Arrested development

Where Money Talks

Will Mikhail Khodorovsky's arrest rebound on the Putin presidency?

An expatriate Indian businessman who was among Indira Gandhi's most loyal supporters tells of how she urged him to start a newspaper in India.

He hummed and hawed, eventually explaining that she would be angry if the paper criticised her government while liberal opinion-makers would be if it didn't. Mrs Gandhi gave one of her wry little smiles and didn't pursue the point.

That tale came to mind last weekend with the dramatic arrest of Russia's richest man, Mikhail Khodorkovsky, by black uniformed special forces who stormed his chartered jet as it was refuelling in the Siberian airport of Novosibirsk.

The scale is grander, but the nexus between profit and politics that it highlights is something Indians can understand.

In both countries "" perhaps in all democracies "" businessmen intervene in politics to protect their fortunes while politicians look to businessmen to protect their careers so that they can make fortunes.

The modus operandi is also familiar. London estate agents have many stories of Russians trying to buy fashionable flats with a million pounds in notes stuffed in suitcases.

They need a bolt hole to escape to if things get too hot in the motherland. Cash is the only currency they know.

The 40-year-old Khodorkovsky, who has been charged with tax evasion, fraud and swindling the state of about 600 million pounds, is not the first Russian billionaire to have stumbled.

Two others, Boris Berezovsky, a Soviet-era mathematician who acquired Aeroflot, and Vladimir Gusinsky, who waxed rich developing Moscow real estate like our own urban contractors, are already in exile.

A third, Roman Abramovich, who owns London's Chelsea football club, is said to be cashing in his Russian assets preparatory to flight.

Berezovsky and Gusinsky had another common feature that connects them with Khodorovsky. They became media barons.

Khodorovsky acquired the Moskovskiye Novosti earlier this year and engaged an editor who was critical of Vladimir Putin, the president who had vowed to destroy the oligarchs "as a class" but has been building up his own supportive lobby.

With the Duma elections due on December 7 and presidential election due next year, Putin may have felt he had to act. Khodorkovsky, who is worth nearly seven billion pounds, is the darling of the West and is mentioned as a potential contender for the Kremlin.

Like half a dozen other tycoons, Khodorovsky took advantage of the chaotic privatisation programme that Moscow implemented in the nineties and bought the oil giant Yukos for a song and merged it with a smaller oil company, Sibneft.

Yukos-Sibneft became so attractive that ExxonMobil and Chevron Texaco were vying for a finger of up to 40 per cent in its equity pie.

Perhaps because of this interest, perhaps to burnish his public image, perhaps to win Western applause, Khodorovsky then began to flaunt what is usually regarded as Western business ethics.

He stressed the importance of corporate accountability, published comparatively transparent accounts, paid taxes, doled money out in dividends, and gave to charity.

What next, the Chekists wondered. This clutch of defence and security officials which takes its name from Stalin's sinister Cheka secret police and is regarded as Putin's Praetorian guard has a vested interest in the presidency.

Chekists were already battling with the oligarchs who had kept the ailing Boris Yeltsin in power after his ratings fell to single figures.

They were not kept guessing long about the new threat to Putin for Khodorkovsky revealed his political ambitions by financing two parties that oppose the Kremlin establishment and hinted that he might run for president in 2008.

The regime's first action was against a Yukos-Sibneft shareholder, Platon Lebedev, who was charged in July with stealing state property over the privatisation of a fertiliser company.

Another shareholder has since been charged with tax evasion. Several employees are being investigated. Significantly, Abramovich himself has a 26 per cent share in the group.

One speculation is that the government will let Khodorovsky languish in the notorious Matrosskaya Tishina pre-trial jail, overcrowded and rife with violence and disease, until December 30 so that he cannot influence the Duma election.

Another is that he will be forced to come clean and declare himself a presidential candidate. He can then be treated "" which means coerced and pressured "" as just another ambitious politician.

Now, he is a symbol of free enterprise and, therefore, something of a sacred cow. His arrest has sent tremors through the West. The US ambassador in Moscow, Alexander Vershbow, wonders "whether or not Russian legislation is being applied selectively."

Think-tanks in London and Washington fear that the arrest might discourage foreign investors. The Russian stock market has plunged by more than 14 per cent, and Abramovich has seen 1.4 billion pounds wiped off his Yukos-Sibneft holdings.

The World Bank fears that Russia's economy is vulnerable to a fall in the oil price. Western commentators warn that the arrest will rebound on Putin and his presidency.

So, what is the answer? Idealists would say that oligarchs should keep out of politics. That would certainly avoid many problems.

But it's rather like Kautilya's comment that it is as difficult for a man with honey on his tongue not to taste its sweetness as it is for a man who handles money not to pocket some.

Politics will never be kept out of sport; neither will big business ever keep out of politics. In practice, it is difficult to divorce democracy from the politics of money power. My NRI friend was wise not to tempt fate by launching a newspaper.