Wed, Jan 05, 2011 - Page 9 News List

Judge passes guilty verdict for both Khodorkovsky and Russia

With its continued persecution of Mikhail Khodorkovsky the Kremlin has turned Russia’s best-known and most respected businessman into a martyr


It took most of last week for Judge Viktor Danilkin to deliver the sentence against Mikhail Khodorkovsky, the former Russian tycoon.

On the morning of Dec. 27, Danilkin began reading his decision aloud, which is how decisions are rendered in Russia. Although it was instantly clear that he had found Khodorkovsky and his co-defendant, Platon Lebedev, guilty of embezzlement and money laundering, the written verdict was about 800 pages long; the judge didn’t finish until Dec. 30.

As Danilkin droned on, Khodorkovsky, who had built and presided over Yukos, the biggest and best-run company in the country — and who has been imprisoned on a different set of charges since 2004 — listened impassively. Lebedev, his former business partner, read a book through much of it.

Finally, on Thursday afternoon, at around 4pm, Danilkin imposed his sentence. To no one’s surprise, it was harsh: 13-and-a-half years. Khodorkovsky, the judge said, needed to be “isolated from society.” Though he will get credit for time served, Khodorkovsky will probably be behind bars until 2017.

It is hard not to view the entire proceeding — the plausible-sounding embezzlement charges, the 18-month-long trial, the formal reading of the lengthy decision and so on — as an effort to create the illusion of fairness. Russian Prime Minister Vladimir Putin has compared Khodorkovsky to Bernard Madoff in an effort to make the charges sound more credible. But no one was fooled.

Embezzlement? Give me a break. The defendants were accused of stealing every drop of oil Yukos produced from 1998 to 2001 for their personal gain — implausible on its face. Yukos, by far the most transparent company in Russia, was audited by PricewaterhouseCoopers (PwC), using Western accounting standards. Needing PwC to disown those audits, Russian prosecutors brought “unrelated” tax charges against the firm — and opened criminal investigations against several PwC executives — until the accounting firm caved. Then — how convenient! — the investigations went away.

I will leave it to others to examine the political and human rights implications of the Khodorkovsky case. The purpose of this column is to look at its implications for Russian investment and business. This is not an unimportant side effect. Russia is utterly dependent on its natural resource businesses, especially oil and gas. Its budget deficits have grown so large that the price of oil would have to reach US$120 a barrel to generate enough tax revenue to achieve a balanced budget. The country desperately needs foreign capital; indeed, it recently retained nearly two dozen investment banks to embark on a program of selling off minority stakes in dozens of state-run companies to help cover the ballooning deficit.

Given all that, one could hardly conjure up a more bone-headed move than turning the country’s best-known and most respected businessman into a martyr. But with its continued persecution of Khodorkovsky, that is precisely what the Kremlin has done. Last Tuesday, even as Danilkin was reading his verdict, Russian President Dmitry Medvedev acknowledged publicly that the Russian investment climate was “bad.” Is the problem that Kremlin officials can’t see the connection between its investment climate and their sordid prosecution of Khodorkovsky? Or is it that they don’t care?

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