[ARTICLE] On Russia
Nov. 1st, 2003 03:59 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
rfmcdonaldFrom the Financial Times:
"A Falling Tsar"
By Chrystia Freeland
Published: October 31 2003 19:48 | Last Updated: October 31 2003 19:48
On a chilly day earlier this autumn, I was sitting in a rather kitschy, rustic-themed Russian restaurant in a park in St Petersburg with Mikhail Khodorkovsky, Russia's richest man, and a small group of executives from his vast Yukos oil company. Outside, the weather had turned gloomy.
Inside, everyone was starting to relax after a few shots of vodka and not much to eat. When it was time for toasts, Ray Leonard, an American geologist who runs Yukos's exploration department, raised his glass, took a deep breath and launched into a carefully rehearsed speech: "This is the first time I have been to St Petersburg with Mikhail Borisovich," he said. "I have been reading a biography of Peter the Great. Peter the Great invited foreigners in and had to defend them against the locals. Three hundred years later, not that much has changed. Yukos is a small microcosm of the same process and I am proud to be a small part of it."
Khodorkovsky had the generosity to thank Leonard for his tribute, but he also had the humility to qualify it. After all, he explained, the real lesson of Peter the Great was tragic, not heroic. "We have to remember that under Peter the Great there were 24 million Russians and 300,000 of them died building St Petersburg.
There were 2 million fewer Russians when Peter the Great died than there had been when he became tsar. We have developed quickly, and we have developed slowly, but in all this time, human life in Russia has not been worth even a kopek."
It was an admirable response and I didn't think it was particularly directed at me. But the episode made me wonder which force is more powerful in shaping Khodorkovsky's conduct today: the hubris of a man surrounded by fanatically devoted workers who routinely compare him to Peter the Great, or the idealism of a man who remembers that Peter the Great was a murderous autocrat? Is Khodorkovsky a crooked and vainglorious businessman who sought to undermine Russia's elected president, or is he a brave billionaire willing to risk his freedom and his fortune to stop Russia's slide into authoritarianism?
These questions have been posed even more urgently since early last Saturday morning, when the 40-year-old Khodorkovsky was arrested at gunpoint on charges of fraud and tax evasion and taken to Moscow's notoriously overcrowded Matrosskaya Tishina prison. The theatrical seizure was the climax of a four-month government campaign against the oligarch whose personal fortune is estimated at $8bn and whose oil company controls reserves bigger than Kuwait's.
Moscow, as ever, is awash with rumours and conspiracy theories, but on both sides of the Khodorkovsky affair there is little dispute about the fundamental reason for the arrest: parliamentary elections are scheduled for December, and presidential elections for the spring.
The key to the state's efforts to control Russian politics ahead of these crucial votes is the conflict between Khodorkovsky, Russia's richest man, and President Vladimir Putin, Russia's most powerful man. Khodorkovsky is both a vast financial power and a growing force in civil society.
The logic of Russian politics still calls for Putin to dominate both. "Yukos is part of Putin's political game," the leader of one of Russia's liberal political parties told me. "He is against the independent position of anyone, including business. I think Yukos is important for Putin because he wants to show business that if you want to make money, you have to be loyal. If you are not loyal, you will be in prison." Some think Putin is right. Bill Browder, an American fund manager who has been working in Russia for a decade, argued: "A nice, well-run authoritarian regime is better than an oligarchic mafia regime - and those are the choices on offer."
On top of this intense political battle, Khodorkovsky has also been at the centre of what was shaping up to be one of the world's biggest oil deals. This summer, he engineered Russia's largest merger, with oil company Sibneft, and began intense negotiations with ExxonMobil and ChevronTexaco about selling a stake in the combined enterprise for as much as $25bn.
To see what his life was like at this extraordinary time, I joined him for two days in late September as he flew from Moscow to St Petersburg to address a meeting of Russian and American oil executives. At one point in his talk he called for the liberalisation of Russia's oil pipeline system - a cause the state has adamantly opposed.
At the lunch after the speeches, Khodorkovsky spotted the head of Transneft, the state-owned oil pipeline company. Smiling broadly, Khodorkovsky called out: "So, how did you like my loyal speech?" The Transneft boss, red-faced and struggling with evident anger, shouted back: "If that was loyal, I'm a trolley bus!" "So where are your headlights?" Khodorkovsky yelled back, miming flashing headlights with his hands cupped round his eyes. Loyalty to the Kremlin line, it was clear, had become for him something to be joked about. It is a joke he can now reflect on at leisure from the jail cell.
Vladimir Putin sought a confrontation with the half dozen oligarchs who control the heights of the Russian economy as soon as he succeeded Boris Yeltsin as president in 2000. He summoned them for a meeting in the Kremlin to announce a new deal: they could keep the vast resources they had acquired during the Yeltsin era, but they would no longer be allowed to play the prominent role in politics to which they had become accustomed. For the past three years, that arrangement has held.
The two oligarchs who couldn't bear to quit politics - Vladimir Gusinsky and Boris Berezovsky - were forced out of the country. The rest concentrated on business and became even more fabulously wealthy. Khodorkovsky, in particular, flourished, transforming himself from the bete noire of western investors to their posterboy.
Sometime this spring, however, Khodorkovsky began to drop hints that he would like to go into politics. He devoted more time and money to Open Russia, the non-profit organisation he founded in 2001 to promote civil society.
He publicly admitted that he and other major Yukos shareholders personally contributed to two political parties, the liberal Union of Right Forces and the social democratic Yabloko. He also acknowledged that some prominent Yukos shareholders supported the Communists, Russia's largest political party.
Riskiest of all, there were suggestions that Khodorkovsky might have even grander political ambitions. In dozens of interviews over the past five years, including one with me in 1998, he said he planned to retire from business when he turned 45. Everyone assumed he would then begin to enjoy his wealth. But as Khodorkovsky stepped up his civic and political activities earlier this year, commentators began to point out that his 45th birthday happens to fall in 2008, the year Putin is constitutionally obliged to step down, after two terms.
The observation seemed to be based on more than the usual gossip. Everyone in Moscow's political and business establishment has at least one story about a conversation with a senior Yukos executive in which Khodorkovsky's ambitions to become prime minister were floated.
One of the two exiled oligarchs tells a more extreme version, claiming Khodorkovsky told him he had a meeting with Putin this spring in which the tycoon suggested a change in the Russian constitutional set-up.
Russia, he told Putin, should become a parliamentary democracy, in which Khodorkovsky would be prime minister and Putin could have the prestigious, but more ceremonial, role of Speaker. When I put this to him, Khodorkovsky refused to say anything about his alleged prime ministerial ambitions. However, he freely agreed that he favours a shift in power - a legal shift, he is at pains to insist - from Russia's near-tsarist presidency to something closer to the French system, with a more authoritative and stable prime minister.
Precisely who said what to whom within the high, red walls of the Kremlin fortress as Khodorkovsky's political ambitions became more apparent is unclear. What is clear is that Yukos, and Khodorkovsky, came under increasingly heavy fire.
On July 2 this year, Platon Lebedev, a big Yukos shareholder, was arrested. Since then, another major shareholder has fled to Israel and another has been charged with tax evasion and forbidden to travel abroad. Police have repeatedly raided the offices of Yukos, their lawyers, a PR firm working for a political party that Yukos backs and even an orphanage sponsored by Yukos. On Thursday, prosecutors froze a large block of Yukos shares, raising the spectre of confiscation. Allegations against Yukos shareholders, and some employees, include murder and attempted murder, tax evasion and violations of the law during the privatisation of a fertiliser factory in 1994.
Yukos has robustly denied all the accusations, in particular the murder charges. "I can say with absolute authority that no one in our company is involved in contract killings, or was involved in them in the past," Khodorkovsky told me last month.
"There were no contract killings." One of the most lurid of the cases is the murder of the mayor of the Siberian oil town of Nefteyugansk, who had been opposed to Yukos's plans for expansion and was shot dead on Khodorkovsky's birthday in 1998. For Moscow's myth-makers, the apparent coincidence was too much to resist, and the killing became whispered as a birthday gift to Khodorkovsky from a zealous underling.
It hardly needs saying that Khodorkovsky formally disputed this charge. What was more interesting to me was that in informal conversation his remembered horror at learning of the mayor's death seemed heartfelt and unrehearsed.
He told me that his telephone rang at 8am. The call was from a Yukos employee and Khodorkovsky said he remembers it vividly - "how could I not?" The mayor had been shot. "Is he alive?" Khodorkovsky recalled asking. He still seemed a bit stunned by the reply: "How could he be alive! A whole glassful of his brains has spilled out." More softly, Khodorkovsky mouthed the final phrase a second time. It was an image, he said, he would never forget.
Over this summer, as raid followed raid, it seemed inevitable that the prosecutors would eventually reach Khodorkovsky. For that reason, the question uppermost in my mind when I met him was whether he would publicly capitulate by apologising to Putin for his political involvement and promising to stay out of politics in the future - or simply leave.
A senior Yukos executive told me that after the first arrests in early July, Khodorkovsky considered doing just that. "We discussed full, unilateral surrender," the executive told me over supper at Shinok, a Ukrainian-themed restaurant in Moscow that caters to the New Russian nostalgia for an Arcadian Slavic past.
"But we decided that it would be dangerous - it would be taken as a sign of weakness by our opponents in the Kremlin." Khodorkovsky has not looked back from that decision to stay and fight. A few hours after his imprisonment, his lawyer read out a statement from him: "I don't regret anything I have done; nor do I regret what has happened today."
Within the first few minutes of my seeing Khodorkovsky again, it was apparent that he was not for turning. He is a mild-mannered, soft-spoken and handsome man with rather gentle brown eyes, extremely clean hands and a tendency to giggle when nervous.
When I first met him in the mid-1990s, he had an occasional stutter and, every once in a while, an inadvertent twitch, though with maturity and success these habits seem to have subsided. He is never without his thick glasses - these days they are the fancy, frameless variety - and makes a point of seldom wearing a suit and tie.
If you met him at the home of a Russian friend, you might mistake him for a cerebral, slightly shy professor, probably of some technical subject such as applied mathematics or statistics. Like many powerful men, he has always liked to pretend he is slightly oppressed by his wife. Over tea in 1996 with Khodorkovsky and Inna, the pert, dark-eyed woman he met when they were at university together, he complained of the starvation diets she imposed on him and the Russian classical music concerts she sometimes forced him to attend.
But, of course, Khodorkovsky is neither a quiet professor nor a down-trodden spouse. He is a tycoon who has prospered in a business environment that is at once the most Darwinian, and the most Byzantine, in the world.
On our trip this autumn, we had barely sunk into the soft grey leather armchairs of the Tupolev-134 jet ferrying him and a few aides to the St Petersburg oil conference, when he threw a newspaper down in disgust, exclaiming: "He [Putin] is breaking the constitution again!" On the ground, as his tinted-windowed black Mercedes SUV pulled away from the airport, Khodorkovsky shouted a triumphant "Yes!" into his mobile phone.
It was a call from the Siberian city of Tomsk, where a court had just ruled in Yukos's favour in one of the hundreds of investigations the government is pursuing against the company at various levels. "It won't make any difference in the long run," Khodorkovsky admitted, "but it is nice to win sometimes."
As he entered the conference room in St Petersburg, another Russian oil baron commented on Khodorkovsky's extremely short new hairstyle. "I'm getting ready for them to throw me in jail," Khodorkovsky joked - sort of - with a steely smile.
Khodorkovsky always wanted to be a businessman - or the communist equivalent of one. From as early as he can remember, he wanted to be a Soviet factory director. In fact, he once told me, when he was just five years old the other children in his kindergarten nicknamed him "director" because becoming one was his frequently and clearly stated ambition.
He had some advantages. He was born in Moscow; his father was an engineer and both of his parents worked at the Kalibr high precision machine tools plant. But neither were members of the party elite, and his father was Jewish - usually a serious disadvantage.
Lacking family connections, Khodorkovsky had to make his own, which he did well. By 1986, when he graduated with a degree in chemistry from Moscow's Mendeleev Institute of Chemical Technology, he was deputy head of its Komsomol committee, the prep school for the Communist Party.
As another Jewish oligarch told me in Moscow last month: "Khodorkovsky always had a talent for power. With a [Jewish] name like his, being deputy head of the Komsomol committee was a very difficult thing to achieve. If I had come home one day and told my parents I wanted to do that, they would have thought I was crazy."
A significant reason for his success was his respectful, almost humble, attitude towards his more powerful elders. Even by the late 1990s, when their swiftly acquired wealth had turned some of the other oligarchs into swaggering, ostentatious New Russians, Khodorkovsky was still careful to strike a modest pose.
When the 68-year-old ex-Soviet spy, Yevgeny Primakov, briefly became prime minister in 1998, Khodorkovsky told me they quickly established a good working relationship, despite the huge gulf in age and life experience: "We were like a cat and a dinosaur. But with people of his age I always act respectfully and for that reason they always treat me well."
The most striking memory I have of the Khodorkovsky of this period was a comment he made over lunch with me and some colleagues in 1995. When we asked him what it was like to try to do business in a country that was just four years away from communism, his reply felt both authentic and astonishing.
What we had to understand, he said, was that the state was still extremely important to business. How important? So important, he explained, that if the prime minister were to ask him to step down as head of his private bank, he would do so immediately.
But even as he learned to make friends in government, Khodorkovsky was also learning how to make money. Blessed by the Komsomol, and growing up in the relatively relaxed atmosphere of Mikhail Gorbachev's Soviet Union, the young student tried everything.
He failed with a student cafe, got luckier importing computers. Later, his Menatep Bank made vast profits by exploiting the bizarre loopholes created by Russia's lurch from central planning to a market economy. Enriched by his banking operations, Khodorkovsky was poised to play for the jackpot: the bargain-basement privatisation of all Russia's industrial and natural assets.
Just as Khodorkovsky had dabbled in dozens of businesses as a Komsomol entrepreneur, his Menatep group's acquisitions ranged from a titanium-magnesium plant near Moscow, to textile mills, from glass factories to food-processing plants. But the real turning-point - the transaction that multiplied his fortune from millions to billions and transformed him from a businessman to a tycoon - was the opaque and controversial privatisation deal known as loans-for-shares.
The 1995 loans-for-shares pact is one of the most shameful moments in post-communist Russia. In exchange for political support, the government granted control of the country's most valuable natural resources to a handful of businessmen, including Khodorkovsky, at a fraction of their market value. The asset transfer was little better than a give-away: in the loans-for-shares deal and an affiliated investment tender, Khodorkovsky's group paid $309m to gain control over a 78 per cent stake in Yukos.
One of Russia's ever-popular questions is: Kto vynovat? Who is to blame? For those Russians who are dissatisfied with the post-communist distribution of resources - and there are many, starting with the 30 million who live below the poverty line - the question of who is to blame begins with loans-for-shares.
To this day, the Russian reformers who orchestrated the deal defend it as the only way to keep the communists out of power and to ensure that Russia became capitalist. As Yegor Gaidar, the mastermind behind Russia's market reforms, put it to me in 1998: "I understood the loans-for-shares programme perfectly well. The loans-for-shares created a political pact.
They helped to ensure that [Communist leader Gennady] Zyuganov did not come to the Kremlin. It was a necessary pact." The complicity of the state in the loans-for-shares deal was hugely important in the making of the oligarchs, who are striving to be seen as the creators of a free market - and, indeed, of freedom itself - within Russia.
But in the Russian popular imagination, and in the eyes of Putin's prosecutors, the oligarchs are Slavic mafia dons, men who have bribed, stolen and even murdered their way into unimaginable riches. They are the capitalist exploiters that 70 years of communism inveighed against. This last accusation is true - the division of property was hugely unjust. But it is also false - the chief perpetrator of that injustice was the state, not the oligarchs.
The other big problem for the oligarchs - though not for a Kremlin which finds it convenient to have a pretext upon which anyone can be arrested - is that not all transactions were as blackand white as the monster, state-sanctioned loans-for-shares deal. Most of the time the law, much of it still based on an anti-capitalist Soviet legal code, was obscure and contradictory. Enforcement was patchy and judges and apparatchiks were for sale.
As Gaidar explained to me recently: "Of course, there were violations, but mostly it was lack of clarity of the law. The law was just being formed." These days, western investors are on a hunt for a "clean" oligarch, someone with whom they can do business, confident he won't be accused of fraud, or even murder, the next day. But veterans of the Moscow scene believe that search is futile.
When I asked Bill Browder, whose Hermitage Capital is the largest public equity fund in Russia with about $1.2bn under management, whether he could be certain that any big Russian businessman was absolutely pure, he smiled widely and offered a one-word answer: "No." Stephen Jennings, head of Renaissance Capital and another Russia hand, was only slightly more circumspect when I stopped by his Moscow office.
"There are no rich angels in Russia," he told me. "Everyone has broken a lot of laws and done a lot of bad things to get the assets they have. A lot of people were killed in a lot of different industries. With most of the big assets, there were some deaths."
The Russian business world is undeniably a rather dangerous place - when the Yukos jet landed, the flight attendant came round with a transparent plastic bag of revolvers for the bodyguards in one hand and coats in the other - but the oligarchs all deny using violence as a business tool.
What they will admit to is pushing Russia's patchy legal system to maximum personal advantage. In one high-profile example, Mikhail Fridman, an oligarch who this spring pulled off Russia's deal of the year with his sale of a 50 per cent stake in his TNK oil company to the British oil major BP, used Russian bankruptcy laws to acquire a valuable oil assets. His tactic, he recently assured me, was "legal" but also "very aggressive" and "perhaps... not absolutely within the framework of the spirit [of the law] in its international conception".
Khodorkovsky was another aggressor and - to the surprise and outrage of some analysts - he was not afraid to tangle with western investors. Acquiring Yukos was just the first step. Yukos itself was a holding company, made up of oil production subsidiaries that controlled the oil fields themselves.
Yukos's ownership of these subsidiaries was only partial. To make it a company worth owning, Khodorkovsky needed to establish absolute control over its subsidiaries. There was one big hitch: some shares in the subsidiaries had been sold off separately in earlier privatisation rounds. Western financial investors, spotting an opportunity to buy Russian oil assets cheaply, had been among the most zealous buyers.
Khodorkovsky needed to get them out. "When Khodorkovsky was the bad boy of western corporate governance the reason he was the bad boy was that a bunch of people owned his stock and he didn't want them owning it," Browder explained to me as we sat on a packed flight from London to Moscow.
Khodorkovsky proceeded to do so with an aggression and cunning that stunned even the normally unflappable Moscow business community. Minority shareholders were threatened with massive dilution; a complex web of mysterious offshore companies was created; technical or physical roadblocks were thrown up to prevent the dissident investors from voting at key shareholder meetings.
All of this happened just as some of his rival oligarchs were beginning to worry about their reputations abroad: they were courting western strategic investors and planning share listings in London or New York. They were brushing up on their English, hiring expensive western PR companies, and learning to pepper their public conversation with phrases such as "transparency" and "western corporate governance".
Khodorkovsky hired PRs too, but his bottom-line calculation was simple and ruthless. First, he needed to get control of the company. Later on, he could worry about his image in the west. Within five years, one Yukos executive predicted to me at the height of the conflict, everyone will have forgotten about this.
He turned out to be exactly right. Today, there are still a lot of people around who hate Khodorkovsky. But everyone agrees on one thing: the Khodorkovsky of 2003 is an outstanding business manager - the best in Russia - and Yukos is Russia's most transparent, best-governed company. It has even inspired a new word, "yukosisation", the process whereby a poorly managed, opaque Russian company cleans up its act. "Yukos is head and shoulders above the rest," Browder said. "Everything they do is better. The company is fixed."
Khodorkovsky did two big things to fix it. First, he improved the way it did its work and second, he improved the way it treated its investors. When Russians are serious about technical reform, they have a knack for marrying imported western know-how with home-grown ferocity - think of Peter the Great, or Joseph Stalin. This slightly scary combination is in evidence everywhere in Yukos, whose gleaming Moscow headquarters are crawling with keyed-up, red-eyed foreigners. The ones who last - and many don't - have learned to love what one of them, Ray Leonard, likes to call "the extreme sport" of the oil industry.
When Leonard, the Texas-trained geologist who compared Khodorkovsky with Peter the Great, first arrived at Yukos three years ago, he remembers being horrified to discover that a rival team would always be assigned to work on the same project he was given: "A western manager would look on it as a gross betrayal of trust." Now, Leonard sets up the same unforgiving internal competitions within his own department. "Monday morning staff meetings are like internal warfare," Leonard told me with a tired smile - he had been in a meeting with Khodorkovsky until 2am the previous night. At one of these public sessions, Leonard's boss "got really pissed at me and called me something that related to a sexual dysfunction". It was, Leonard said with a wistful smile, a terrific moment: "It meant I was one of them."
Khodorkovsky himself doesn't do much shouting. But he admits to an "authoritarian" management style. He has been ruthless about getting rid of Soviet-era working practices and he systematically monitors his workforce. In the late 1990s he told me he had installed closed circuit TV cameras in one enterprise and he is unsentimental about firing those who don't make the grade.
One example, which he called up on his laptop computer as we flew back to Moscow from St Petersburg, is the weekly report his security service compiles for him on the number of Yukos workers found drunk on the job. In the first few months after taking over Yukos, he fired thousands of habitual drunks, a significant number even in Yukos's massive workforce of more than 100,000. For the week in mid-September which he clicked open on his screen, there were just 27. Of these, Khodorkovsky's rule is that 90 per cent must be sacked.
His second big drive has been to clean up Yukos's corporate governance and its treatment of shareholders. He brought in a western chief financial officer, cut a deal with his minority investors and prepared company accounts that met international standards. I saw the change in 2000, when Khodorkovsky came to see me in my office in London. At the end of our conversation, he asked to use my computer. Within seconds, he had called up the Yukos share price and - with a whoop of joy - summoned his entourage over to take a look at how much it had risen that day.
Khodorkovsky was the first oligarch to officially declare the size of his personal shareholding and that of his partners. According to Browder, there are no corporate governance issues at Yukos left to sort out: "You can get right down to the details and see what is happening." Khodorkovsky's two-pronged restructuring campaign has been remarkably successful. Yukos's production costs plunged by two-thirds and its share-price rose sharply.
This spring, before the political furore, Yukos and Sibneft accounted for more than two-thirds of the rise in the Russian stock market over the past three years. Five days before Khodorkovsky was arrested, Yukos reported forecast-beating second quarter net profits of $955m, up 26 per cent on the previous year.
Yukos's transformation gave Khodorkovsky celebrity in Russia, and respectability in the west. When Yukos celebrated its 10th anniversary as a company this year a rollcall of global oil executives - Exxon's Lee Raymond, Chevron's David O'Reilly, British Petroleum's Lord Browne - sent letters of congratulation. Khodorkovsky has met Condoleezza Rice and is on first-name terms with the US ambassador.
When BP was searching for a Russian partner in the summer of 2002, Khodorkovsky was interested, but only on his own terms, insisting on keeping control of the company. He didn't need to sell out, because his success in turning Yukos around had inspired Khodorkovsky to set himself a new goal: he wanted to create Russia's first multinational company. "I know how I will finish my business career," Khodorkovsky told me. "I will build the best company in Russia and I will strive to make it international."
The reasons for Khodorkovsky's conversion from a quietly well-connected, aggressively apolitical tycoon to outspoken democratic activist are something of a mystery, even to the man himself. The best I could get from him was the observation that "Yes, I was once absolutely different in this respect, but people change with time, they mature."
Some of the oligarchs have turned to the traditional rich man's pastimes of international celebrity and conspicuous consumption. But Khodorkovsky is moderate in his personal tastes: he takes his family on holiday to Finland, and lives in a house that wouldn't be out of place in most upper-middle class suburbs. He thinks inherited wealth is soul-destroying and told me he plans to leave only a million or so to each of his four children. Instead, Khodorkovsky decided his second career would be giving Russia back the money he made during his first.
Khodorkovsky's decision has honourable precedents: he cites as models the American 19th century robber barons, as well as modern-day philanthropists such as Bill Gates. Like them, he is ploughing money into civic good works, ranging from internet access for rural libraries to foreign exchange programmes for Russian students. But in Russia's fledgling democracy, civic activity has political implications. Khodorkovsky has exacerbated those by becoming directly involved in politics, openly funding political parties and supporting the decision of some key Yukos shareholders to run in the December parliamentary elections.
It is hard to judge today what Khodorkovsky and his partners were hoping to achieve. Was he, as his critics allege, trying to win control of a powerful parliamentary bloc in the upcoming elections and make himself Russia's political master? He might have been - and he certainly has the chutzpah to have tried. But whatever Khodorkovsky's true motives, the first Yukos arrest on July 2 changed everything.
That day, Khodorkovsky's second career hardened into an almost messianic mission: he would not capitulate to the Kremlin hardliners and he would devote himself to building a political alternative to their rule. The mystery I kept coming back to during the time I spent with Khodorkovsky was why he wouldn't simply give up his political projects. It seemed to be the only way he could be sure of keeping his company, and keeping out of jail.
But no matter how many different ways I put the question, his answer was always equally adamant: "I recall now our discussions with the president and absolutely agree that businesses cannot and should not participate in politics. But, at the same time, according to our constitution, I have the same civil rights [to participate in politics] as other citizens.
As long as I have strength I am ready to fight the view that I must renounce my civil rights to guarantee my private property. I do not think that such a policy of appeasement is correct. Everyone knows how it ends. In 1929 and in 1917 people thought, 'let's compromise'. It ended with 5 million killed and tens of millions in prison. Our White officers fled the country, not wanting to fight for their rights at home. And how did it end? If they had stayed and fought perhaps 30 million of their fellow citizens would have lived."
For all his protestations, it is still hard to see Khodorkovsky as Russia's modern day Andrei Sakharov. His commitment to civil society is relatively new, and may be as much about personal glory as it is about the national interest. But on our flight back to Moscow, he told me he was ready to go to jail, if that's what it took.
He was still young and rich. At some point, they would have to release him and then he would carry on his battle. Several leading Russian politicians, businessmen and Yukos executives told me Khodorkovsky had said the same thing to them. Most of them predicted that his bravado would not last many hours in a crowded, tubercular prison cell.
Only one person thought he would hold out. A rival oligarch told me: "All of us [oligarchs] are used to taking great risks, whereas Putin is not the world's most decisive person.
For Putin, putting Khodorkovsky in jail is frightening. He is young, eventually he will get out, and then Putin will have a very rich opponent with a personal animus against him. If he puts Khodorkovsky in jail, he almost has to shoot him."
Chrystia Freeland is deputy editor of the FT and author of "Sale of the Century: The Inside Story of the Second Russian Revolution", Little, Brown 2000
Published in the US as "Sale of the Century: Russia's Wild Ride from Communism to Capitalism", Times Books 2000
"A Falling Tsar"
By Chrystia Freeland
Published: October 31 2003 19:48 | Last Updated: October 31 2003 19:48
On a chilly day earlier this autumn, I was sitting in a rather kitschy, rustic-themed Russian restaurant in a park in St Petersburg with Mikhail Khodorkovsky, Russia's richest man, and a small group of executives from his vast Yukos oil company. Outside, the weather had turned gloomy.
Inside, everyone was starting to relax after a few shots of vodka and not much to eat. When it was time for toasts, Ray Leonard, an American geologist who runs Yukos's exploration department, raised his glass, took a deep breath and launched into a carefully rehearsed speech: "This is the first time I have been to St Petersburg with Mikhail Borisovich," he said. "I have been reading a biography of Peter the Great. Peter the Great invited foreigners in and had to defend them against the locals. Three hundred years later, not that much has changed. Yukos is a small microcosm of the same process and I am proud to be a small part of it."
Khodorkovsky had the generosity to thank Leonard for his tribute, but he also had the humility to qualify it. After all, he explained, the real lesson of Peter the Great was tragic, not heroic. "We have to remember that under Peter the Great there were 24 million Russians and 300,000 of them died building St Petersburg.
There were 2 million fewer Russians when Peter the Great died than there had been when he became tsar. We have developed quickly, and we have developed slowly, but in all this time, human life in Russia has not been worth even a kopek."
It was an admirable response and I didn't think it was particularly directed at me. But the episode made me wonder which force is more powerful in shaping Khodorkovsky's conduct today: the hubris of a man surrounded by fanatically devoted workers who routinely compare him to Peter the Great, or the idealism of a man who remembers that Peter the Great was a murderous autocrat? Is Khodorkovsky a crooked and vainglorious businessman who sought to undermine Russia's elected president, or is he a brave billionaire willing to risk his freedom and his fortune to stop Russia's slide into authoritarianism?
These questions have been posed even more urgently since early last Saturday morning, when the 40-year-old Khodorkovsky was arrested at gunpoint on charges of fraud and tax evasion and taken to Moscow's notoriously overcrowded Matrosskaya Tishina prison. The theatrical seizure was the climax of a four-month government campaign against the oligarch whose personal fortune is estimated at $8bn and whose oil company controls reserves bigger than Kuwait's.
Moscow, as ever, is awash with rumours and conspiracy theories, but on both sides of the Khodorkovsky affair there is little dispute about the fundamental reason for the arrest: parliamentary elections are scheduled for December, and presidential elections for the spring.
The key to the state's efforts to control Russian politics ahead of these crucial votes is the conflict between Khodorkovsky, Russia's richest man, and President Vladimir Putin, Russia's most powerful man. Khodorkovsky is both a vast financial power and a growing force in civil society.
The logic of Russian politics still calls for Putin to dominate both. "Yukos is part of Putin's political game," the leader of one of Russia's liberal political parties told me. "He is against the independent position of anyone, including business. I think Yukos is important for Putin because he wants to show business that if you want to make money, you have to be loyal. If you are not loyal, you will be in prison." Some think Putin is right. Bill Browder, an American fund manager who has been working in Russia for a decade, argued: "A nice, well-run authoritarian regime is better than an oligarchic mafia regime - and those are the choices on offer."
On top of this intense political battle, Khodorkovsky has also been at the centre of what was shaping up to be one of the world's biggest oil deals. This summer, he engineered Russia's largest merger, with oil company Sibneft, and began intense negotiations with ExxonMobil and ChevronTexaco about selling a stake in the combined enterprise for as much as $25bn.
To see what his life was like at this extraordinary time, I joined him for two days in late September as he flew from Moscow to St Petersburg to address a meeting of Russian and American oil executives. At one point in his talk he called for the liberalisation of Russia's oil pipeline system - a cause the state has adamantly opposed.
At the lunch after the speeches, Khodorkovsky spotted the head of Transneft, the state-owned oil pipeline company. Smiling broadly, Khodorkovsky called out: "So, how did you like my loyal speech?" The Transneft boss, red-faced and struggling with evident anger, shouted back: "If that was loyal, I'm a trolley bus!" "So where are your headlights?" Khodorkovsky yelled back, miming flashing headlights with his hands cupped round his eyes. Loyalty to the Kremlin line, it was clear, had become for him something to be joked about. It is a joke he can now reflect on at leisure from the jail cell.
Vladimir Putin sought a confrontation with the half dozen oligarchs who control the heights of the Russian economy as soon as he succeeded Boris Yeltsin as president in 2000. He summoned them for a meeting in the Kremlin to announce a new deal: they could keep the vast resources they had acquired during the Yeltsin era, but they would no longer be allowed to play the prominent role in politics to which they had become accustomed. For the past three years, that arrangement has held.
The two oligarchs who couldn't bear to quit politics - Vladimir Gusinsky and Boris Berezovsky - were forced out of the country. The rest concentrated on business and became even more fabulously wealthy. Khodorkovsky, in particular, flourished, transforming himself from the bete noire of western investors to their posterboy.
Sometime this spring, however, Khodorkovsky began to drop hints that he would like to go into politics. He devoted more time and money to Open Russia, the non-profit organisation he founded in 2001 to promote civil society.
He publicly admitted that he and other major Yukos shareholders personally contributed to two political parties, the liberal Union of Right Forces and the social democratic Yabloko. He also acknowledged that some prominent Yukos shareholders supported the Communists, Russia's largest political party.
Riskiest of all, there were suggestions that Khodorkovsky might have even grander political ambitions. In dozens of interviews over the past five years, including one with me in 1998, he said he planned to retire from business when he turned 45. Everyone assumed he would then begin to enjoy his wealth. But as Khodorkovsky stepped up his civic and political activities earlier this year, commentators began to point out that his 45th birthday happens to fall in 2008, the year Putin is constitutionally obliged to step down, after two terms.
The observation seemed to be based on more than the usual gossip. Everyone in Moscow's political and business establishment has at least one story about a conversation with a senior Yukos executive in which Khodorkovsky's ambitions to become prime minister were floated.
One of the two exiled oligarchs tells a more extreme version, claiming Khodorkovsky told him he had a meeting with Putin this spring in which the tycoon suggested a change in the Russian constitutional set-up.
Russia, he told Putin, should become a parliamentary democracy, in which Khodorkovsky would be prime minister and Putin could have the prestigious, but more ceremonial, role of Speaker. When I put this to him, Khodorkovsky refused to say anything about his alleged prime ministerial ambitions. However, he freely agreed that he favours a shift in power - a legal shift, he is at pains to insist - from Russia's near-tsarist presidency to something closer to the French system, with a more authoritative and stable prime minister.
Precisely who said what to whom within the high, red walls of the Kremlin fortress as Khodorkovsky's political ambitions became more apparent is unclear. What is clear is that Yukos, and Khodorkovsky, came under increasingly heavy fire.
On July 2 this year, Platon Lebedev, a big Yukos shareholder, was arrested. Since then, another major shareholder has fled to Israel and another has been charged with tax evasion and forbidden to travel abroad. Police have repeatedly raided the offices of Yukos, their lawyers, a PR firm working for a political party that Yukos backs and even an orphanage sponsored by Yukos. On Thursday, prosecutors froze a large block of Yukos shares, raising the spectre of confiscation. Allegations against Yukos shareholders, and some employees, include murder and attempted murder, tax evasion and violations of the law during the privatisation of a fertiliser factory in 1994.
Yukos has robustly denied all the accusations, in particular the murder charges. "I can say with absolute authority that no one in our company is involved in contract killings, or was involved in them in the past," Khodorkovsky told me last month.
"There were no contract killings." One of the most lurid of the cases is the murder of the mayor of the Siberian oil town of Nefteyugansk, who had been opposed to Yukos's plans for expansion and was shot dead on Khodorkovsky's birthday in 1998. For Moscow's myth-makers, the apparent coincidence was too much to resist, and the killing became whispered as a birthday gift to Khodorkovsky from a zealous underling.
It hardly needs saying that Khodorkovsky formally disputed this charge. What was more interesting to me was that in informal conversation his remembered horror at learning of the mayor's death seemed heartfelt and unrehearsed.
He told me that his telephone rang at 8am. The call was from a Yukos employee and Khodorkovsky said he remembers it vividly - "how could I not?" The mayor had been shot. "Is he alive?" Khodorkovsky recalled asking. He still seemed a bit stunned by the reply: "How could he be alive! A whole glassful of his brains has spilled out." More softly, Khodorkovsky mouthed the final phrase a second time. It was an image, he said, he would never forget.
Over this summer, as raid followed raid, it seemed inevitable that the prosecutors would eventually reach Khodorkovsky. For that reason, the question uppermost in my mind when I met him was whether he would publicly capitulate by apologising to Putin for his political involvement and promising to stay out of politics in the future - or simply leave.
A senior Yukos executive told me that after the first arrests in early July, Khodorkovsky considered doing just that. "We discussed full, unilateral surrender," the executive told me over supper at Shinok, a Ukrainian-themed restaurant in Moscow that caters to the New Russian nostalgia for an Arcadian Slavic past.
"But we decided that it would be dangerous - it would be taken as a sign of weakness by our opponents in the Kremlin." Khodorkovsky has not looked back from that decision to stay and fight. A few hours after his imprisonment, his lawyer read out a statement from him: "I don't regret anything I have done; nor do I regret what has happened today."
Within the first few minutes of my seeing Khodorkovsky again, it was apparent that he was not for turning. He is a mild-mannered, soft-spoken and handsome man with rather gentle brown eyes, extremely clean hands and a tendency to giggle when nervous.
When I first met him in the mid-1990s, he had an occasional stutter and, every once in a while, an inadvertent twitch, though with maturity and success these habits seem to have subsided. He is never without his thick glasses - these days they are the fancy, frameless variety - and makes a point of seldom wearing a suit and tie.
If you met him at the home of a Russian friend, you might mistake him for a cerebral, slightly shy professor, probably of some technical subject such as applied mathematics or statistics. Like many powerful men, he has always liked to pretend he is slightly oppressed by his wife. Over tea in 1996 with Khodorkovsky and Inna, the pert, dark-eyed woman he met when they were at university together, he complained of the starvation diets she imposed on him and the Russian classical music concerts she sometimes forced him to attend.
But, of course, Khodorkovsky is neither a quiet professor nor a down-trodden spouse. He is a tycoon who has prospered in a business environment that is at once the most Darwinian, and the most Byzantine, in the world.
On our trip this autumn, we had barely sunk into the soft grey leather armchairs of the Tupolev-134 jet ferrying him and a few aides to the St Petersburg oil conference, when he threw a newspaper down in disgust, exclaiming: "He [Putin] is breaking the constitution again!" On the ground, as his tinted-windowed black Mercedes SUV pulled away from the airport, Khodorkovsky shouted a triumphant "Yes!" into his mobile phone.
It was a call from the Siberian city of Tomsk, where a court had just ruled in Yukos's favour in one of the hundreds of investigations the government is pursuing against the company at various levels. "It won't make any difference in the long run," Khodorkovsky admitted, "but it is nice to win sometimes."
As he entered the conference room in St Petersburg, another Russian oil baron commented on Khodorkovsky's extremely short new hairstyle. "I'm getting ready for them to throw me in jail," Khodorkovsky joked - sort of - with a steely smile.
Khodorkovsky always wanted to be a businessman - or the communist equivalent of one. From as early as he can remember, he wanted to be a Soviet factory director. In fact, he once told me, when he was just five years old the other children in his kindergarten nicknamed him "director" because becoming one was his frequently and clearly stated ambition.
He had some advantages. He was born in Moscow; his father was an engineer and both of his parents worked at the Kalibr high precision machine tools plant. But neither were members of the party elite, and his father was Jewish - usually a serious disadvantage.
Lacking family connections, Khodorkovsky had to make his own, which he did well. By 1986, when he graduated with a degree in chemistry from Moscow's Mendeleev Institute of Chemical Technology, he was deputy head of its Komsomol committee, the prep school for the Communist Party.
As another Jewish oligarch told me in Moscow last month: "Khodorkovsky always had a talent for power. With a [Jewish] name like his, being deputy head of the Komsomol committee was a very difficult thing to achieve. If I had come home one day and told my parents I wanted to do that, they would have thought I was crazy."
A significant reason for his success was his respectful, almost humble, attitude towards his more powerful elders. Even by the late 1990s, when their swiftly acquired wealth had turned some of the other oligarchs into swaggering, ostentatious New Russians, Khodorkovsky was still careful to strike a modest pose.
When the 68-year-old ex-Soviet spy, Yevgeny Primakov, briefly became prime minister in 1998, Khodorkovsky told me they quickly established a good working relationship, despite the huge gulf in age and life experience: "We were like a cat and a dinosaur. But with people of his age I always act respectfully and for that reason they always treat me well."
The most striking memory I have of the Khodorkovsky of this period was a comment he made over lunch with me and some colleagues in 1995. When we asked him what it was like to try to do business in a country that was just four years away from communism, his reply felt both authentic and astonishing.
What we had to understand, he said, was that the state was still extremely important to business. How important? So important, he explained, that if the prime minister were to ask him to step down as head of his private bank, he would do so immediately.
But even as he learned to make friends in government, Khodorkovsky was also learning how to make money. Blessed by the Komsomol, and growing up in the relatively relaxed atmosphere of Mikhail Gorbachev's Soviet Union, the young student tried everything.
He failed with a student cafe, got luckier importing computers. Later, his Menatep Bank made vast profits by exploiting the bizarre loopholes created by Russia's lurch from central planning to a market economy. Enriched by his banking operations, Khodorkovsky was poised to play for the jackpot: the bargain-basement privatisation of all Russia's industrial and natural assets.
Just as Khodorkovsky had dabbled in dozens of businesses as a Komsomol entrepreneur, his Menatep group's acquisitions ranged from a titanium-magnesium plant near Moscow, to textile mills, from glass factories to food-processing plants. But the real turning-point - the transaction that multiplied his fortune from millions to billions and transformed him from a businessman to a tycoon - was the opaque and controversial privatisation deal known as loans-for-shares.
The 1995 loans-for-shares pact is one of the most shameful moments in post-communist Russia. In exchange for political support, the government granted control of the country's most valuable natural resources to a handful of businessmen, including Khodorkovsky, at a fraction of their market value. The asset transfer was little better than a give-away: in the loans-for-shares deal and an affiliated investment tender, Khodorkovsky's group paid $309m to gain control over a 78 per cent stake in Yukos.
One of Russia's ever-popular questions is: Kto vynovat? Who is to blame? For those Russians who are dissatisfied with the post-communist distribution of resources - and there are many, starting with the 30 million who live below the poverty line - the question of who is to blame begins with loans-for-shares.
To this day, the Russian reformers who orchestrated the deal defend it as the only way to keep the communists out of power and to ensure that Russia became capitalist. As Yegor Gaidar, the mastermind behind Russia's market reforms, put it to me in 1998: "I understood the loans-for-shares programme perfectly well. The loans-for-shares created a political pact.
They helped to ensure that [Communist leader Gennady] Zyuganov did not come to the Kremlin. It was a necessary pact." The complicity of the state in the loans-for-shares deal was hugely important in the making of the oligarchs, who are striving to be seen as the creators of a free market - and, indeed, of freedom itself - within Russia.
But in the Russian popular imagination, and in the eyes of Putin's prosecutors, the oligarchs are Slavic mafia dons, men who have bribed, stolen and even murdered their way into unimaginable riches. They are the capitalist exploiters that 70 years of communism inveighed against. This last accusation is true - the division of property was hugely unjust. But it is also false - the chief perpetrator of that injustice was the state, not the oligarchs.
The other big problem for the oligarchs - though not for a Kremlin which finds it convenient to have a pretext upon which anyone can be arrested - is that not all transactions were as blackand white as the monster, state-sanctioned loans-for-shares deal. Most of the time the law, much of it still based on an anti-capitalist Soviet legal code, was obscure and contradictory. Enforcement was patchy and judges and apparatchiks were for sale.
As Gaidar explained to me recently: "Of course, there were violations, but mostly it was lack of clarity of the law. The law was just being formed." These days, western investors are on a hunt for a "clean" oligarch, someone with whom they can do business, confident he won't be accused of fraud, or even murder, the next day. But veterans of the Moscow scene believe that search is futile.
When I asked Bill Browder, whose Hermitage Capital is the largest public equity fund in Russia with about $1.2bn under management, whether he could be certain that any big Russian businessman was absolutely pure, he smiled widely and offered a one-word answer: "No." Stephen Jennings, head of Renaissance Capital and another Russia hand, was only slightly more circumspect when I stopped by his Moscow office.
"There are no rich angels in Russia," he told me. "Everyone has broken a lot of laws and done a lot of bad things to get the assets they have. A lot of people were killed in a lot of different industries. With most of the big assets, there were some deaths."
The Russian business world is undeniably a rather dangerous place - when the Yukos jet landed, the flight attendant came round with a transparent plastic bag of revolvers for the bodyguards in one hand and coats in the other - but the oligarchs all deny using violence as a business tool.
What they will admit to is pushing Russia's patchy legal system to maximum personal advantage. In one high-profile example, Mikhail Fridman, an oligarch who this spring pulled off Russia's deal of the year with his sale of a 50 per cent stake in his TNK oil company to the British oil major BP, used Russian bankruptcy laws to acquire a valuable oil assets. His tactic, he recently assured me, was "legal" but also "very aggressive" and "perhaps... not absolutely within the framework of the spirit [of the law] in its international conception".
Khodorkovsky was another aggressor and - to the surprise and outrage of some analysts - he was not afraid to tangle with western investors. Acquiring Yukos was just the first step. Yukos itself was a holding company, made up of oil production subsidiaries that controlled the oil fields themselves.
Yukos's ownership of these subsidiaries was only partial. To make it a company worth owning, Khodorkovsky needed to establish absolute control over its subsidiaries. There was one big hitch: some shares in the subsidiaries had been sold off separately in earlier privatisation rounds. Western financial investors, spotting an opportunity to buy Russian oil assets cheaply, had been among the most zealous buyers.
Khodorkovsky needed to get them out. "When Khodorkovsky was the bad boy of western corporate governance the reason he was the bad boy was that a bunch of people owned his stock and he didn't want them owning it," Browder explained to me as we sat on a packed flight from London to Moscow.
Khodorkovsky proceeded to do so with an aggression and cunning that stunned even the normally unflappable Moscow business community. Minority shareholders were threatened with massive dilution; a complex web of mysterious offshore companies was created; technical or physical roadblocks were thrown up to prevent the dissident investors from voting at key shareholder meetings.
All of this happened just as some of his rival oligarchs were beginning to worry about their reputations abroad: they were courting western strategic investors and planning share listings in London or New York. They were brushing up on their English, hiring expensive western PR companies, and learning to pepper their public conversation with phrases such as "transparency" and "western corporate governance".
Khodorkovsky hired PRs too, but his bottom-line calculation was simple and ruthless. First, he needed to get control of the company. Later on, he could worry about his image in the west. Within five years, one Yukos executive predicted to me at the height of the conflict, everyone will have forgotten about this.
He turned out to be exactly right. Today, there are still a lot of people around who hate Khodorkovsky. But everyone agrees on one thing: the Khodorkovsky of 2003 is an outstanding business manager - the best in Russia - and Yukos is Russia's most transparent, best-governed company. It has even inspired a new word, "yukosisation", the process whereby a poorly managed, opaque Russian company cleans up its act. "Yukos is head and shoulders above the rest," Browder said. "Everything they do is better. The company is fixed."
Khodorkovsky did two big things to fix it. First, he improved the way it did its work and second, he improved the way it treated its investors. When Russians are serious about technical reform, they have a knack for marrying imported western know-how with home-grown ferocity - think of Peter the Great, or Joseph Stalin. This slightly scary combination is in evidence everywhere in Yukos, whose gleaming Moscow headquarters are crawling with keyed-up, red-eyed foreigners. The ones who last - and many don't - have learned to love what one of them, Ray Leonard, likes to call "the extreme sport" of the oil industry.
When Leonard, the Texas-trained geologist who compared Khodorkovsky with Peter the Great, first arrived at Yukos three years ago, he remembers being horrified to discover that a rival team would always be assigned to work on the same project he was given: "A western manager would look on it as a gross betrayal of trust." Now, Leonard sets up the same unforgiving internal competitions within his own department. "Monday morning staff meetings are like internal warfare," Leonard told me with a tired smile - he had been in a meeting with Khodorkovsky until 2am the previous night. At one of these public sessions, Leonard's boss "got really pissed at me and called me something that related to a sexual dysfunction". It was, Leonard said with a wistful smile, a terrific moment: "It meant I was one of them."
Khodorkovsky himself doesn't do much shouting. But he admits to an "authoritarian" management style. He has been ruthless about getting rid of Soviet-era working practices and he systematically monitors his workforce. In the late 1990s he told me he had installed closed circuit TV cameras in one enterprise and he is unsentimental about firing those who don't make the grade.
One example, which he called up on his laptop computer as we flew back to Moscow from St Petersburg, is the weekly report his security service compiles for him on the number of Yukos workers found drunk on the job. In the first few months after taking over Yukos, he fired thousands of habitual drunks, a significant number even in Yukos's massive workforce of more than 100,000. For the week in mid-September which he clicked open on his screen, there were just 27. Of these, Khodorkovsky's rule is that 90 per cent must be sacked.
His second big drive has been to clean up Yukos's corporate governance and its treatment of shareholders. He brought in a western chief financial officer, cut a deal with his minority investors and prepared company accounts that met international standards. I saw the change in 2000, when Khodorkovsky came to see me in my office in London. At the end of our conversation, he asked to use my computer. Within seconds, he had called up the Yukos share price and - with a whoop of joy - summoned his entourage over to take a look at how much it had risen that day.
Khodorkovsky was the first oligarch to officially declare the size of his personal shareholding and that of his partners. According to Browder, there are no corporate governance issues at Yukos left to sort out: "You can get right down to the details and see what is happening." Khodorkovsky's two-pronged restructuring campaign has been remarkably successful. Yukos's production costs plunged by two-thirds and its share-price rose sharply.
This spring, before the political furore, Yukos and Sibneft accounted for more than two-thirds of the rise in the Russian stock market over the past three years. Five days before Khodorkovsky was arrested, Yukos reported forecast-beating second quarter net profits of $955m, up 26 per cent on the previous year.
Yukos's transformation gave Khodorkovsky celebrity in Russia, and respectability in the west. When Yukos celebrated its 10th anniversary as a company this year a rollcall of global oil executives - Exxon's Lee Raymond, Chevron's David O'Reilly, British Petroleum's Lord Browne - sent letters of congratulation. Khodorkovsky has met Condoleezza Rice and is on first-name terms with the US ambassador.
When BP was searching for a Russian partner in the summer of 2002, Khodorkovsky was interested, but only on his own terms, insisting on keeping control of the company. He didn't need to sell out, because his success in turning Yukos around had inspired Khodorkovsky to set himself a new goal: he wanted to create Russia's first multinational company. "I know how I will finish my business career," Khodorkovsky told me. "I will build the best company in Russia and I will strive to make it international."
The reasons for Khodorkovsky's conversion from a quietly well-connected, aggressively apolitical tycoon to outspoken democratic activist are something of a mystery, even to the man himself. The best I could get from him was the observation that "Yes, I was once absolutely different in this respect, but people change with time, they mature."
Some of the oligarchs have turned to the traditional rich man's pastimes of international celebrity and conspicuous consumption. But Khodorkovsky is moderate in his personal tastes: he takes his family on holiday to Finland, and lives in a house that wouldn't be out of place in most upper-middle class suburbs. He thinks inherited wealth is soul-destroying and told me he plans to leave only a million or so to each of his four children. Instead, Khodorkovsky decided his second career would be giving Russia back the money he made during his first.
Khodorkovsky's decision has honourable precedents: he cites as models the American 19th century robber barons, as well as modern-day philanthropists such as Bill Gates. Like them, he is ploughing money into civic good works, ranging from internet access for rural libraries to foreign exchange programmes for Russian students. But in Russia's fledgling democracy, civic activity has political implications. Khodorkovsky has exacerbated those by becoming directly involved in politics, openly funding political parties and supporting the decision of some key Yukos shareholders to run in the December parliamentary elections.
It is hard to judge today what Khodorkovsky and his partners were hoping to achieve. Was he, as his critics allege, trying to win control of a powerful parliamentary bloc in the upcoming elections and make himself Russia's political master? He might have been - and he certainly has the chutzpah to have tried. But whatever Khodorkovsky's true motives, the first Yukos arrest on July 2 changed everything.
That day, Khodorkovsky's second career hardened into an almost messianic mission: he would not capitulate to the Kremlin hardliners and he would devote himself to building a political alternative to their rule. The mystery I kept coming back to during the time I spent with Khodorkovsky was why he wouldn't simply give up his political projects. It seemed to be the only way he could be sure of keeping his company, and keeping out of jail.
But no matter how many different ways I put the question, his answer was always equally adamant: "I recall now our discussions with the president and absolutely agree that businesses cannot and should not participate in politics. But, at the same time, according to our constitution, I have the same civil rights [to participate in politics] as other citizens.
As long as I have strength I am ready to fight the view that I must renounce my civil rights to guarantee my private property. I do not think that such a policy of appeasement is correct. Everyone knows how it ends. In 1929 and in 1917 people thought, 'let's compromise'. It ended with 5 million killed and tens of millions in prison. Our White officers fled the country, not wanting to fight for their rights at home. And how did it end? If they had stayed and fought perhaps 30 million of their fellow citizens would have lived."
For all his protestations, it is still hard to see Khodorkovsky as Russia's modern day Andrei Sakharov. His commitment to civil society is relatively new, and may be as much about personal glory as it is about the national interest. But on our flight back to Moscow, he told me he was ready to go to jail, if that's what it took.
He was still young and rich. At some point, they would have to release him and then he would carry on his battle. Several leading Russian politicians, businessmen and Yukos executives told me Khodorkovsky had said the same thing to them. Most of them predicted that his bravado would not last many hours in a crowded, tubercular prison cell.
Only one person thought he would hold out. A rival oligarch told me: "All of us [oligarchs] are used to taking great risks, whereas Putin is not the world's most decisive person.
For Putin, putting Khodorkovsky in jail is frightening. He is young, eventually he will get out, and then Putin will have a very rich opponent with a personal animus against him. If he puts Khodorkovsky in jail, he almost has to shoot him."
Chrystia Freeland is deputy editor of the FT and author of "Sale of the Century: The Inside Story of the Second Russian Revolution", Little, Brown 2000
Published in the US as "Sale of the Century: Russia's Wild Ride from Communism to Capitalism", Times Books 2000
