During his press conference, Putin made a very arch reply to a question about Khodorkovsky’s ambition to be president: “Of what country?”
Well, Khodorkovsky is making it clear that the answer to that question is “Russia.” He gives voice to his ambitions in an extended interview in the FT, and repeats his forecast that Putin’s main danger comes from within his “entourage”.
In some respects, Khodorkovsky’s re-emergence and frank statements of his political ambitions and his vision of himself as savior of Russia are a favor to Putin. Especially in times that bring back uncomfortable memories of the 90s collapse, the most notorious oligarch from that era makes a perfect foil for Putin. Breaking the oligarchs was one of the primary foundations of Putin’s reputation and popularity (with the war in Chechnya being another). What better way for Putin to remind Russians of why he is needed than the reemergence of Khodorkovsky?
And Khodorkovsky is definitely a very flawed vessel. Even if his prosecution and imprisonment was a travesty of justice, that’s not to say that he couldn’t have been convicted in a fair trial. For contemporary reporting, both Russian and non-Russian, makes it clear that Khordorkovsky was a ruthless operator who used every trick in the book to avoid taxation, and expropriate minority shareholders and creditors. This article from April, 2000 provides the chapter and verse.
Most of these tricks involved offshore shell companies that he owned. For instance, Khordorkovsky would engage in asset stripping, whereby assets of his Russian enterprises were transferred to the shell companies he owned. Another trick was stock watering, whereby his entities would issue large numbers of new shares of stock that were sold to his shell companies, thereby diluting the ownership of outside investors. He used these devices to great effect in the immediate aftermath of the financial crisis. Non-Russian banks who had made loans to Khodorkovsky’s Menatep Bank collateralized by Yukos shares saw the values of these shares plummet when he stripped Yukos assets and watered the stock in a way that would have made Daniel Drew and Jay Gould blush.
Khodorkovsky was also the past-master at transfer pricing schemes, whereby output of his Russian companies would be sold to offshore entities at a fraction of the world price; the offshore entities would then sell at the world price. According to the Foreign Affairs article, during the first nine months of 1999, Yukos sold 240mm barrels of oil at about 10 percent of the world price to offshore entities, pocketing $800 million.
And of course, there is the way that he acquired Yukos, via the Loans for Shares deal, and the rigged auction that followed the (inevitable) government default on the loans.
Khodorkovsky was definitely not the hero of western investors back then. In fact, he was a villain.
For all this, Khodorkovsky exhibits little remorse. Arguably none:
I ask about the “loans-for-shares” auctions in 1995 when a handful of businessmen — the oligarchs — lent money to the near-bankrupt Russian state and received stakes in state businesses as collateral. When the state failed to repay the loans, the oligarchs sold the stakes to themselves at knockdown prices. Today the auctions are seen, I remark, as a kind of “original sin” hanging over Russian business.
“I wouldn’t entirely agree,” Khodorkovsky says. At the time it looked, he continues, as if a Communist candidate would beat President Boris Yeltsin in the elections, which would have spelt the end of private business. Given the risks, no foreign investor was interested. So the shares were worth only what Russian investors would pay — in Khodorkovsky’s case, about $300m, for just under 80 per cent of Yukos.
. . . .
The tax “minimisation” schemes — selling oil through onshore tax havens — at Yukos that were the heart of the trials against him were known to the authorities and even senior ministers, he insists. “In tax law, it’s a crime in most countries if you’ve hidden something. But we didn’t hide anything.” [This remark is particularly disingenuous.]
Note that his justification of the loans for shares fails altogether to address the issue of the rigged auctions. If no other investors were interested, why were the auctions rigged in order to ensure that none could possibly win?
Khodorkovsky was robustly unapologetic. ‘ As long as the tax regime is unjust, I will try to find a way round it.’
What complicates the Khodorkovsky story is his apparent conversion in around 2000, when Yukos adopted GAAP accounting and western governance standards, and began hiring American managers, including Bruce Misamore as CFO. Was this a Road to Damascus conversion, or a calculated strategy to make the company attractive to western supermajors? Certainly this was the effect: at the time of his arrest, he was on the brink of selling a large stake in Yukos to either Exxon Mobil or Chevron.
His late-in-the-day embrace of western business practices and his persecution are relevant in evaluating his character and motives today, but his history cannot be overlooked. I for one am very skeptical that he has undergone a fundamental change. The failure to repudiate some of his more outrageous actions certainly raises doubts. Someone should address them.
There’s a possible candidate. One of the initiatives that Khodorkovsky funds in order to advance his agenda is Interpreter Magazine, edited by Michael Weiss. This is beyond passing strange, because Weiss has crusaded against Russian money laundering through the use of shell companies and transfer pricing schemes-the very techniques that his paymaster refined into an art 20 years ago. Interestingly, I can find no evidence that Weiss has subjected his patron to similar scrutiny. Not even an acknowledgment that the denizens of Londonograd that he excoriates are pikers compared to his pioneering patron, let alone an inquiry that could attempt to determine whether the man who emerged from prison a year ago is different from the man who went into prison in 2003, and who did the things that put him there.
This would be a truly valuable investigation, far more important than anything Weiss or Interpreter has done. This is particularly true given Khodorkovsky’s return to political life.
There is another strange twist here. Khodorkovsky has come out in opposition to sanctions, and in support of Russia’s annexation of Crimea: he claims that returning it would be undemocratic, the act of a dictator. Given that Putin also claims to be carrying out the public will, this raises questions about how differently Khodorkovsky would act if he were in Putin’s place. It also raises questions about his commitment to the rule of law, which he claims to support.
In sum, Khodorkovsky is playing a political role. Indeed, he is holding himself out as the man who can put Russia on the path away from autocracy towards the rule of law and respect for civil society. He has a past. A very disreputable one, though one perhaps redeemed by reform and punishment. But one can never be sure that the past is truly gone. Given that the most scurrilous acts in the past involved money laundering and shell companies, you’d think that a journalist who has crusaded against those things would be the man to find out.