“Khodorkovsky will be free.” These words were uttered by Vladimir Putin in a press interview in early September, and they are worth recalling now – shortly after the second Khodorkovsky trial ended this week with the closing statements by the prosecution and defence as well as Khodorkovsky’s own politically charged address to the judge. Perhaps Putin is relenting somewhat. Alone the fact that he evoked a future in which Khodorkovsky is out of jail is striking.
At the same time, while observers are left to speculate on the basis of such scraps of evidence pending the passing of the verdict on 15 December, there is no shortage of other morsels pointing in a negative direction. For the past few years, Putin’s standard line on Khodorkovsky has been to depict him as complicit in the murders for which the former head of physical security at Yukos was convicted in 2005. I heard Putin repeat this line when challenged on the subject of Yukos by an investor from the US at the VTB Capital investment conference in early October. The implication here is clear enough: keeping Khodorkovsky in prison is morally justified. Few commentators dare hope for any other outcome.
However unlikely it seems that Khodorkovsky will be acquitted, this outcome – which would be as happy for the investment climate as for Khodorkosvky and Platon Lebedev personally – is still possible in my opinion. I have never shared the view that Russian politics is like a chess game played by grandmasters executing moves planned far into the future. Even under the greatly strengthened central authority built up during the Putin period, chaotic and last-minute decision-making is much closer to the norm; and I do not see why the outcome of this second Khodorkovsky trial should be an exception. The fact that the judge – Viktor Danilkin – has taken every opportunity to drag out the trial for as long as possible (incidentally, giving Khodorkovsky lengthy grandstanding opportunities and hence intensive media coverage) amounts to powerful circumstantial evidence of indecision about the verdict.
Such indecision is perfectly understandable. From the perspective of the political leadership, simply having to make the choice between acquittal and conviction is unpalatable. The charge against Khodorkovsky – that he stole the crude oil produced by Yukos’s upstream subsidiaries and laundered the allegedly criminal proceeds – is so absurd that a conviction would strongly reinforce the consensus in the global investment community that the rule of law in Russia remains a lost cause.
Viktor Khristenko, the present Trade and Industry Minister, who was Energy Minister during most of the period when the alleged offences were committed (1998-2003), demolished the prosecution case when he took the witness stand last June. Khristenko said that while the sale of crude oil to the parent company (Yukos) at low transfer prices violated the rights of minority shareholders in the subsidiaries, and while there may have been tax violations (for which Khodorkovsky was previously convicted and sentenced to an eight-year prison term, which he will complete in October 2011), this activity could not be characterized as theft. It follows that the related money-laundering charge is moot.
Moreover, the various other counts of the indictment are no stronger. In one of them, the prosecutors characterize the private placement of some Yukos stock owned by Khodorkovsky and his Menatep partners (a transaction managed by UBS in New York in 2001) as organized crime. Khodorkovsky poured scorn on this in one of his courtroom interventions this week and drew applause from the packed public gallery – at which point the judge lost his temper.
The conviction of Khodorkovsky would be a deeply negative outcome for another reason. For all his residual personal wealth, a liberated Khodorkovsky would have no plausible prospect of mounting a successful challenge for power – either by using his old methods of influence peddling (“privatization of the state”) or still less by means of open public politics. So keeping him in prison would signify profound insecurity on the part of the ruling establishment – if not some psychological scar in the case of Putin himself. This would not be an encouraging signal about underlying country risk.
To conclude on the basis of the analysis so far:
(I) The outcome is not a foregone conclusion;
(II) Far from being a non-event, the judge’s verdict on Khodorkovsky will be either extremely positive or extremely negative for investor sentiment.
But this prompts a final thought that the authorities may seek a fudged middle way to escape this blindingly binary logic. An easy fudge seemed to be available at the start of the trial in the form of a second group of charges related to the theft in 1998-99 of Eastern Oil Company and its main upstream subsidiary, Tomskneft. This charge was very far from absurd. As testified by German Gref (the other senior figure to take the stand at the second trial), the assets were stolen before being returned by Yukos at a later date. So convicting Khodorkovsky on this count would not have been a travesty of justice. But the charge has had to be withdrawn since it now falls outside the 10-year statute of limitations in Russia’s criminal code.
This leaves only inferior fudge options. The most plausible middle way would be a conviction to save the face of the authorities and – in order to limit collateral damage to sentiment – a modest additional prison term of, say, two-three years (as opposed to the 14 years demanded by the prosecution). This would keep Khodorkovsky behind bars until after the next round of national elections but hold out the prospect of closure as regards the damaging Yukos affair in the not too distant future of 2012-13.
If forced to predict the outcome, I would forecast a fudge along such lines.
With best regards,
Christopher Granville
Director, Russia & FSU Research, Trusted Sources
