At Putin’s annual press conference a few days later, a reporter was primed to ask a question about the Belkovsky report, and the president was ready with a chilling reminder of how he dealt with his political enemies: ‘I am absolutely sure that the appropriate separation of business and power has been established… Those who disagree with this policy, as the saying goes, either no longer exist, or have been sent far away.’
Putin had many reasons to fear or resent Khodorkovsky. For two and a half years he had defied the president’s instruction to the oligarchs to keep out of politics. But even Khodorkovsky’s purely business activities challenged the siloviki. They regarded the country’s natural resources, particularly oil and gas, as vital strategic assets, not to be entrusted to private individuals – and certainly not to foreign states. Khodorkovsky had the opposite view: the private sector could run things more efficiently, and if foreign participation helped, so much the better.
In April 2003 Yukos (now Russia’s largest oil producer) agreed to merge with Roman Abramovich’s Sibneft to form what would be the world’s fourth biggest oil company, worth $35 billion. (It was this deal that allowed Abramovich to buy Chelsea football club.) Khodorkovsky then took a further step towards disaster – by starting talks with both ChevronTexaco and ExxonMobil about selling one of them a major stake in the Russian company. The prime minister Kasyanov gave his approval for the deal. But the siloviki were incensed.
Through the summer of 2003 events moved fast. In June Yukos’s security chief, Alexei Pichugin, was arrested and accused of murder. The following month Khodorkovsky’s partner, Platon Lebedev, chairman of Group Menatep, the holding company that controlled Yukos, was also arrested. Prime Minister Kasyanov immediately condemned it and pointed out that arresting entrepreneurs on suspicion of economic crimes was bound to undermine the country’s image and deter investors.
Leonid Nevzlin expected the worst. ‘Life became intolerable. They didn’t even bother to disguise the cars they watched us from. Every night I went to sleep with a bag packed so that if they came for me at five in the morning I’d have what I needed for prison.’ He left Russia for Israel. But Khodorkovsky ignored the warnings to the last.
In October armed police raided Khodorkovsky’s orphanage near Moscow and took away its computers. And a few days later the president of ExxonMobil, Lee Raymond, came to Moscow for an economic conference and talks with the president. He appears to have given Putin the – probably wrong – impression that Khodorkovsky planned to sell the American company not just 25 per cent but a controlling 51 per cent of Yukos-Sibneft. Khodorkovsky’s deputy, Alexander Temerko, concedes, ‘a company like Exxon cannot be a minority shareholder. Of course it says, we’ll buy 25 per cent, but we need an option for a controlling stake.’
Putin was by now, it seems, incandescent with rage. BP’s John Browne recalled later: ‘Shortly before Khodorkovsky’s arrest, in a private conversation, Putin made a passing but steely remark to me: “I have eaten more dirt than I need to from that man.”’
Putin called in the prosecutor general, Vladimir Ustinov, to arrange Khodorkovsky’s arrest. It came on 25 October. The oil tycoon had flown to Siberia, quixotically ignoring a fax that had arrived two days earlier, bearing Ustinov’s signature, summoning him to report to the prosecutor’s office in connection with ‘irregularities in the tax regime of the Yukos oil company’. As his plane refuelled in Novosibirsk, armed FSB troops stormed it and led Khodorkovsky away in handcuffs. His defiance of the siloviki was about to cost him his freedom and his fortune.
The reaction
The headlines said it alclass="underline" ‘Capitalism with Stalin’s face’ (Nezavisimaya gazeta), ‘A coup in Russia’ (Kommersant). The New York Times wrote: ‘Russia lurched toward a political and economic crisis as the country’s stocks, bonds and currency plummeted after the weekend arrest of Russia’s richest man.’
Khodorkovsky’s colleagues in the Union of Industrialists and Entrepreneurs issued a statement condemning the arrest: ‘Today Russian business does not trust the law-enforcement system and its leaders. Thousands of small and medium enterprises suffer daily from their arbitrary rule. The authorities’ crude mistakes have thrown the country backwards by several years and undermined confidence in their statements about the impermissibility of reversing the results of privatisation.’
Trading on the tumbling Moscow currency exchange was suspended. Putin’s chief of staff, Alexander Voloshin, resigned. His successor, Dmitry Medvedev, publicly questioned the wisdom of the arrest, saying, ‘This is a dangerous thing, as the consequences of measures not fully thought out will have an immediate effect on the economy… and cause indignation in politics.’16 Amid the turmoil, Putin rejected calls from other oligarchs for a meeting, and demanded an end to what he called the ‘hysteria and speculation’, adding (as if he were a mere bystander) that for the courts to arrest a man they must have had reasons to do so. ‘There will be no meetings, no bargaining about the work of the law enforcement agencies.’ Government ministers, he said, should not get dragged into discussing the matter.
The prime minister, Kasyanov, tells a curious story about a certain appointment that the Kremlin wanted him to make around this time. Viktor Ivanov, the former FSB general whom Putin had taken on as his chief head-hunter, called Kasyanov several times, urging him to appoint a certain young man as a deputy tax minister. Kasyanov demurred, not understanding the urgency of the appointment and unsure why the man, who had worked most of his career in St Petersburg furniture stores, was qualified for the job. He was not aware at the time that Anatoly Serdyukov was the son-in-law of Viktor Zubkov, the first deputy finance minister (and former St Petersburg colleague of Putin). When Kasyanov was sacked in February 2004, Serdyukov was immediately moved to the tax ministry – where he was put in charge of the case against Khodorkovsky, and within two weeks promoted to be head of the Federal Tax Service. Putin now had a man he could trust to assemble the most damaging evidence against his enemy.
The two faces of Putin
The events described in this chapter – the stifling of the media, the establishment of the ‘vertical of power’ and appointment of Putin’s cronies to key jobs, the war in Chechnya, the callous response to the sinking of the Kursk, the taming of the oligarchs and the persecution of Khodorkovsky – all had a salutary effect on those in the West who had decided from the outset to do business with Putin. The man who was stretching his hand out to Western leaders, and implementing welcome economic reforms at home, was at the same time acting true to type, confirming his own phrase: there is no such thing as an ex-Chekist. His actions strengthened the hand of those in the West – particularly in the Bush administration – who from the start had advocated a tough stand against him.
In Britain, the Observer newspaper expressed a common view, saying it was now ‘crunch-time’ for Putin, and he must decide who he wanted to be. ‘Is he the westward leaning ally of President Bush and Tony Blair, or someone whose real affection is for the bad old days of the Soviet Union?… If Mr Putin opts for the authoritarian path, then it is time for London and Washington to reassess relations.’17