The Russian oil giant Yukos earns four percent of Russian GDP and is one of the country’s corporate giants with a growing network of international partnerships. Most countries would be proud of such a corporation, even if it is currently operating in an unruly and buccaneering Russian business environment that bears a strong resemblance that in the United States at the turn of the 20th century. It is therefore incredible that the Kremlin is seemingly about to plunge this jewel in the Russian corporate crown into bankruptcy. Yukos has been hit with a back tax bill of $7 billion. Though it has substantial cash flows, paying that sort of money in a single tranche as apparently required is absurd. Yet yesterday officials were still conducting raids on Yukos offices and the future of the company seemed bleak.
No one doubts that Yukos’ troubles began when its boss and largest shareholder, Mikhail Khordorkovsky, funded political opponents of President Putin during March’s election. Putin won by a landslide and quickly moved to teach Russia’s richest man a lesson, whose fabulous wealth came about through the dubious privatization program of the Yeltsin years. Khordorkovsky is now on trial for fraud and personal tax evasion.
In a society whose financial systems and commercial legal codes are as relatively new as that of Russia, there are probably few businesses of any size which have not in some way flouted, or come close to flouting, financial regulations and tax codes. In prosecuting Khordorkovsky, Putin’s administration is thus putting all other wealthy would-be opponents on notice that it will be simple matter to drag them before the courts as well.
Foreign investors are seeing an increasingly arbitrary application of state power, which will disrupt confidence Russia as a reliable investment area. But there are more important reasons to worry. Khordorkovsky is being humbled because he funded a political challenge to the Putin presidency. In a true democracy, he should be permitted to do that if he wishes. Were Putin a true democrat, he would have taken the view that after his overwhelming victory at the ballot box, Khordorkovsky’s challenge had come unstuck while his own position had been strengthened.
That Putin has instead sought revenge makes clear that his political instincts are still Soviet-era. The press and media have also been humbled and intimidated so that there are no truly free news outlets. Samizdats, like those from the old Communist days, are again starting to circulate. Everyone is realizing that challenging the Putin Kremlin carries a high price.
There is now speculation that the threatened bankruptcy of Yukos may force the re-nationalization of the company or transfer of power into the hands of Putin allies.
At the moment the world is still fixated on the mess in Iraq. But when the international spotlight returns to Russia, it looks as if it will illuminate a leader who is behaving like the president of a banana republic rather than one of the world’s most powerful states.
