Mikhail Khodorkovsky

In a piece published in TIME magazine in time for Vladimir Putin’s inauguration, jailed former Yukos chief Mikhail Khodorkovsky writes about the lack of rule of law in Russia and how individuals looking for justice there can’t count on the judicial system, which remains under Putin’s influence.

“Perhaps an individual judge may be biased,” he writes,

but the judicial system as a whole can’t ignore both the law and self-evident facts. Therein lies the error in my reasoning. [...] The main feature of the Putin regime, though, is its deceitfulness—from the very top, all the way down. Corruption, stealing from the treasury, persecution of political opponents—all these are consequences of the deep immorality of this government, a government that is more comfortable with smears and evasions than with transparency.

Khodorkovsky closes by saying that more and more, the Russian people are standing up to the regime and that this disobedience will soon bear fruit:

For the [younger generation's] sake, we are beginning to stand taller at last. We are beginning to stand taller in the deceitful courts and on the streets of our cities. Yes, we are still afraid, but now, even more than that, we’re ashamed in the presence of our children. And we can’t be made to bend anymore.

Read Khodorkovsky’s full column here.

“There is a 50 percent chance that any entrepreneur doing business in Russia will sooner or later end up behind bars,” he writes, citing a conference speaker.

Not helping the situation is the fact that in the last few years the Russian government has enacted only two laws to help improve the country’s business climate (banning pre-trial detention for economic crimes suspects and requiring an audit before tax evasion charges are filed), while the acquittal rate for economic crimes has remained less than one half of one percent.

Other data that the conference speakers pointed to while explaining the disappointing state of the Russian economy:

• Two million Russians have lost their jobs over the past several years as a result of systematic persecution of businessmen by state officials. (Leonid Grigoriyev, Higher School of Economics professor)
• Only about four percent of Russians said they are planning to open new businesses within the next three years, compared to about 25 percent for other emerging nations. (Global Entrepreneurship Monitor)
• While about 60 percent of Russians see entrepreneurship as a desirable career choice, only eight percent consider it worthwhile. (Olga Verkhovskaya, St. Petersburg University professor)
• Without rising global oil prices and changes in legal policy toward businesses, the Russian economy may only grow by 1.2 percent annually. (Yevgeny Yasin, former Russian Minister for the Economy and Higher School of Economics professor)
• Bribery and corruption have forced manufacturers to raise the price of food 15 percent.

“There is a perception in government that business people are dishonest,” Yasin added. “Sadly, this appears to be the prevailing mindset.”

Read more about the conference here and here.

Alexander Morozov, chief economist at HSBC in Moscow, told the Wall Street Journal, “This is coming from domestic businesses people sending their money out of the country, either to avoid corruption or because they have no place to invest it here.”

At the current rate, more than $140 billion would leave Russia in 2012, outpacing the record of $133.7 billion during the economic crisis of 2008.

Read more about capital outflows in Russia here and here.

Some 81 percent of the respondents to a national poll conducted mid-March said the level of corruption in the country is “high,” up from 75 percent in 2010. Forty-three percent believe corruption cannot be eradicated, as opposed to 39 percent who said it can be eliminated one day.

Meanwhile more than a third (35 percent) of the Russian electorate said they could not judge the work of President Dmitry Medvedev after nearly four years. (Imagine a third of the U.S. population not being able to judge a president’s job after even four months.)

Even more telling, 72 percent of the respondents said they saw no difference between the policies of Medvedev and his presidential predecessor / successor, Vladimir Putin.

Read more about the polls here.

Prime Minister Putin

Michael Bohm writes in the Moscow Times that the only way for Prime Minister Vladimir Putin to ensure his continued economic prosperity – not to mention his freedom – is to stay in power, as the once-and-future Russian president could be subject to “possible corruption and other criminal charges” should he leave office.

Bohm explains:

As long as Putin remains in control, Western leaders will continue to do business as usual with him and his administration, and they will ignore or downplay allegations of corruption at the very top.

Should an opposition leader rise to power, a Putin trial – over the theft of Yukos, or over “corruption […] at Gazprom, VTB, Transneft, Russian Technologies, National Media Group, Gunvor, the Rotenberg brothers’ enterprises, Bank Rossia, arms trader Rosoboronexport and dozens of other companies that make up Putin’s ‘Russia, Inc.’” – would soon follow.

Bohm writes that Western leaders have shown in the last decade they have no trouble turning on a former dictatorial ally (Mubarak) or to go from tolerating a dictator to actively seeking his removal from power (Gadhafi).

“A similar fate could await Putin,” Bohn concludes, unless, of course, after two more presidential terms a 72-year-old Putin flees to friendly Belarus – or finds a way to stay in power into his sunset years.

Read the full article here.

Pavel Khodorkovsky

As rigged parliamentary elections provoked an outcry across the globe, Russian citizens have risen up to demand accountability from their leaders, writes Pavel Khodorkovsky, son of jailed former Yukos CEO Mikhail Khodorkovsky, in the World Policy Journal.

The protest movement is Russian through and through, Khodorkovsky explains, not provoked by an outside source. It’s a movement that he expects will only gain momentum as the nation heads toward a spring presidential election.

Read the full article here.

A man protesting the results of the Duma elections is arrested. Credit: Reuters

Tai Adelaja of Russian Profile notes that this week’s demonstrations in Moscow “may have started to take a toll on the country’s economy,” as state bank VneshEconomBank canceled its Eurobond placement and two Russian mining companies have completed their escape from the MSCI Index to the FTSE 100.

VEB’s bond postponement is the first of its kind since the early 1990s, as “bond investors who initially showed interest in buying VEB bonds have started to withdraw their applications, as uncertainty clouds political future in Russia.”

Meanwhile mining companies Polymetal and Evraz became the first Russian firms admitted to London’s FTSE 100, with analysts seeing “a political undertone in their decisions.”

Two other Russian companies, Russian Railways and TNK-BP,­ are planning to meet with investors next week, the results of which could signify how money managers feel toward Russia after the election.

Read the full article here.

Essentially, a vertically integrated holding company has been created in the country’s expanses – it has its own credit organizations that provide working capital, its own cash factories that pump oil and gas from the land, its own pipeline systems, its own transport of all possible kinds, its own structures that ensure security and weapons for it, its own communications, its own social amenities, its own services, including media services, and its own instruments of political control.

Vladimir Putin

Putin’s strategy was to completely control the political process, remove Yeltsin-era elites from government and replace them with loyalists and audit to death the private companies created in the aftermath of the fall of Soviet Union.

With the Yeltsin-era business leaders out of the picture and his own cronies in place, wresting control of major industries – finance, energy, military and infrastructure – became possible.

The full article, in Russian, is available here.

Blackstone Group's Steven Schwarzman

The executives of J.P. Morgan Chase, the Blackstone Group and Citigroup were in Russia last week advising President Dmitry Medvedev on how Moscow can improve its business and investment climate, writes the Wall Street Journal.

“Funds are actually scared to put money here. That’s the problem you must solve,” Blackstone’s Stephen Schwarzman told Medvedev.

Schwarzman counseled the Russian president to sell off state companies to private investors, while J.P. Morgan Chase CEO James Dimon recommended developing a “very strong set of legal rights” to lure investors, as the country’s notorious legal system and high levels of corruption often drive away investment.

You can read more here.

Kremlin observers say that putting this proposal into action, which is unlikely, would improve President Medvedev’s standing ahead of the 2012 elections. According to a top Russian business lobbying group, one in six entrepreneurs has faced criminal charges.

Medvedev set up the human rights panel back in February.