The New Tsar (41 page)

“Stop financing the Communists,” he told him when they met privately. Khodorkovsky was taken aback; only months before, Putin’s political mastermind, Vladislav Surkov, had given his blessing to the money Yukos was contributing to them. He did not argue, though. He did what Putin asked, but some of the candidates Yukos was bankrolling were also its own executives. The chairman of the company’s Moscow subsidiary, Aleksei Kondaurov, even ran as a Communist. (“Today’s Communist Party does not reject private property,” he once said.) Khodorkovsky tried to explain to Putin that he could not stop other executives from running or supporting political parties, but Putin did not see the distinction.

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P
utin’s concerns about the Communists betrayed a worry inside the Kremlin. Despite his popularity, his political program had lost momentum as the parliamentary elections of 2003 approached. The war in Chechnya, now nearly four years old, had become a quagmire, despite a referendum and an election that installed a loyal official, Akhmad Kadyrov, as the president of what was once again a constituent part of the Russian Federation. The harsh crackdown that followed the
Nord-Ost
siege did not end the terrorist attacks but intensified radicalization of the Chechen independence movement. Suicide bombings, almost unheard of in the first decade of fighting in Chechnya, became horrifyingly commonplace. On May 12, 2003, a truck loaded with explosives was driven into the security gate of a government compound in the town of Znamenskoye in Chechnya, killing four dozen people, many of them civilians in nearby houses crushed by the force of the blast. Two days later, two women approached Kadyrov himself during a religious festival commemorating the prophet Mohammed in a village east of Grozny and detonated explosive belts. Kadyrov escaped injury, but four of his bodyguards were among the fifteen killed. Another “black widow,” as these female bombers became known, blew up her explosives as she boarded a bus in Mozdok in June, killing eighteen. In July two women did the same at an annual rock festival in Moscow attended by thirty thousand people.

Until Iraq descended into sectarian war in 2006, no other country in the world, not even Israel, had faced a terror campaign of such scale. Putin could do little more than reiterate his vow to destroy the bandits he had promised to “waste in the outhouse” back in 1999. Putin’s decisiveness
in ending the theater siege had, despite the avoidable deaths of so many hostages, earned him support, but increasingly he seemed adrift. The biggest successes of his presidency had come in his first two years, but now he seemed to have lost energy. Russia’s economy continued to improve, expanding the opportunities of millions, but many workers remained mired in Soviet-era industries—mines, factories, farms—that resisted modernization. Russia had not yet become Portugal. The military reform he promised inched forward against institutional inertia. The health care system functioned on bribes, while the life expectancy of men continued to decline, as did the entire population, which shrunk by nearly a million people a year. The Putin prosperity was benefiting many, but mostly those already at the top, or clustered in the main cities. Mikhail Kasyanov, his prime minister, dutifully carried out the domestic and economic duties he had promised Putin but felt that the Kremlin had no new initiatives to offer, and was backtracking on some that had been launched.
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Even the head of Putin’s party, Boris Gryzlov, who served as interior minister, said the government he was part of had “largely lost the ability to energetically and surely solve the most burning and painful problems the country is facing.”
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Bereft of new ideas, Putin’s team fixated on the political risk posed by the parliamentary elections in December 2003, as surely as Yeltsin had in the waning years of his presidency. United Russia’s plurality in the Duma was no longer certain, and the Kremlin had to make sure a new one would not challenge Putin’s primacy. Above all, the Kremlin could not let a new figure emerge, a new political force or leader prepared to offer the country an alternative.

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I
n late May 2003, a treatise circulating in Moscow created a public uproar. It was written by a group founded the year before, the Council for National Strategy. The council included twenty-three experts from across the political spectrum who seemed to disagree about everything, including the treatise. Its ideological progenitors were Iosif Diskin, who was close to the Kremlin, and Stanislav Belkovsky, a political strategist once enmeshed in Boris Berezovsky’s web. The work of a think tank might have languished in obscurity, except that this one was brought to Putin by two of his hardline deputies, Sechin and Viktor Ivanov, as evidence of the threat facing the Kremlin.
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The treatise, titled “The State and the Oligarchs,” argued that some of the country’s corporate titans were conspiring to usurp Russia’s government as they sought international
legitimacy for their riches. Their path to power lay not in directly challenging Putin, but in empowering the parliament and establishing a new form of government, a parliamentary system that would be led by the prime minister, not the powerful president ensconced in the Kremlin. “The front-runner of such a government, formed under a new constitution, is considered to be Mikhail Khodorkovsky,” it warned.
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The report ignored Russia’s political realities, which made the very idea that a parliamentary majority could seize power from Putin implausible. Whether the plan was true, even in part, was beside the point. What mattered was that Putin believed it.

In June, he held his annual press conference in the Kremlin with local and foreign reporters, and the scripted event began with a question about the report and its warning of the ripening of “a certain oligarchic revolution.” Putin answered in detail and at length, as if prepared. He said he did not believe a parliamentary system could govern a country as large and ethnically diverse as Russia. “Any state system other than a presidential republic,” he said, “would be unacceptable and even dangerous.” As for big business, he explained patiently, it had a natural influence on the country’s life, as was to be expected with a growing market economy. Russia’s new tycoons created jobs and revenue, developed new technologies, and provided examples of modern, effective management. “This does not mean, of course, that we should let certain representatives of business influence the country’s political life with the aim of pursuing their own group interests.” He ended by alluding to a line from Pushkin’s
Eugene Onegin
about the Decembrists who revolted against Nicholas I in 1825 and ended up on the gallows or in Siberian exile. “As for those who disagree with this principle, it’s like they used to say, ‘Some are gone forever, and others are far away.’ ”
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It sounded very much like a warning.

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T
he legal assault on Yukos began unexpectedly—neither against Khodorkovsky nor against the company directly. In June 2003, the authorities arrested the company’s head of security, Aleksei Pichugin, on murder charges, alleging that he had organized assassinations of company rivals. On July 2, less than two weeks after Putin’s public remarks on the “oligarchic coup,” a special police unit arrived at a hospital in Moscow where Khodorkovsky’s business partner, Platon Lebedev, was convalescing after treatment for heart trouble. Although the law prohibited arrests
of hospitalized patients, the police led him away in handcuffs. Lebedev was the chairman of Menatep, the bank that controlled 61 percent of Yukos’s shares, but the prosecutors charged him with fraud involving an obscure 1994 deal to buy a fertilizer company called Apatit. Khodorkovsky was summoned two days later as a witness, and a week after that, the police raided one of Yukos’s offices. The prosecutor general, Vladimir Ustinov, made no move against Khodorkovsky himself, but the pressure increased. Ustinov, formerly a middling prosecutor from Sochi, was not part of Putin’s Petersburg circle, but he had proved his mettle by organizing the legal assaults that drove Gusinsky and Berezovsky into exile. And he grew closer and closer to Putin’s court inside the Kremlin, especially to Igor Sechin, whose daughter married his son that year.

Khodorkovsky and his partners believed that Putin and Sechin had ordered the investigations into Yukos’s affairs,
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but they did not expect anything more than legal harassment that they would be able to fight off. Khodorkovsky believed that the importance of Yukos to the economy would protect him and the company. At a meeting of Yukos department heads, he warned that the company faced a prosecutorial assault and said that those who felt unprepared should leave, but he vowed to stay and fight.
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The “Yukos affair,” as it quickly became known, created confusion and alarm. Putin obfuscated in such a way that no one knew if the investigation signaled the first salvo of the renationalization of the industries auctioned off in the 1990s, or something else. Officials and businessmen expected the worst. Russia’s volatile stock market—a lucrative but never stable investment—plunged 15 percent in the first two weeks after Lebedev’s arrest, wiping away $7 billion of Yukos’s value, or nearly a fifth of it. On the day of the searches at Yukos, Putin met in the Kremlin with the parliamentary leadership and the heads of the councils of trade unions and the tycoons, represented by Arkady Volsky, who warned that the spiraling investigation would harm the economy. Putin did not address Yukos directly but warned that the Kremlin would not tolerate public organizations that did not put the public good “above their group, corporate, or personal interests.” In televised remarks, he spoke cryptically: “I am, of course, opposed to arm-twisting and believe this is no way to resolve the issue of economic crimes. We cannot base our actions on wild applause at someone being put away in a cell.” Within weeks, an orphanage sponsored by Khodorkovsky’s Open Russia was raided.

Putin’s chief of staff, Aleksandr Voloshin, did not even know Lebedev’s name at the time of his arrest and believed that Putin did not either.
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The president kept his fingerprints off the investigation, insisting that he did not involve himself in authorizing arrests or searches—only to contradict himself later when he acknowledged in an interview with American journalists that he had discussed Lebedev’s arrest with the prosecutor general.
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Putin’s involvement grew as the affair unfolded haphazardly over a summer rife with speculation that recalled the Kremlinology of Soviet times. “The Yukos affair was not a Stalinist-type operation planned in advance and implemented methodically,” as one historian wrote.
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Instead Putin reacted as developments progressed and said virtually nothing in public, which only deepened the sense of intrigue. As late as September, he insisted that the investigation was an isolated criminal matter.

Khodorkovsky continued to clash with the Kremlin, not only over tax legislation but also over plans to build a pipeline to China, a decision that Putin believed should be a prerogative of the state, not a private company. Even as the investigation widened, Khodorkovsky pressed ahead with the merger with Sibneft and continued to court the American oil giants in the talks Putin had blessed. If Lebedev’s arrest was a warning, Khodorkovsky paid no heed. He continued to travel, to conduct business, and to rail defiantly against the prosecutor’s office.
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He believed that the company’s legal troubles were part of a struggle inside Putin’s administration but bet that public pressure would bring the crusade to an end. “The probability of my arrest now is 90 percent,” he told his lawyer, “but it’s not 100 percent. To be 100 percent, it has to be sanctioned.”
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Putin certainly gave him hints. After Lebedev’s arrest, Khodorkovsky tried to arrange a meeting with him through the director of the FSB, Nikolai Patrushev. Patrushev invited him to meet with Ustinov instead, but Khodorkovsky thought better of it.

By August 2003, Yukos had recovered some of its losses in the stock market, and Russia’s antimonopoly agency approved the merger with Sibneft, quieting speculation among investors and analysts that the investigation would scuttle the creation of the new oil giant. The same month, the Kremlin approved a partnership between BP and TNK, a smaller Russian company, seemingly signaling its openness to foreign investment. In September Khodorkovsky attended an energy summit with oilmen from American and Russian companies in Petersburg and tried to close a deal to merge Yukos-Sibneft with Chevron. When that
fell apart, he revived negotiations with ExxonMobil, whose chairman notified Mikhail Kasyanov of the talks.
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The speculation about a deal drove the stock market to new highs.

The Yukos-Sibneft merger, valued at $45 billion once completed, became official on October 2. Khodorkovsky continued to travel and deliver lectures to students, journalists, and activists about his vision for a modern transformation of business and society that would free up the country’s human potential by breaking the last chains of the Soviet mentality. In an interview in the company’s gleaming headquarters in Moscow, he explained that Russia stood at a crossroads, its fate a choice not between capitalism and Communism, but rather between a democratic society and an authoritarian one. “It is not a matter of choice between the South Korean model and the North Korean model,” he said, dismissing the old ideological divisions. “It is more like the choice between Canada and Guatemala,” a modern, transparent, and accountable government versus a banana republic.
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Such public musings infuriated Putin. He complained to John Browne, the chairman of BP, when they met in Moscow to finalize that company’s investment in Russia. “I have eaten more dirt than I need to from that man,” he said.
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