Mikhail Khodorkovsky - What an Oligarch can do in Russia

By Graham Stack

Lee Wolosky had a great end to 2010. The man who in 2000 launched the international hunt for notorious arms trader, "Merchant of Death" Viktor Bout, saw his target finally extradited to stand trial in the United States, on charges of terrorism and arms trafficking. Bout now faces up to 25 years in jail in the United States.

All credit to Wolosky. As described by Douglas Farah and Stephen Braun in their book on the subject, it was Wolosky who first put Bout on the U.S. security radar screen in his capacity as director of the Office of Transnational Threats on the U.S. National Security Council.

But even after leaving office in 2001, Wolosky fought to keep Bout's name in the public consciousness, lambasting his successors for not proceeding vigorously enough against a man U.S. prosecutors are now calling "an accessory to murder on an incomprehensible scale."

But Bout's extradition was not all that may have delighted Wolosky in late 2010. One month after Bout was charged, in December 2010, a man whom Wolosky had rated as a considerably greater threat to U.S. security than Viktor Bout, was sentenced in Russia for offences Wolosky had publicly accused him of over ten years previously.

That man's name is Mikhail Khodorkovsky, the former majority owner and CEO of Yukos, Russia's largest oil company. Khodorkovsky, who has become an international cause célèbre as a supposed Russian "prisoner of conscience," was sentenced on December 30 to 14 years in jail on fraud charges.

This means he will serve another six years in jail, following the end of a current eight-year sentence he is serving on charges dating from 2004. The verdict has met with widespread international condemnation for selective justice.

But for the man who launched the hunt for Viktor Bout, the charges against Khodorkovsky would have come as no surprise. In 2000, the same year as he started the hunt for Bout, in a seminal article in the U.S. flagship journal Foreign Affairs, Wolosky accused Khodorkovsky of egregious crimes, even suggesting complicity in murder, called on the Russian government to strip him of his oil company, and for the West to launch a transnational law-enforcement campaign against Khodorkovsky and his colleagues.

In hindsight, Wolosky's targeting of Khodorkovsky in 2000 shows that the West's adoption of the oligarch's cause only a few years later was hardly written in the stars. Instead Wolosky represented a new consensus among U.S. policymakers that things had gone badly wrong in Russia and the oligarchs were to blame.

"These ruthless oligarchs have fleeced Russia of staggering sums, seizing control of its oil industry one of the world's largest in the process," Wolosky wrote in the article. "Through payoffs and intimidation, they have insinuated themselves into electoral politics and virtually immunized themselves from prosecution," he continued.

The White House security official called for the United States to treat Russia's oil oligarchs Khodorkovsky, Mikhail Fridman, Roman Abramovich and Boris Berezovsky "like pariahs." "In the battle against the oligarchs," he wrote, "Moscow and the West must rely on every weapon available. If they do not, the oligarchs will."

The manifesto-like article, entitled "Putin's Plutocrat Problem," set down the views that secured Wolosky's appointment in the last years of the Clinton administration as director at the U.S. National Security Council's Office for Transnational Threats. In this capacity, Wolosky handled interagency coordination on issues related to counterterrorism, international organized crime, and international narcotics.

His job was to protect America from what President Bill Clinton called "the dark side of globalization." Wolosky was well qualified to do so, being among the first to comprehend the shockwave of crime and violence the collapse of the Soviet Union sent around the world.

Having worked alongside Grigory Yavlinsky and Jeffery Sachs in Moscow on reform initiatives in the last years of the Soviet Union, in the later 1990s he then tangled with the misshapen results of those reforms Russia's ruthless breed of businessmen in international courtrooms as a practicing lawyer.

A research fellowship at the Council of Foreign Relations then marked his return to the policy arena, and allowed him to formulate the arguments set down in his Foreign Policy article. The influence of his views on Russia was such that the incoming Republican administration of George W. Bush in 2001 even retained him in his position, although a Democrat.

Wolosky's calls for a tougher line on Russia, and on what he regarded as its openly criminal and internationally active oligarchs, dovetailed with the views of Bush's own Russia specialists, such as new national security advisor Condoleeza Rice.

Among the weapons Wolosky advocated against the oil oligarchs was transnational criminal prosecution of individuals, similar to that later deployed against Viktor Bout. It was time, said Wolosky, for the West to "get personal" with the "oil pariahs."

Another weapon Wolosky advocated was for Russia to renationalize its oil sector. "Given the extraordinary circumstances and the considerable stakes, the United States and multilateral organizations should actively encourage and support renationalization and re-privatization on a case-by-case basis," he wrote.

And at the heart of White House official Wolosky's analysis of the "oil pariahs" stood the figure of Mikhail Khodorkovsky.

In his article, which deals only with the years 1998 to 1999 - Wolosky detailed how "Khodorkovsky's Yukos managed to siphon off some $800 million during a span of approximately 36 weeks," in 1999 through transfer pricing forcing Yukos' Russian subsidiaries to sell oil at a fraction of world market prices to the holding company.

Wolosky also described how Khodorkovsky had engaged in massive asset-stripping of Yukos subsidiaries following the 1998 financial crisis: "

• After three international banks acquired approximately 30 percent of Yukos following a default on a loan to an affiliated bank, Khodorkovsky sought to turn Yukos into an empty shell.
• He forced it to convey its most significant asset its controlling position in oil production subsidiaries to unknown offshore entities.
• At the same time, he attempted the mother of all share dilutions: by transferring a massive number of new shares to offshore entities he is believed to control."
• Not content with this, according to Wolosky, Khodorkovsky and his colleagues "loot(ed) their companies even more directly by stealing valuable assets, including wells, equipment, and anything else that can be found on an oil field." "
• From 1997 to 1998, Yukos made the oil production companies it controls part with assets having a book value of some $3.5 billion," the U.S. White House official wrote.
  

But even this theft on a grand scale was not the worst of Khodorkovsky's offences, according to Wolosky. Wolosky suggested Khodorkovsky had been complicit in two contract killings in the course of 1998 to 1999 alone. "

• In June 1998, the mayor of Nefteyugansk was murdered. That spring, he had led a very public crusade and hunger strike against Yukos, protesting the enormous wage and tax arrears that he claimed were impoverishing the region. (...) The mayor had previously sent a secret cable to Prime Minister Sergei Kiriyenko requesting his assistance in the showdown. But the mayor was found dead before Kiriyenko could answer."
• "In March 1999," continued the U.S. official in the Foreign Affairs article, "the car of a Russian oil executive allied with Western investors against Yukos was attacked in a military-style ambush. The executive was not in the car at the time of this attempt on his life, the second such attack. His bodyguards and driver were not as fortunate, however: one was killed in the assault, the others badly wounded."

In 2006, a Russian court sentenced former Yukos head of security Aleksei Pichugin to lengthy prison sentences for organizing these and other contract killings. European representatives have however disputed that Pichugin, who claims innocence, had a fair trial.

Khodorkovsky never took legal action against Wolosky for the very damaging allegations made against him in a highly influential U.S. journal. Remarkably, nor did he specifically refute any of Wolosky's allegations in a letter he subsequently wrote to the journal's editor.

Instead he merely called Wolosky's analysis "simplistic" and "misguided" and warned the U.S. that any "economic warfare" against oligarchs would worsen already fragile relations between the United States and Russia.

Today, Wolosky, who has returned to practicing international corporate law for Boies, Schiller & Flexner LLP, stands behind his views on Khodorkovsky of over ten years ago.

"I have little doubt that Mr. Khodorkovsky's business practices were highly irregular," he says, while however skeptical that Khodorkovsky has been afforded due process. Wolosky said he was unable to comment on the Russian state's case against Khodorkovsky. Wolosky's political career ended in 2001.

But, while he has been largely silent on Russia and its oligarchs since then, he made numerous high-profile public interventions on the Bout case, forcing reluctant officials to keep the gunrunning mastermind on the national security radar.

He attributed this reluctance to Bout's role in performing dangerous airlifting contracts for the United States in Afghanistan and Iraq. Two thousand and ten finally brought him the public accolades he deserved, for his groundbreaking work in bringing Viktor Bout to justice.

Meanwhile, nearly eleven years after a White House national security official called for Mikhail Khodorkovsky's prosecution and the renationalization of Yukos, international debate still rages over Khodorkovsky's jailing, and what it tells us about Vladimir Putin's Russia.

But it is in a very different vein from the debate about Khodorkovsky in 2000. "After the last presidential election, in 1996, the oligarchs captured Yeltsin, his successive governments, and the political process," wrote Wolosky in 2000. "Regrettably, few signs so far point to significant changes under Putin."

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