TIME EUROPE
July 24, 2000, Vol. 156 No. 4
Crackdown
Moscow's powerful oligarchs feel the heat as Vladimir Putin's tax police and prosecutors continue to make life uncomfortable for Russia's big business
By PAUL QUINN-JUDGE Moscow
In the waning days of the Yeltsin era, a businessman with close connections to the KGB sat musing over lunch about the once all-powerful state security organization. It seemed to be a spent force, he agreed. Many top officers had left for the private sector. "But they keep in touch with each other, and they are keeping notes on our 'oligarchs,'" he said. "When the right leader emerges, they will be ready," he predicted. At the time, that sounded paranoid. Now it appears to have been prescient.
In quick succession last week, prosecutors, state security officers and taxmen moved against the most powerful and influential corporations of Russia. A dozen or so men who in the early 1990s had become fabulously wealthy at high speed and with little effort — and who liked to boast quietly that they were the real rulers of the country — were suddenly on the defensive. By last Friday, half of them were under investigation for a variety of alleged offenses, ranging from embezzlement to tax fraud, and the other half were waiting for the ax to fall. Oligarch-bashing is highly popular here, but the claim that this was a crackdown on corporate crime would have been more credible if some big names had not been missing from the hit list.
The raids highlight the paradox at the heart of the Putin presidency. Even critics say they do not doubt Putin's devotion to liberal economics and democracy. But this commitment is constantly offset by a secret policeman's mentality. Eloquent public statements on the freedom of the press and private enterprise are contradicted by crude and sometimes cruel actions. His economic team is pro-market. But, sources close to the Kremlin say, he appears most comfortable with former KGB colleagues like national security adviser Sergei Ivanov. "Putin is a perfect product of the organs [the KGB]," said one of the oligarchs' top political operatives. "He has known nothing else in his adult life, and it shows. He thinks intimidation and fear is the best way to neutralize people or win them over."
The main victim in last week's raids was once again Vladimir Gusinsky, the media magnate who has incurred Putin's enmity with the stridently critical tone of his TV and press outlets. Prosecutors said that Gusinsky — briefly imprisoned last month, and still barred from leaving the country — could be re-arrested for alleged embezzlement.
The same day, the prosecutor-general's office asked Gazprom, the energy giant, to hand over documents on its relationship with Gusinsky's ntv, to which it had lent money. Then it suggested that Interros, a multi-billion-dollar holding with interests from finance to mining, should pay the government $140 million in compensation for allegedly short-changing the state in the purchase of major metals group Norilsk Nickel. The alternative facing it would be prosecution.
The tax police, meanwhile, announced that Vagit Alekperov, the head of Russia's largest oil company, Lukoil, was under investigation for alleged tax fraud. They followed this by accusing the country's biggest car-producer, AvtoVAZ, of fiddling $600 million in taxes. The week ended with the announcement that UES, the electricity generating monopoly headed by Anatoli Chubais, would be investigated for alleged irregularities during privatization.
The tycoons declared their outrage and innocence. Lukoil countered that the state actually owed it money in refunds for value-added tax. AvtoVAZ claimed that the allegations stemmed from an old mistake by the tax police. Interros' head, Vladimir Potanin, accused the prosecutor general's office of destabilizing "one of Russia's most effective enterprises." Gusinsky wryly noted that the latest raid came only days after his flagship news program had attacked Putin and questioned the impartiality of the prosecutor general.
One oligarch, Boris Berezovsky, seemed quite satisfied with the turn of events. Undeterred by polls showing that Putin is still wildly popular, Berezovsky has been arguing for weeks that the president is fighting too many battles at once, and choosing his targets badly. In an interview with TIME, Berezovsky argued that Putin's actions — last week's raids and other controversial policy initiatives before it — have turned all Russia's élites against his presidency. This in turn has been good news for Berezovsky because of his new brainchild, an opposition movement. He predicts that it will go public in the next few weeks.
Putin, like any secret policeman, has a flair for his enemies' weak points. None of Russia's super-rich could convincingly explain how they made their money. Their fortunes stemmed at best from their closeness to power, often from what in the West would be considered insider trading.
The oligarchs claim that they have been spending the past couple of years getting their affairs in order. "Legally we are now untouchable," claimed the political operative to one of them. If true, this is a masterly achievement. But the flaw in Putin's reasoning lies elsewhere. His own allies and patrons are as vulnerable as his enemies. The Yeltsin era was one of sleaze and murky morals. Any politician or businessman "who was not asleep for the past 10 years," Berezovsky told Time, "could be thrown into prison today." That, he noted pointedly, goes for the Kremlin as well as the opposition.
With reporting by Yuri Zarakhovich/Moscow
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July 24, 2000
COVER
One Is 100
Famous and beloved for her entire adult life, the Queen Mother notches up a century on August 4 — and the celebrations are already in full swing
EUROPE
Crackdown
Moscow's powerful oligarchs feel the heat as Vladimir Putin's tax police and prosecutors continue to make life uncomfortable for Russia's big business
The Hit List
Russia's ruble rousers
Q & A
Berezovsky speaks
The Tax Break Man
By squeezing through sweeping reforms, Chancellor Gerhard Schröder has stolen a march on his critics
BUSINESS
Third Generation Gap
Lower-than-expected bidding for mobile licenses is bad news for governments but good news for consumers
Names in Waiting
The trial is over — now judgment day looms for Lloyd's and investors
HEALTH
The New Science of Alzheimer's
Racing against time — and one another — researchers close in on the aging brain's most heartbreaking disorder
SOCIETY
The French Disease
In France, a best seller exposes a nationwide problem of emotional abuse in the workplace
THE ARTS
In Praise of Flattery
How the rampant sucking up to the famous has undermined the language of private praise
You Look Marvelous!
Tips for kissing up
Irony Is Dead. Long Live Irony (on the Web)
The snide tradition of disrespecting media and movie stars is thriving on delightfully sardonic sites
DEPARTMENTS
Essay
Olympic Monitor
World Watch
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