Tycoons

Khodorkovsky's Jailhouse Interview


On June 10, Mikhail Khodorkovsky, the founder of Yukos Oil and a man once thought to be worth $15 billion, was whisked out of Moscow to prison in an undisclosed location in Russia. Before he began his second prison sentence, he sent a message: Be very wary of doing business in Russia.

In an interview with Bloomberg News, Khodorkovsky, 47, warned that in Russia "nobody is protected from lawlessness." He argued that the country is so bogged down by corruption that its economy can neither operate efficiently nor obtain enough investment to meet the goals of its leaders. Russia, he also says, is too dependent on oil and gas revenues. "Under the current political and economic model, to get a 10 percent growth rate for the Russian economy, the oil price would have to remain solidly above $200 a barrel," he says. Oil currently trades at around $100 a barrel.

Khodorkovsky spoke in part because he wanted to get his message out to business and government leaders, including China President Hu Jintao, attending the St. Petersburg International Economic Forum on June 16-18. It was not a typical interview: His lawyers submitted journalists' questions to their jailed client and delivered his written responses.

Khodorkovsky was found guilty of tax evasion and money laundering in 2005 and did time in a prison camp on the Chinese border. Before he finished serving his sentence, he was brought back to Moscow in 2009 to stand trial on fresh charges of money laundering and embezzling oil from Yukos. He was found guilty on Dec. 30. Russian authorities say the trial was fair: "This was a decision by the courts, and no one is entitled to comment on these decisions," says Prime Minister Vladimir Putin's spokesman, Dmitry Peskov. Khodorkovsky and his backers say he was imprisoned for financing political parties opposed to then-President Putin. Western governments have condemned his latest conviction as a step backward for judicial independence in Russia.

Khodorkovsky says that Dmitry Medvedev, who succeeded Putin as President in 2008, doesn't have "real power" and that his reforms have been "peripheral and cosmetic." Putin may run for President again next year. Another Putin presidency would eliminate even faint hopes for change, Khodorkovsky says. A second term for Medvedev, though, might improve things: "Medvedev is a leader of a new type. He looks at governing the state as a system of checks and balances, norms and institutions, rather than an instrument of personal control—which is a more modern approach."

At the World Economic Forum in Davos, Switzerland, last winter, Medvedev set a goal of 8 to 10 percent growth within five years. The former corporate lawyer's priorities are reducing the state's role in the economy, fighting corruption, and improving the rule of law. While investors hope that Medvedev will be reelected, Khodorkovsky's praise won't help, says Charles Robertson, chief global economist for Renaissance Capital, a Moscow-based investment firm. "To have Khodorkovsky's endorsement isn't necessarily a good thing for Medvedev," he says.

Russia's economy should grow 4.9 percent this year, says the Organization for Economic Cooperation and Development. China's economy is growing at a 10 percent rate; India's may grow 8 percent. Russia is the world's most corrupt major economy, according to Berlin-based Transparency International's 2010 Corruption Perceptions Index. That's why Russians need "100 percent guarantees for private property and an effective, law-based state," says Khodorkovsky, whose company was declared bankrupt and sold off in pieces.

Putin spokesman Peskov's response: "I presume that he does not have his finger on the country's pulse while in custody. We know pretty well our problems in attracting investment. At the same time, we cannot ignore the success of Western companies in this country."

Christopher Granville, managing director of Trusted Sources, a London emerging-markets research group, is not so dismissive. "Khodorkovsky is relevant because of the impact which the Yukos affair and his personal predicament still have on sentiment, particularly for foreign investors," he says. "It's like a poison seeping through the investment climate." The European Court of Human Rights on May 31 ruled that Khodorkovsky's 2003 arrest and subsequent detention breached his rights. Yet it also said his lawyers hadn't provided "incontestable proof" of the case's political motivation.

Khodorkovsky declines to reveal his net worth, saying as a prisoner he owns "books brought from home. I can use a bunk in the cell and a spoon for food." He says he's more hopeful now of an opposition that could change the regime because "apathy is disappearing and leaders are appearing." Russia within five years could become "a lawful and democratic country," he says. "If it doesn't, it won't survive as a civilized state."

The bottom line Khodorkovsky, the imprisoned oligarch, says that 10 percent GDP growth for Russia is impossible unless oil sells at $200 a barrel.

Meyer is a reporter for Bloomberg News in Moscow.
Arkhipov is a reporter for Bloomberg News in Moscow.

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