A Clash of Views on Yukos Sale

The lobby of the sleek, marble-and-glass headquarters of the Yukos Oil Co. for much of the last year has featured art with a single subject: the slim, handsome face of former Chief Executive Mikhail Khodorkovsky spread across larger-than-life posters. In lyrical scenes, Khodorkovsky is seen smiling at his employees, touring his company’s remote oil pumping facilities in Siberia, and in tight close-ups, looking contemplative.

Khodorkovsky also has his own website, in Russian and English. These days, most of its photos of the 41-year-old entrepreneur show him sitting behind the gray bars of a prison cage in a Moscow courtroom, where he faces charges of engineering a $1.4 billion tax fraud.

Khodorkovsky has long been a major symbol for Western-style economic reform in Russia. But today, when the heart of his business empire goes on the auction block to help pay $27 billion in tax assessments, attention will be focused on more than Khodorkovsky’s fate: The sale of Yuganskneftegaz, Yukos’ million-barrel-a-day oil center in Siberia, would put the Russian government in firm control of the bulk of the nation’s oil wealth.

Whether that is a good thing or a bad thing -- and whether Khodorkovsky is a dissident hero or a criminal oligarch -- is seen from sharply different perspectives in the Kremlin and the White House. The clashing views typify the increasingly diverging outlooks of the two nations in the post-Soviet era.

For many in the U.S., Yukos is an example of a well-run, Western-oriented, transparent company that ran afoul of the dark power structures that accompanied the rise of Vladimir V. Putin, a former KGB officer, to the presidency. The U.S. State Department’s comments make it clear that Washington views today’s auction and Khodorkovsky’s trial as a litmus test for economic reform, an independent judiciary and the rule of law in Russia.

Many in Russia see the Yukos case as an example of a powerful private businessman who acquired his company from the public through theft and violence and then tried to use it to wield political power.

For the Kremlin, Khodorkovsky’s sympathizers have been duped by the millions of dollars the entrepreneur has spent on lawyers and public relations companies in the U.S. to create the illusion that the intricate series of offshore shell companies and tax-avoidance schemes, which enabled Yukos to avoid billions of dollars in tax payments, were simply legal shelters any company might use.

“The U.S. is concerned ... first and foremost [about] what kind of respect for independent corporations the Russian government is going to give,” State Department spokesman Richard Boucher said last week. “That becomes a concern for us not only as a matter of law, but also because of the way it affects the investment climate and prospect for further development in Russia.”

But critics in the West, Russian prosecutors frequently complain, forget that Khodorkovsky’s top security official is charged in connection with two murders allegedly carried out in the days before Khodorkovsky decided to have his company play by the transparent corporate rules of Western business.

What has shocked Western observers -- that Russia’s most successful company is about to be gutted and sold to the state-controlled gas giant, Gazprom -- is not shocking at all in Russia, a country where capitalism is still in its adolescence.

“This is a reflection of a more general tendency of different understandings ... not only between Russia and the United States, but between Russia and Western Europe too,” said Andrei Kortunov, president of the New Eurasia Foundation in Moscow.

In a nation where power is held by less than a dozen people in the heart of the Kremlin, there are many theories about the alternative reasons behind Khodorkovsky’s October 2003 arrest and the prosecution of Yukos.

The leading theory is that the Kremlin feared Yukos’ plans to merge with another private Russian oil company, Sibneft. The move would have created one of the biggest oil firms in the world, an entity that was ripe for sell-off to a major Western oil company.

Another reason, some say, was Yukos’ announced intention to build its own pipeline to transport oil to the U.S. and Europe, a move that would have broken the government’s pipeline monopoly. The Kremlin, many analysts say, decided to wrest back state control of a vital industry.

“It was not an individual fight against Khodorkovsky. It was the beginning of a struggle to change the structure of ownership in the [energy] sphere. To change the very system, once again,” said Yevgeny Gavrilenkov, chief economist at Troika Dialog, a Moscow investment firm.

Also threatening to the Kremlin were Khodorkovsky’s political ambitions, some point out. Khodorkovsky was contributing privately to business-oriented political parties that oppose Putin.

With a parliamentary election scheduled a little more than a month after Khodorkovsky’s arrest, Yukos increased support for opposition candidates and formed alliances with the still-powerful Communist Party, putting the company in position to potentially defeat much of the Kremlin’s agenda.

“Yukos had effectively launched a hostile takeover bid for the Russian government,” said Eric Kraus, chief strategist for the Sovlink investment firm and a frequent critic of Western-leaning foundations in Russia.

“I initially got it wrong. Everyone believed this story being put out by Yukos, that these guys were honest, hard-working, Western-friendly investors who were being attacked for funding liberal parties. And then [people] began to remember who these guys were, and what they had done,” Kraus said.

Yukos officials have pointed out that their political contributions and lobbying campaigns are business-as-usual for corporations in the West; indeed, they are part of a company’s responsibility to maximize profits for its stockholders.

“The real threat that Khodorkovsky posed was that Khodorkovsky had become the most independent businessman in the country,” said Alexei Kondaurov, a former KGB general and chief of the Yukos analytical department who is now a lawmaker.

“He created what others had failed to create: a transparent, Western-style-of-management company which already had a positive international image ... and if 20% of this new company [he was creating through the Sibneft merger] would have been sold to a Western company, the independence of Khodorkovsky from the authorities would have been fortified to a very great degree,” Kondaurov said. “And it’s clear the authorities were not comfortable with that idea.”

Washington has said that the prosecution of Yukos is selective.

U.S. Ambassador Alexander Vershbow has publicly raised questions about the fairness of the tax charges.

“Nobody will argue with the fact that companies should pay taxes -- this is a question of principle,” he told Echo of Moscow radio last month. “However, the question remains why the tax authorities issued documents stating that Yukos had paid its taxes in full in 2000, 2001 and 2002, only to change that position later.”

Critics in the U.S. have also raised concerns about the way the case has been prosecuted. Even if Yukos did evade taxes, they note, Russia has not prosecuted other firms that used the same questionable tax shelters.

Of even more concern has been the style of prosecution.

The Yukos security director claimed that he was injected with psychotropic drugs to coerce a confession. The company’s deputy legal counsel, a mother of two, was hospitalized this month after being arrested and interrogated without counsel for eight hours.

This, however, is business as usual in the Russian justice system, Russians say.

As a result, many Russians see a U.S. Bankruptcy Court ruling last week calling for a halt to today’s sale of Yuganskneftegaz as motivated not by legal rights, but by influence from the White House. Russian officials have said they plan to proceed with the sale and argue that the U.S. courts have no jurisdiction.

“Many among our politicians nurse a presumption that in the United States the judicial power reacts in the same manner to the recommendations, signals and direct orders from the state authorities, as happens in Russia,” Kortunov said. “This is of course untrue, but this may introduce additional complications into relations between Russia and the United States.”

The Yukos prosecution has been largely popular in a country that sees a handful of oligarchs holding the bulk of the wealth while millions live in poverty. But a growing number of Russians fear that arresting entrepreneurs, and crippling their companies, is not the road to financial prosperity.

Outside a Moscow city courthouse last week, a line of picketers protested Khodorkovsky’s prosecution, and many applauded the U.S. court system’s attempt to intervene and halt the Yuganskneftegaz sale.

“I think it’s a shame for the whole country that more and more people and whole companies have to go seek justice abroad,” said one protester, Ida Miloslavova, 64. “The case of Yukos and Khodorkovsky is a strong sign that you can’t get real justice in a Russian court anymore.”

Worse, many fear that scaring off investors could have devastating long-term effects on the Russian economy.

Although investors sent $2.6 billion out of Russia in 2003, capital flight this year is expected to reach $15 billion, triggered largely, many analysts say, by Yukos having gone from a $40-billion company to a $2-billion one within months.

Finance Minister Alexei L. Kudrin officially acknowledged this month that Putin’s hope of doubling the gross domestic product by the end of the decade is unrealizable, because of significant drops in investment and growth rates this year.

For many in Russia stung by the free-market economic reforms pushed in the West, a reversal to a more populist economy would be welcome. But many economists fear that populism will lead to stagnation -- or worse, a full-scale crisis.

“The danger is that the country will go to the dogs,” Kondaurov, the former Yukos analyst, said. “An outflow of investments is taking place. People are afraid of the authorities. They can’t trust them, because they lie through their teeth, these authorities. Investments in the oil sector have fallen 20% this year.

“This means a reduction in geological exploration and new drilling and output in an economy that’s sitting directly on the oil needle,” he said. “This is equal to our death.”

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Times staff writer Sergei L. Loiko contributed to this report.