Mikhail Khodorkovsky

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Khodorkovsky with then President of Russia Vladimir Putin on 20 December 2002.

Mikhail Borisovich Khodorkovsky (Russian: Михаи́л Бори́сович Ходорко́вский; born June 26, 1963 in Moscow) is a Russian former Komsomol (Soviet youth) activist who became one of Russia's oligarchs. In 2004, Khodorkovsky was the wealthiest man in Russia, and was the 16th wealthiest man in the world, although much of his wealth evaporated because of the collapse in the value of his holding in the Russian petroleum company YUKOS.^{[citation needed]}

On October 25, 2003, Khodorkovsky was arrested at Novosibirsk airport by the Russian prosecutor general's office on charges of fraud. Shortly thereafter, on October 31, the government under Vladimir Putin froze shares of Yukos because of tax charges. The Russian Government took further actions against Yukos, leading to a collapse in the share price. It purported to sell a major asset of Yukos in December 2004.

On May 31, 2005, Khodorkovsky was found guilty of fraud and sentenced to nine years in prison. The sentence was later reduced to 8 years. In 2003, prior to his arrest, Khodorkovsky funded several Russian parties, including Yabloko, the Communist Party of the Russian Federation, and even, allegedly, the pro-Kremlin United Russia.

In October 2005 he was moved into prison camp number 13 in the city of Krasnokamensk, Zabaykalsky Krai.

In March 2006, Forbes magazine surmised that Khodorkovsky's personal fortune had declined to a fraction of its former level, stating that he "still has somewhere below $500 m".^[1]

[edit] Entrepreneurship in Soviet Union

Khodorkovsky grew up in an ordinary Soviet Jewish^[2] family, in a two-room apartment in Moscow. The young Khodorkovsky was ambitious. He received excellent grades. He then attempted and succeeded in building a career as a communist functioneer. He became deputy head of Komsomol (the Communist Youth League) at his university, the Mendeleev Moscow Institute of Chemistry and Technology. The Komsomol career was one of the ways to get into the ranks of communist apparatchiks and to achieve the highest possible living standards.^[3]

After perestroika started, Khodorkovsky used his connections within the communist structures to gain a foothold in the developing free market. He used the help of some powerful people to start his business activities under the cover of Komsomol. Friendship with another Komsomol leader Alexey Golubovich helped him greatly in his further success, since Golubovich's parents held top positions in the State Bank of the USSR.^[3]

With partners from Komsomol, and technically operating under its authority, Khodorkovsky opened his first business in 1986, a private café; an enterprise made possible by Soviet leader Mikhail Gorbachev's programme of perestroika and glasnost. In 1987 they opened a "Center for Scientific and Technical Creativity of the Youth" (which eventually allowed him to found the bank Menatep^[4]). In addition to importing and reselling computers, the "scientific" center was involved in trading a wide range of other products; French brandy, Swiss vodka. It is alleged that these goods were mostly counterfeit: "Swiss" vodka was produced in Poland, and the brandy was not French^{[citation needed]}.

By 1988, he had built an import-export business with a turnover of 80 million rubles a year (about $10 million USD).

Armed with cash from his business operations, Khodorkovsky and his partners used their international connections to obtain a banking licence to create Bank Menatep in 1989. As one of Russia's first privately owned banks, Menatep expanded quickly, by using most of the deposits raised to finance Khodorkovsky's successful import-export operations.

Bank Menatep was also successful in forcing the government to award them the right to manage funds allocated for the victims of the Chernobyl nuclear accident. Because of its "exempt status", the bank allegedly might have been an extremely convenient vehicle for the evasion of tax and import duties. By 1990, critics suggest the bank was active in facilitating the large-scale theft of Soviet Treasury funds that went on at the time prior to and following the collapse of the USSR in 1991^{[citation needed]}.

In a prophetic statement of the time, Khodorkovsky is quoted as saying:^[3]

Many years later I talked with people and asked them, why didn't you start doing the same thing? Why didn't you go into it? Because any head of an institute had more possibilities than I had, by an order of magnitude. They explained that they had all gone through the period when the same system was allowed. And then, at best, people were unable to succeed in their career and, at worst, found themselves in jail. They were all sure that would be the case this time, and that is why they did not go into it. And I"--Khodorkovsky lets out a big, broad laugh at the memory--"I did not remember this! I was too young! And I went for it.

Khodorkovsky's connections with Komsomol and CPSU structures would prove critical in his success.

[edit] Political ambitions

Khodorkovsky also became a philanthropist, whose efforts include the provision of internet-training centres for teachers, a forum for the discussion by journalists of reform and democracy, and the establishment of foundations which finance archaeological digs, cultural exchanges and summer camps for children. Khodorkovsky's critics saw this as political posturing, in light of his funding of several political parties ahead of the elections for the State Duma to be held in late 2003.

He is openly critical of what he refers to as 'managed democracy' within Russia. Careful normally not to criticise the elected leadership, he says the military and security services exercise too much authority. He told The Times:

"It is the Singapore model, it is a term that people understand in Russia these days. It means that theoretically you have a free press, but in practice there is self-censorship. Theoretically you have courts; in practice the courts adopt decisions dictated from above. Theoretically there are civil rights enshrined in the constitution; in practice you are not able to exercise some of these rights."

[edit] The merger

In April 2003, Khodorkovsky announced that Yukos would merge with Sibneft, creating an oil company with reserves equal to those of Western petroleum multinationals. Khodorkovsky has been reported to be negotiating with ExxonMobil and ChevronTexaco about them taking a large stake in Yukos. Sibneft was created in 1995, at the suggestion of Boris Berezovsky, comprising some of the most valuable assets of a state-owned oil company. In a controversial auction process, Berezovsky acquired 50% of the company at what most agree was a very low price.^{[citation needed]}

When Berezovsky had a confrontation with Putin, and felt compelled to leave Russia for London (where he was granted asylum) he assigned his shares in Sibneft to Roman Abramovich. Abramovich subsequently agreed to the merger.

With 19.5 billion barrels (3 km³) of oil and gas, the merged entity would have owned the second-largest oil and gas reserves in the world after ExxonMobil and would have been the fourth largest in the world in terms of production, pumping 2.3 million barrels (370,000 m³) of crude a day. However, the merger had been recalled by the shareholders of Sibneft after the arrest of Khodorkovsky.

[edit] Prosecution

In early July 2003, Platon Lebedev, a Khodorkovsky partner and second largest shareholder in Yukos, was arrested on suspicion of illegally acquiring a stake in a state-owned fertiliser firm, Apatit, in 1994.^{[citation needed]} The arrest was followed by investigations into taxation returns filed by Yukos, and a delay to the antitrust commission's approval for its merger with Sibneft.^{[citation needed]}

Khodorkovsky was himself arrested in October 2003, charged with fraud and tax evasion. The Russian Prosecutor General's Office claims Khodorkovsky and his associates cost the state more than $1 billion in lost revenues.^{[citation needed]}

Subsequent to Khodorkovsky's arrest, Leonid Nevzlin gained a controlling stake in Yukos when Khodorkovsky handed him a 60% share in the holding company that controlled the firm.^[5] Nevzlin is himself now wanted in Russia and has since fled to Israel.^{[citation needed]}

On March 31 2009, a new trial of Khodorkovsky and Lebedev began in Moscow for fresh charges on embezzlement and money laundering. The two men face up to 22 more years in prison.^[6] Both of them pleaded non guilty and denounce vague accusations.^[7]

[edit] Impact of arrest

Initially news of Khodorkovsky's arrest had a significant effect on the share price of Yukos. The Moscow stock market was closed for the first time ever for an hour in order to assure stable trading as prices collapsed. Russia's currency, the ruble, was also hit as some foreign investors questioned the stability of the Russian market. Media reaction in Moscow was almost universally negative in blanket coverage, some of the more enthusiastic pro-business press discussed the end of capitalism, while even the government-owned press criticised the "absurd" method of Khodorkovsky's arrest.

Yukos moved quickly to replace Khodorkovsky with Russian born U.S. citizen Simon Kukesas. Simon Kukesasan, who became the CEO of Yukos was already an experienced oil executive.

The U.S. State Department said the arrest "raised a number of concerns over the arbitrary use of the judicial system" and was likely to be very damaging to foreign investment in Russia, as it appeared there were "selective" prosecutions occurring against Yukos officials but not against others.

A week after the arrest, the Prosecutor-General froze Khodorkovsky's shares in Yukos to prevent Khodorkovsky from selling his shares although he retains all his rights to vote the shares and to receive dividends.

Khodorkovsky's arrest alarmed foreign investors and policymakers alike.

In 2003 Khodorkovsky's shares in Yukos passed to Jacob Rothschild under a deal they concluded prior to Khodorkovsky's arrest.^[8][9]

[edit] Criminal charges

Prosecutors stated that they operated independently of the government appointed by President Putin. The Prosecutor-General Vladimir Ustinov was appointed by former President Yeltsin and was not seen as being particularly close to Putin, who once tried to remove him. However, he was politically ambitious and prosecuting Russia's most prominent and successful tycoon was perceived as a boost to his political career and intended candidacy for the Duma.

The criminal charges against Khodorkovsky read as follows:

In 1994, while chairman of the board of the Menatep commercial bank in Moscow, M. B. Khodorkovsky created an organized group of individuals with the intention of taking control of the shares in Russian companies during the privatisation process through deceit and in the process of committing this crime managed the activities of this company.

Khodorkovsky was charged with acting illegally in the privatisation process of the former state-owned mining and fertiliser company Apatit. It is alleged that the CEO of Bank Menatep and large shareholder in Yukos Platon Lebedev assisted Khodorkovsky. Lebedev was arrested and charged in July 2003.

According to the prosecution, all four companies that participated in the privatization tender for 20% of Apatit's stock in 1994 were shell companies controlled by Khodorkovsky and Lebedev, registered to create an illusion of competitive bidding that was required by the law. One of the shell companies that won that tender (AOZT Volna) was supposed to invest about US$280 million in Apatit during the next year, according to their winning bid. The investment was not made and Apatit sued to return their 20% of stock. At this point, Khodorkovsky et al. had transferred the required sum into Apatit's account at Khodorkovsky's bank Menatep and sent the financial documents to the court, so Apatit's lawsuit was thrown out. The very next day the money was transferred back from Apatit's account to Volna's account. After that the stock was sold off by Volna in small installments to several smaller shell companies, which were, in turn, owned by more Khodorkovsky-owned companies in a complicated web of relationships. Literally dozens of companies were registered for these purposes in Cyprus, Isle of Man, British Virgin Islands, Turks & Caicos and other offshore havens. Volna actually settled the Apatit lawsuit in 2002 by paying $15 million to the privatization authorities, even though it did not own Apatit stock anymore at the time. However, according to the prosecution, that $15 million sum was based on the incorrect valuation which was too low. Allegedly, at the time Apatit was selling off the fertilizers it was producing to multiple Khodorkovsky-owned shell companies below market value, and, therefore, Apatit formally did not have much profit, lowering its valuation. Those shell companies then resold the fertilizer at the market value, generating pure profit for Khodorkovsky, Lebedev and others.

In addition, prosecutors conducted an extensive investigation into Yukos for offences that went beyond the financial and tax-related charges. Reportedly there were three cases of murder and one of attempted murder linked to Yukos, if not Khodorkovsky himself.

One area of interest to the Prosecutor-General included the 1998 assassination of the mayor of Nefteyugansk in the Tyumen region, Vladimir Petukhov. Nefteyugansk was the main centre of oil production within the Yukos empire. Suspicions arose in Nefteyugansk because Petukhov had publicly and frequently campaigned about Yukos' non-payment of local taxes.

President Putin himself commented on this aspect of the investigation while questioned about the investigation into Yukos in September 2003. President Putin said:

The case is about Yukos and the possible links of individuals to murders in the course of the merging and expansion of this company...the privatizations are the least of the reasons for it...in such a case, how can I interfere with prosecutors' work?

The verdict of the trial, repeating the prosecutors' indictments almost verbatim, was 662 pages long. As is customary in Russian trials, the judges read the verdict aloud, beginning on May 16, 2005 and finishing on May 31. Khodorkovsky's lawyers alleged that it was read as slowly as possible to minimize public attention*.^[10]

Khodorkovsky was defended by Karinna Moskalenko, who now faces being disbarred by the Russian government for her alleged negligence in defending him. Khodorkovsky denies being dissatisfied with her conduct.

[edit] In prison

On May 30, 2005, Mikhail Khodorkovsky was sentenced to 9 years in a medium security prison. At the time, he was detained in Moscow prison Matrosskaya Tishina.

On August 1, 2005, a political essay written by Khodorkovsky in his prison cell, titled "Left Turn", was published in Vedomosti, calling for a turn to more social responsible state. He stated that: "The next Russian administration will have to include the Communist Party of the Russian Federation and the Motherland Party, or the historical successors to these parties. The left-wing liberals, including Yabloko, and right-wing Ryzhkov, Khakamada and others should decide whether to join the broad social-democratic coalition or to remain grumpy and without relevance on the political sidelines. In my opinion, they have to join because only the broadest composition of a coalition in which liberal-socialist (social-democratic) views will play the key role can save us from the emergence, in the process of this turn to the left turn, from a new ultra-authoritarian regime. The new Russian authorities will have to address a left-wing agenda and meet an irrepressible demand by the people for justice. This will mean in the first instance the problems of legalizing privatization and restoring paternalistic programs and approaches in several areas."^[11]

On August 19, 2005, Khodorkovsky announced that he was on a hunger strike in protest at his friend and associate Platon Lebedev's placement in the punishment cell of the jail. According to Khodorkovsky, Lebedev had Diabetes mellitus and heart conditions, and keeping him in the punishment cell would be equivalent to murder.

On August 31, 2005, he announced that he would run for parliament.^[12] This initiative was based on the legal loophole: a convicted felon cannot vote or stand for a parliament, but if his case is lodged with the Court of Appeal he still has all the electoral rights. This "loophole," or alternatively, ordinary provision of appellate procedure, is a common practice in US federal and state court. Usually it requires around a year to get somebody's appeal through the Appeal Court, so it should have been enough time for Khodorkovsky to be elected. To imprison a member of Russian parliament, the parliament should vote for stripping his or her immunity. Thus, he had a hope to escape from his prosecution. But the plans were flawed, as the Court of Appeal unusually took only a couple of weeks to process Khodorkovsky's appeal, reduce his sentence by one year and invalidate any of his electoral plans until the end of his sentence.

As reported on October 20, 2005, Khodorkovsky was delivered to the labor camp YaG-14/10 (Исправительное учреждение общего режима ЯГ-14/10) of the town of Krasnokamensk near Chita.^[13] The labor camp is attached to a uranium mining and processing plant and during Soviet times had a reputation as a place from which nobody returned alive.^{[citation needed]} According to news reports, currently the prisoners are not used in uranium mining and have much better chances of survival than in the past. The second part of Khodorkovsky essay/thesis "Left Turn" was published in Vedomosti on November 11, 2005, in which he expounded his socialist manifesto.^[14]

On April 13, 2006, Khodorkovsky was attacked by a prison mate while he was asleep. It was speculated that a prison mate tried to disfigure his face but not to kill him. Jail sources told reporters that a fellow prisoner Alexander Kuchma attacked him after a heated conversation. Western media immediately accused the Russian authorities of trying to play down the incident. In January 2009, the same prisoner filed a lawsuit for 500,000 rubles (~$15,000) against Khodorkovsky, accusing him of homosexual harassment.^[15]

On February 5, 2007, new charges of embezzlement and money laundering were brought against both Khodorkovsky and Platon Lebedev.^[16] Khodorkovsky's supporters point out that the charges come just months before Khodorkovsky and Lebedev were to become eligible for parole, as well as just a year before the next Russian presidential election.^{[citation needed]}

On January 28, 2008, Khodorkovsky started a hunger strike [4] to help his associate Vasily Aleksanyan, who is ill and was held in jail and who was denied the necessary medical treatment. Aleksanyan was transferred from a pre-trial prison to an oncological hospital on 8 February 2008,^[17] after which Khodorkovsky called off his strike.^[18]

In prison, Khodorkovsky announced that he would research for, and prepare, a Ph.D. dissertation on the topic of Russian oil policy.^{[citation needed]} The third part of Khodorkovsky's essay/thesis "Left Turn" with the subheading "Global Perestroika" was published in Vedomosti on November 7, 2008, in which he stated: "Barack Obama’s victory in the US presidential elections is not simply the latest change of power in one individual country, albeit a superpower. We are standing on the threshold of a change in the paradigm of world development. The era whose foundations were laid by Ronald Reagan and Margaret Thatcher three decades ago is ending. Unconditionally including myself in that part of society that has liberal views, I see: ahead – is a Turn to the Left."^[19]

[edit] Release date

According to his official site, Khodorkovsky would have been eligible for early release, but an alleged conspiracy involving jail guards and a cell mate resulted in a statement that Mikhail had violated one of the prison rules. The statement was false, but it was sufficient to make Khordorkovsky lose his rights, once the statement was logged in his file.^[20]

It is predicted that he might be released by the middle of 2011,^[21] although Khodorkovsky is currently awaiting trial on fresh charges of embezzlement and money laundering, which could lead to a new sentence of up to 27 years. He alleged that both cases were instigated by Igor Sechin. “The second as well as the first case were organized by Igor Sechin,” the tycoon claimed in an interview with The Sunday Times from a remand prison in the Siberian city of Chita, 4000 miles east of Moscow.^[20]

On August 22, 2008, he was denied parole by Judge Igor Faliliyev, at the Ingodinsky regional court in Chita, Siberia. The basis for this was in part because Khodorkovsky "refused to attend jail sewing classes".^[22]

[edit] See also

• Leonid Nevzlin (one of the key figures in the Yukos oil firm headed by Mikhail Khodorkovsky)

[edit] References

[edit] External links

Wikimedia Commons has media related to: Mikhail Khodorkovsky

• Khodorkovsky & Lebedev Communications Center (English)
• Khodorkovsky's official Russian website
• Independent Institute – Ivan Eland, Director of the Center on Peace & Liberty at The Independent Institute and Assistant Editor of The Independent Review, discusses the international fallout from Khodorkovsky's arrest.
• Council on Foreign Relations Interview – Marshall I. Goldman, associate director of Harvard's Davis Center for Russian and Eurasian Studies, explains how Mikhail Khodorkovsky became an oil billionaire and how his involvement in politics led to his arrest
• Centre for Eastern Studies report: "The Yukos Affair: its Motives and Implications" (in Polish and English)