Western Naivete in the Case of Mikhail Khodorkovsky

etalkinghead ^ | 6/7/05 | Kira

[ratemy]

The Russian “legal system,” which would be funny if it wasn’t so painful, has declared Mikhail Khodorkovsky guilty on a dozen or so counts of anti-social behavior. For this, he has been stripped of all assets and will spend the next nine years in jail.

Moscow has always been spectacularly obvious about her tolerance for those who rise above the rest. And yet to solely blame the evil Putin would be to underestimate the unbelievable ability of the Russian people to blame the exceptional among them for all ills, and of the West’s unbelievable ability to glaze over the obvious. Here is a quick review of the simple, and sadly unoriginal story of the fallen “oligarch.”

In 1991, the Soviet Union collapses on itself – not least because its government-run industries are incredibly expensive to maintain due to their inefficiency and voodoo economic principles. Yeltsin attempts to plug the power vacuum by unraveling the threads of state-run industry. He forges ahead quickly, as popular economic theory insists that property (power) spread among the population is less likely to be captured by a single group. In a country without financial, legal or administrative institutions that establish the parameters or enforce the rules of property transactions –the cart was placed under the horse. Could it have been done a different way? There are entire schools of thought dedicated to such retrospective analysis. However, many agree that Yeltsin’s main objective was to secure the power against the obnoxiously loud Communists.

So lets look at the facts: we’re in a hurry to dismantle state-run industry (create ownership, throw off the yoke of debt) and we haven’t established institutions that enforce regulations, contract laws, property taxes, independent judicial systems, etc. There were attempts to adopt Western-style institutions, by (in Microsoft terms) copying and pasting. Even the word “business” was adopted from English to become the Russian “biznes.” A foreign idea in a broken land. For the sake of simplification, it can be said that state assets were auctioned off through several schemes, and eventually ended up in the hands of “the oligarchs.” Now – this is the point of contention: How did these people get these assets? Some had political/economic connections. Others developed them. The biznes-savvy seized the moment. There was not a single asset that was acquired for its actual worth. And anyway, how does one establish the worth of an asset that didn’t have a single honest accounting book to its name? Khodorkovsky stood out because he brought transparency to a company he made thrive - enough transparency to create western interest in Russian oil. Putin’s inner circle framed the predicament as follows: he can allow American leverage over his only security (Russian oil) or he (and several others) can make a few billion rubles while removing a very annoying and brilliant biznesman. A tough choice…

So was Khodorkovsky after political power too? Anyone claiming that a Russian Jew is guilty of displaying serious (presidential) political ambitions will be met with laughter from anyone remotely aware of Russian society. The media has formed another naively western analysis. The generation of Russian Jews that will be politically ambitious without being labeled delusional is yet to be born. The tolerant West must not underestimate Russian anti-Semitism. That is not to say that Khodorkovsky & Co. were oblivious to the political game or that they didn’t attempt to fund (buy) political influence in the State Duma to protect their economic interests. But to expect someone to stay clean in a pile of manure is almost as naïve as to attempt it.

For two years we watched as western media fell for the oldest trick in the socialist book – nationalization through accusation. The uncanny auctioning of Yukos assets to a non-existent company was a predictable season finale to a bad drama series. Roman Abramovich, owner of Sibneft oil company (and Khodorkovsky’s replacement as Russia’s wealthiest man) played the decoy de jour. The Yukos-Sibneft deal effectively subjected Yukos assets to Sibneft’s Board of Directors. But the deal was perhaps too obvious (albeit not to western media) and an auction of assets was necessary to repay the State its dues. An obscure company placed a last-minute bet on Russia’s most successful oil giant, and won. Surprisingly, the company had a non-existent forwarding address. I haven’t heard of what happened to the hundreds of thousands of Russians previously employed by Yukos, but I hear the former Yukos board members (that aren’t in jail) fled to Israel.

Perhaps these accusations are too complicated for the West to rock the boat while fighting the war on terror.

The outcome: Putin got away with something worse than murder. He reminded every foreign investor and aspiring biznes talent who’s boss. And that will take a bigger toll on Russia’s short-lived “democracy” and its non-existent “market economy” than if he had put on his KGB uniform and done what suits him best.

Some extra facts for the still perplexed: -Yelena Baturina, owner of a construction and plastics company, and incidentally the wife of Moscow Mayor Yuri Luzhkov, is worth $1.4 billion. -The millionaire owner of Russia’s largest juice producer, Nikolai Bortsov, is a member of Russia's parliament and among 18 government officials on the Forbes list of the “Golden 100.” -Russia’s richest “public servant,” Suleiman Kerimov, is worth $2.6 billion. -Let’s dare Russia to investigate their tax records.

[GarySpFc]

That is fine, but as the article points out, if investment is not secure under the legal system, the economy suffers regardless of the tax rates.

Oh, I see another Chicken Little is in this forum. While the Chicken Little's sit on the sideline I am earning a great return in my Russian mutual fund, TMRFX.

[annalex]

I know, money can be made in Russia. Should we now stop any discussion of economic consequences of political actions because you know a good mutual fund?

[Romanov]

"The russian people dont clamor to the government about corrupted police that rob hard working people every day, as they get home from work. They don't clamor when their pensions are lowered or when their water is turned off. What makes you think they are clamoring for justice in the Khodorkovsky case? In countries where mass media is state-controlled (and there it is), opinion is created, not followed. There are many many others to investigate if justice is what "the russian people" or putin seek."

That is not true. Russians rank police corruption as one of their biggest problems. Their pressure on the government is such that Putin himself made a speech at the MVD (Interior Forces) and chastised them for engaging in corruption, or looking the other way. A day does not go by in the Russian media where there is an article, a radio broadcast, or a documentary about police corruption.

The problem with the Russian police is they get paid next to nothing, which means they cannot attrack people who want to serve for the good of their fellow citizens. Instead, they get petty thugs, or uneducated villagers who soon supplement their income by picking on the weak. Russian outrage at this is not muted.

[ratemy]

Ok, so you are an apologist for the current state of Russia - fine...

Tell me how the Khodorkovsky decision (and the fallout of that case - where putin-connected politcos collect the spoils) is good for the country/world.

[struwwelpeter]

Here is an article from a Russian site I found interesting:

"A data base has appeared for sale in Moscow: bank transactions for the 4th quarter of 2004. Salesmen of this illegal data base last week sent emails offering the goods for sale. Within the data can be found even the biggest transaction of past year - the auction sale of 'Yuganskneftegaza', according to the newspaper 'Vedomosti'."

The database is going for 3000 rubels ($100). It would be neat to see the specifics of that particular transaction, wouldn't it?

[GarySpFc]

Tell me how the Khodorkovsky decision (and the fallout of that case - where putin-connected politcos collect the spoils) is good for the country/world.

The Russian people will certainly have more faith their government is trying to do the right thing. Russia’s problems were caused, he said, because the vast wealth and state enterprises were essentially stolen by a "few scoundrels and frauds.” Alexsander Solzhenitsyn 6/7/05

[ratemy]

How is taking assets developed from anarchy into a western-styled corporation, and handing them to politco cronies "the right thing to do?"

[jb6]

Cary & Raleigh NC had the exact same thing. They were paying their officers a starting salary of $24K. This was so low that the officers couldn't afford to live within Raleigh or let along Cary (even more expensive Yuppy town next door). The better ones were being sucked up by the LAPD and the NYPD who were both paying in excess of $45K for rookies. What was left was a dumbed down and very corrupt police force. They finally started to solve this with a 50% pay increase.

[jb6]

The media has formed another naively western analysis. The generation of Russian Jews that will be politically ambitious without being labeled delusional is yet to be born. The tolerant West must not underestimate Russian anti-Semitism.

Hint, several of the prime minister (including the present one) were/are half jewish. Which is more then ever made it to our Vice Presidency. We as a nation have had ONE non-protestant president: Kennedy.

[jb6]

into a western-styled corporation

And starting from tha assumption you've gone wrong.

[GarySpFc]

How is taking assets developed from anarchy into a western-styled corporation

Let's see, your so-called western-styled corporation keeps two sets of books to avoid taxes. How can you possibly label it western-styled?

[K. Smirnov]

The russian people dont clamor to the government about corrupted police that rob hard working people every day, as they get home from work. Excuse me. I am one of those people. I do not get robbed by the police. And if you read our papers or websites, you will see a lot of clamouring.

[K. Smirnov]

The database is going for 3000 rubels ($100). It would be neat to see the specifics of that particular transaction, wouldn't it?

You are being misinformed. The database is sold for approximately 800 USD (ca 23000 roubles). It is on external USB hard drive with all the software to run the queries preinstalled. In the original database there were only INNs available (INN - the taxpayer's identification number). I guess that the thiefs attached a reference table to the database with the INN and the company name.

[KiraZ]

I appreciate your comment. Unlike some of the responses posted here, its civilized.

True, Russians are disgusted with corruption. However, I'm sure you are well aware, the corruption (bribes) permeate through all of society, from train stations to court rooms. Therefore, to identify low salaries as a cause or justification for police corruption is to ignore that this is simply carried over from the Soviet past. I call the police pulling someone over and demanding cash for an unnamed violation "a robbery". Apparently, it has never happened to some.

Anyway, it was explained to me by a Russian police officer rookie that arriving on the force, he learned very quickly that there is a pool of the money collected, and divvied up at the end of the day. If you don't contribute your share to the pool, there are consequences.

Point being: Russians are pissed about the corruption, of course. It may even currently be on Putin's agenda (and thus in newspapers). But what is being done about it? That is the fundamental difference between Russia and America. Russians are the most cynical people in the world, and they don't act. Perhaps they haven't learned how to be political (push for accountability.) Perhaps there aren't channels to do so (but then lets not confuse Russia with a democracy.) Perhaps its not really on Putin's agenda to clean up corruption (except that which can be profitable).

As he has demonstrated - he can face off with the mightiest/evilest of "oligarchs"... if only he could name some people on the police force who will henceforth be held accountable for their men's conduct... that is just the most obvious start.

PS - The police officer rookie is a not-so-distant relative of Putin's, and well educated. He very well recognized that he was going into a profitable career.

[KiraZ]

"And if you read our papers or websites, you will see a lot of clamouring."

On television - there were video shots of people responding to the pro-Khodorkovsky demonstrators. I guess we'd call them the anti-pro-Khodorkovsky crowd. It was very telling: An old woman had leaned her picket sign (which read something like "vor dolzhen platit'") against the wall of a building and was sitting on the ground reading her book. A sign of a spontaneous, clamouring, passionate protestor? I realize that she's not spokesperson for an average Russian citizen - but please consider that demonstrations are often organized and opinions are often shaped.

[struwwelpeter]

The article on securitylab.ru website stated 3000 rubels, but I differ to your superior/insider knowledge.

I found the comments on this site to be very interesting:

uzhzhas... kuda my katimsya?! skoro polnye dos'e na vsex zhiteley RF budut prodavat' s pal'chikami, fasami i profilami. 8( Bol'shiy Brat?

horrors... where are we heading?! soon full dossiers on every resident of the Russian Federation they'll sell with fingerprints, frontal and profile pictures. :-( Big brother?

Vot ehto lol!!! Sto pudov kto-to iz svoikh kachaet po-tikhomu bazu. Uzhe ne stesnyayas' cherez kur'era dostavlyayut, skoro za 6000 rubley mozhno budet kupit' voennye tayny RF, vmeste s pitstsey.

Now this is LOL!!! 100% it's one of their own copying the data base on the sly. Already he isn't shy about sending it through a courier, soon for 6000 rubels you'll be able to buy Russian Federation military secrets together with a pizza.

Amazing how much they sould like... us :-)

These comments are pure Russian, however:

>Ty zarplaty tamoshnie znaesh'?
>"professionalov" tuda ne zatashchish'.

Kakie zarplaty v TsB... ya znayu. Zarplaty mama ne goryuy. Mozh konechno uborshchiya tetya Dusya i poluchaet malo, no my ne pro uborshchits govorim. A tak tam zarplaty ox---nnye. Tak pribedyat'sya ne nado. Profi by radi tudy poyti, tol'ko X kto voz'met. Odin blat. Vot iz-za nego u nas v strane i ZHOPA.

>You know what the pay is there?
>you couldn't drag 'professionals' over there.

What pay at the Central Bank... I know. Don't cry about pay, mama. Of course you can be cleaning lady Dusya and get very little, but we're not talking about cleaning women. But the pay there is so-so. So you don't have to go broke. Professionals would be happy to go there, but f--- who would take them. It's all who you know. And here is why it's the rear end in our country.

"As far as your bonus, here's a sign. Place it where you want."

[Romanov]

Enjoyed reading your post, very true statements. I will remind you though that last summer (or summer before last) the Russian government arrested over 100 policemen (to include bigwigs) for corruption. Unfortunately, that's just a drop in the bucket.

[K. Smirnov]

Sure, this information was stolen by Central Bank employee. Knowing their near-paranoic security measures I may guess that there was a mole :)

What really amazes me, is that our authorities pay very little attention to people selling the stolen information.

Regarding this forum - read it to the very end ^) The last post (27-05) seems to be quite self-explanatory.

[struwwelpeter]

My Russian's pretty weak, but I think I got this:

Chto kharakterno, podobnykh proisshestviy ne bylo pri Dubinine i Gerashchenko, khtoya togda normativnye dokumenty po informatsionnoy bezopasnosti ne byli stol' zhestkimi. Kto pomnit, 10 let nazad maketnye fayly peresylali v MTsI otkrytym tekstom, zazipovannye s 6-symvol'nym parolem. I nichego! IMHO gniloy krot rabotaet v TsB ne bol'she trekh let. Veryatno imeet mesto sgovor.

What's characteristic, is that there weren't any similar incidents during Dubinin and Gerashchenko, even though back then information security norms weren't so rigid. Does anyone remember 10 years ago when files were sent to MTsI in plain text, encyphered behind a 6-symbol password. And nothing happened! IMHO the rotten mole has been working at the TsB for not more than three years. There's probably a deal going on.

This part is confusing:

A chem govorit, esli aktivno rabotayut lyudi, zasvetisvshiesya v 1998 gody?

What's there to talk about when there are people actively at work who were lit up by 1998?

Does this mean that there are people at the Russian central bank who were responsible for the money crisis of '98?

[K. Smirnov]

I think so. I guess your knowledge of Russian is way better than "Ira doesn't love you". LOL!