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John Daly

John Daly

Dr. John C.K. Daly is the chief analyst for Oilprice.com, Dr. Daly received his Ph.D. in 1986 from the School of Slavonic and East European…

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Freed from Prison Russian Energy Oligarch Khodorkovsky Flies to Germany

Freed from Prison Russian Energy Oligarch Khodorkovsky Flies to Germany

Following a marathon four-hours news conference on 19 December, Russian President Vladimir Putin had a surprise announcement to make about former oligarch Mikhail Khodorkovsky, arrested in October 2003 and due to be released in 2017. Following up on the last question of the press conference, Putin told reporters that Khodorkovsky recently "wrote to me asking for pardon. He has already spent over 10 years in confinement. This is a serious punishment." Noting that Khodorkovsky’s mother was ill, Putin added, "Considering all those circumstances, I believe it is possible to make a relevant decision and a (presidential) pardon decree for him will be signed in the nearest future." True to his word, Khodorkovsky was a free man the next day, taking a private jet to Germany.

But the only clear element of the tale is that Khodorkovsky is now in Germany -his lawyers denied that he had asked for a pardon. Attorney Karina Moskalenko said, "I haven't heard anything about him requesting a pardon." Putin’s press secretary Dmitry Peskov countered, “Putin recently received the letter, signed by Khodorkovsky. If you ask for a pardon, then you are admitting guilt."

Russia’s Federal Prisons Service said that Khodorkovsky had flown on a private jet to Berlin’s Schönefeld airport, where former German foreign minister Hans-Dietrich Genscher personally picked him up at the airport, because his mother is undergoing medical treatment in that country.

Except that Khodorkovsky’s 80 year-old mother, Marina Khodorkovskaya, is apparently still in Russia. Khodorkovskaya told TV-Novosti RT, “No, I am in Moscow.” When asked if she had been in communication with her son she replied, “No, I can’t talk to him – he has no phone” before adding that she does not have any new information besides what she “hears from the radio.”

It is worth reviewing what Khodorkovsky’s actions were to land him in prison.

Related article: Japanese Optimistic on Putin’s Intentions to Develop Siberia

Born in 1963, Khodorkovsky became deputy head of Komsomol (the Communist Youth League) at Mendeleev Moscow Institute of Chemistry and Technology, where he graduated in chemical engineering in 1986, using his connections to develop “free enterprise” opportunities.

In 1988, three years before the collapse of the USSR he founded the Menatep bank, which would eventually grow into a $29 billion holding company. In 1995 Menatep acquired a major Russian oil producer Yukos, which had debts exceeding $3.5 billion, for a bargain $350 million, with Khodorkovsky and his partners acquiring a 78 percent share of the company. But trouble was already brewing for the financial institution, as in 1995 a CIA report identified Bank Menatep's close links to organized crime.

By 2003 Yukos was valued at $17 billion, with Khodorkovsky personally owning a quarter of the company's stock and Forbes magazine estimating his fortune at one point at $15 billion. If Yukos was the crown jewel in Khodorkovsky's portoflio, because of his connections Bank Menatep was put in charge of handling a large amount of state money, ranging from the funds allocated to the victims of Chernobyl to the finances of the Moscow city government.

Khodorkovsky’s business and political ambitions grew with his wealth, making an eventual conflict with the government seemingly inevitable.

After Putin came to power in late 1999, he offered an informal deal to Russia's oligarchs – they could keep their wealth but they were not to enter politics, a precept that Khodorkovsky violated, establishing the Open Russia Foundation to promote democracy and civil society while underwriting advocates of civil liberties, Western economics and judicial reform. Last but not least Khodorkovsky also donated to nearly all Russia’s embryonic political parties, while not bothering to hide his support for opposition to Putin, even going as far as to make allegations of corruption in the Kremlin.

The blowback became inevitable, and when it did Putin used a weapon that made virtually all of the oligarchs vulnerable – the tax police. The reality is that the Yeltsin administration hived off vast chunks of Soviet properties at firesale prices to cronies and for political supporters, particularly in the energy sector, and that the practice caused great resentment among the Russian middle and working classes that had been effectively wiped out by 1992’s hyperinflation. The reality was, then as now, that virtually no one could legitimately become a billionaire in Russia by playing by the rules, declaring all income, paying all taxes, etc., and Khodorkovsky’s hubris blinded him to this simple truth before Putin lowered the boom, end of story.

Related article: Putin Agrees Deal with Yanukovych to Provide Loans and Cheap Natural Gas

Convicted in 2005 after being arrested on charges of fraud, embezzlement and tax evasion two years earlier, Khodorkovsky in 2009 was again put on trial on charges of money laundering and further embezzlement, earning him another jail term of 14 years to run concurrently with his previous sentence. Putin, for whatever reasons, gave him three years of his freedom back.

Whatever the future holds for the 50 year-old Khodorkovsky, his wife and four children, one thing is clear – his role as Russia’s richest man is over. What will be interesting to see is whether he stashed some of that loot in offshore tax havens for rainy days.

By. John C.K. Daly of Oilprice.com




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