Billionaire foe of Putin arrested

Russia's richest man, Mikhail Khodorkovsky, was sitting in a Moscow jail cell Sunday after a dramatic arrest which some experts believe could herald confiscation of his company, Yukos, the world's fourth-largest oil producer.

The arrest comes amid longstanding tensions between the government of President Vladimir Putin and Russia's oligarchs, who grew wealthy by buying state assets cheaply in rigged auctions after the USSR collapsed.

The allegations against Mr. Khodorkovsky - including fraud, forgery, theft, and tax evasion - relate to the murky decade-old privatization of a state-owned fertilizer company. But experts say the investigation of Yukos and the arrest of its chief are actually aimed at punishing Khodorkovsky for his political activism. The businessman is backing opposition parties running in December parliamentary elections.

"This is clearly an effort by people at the top to demonstrate that tycoons should think twice before involving themselves in politics," says Irina Zvigelskaya, an expert with the Center for Strategic and Political Studies, an independent Moscow think tank. "It's a political operation, not primarily a legal one."

But a spokeswoman for the prosecutor's office in Moscow characterized the arrest as an attempt to punish economic wrongdoing. The damage done to Russia's economy by Khodorkovsky was "in excess of $1 billion," she said, and he is "implicated in a series of crimes, including theft by fraud on a large scale, [and] the failure to pay taxes as an organization and as an individual."

Khodorkovsky responded through his lawyer: "I'm not sorry for anything I've done, nor am I sorry about what's happening now."

His arrest climaxed five months of cat and mouse between the outspoken entrepreneur and state prosecutors, whom most experts believe are acting on Kremlin orders. Two of Khodorkovsky's chief lieutenants have been in prison since July, a third has fled the country, and others have seen their offices and homes ransacked by security police.

Khodorkovsky could face up to 10 years in prison if convicted. On Saturday, a Moscow court gave prosecutors the right to hold him in pretrial detention until at least December while the investigation continues.

The businessman was seized in an early morning raid Saturday by heavily armed agents of the FSB security service, the KGB's successor, who surrounded and boarded his private plane as it was being refueled at a Siberian airport.

"They rushed aboard the plane shouting: 'FSB, drop your weapons,' " Alexander Shadrin, a press spokesman for Yukos, told the Ekho Moskvy radio station. "They used special forces in the same way they would deal with a terrorist attack."

In recent weeks, police have raided a Yukos-funded orphanage, the offices of the chief lawyer handling the company's legal defense, and the dachas of several of the firm's top executives.

On Thursday, prosecutors took over a Moscow public- relations firm that has been handling the parliamentary election campaign of the liberal Yabloko Party, seizing computers, documents, and funds belonging to the party.

Khodorkovsky has openly supported Yabloko, which is the main liberal opposition to the Kremlin. Some experts say the oil tycoon has also funded the Communist Party, with the strategic aim of preventing pro-Kremlin parties from gaining a majority in the State Duma in the vote, slated for Dec. 7.

"Khodorkovsky doesn't hide his interest in politics," says Alexei Kondaurov, a top Yukos executive who is running for parliament on the Communist Party ticket. "He knows that the future success of business depends upon the growth of democracy and civil society in Russia."

Khodorkovsky has said that his company is being persecuted by the Kremlin faction of siloviki - former secret police officers in Mr. Putin's entourage - who aim to curtail his political ambitions and seize his property.

Many experts agree that his arrest may trigger a political crisis. "There will be a huge impact from Khodorkovsky's detention," says Sergei Markov, director of the Center for Political Studies, a Kremlin-connected think tank. "Putin will have to take a clear stance on this conflict that is raging within the Russian bureaucracy," he says. "I expect major political events to follow very soon."

The legal offensive against Yukos began last July with the arrest of billionaire Platon Lebedev, a major Yukos shareholder and Khodorkovsky ally, who was charged with defrauding the state of $280 million in the 1994 privatization of Apatit, a fertilizer factory. Yukos security official Alexei Pichugin was jailed around the same time, charged as an accomplice to murder. Another billionaire Yukos shareholder, Leonid Nevzlin, fled to Israel last month. Last week, top company executive Vasily Shakhnovsky was charged with evading $1 million in taxes.

Putin has said little about the affair, leaving the reasons for the legal campaign against Yukos open to speculation. Some experts believe Kremlin security hard-liners are squeezing Khodorkovsky to block his plans to sell a share of his oil major to a foreign firm. Both ExxonMobil and ChevronTexaco have expressed interest in buying a 25 to 40 percent stake in Yukos - a deal that could be worth up to $20 billion.

Most observers, however, think Khodorkovsky's penchant for dabbling in politics was his undoing. In addition to backing opposition parties, he has funded human rights groups. He also recently purchased the weekly Moskovsky Novosti newspaper and appointed an outspoken Kremlin critic as its editor.

A former leader of the Soviet Young Communist League, Khodorkovsky is the wealthiest of the oligarchs who now control about 70 percent of Russia's economy. He is said to have acquired the Yukos empire at cut-rate prices through insider trading and fixed auctions during the lawless privatizations of the 1990s.

After Putin came to power, the Kremlin attacked the two most prominent opposition-minded tycoons, Boris Berezovsky and Vladimir Gusinsky, seizing much of their property, and driving them into exile.

The remaining oligarchs pledged to stay out of politics, and most have so far escaped any legal scrutiny of the means by which they originally acquired their vast wealth. But Khodorkovsky, who is widely believed to harbor presidential ambitions, has since seen almost every branch of his far-flung empire come under attack by prosecutors.

"Much more important than Khodorkovsky's fate in this crisis is the fate of Russia's legal system," says Ms. Zvigelskaya. "When prosecutors use illegal methods and apply laws selectively, they are not enforcing order but driving the country into a new stage of lawlessness."