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Unfiled June 17, 2005
Yuck!-os Trial
The Big Ugly By Kirill Pankratov Browse author

Mikhail Khodorkovsky finally got sentenced to nine years in jail. There will be motions, appeals-the usual legal fuss. It is not clear what will happen to Khodorkovsky after a few years, particularly after Putin steps down. But for now at least, it is over.

It was one long exercise in unrestrained ugliness, coming from all sides-Yukos, the government prosecutors, the western media, liberal and populist politicians trying to score points in the silliest ways. The sentencing itself, amazingly, droned on for two weeks. The running joke in Moscow was that "Khodorkovsky is sentenced to life. A life-long reading of his sentence, that is."

Khodorkovsky wasn't always the darling "corporate reformer" and "the hope of the democratic Russia" in the western media. It wasn't a great secret that he was one of the most predatory oligarchs emerging during 90's. One of the dirtiest scams performed by the Yukos-Menatep cabal-well-known long before the Khodorkovsky's arrest-was the so-called transfer pricing, when an oil-extracting or mining company sells raw materials at a much lower price to oligarchic offshore companies that evade most of the taxes and accumulate most of the profits, bypassing most of the minority owners. It was a typical fraud scheme popular in the Yeltsin era, but nobody perpetrated it on such a massive scale as Menatep's structures. In the oil business they somehow managed to classify the pure incoming oil as a strange substance called "well-head liquid," which was taxed at much lower rate. As a result, the extracting subsidiary of Yukos operated at a loss, while the profits went to the holding company majority owners-that is Khodorkovsky, Nevzlin and others.

Establishing full control over Yuganskneftegas-the company at the heart of Khodorkovsky's oil empire- included such episodes as the unsolved murder of the town mayor (and bitter adversary of Yukos) in 1998, who was gunned down on Khodorkovsky's birthday.

And yet these things barely figured in the state's case against Khodorkovsky and Lebedev. There was plenty of other dirty laundry, including some really ridiculous nitpicking on the prosecution side.

It is pretty interesting to recall what the Western media was writing about Khodorkovsky before he started throwing money at his huge PR campaign. The image was cold and clear-that of a poster child for Russian oligarchic abuses. Consider just one article in the Financial Times published on November 4, 1998. Khodorkovsky is contrasted-in not too flattering terms-with the hands-on and more humane approach, relatively speaking, of the boss of the neighboring Surgut, another oil major:

SIBERIA: Economy shows its two faces, Arkady Ostrovsky visits the Siberian oil towns of Surgut and Nefteyugansk and finds radically different moods.

:Across the river in Nefteyugansk, people rail against a slick Muscovite banking tycoon dressed in a Marlboro Classics shirt who bought their company, Yuganskneftegas, and milked it for profit, impoverishing the town in the process. Queuing recently outside a bank for their wages, which they had not received in full for three months, Nefteyugansk workers complained bitterly about Mikhail Khodorkovsky, one of the new class of bankers, the so-called "oligarchs". Some counted themselves lucky to receive Rbs200 ($12.50)-or 10 per cent of the wages due three months earlier.

Alevtina Kosareva, 43, says she has been forced to exchange her sewing machine for vegetables. "He [Khodorkovsky] keeps us on a drip-feed so we do not starve and continue to work for him. Khodorkovsky simply laughs at us. He does not even think we are people . . . In the past, masters fed their slaves, but the new masters do not bother." In the past two years Yukos-the loss-making oil company that owns 51 per cent of voting shares in Yuganskneftegas-has reduced wages by 30 per cent, cut its drilling programme, and laid off about 15,000 people, reducing the workforce to 39,000. It has transferred the old Soviet social responsibilities to the municipal budget, in line with advice from western consultants.


Khodorkovsky and Yukos reached their nadir in 1998-99, in the wake of the Russian financial crash, almost bankrupting and losing the company through massive fraud and mismanagement. After defaulting on a mountain of debt, pissing off all their minority investors and antagonizing Yukos employees, Khodorkovsky decided to clean up his act.

Some of it was for real. The corporate management greatly improved, and production soared. In large part, however, the Yukos success had since 2000 was due to a simple fact that it got hold of some of the juiciest and most productive Soviet oil fields.

Much of the clean-up operation, though, was done the usual robber-baron way: a massive investment in politics. Khodorkovsky became ever more confident and brazen as Yukos fortunes grew ever higher. Finally it caught up with him.

The first move against Yukos was made in June 2003 with the arrest of Platon Lebedev, a senior figure in the Menatep structure. Khodorkovsky himself was arrested in November 2003 by masked spetznas-in a manner characteristic of the less than beloved mid-90's. Then the ugly show began. Another member of the clan, Vasily Shakhnovsky, the head of Yukos-Moskow, was charged with large-scale tax evasion. To obtain immunity from prosecution, he immediately organized his own election to the Federation Council (otherwise known as the Russian Senate) from the tiny Siberian republic of Evenkia, close to Yukos' oil-rich fiefdoms. It was a classical rotten borough case: the whole Evenkia, with a population just over 15,000, could be bought off for a fraction of his tax claims. In this case no western media uttered a single word of opprobrium over such shining example of the fair electoral process.

The government responded in kind, throwing some random curveballs. It wasn't exactly short on silliness: in one case a distant Siberian rabbit farm, belonging to a Yukos subsidiary, was harassed for: allowing these fecund creatures to copulate in a "random and unsystematic way."

There is no point in going through all the details of this slog. Yukos was fined utterly insane back-tax sums, its offices raided, accounts frozen. In its turn, the Yukos propaganda machine was trying to drag the whole Washington imperial plutocracy to fight on its side.

Unable to wrest Yukos from the Khodorkovsky-Nevzlin camarilla in a relatively clean, easy way, Putin's attack dogs opted for its wholesale destruction, crushing minority investors along the way. The climax was the sale of the Yuganskneftegas to shady, government-controlled outfit Baikal Finance Group, which has since disappeared altogether.

Yukos-Menatep in the meantime continued to wreck havoc and destruction too. Several issues ago, I described the sordid butchering of the respected liberal weekly Moscow News, bought by the Khodorkovsky clan to turn it into a pure propaganda organ:

Now we can see the first results of this takeover. These days half of the Moscow News' Op-Eds and editorials look like this drivel by Viktor Yerofeyev, (readily reprinted by The Moscow Times, the obedient lapdog of the western corporate plutocracy):

It is a sad affair. One would expect that amagazine will be deferential to its owner. But this is far beyond a reasonable bias. The writing approaches bizarre idol-worship. Even the late Brezhnev would cringe receiving such nauseating adulation from a provincial party secretary.

It is also symptomatic that Menatep's boys have to conscript such characters into their propaganda troops. Yerofeyev is retarded. His claim to fame was an inane and barely readable book Russian Beauty, written some fifteen years ago. To get the gist of what it is, look for it on

Its translated edition has only two reader's reviews-one is short and bland, the other, entitled "Bon vivant turned graphomaniac" is very apt and funny. It is written by my childhood friend, with whom I grew up in the neighboring khrushchevka apartment in the city of Samara (and, after not seeing him for some 15 years, we met occasionally, writing reviews on the Amazon).

It is rather funny to see how much of the final downfall of the Yukos clan was of itsown making. Imagine, say, Enron bringing to its defense a short, clownish Russian lawyer, who, in a thickly accented English, would call the whole US administration "a corrupt dictatorship" while spewing threats of international sanctions? That's roughly what the Khodorkovsky's counsel Robert Amsterdam was doing during the trial in Moscow. After watching him, some of Khodorkovsky's ardent supporters later snickered on the internet forums that to give these megalomaniacs a good slap may be not such a bad idea.

One can't help feeling relieved that the whole thing is over for now. It is better when a circus comes to town once in a while, not when the whole town turns into a circus.

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