witnesses, the agents kicked down doors, ordered passengers to the floor, and shouted, “Don’t try to defend yourselves, or we’ll shoot.”
Khodorkovsky did not seem surprised by his arrest. The offices of his oil company, Yukos, had already been raided. Three of his business associates had been arrested. “OK, let’s go,” Khodorkovsky is reported to have told his captors. He was immediately flown to Moscow, arraigned, and thrown in jail.
The arrest is widely seen as a shrewd political move by Putin. Khodorkovsky is one of Russia’s “oligarchs,” a group of 17 billionaires who acquired sudden wealth in the 1990s after the Soviet Union collapsed and they bought government properties at fire-sale prices. Polls show that most Russians deeply resent the oligarchs. Most of them are young; Khodorkovsky is 40. And many of them, including Khodorkovsky, are Jewish.
When Putin came to power in 2000, he promised not to challenge the oligarchs’ business practices as long as they stayed out of politics. When two oligarchs tangled with Putin last year, the Kremlin threatened them with arrest. They chose exile.
Khodorkovsky was different—brash, provocative, and openly defiant. He became an economic reform leader, squeezing corrupt managers out of his company and sponsoring a program of corporate philanthropy aimed at exposing what he called “the failure of the state.”
Khodorkovsky confronted Putin in public forums, demanding an end to oppressive state controls over business activity. He also funded political opposition movements and expressed political ambitions of his own. “I want to end my business career at 45 and then be involved in one form or another in public affairs,” he told The New York Times last month. He turns 45 in 2008, when Russians will elect Putin’s successor.
Khodorkovsky’s arrest may be a popular move for Putin in the short run: He wants to use the parliamentary elections on December 7 to consolidate his support, and he is expected to easily win re-election as president in March.
But Putin’s strategy entails risks. It threatens Russia’s economic boom, which is fueled by high oil prices and foreign investment. After Khodorkovsky’s arrest, the Russian stock market took a hit, and foreign investors warned of a negative investment climate, even for Russians. “Two words,” a Moscow-based investment banker predicted: “capital flight.”
When leaders of the Russian business community met in Moscow last week, they spoke ominously of a “climate of fear” among their colleagues. “I am ashamed of my country,” one said. “In Russia,” another remarked bitterly, “business is considered a criminal offense.” Still another recalled President Reagan’s denunciation of the Soviet Union as an “evil empire.”
The Khodorkovsky affair has united and politicized the Russian business community. The Russian Union of Industrialists and Entrepreneurs issued a statement on the day of the arrest, saying, “The business community’s trust in the authorities is ruined.”
But if the business sector is so widely despised, doesn’t that give Putin the upper hand politically? Not necessarily. This is not so much a showdown between the people and the oligarchs as between two elites—business and bureaucracy. “This is not a war to take away wealth from the super-rich and pass it over to the poor,” independent political analyst Andrei Piontkovsky told The Moscow Times. “This is a struggle of millionaires trying to take away wealth from billionaires.”
Andrei Ryabov of the Carnegie Moscow Center told The Washington Post, “At first, it was perceived as fighting for social justice by taking on the oligarchs. But now, people begin to perceive the conflict as a fight between two groups for power.” Putin, who comes out of the bureaucracy, has sided decisively with the bureaucrats. But in a showdown between greedy businessmen and corrupt bureaucrats, public opinion may not be so one-sided.
And keep in mind that Khodorkovsky made a deliberate decision to call the Kremlin’s bluff. He virtually invited his own arrest. A Yukos spokesman said, “He saw this coming. He was not fazed by it, and there was no question of him standing down.” Shortly after his arrest, Khodorkovsky issued a statement, declaring, “I don’t regret anything I have done, nor do I regret what has happened today.”
Khodorkovsky told The New York Times last month, “If I am arrested, it will be unpleasant, but not fatal.” He may be in jail, but he has attained the standing he has long sought—that of Vladimir Putin’s most dangerous political opponent.