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Kgb tactics against tycoon split kremlin

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KGB tactics against tycoon split Kremlin


WHEN the Moscow stock market opens tomorrow morning it will not just be traders who will watch nervously to see what President Vladimir Putin’s next move will be in what, in the space of a week, has become a fully fledged political crisis.

The arrest last week of Russia’s richest man was not just a symbolic show of power by Kremlin hawks against a man they believe to be guilty of tax evasion and massive fraud, but an act that has exposed the fragility of the country’s democratic and free market credentials.

And now, as Moscow waits nervously to see who will make the next move, observers believe anything could happen.

The events of the past week have opened up for the world to see a schism in the Kremlin. In one corner are the men known as the ‘Family’ - those left over from the era of President Boris Yeltsin when people such as Mikhail Khodorkovsky were welcomed with open arms as they snapped up Russia’s national assets for rock-bottom prices.

Then there is a clique of ex-KGB and security men who are allied with Putin and have long been seeking ways to consolidate their power against what they see as a group of multi-billionaire businessmen, known as the ‘oligarchs’, who have done little more than privatise Russia’s assets for their own financial gain.

The floodgates were opened when Putin eventually gave the go-ahead for security services to arrest Khodorkovsky, the chief executive and largest shareholder in Yukos - the world’s fourth-largest oil company - as he climbed aboard his private jet.

This was a KGB-style attack reminiscent more of the old Soviet Union than the new Russia, so keen to do business both financially and politically with the West.

Timerbulat Karimov, an analyst at the Aton brokerage in Moscow, believes the crisis that saw Russia’s stock market panic last week is now threatening to spin out of control and completely reverse the reforms which have helped the country’s economy boom for the past three years. "Anything could happen in the current climate," he said. "Although it’s hard to imagine how things could get worse."

Panic on the financial markets - not helped by the suspension of £9bn worth of Yukos shares owned by Khodorkovsky - reflects the political battle now raging.

The oil tycoon’s allies condemn his prosecution, saying it is motivated by a desire for revenge on the part of Putin loyalists. Putin denies any involvement, but critics believe he gave the nod to this clan of loyal former KGB agents, who then launched a campaign to sweep the ‘Family’ and the country’s super-rich businessman out of politics.

Khodorkovsky, the bull elephant in Russia’s herd of billionaire oligarchs, irked the loyalists by openly funding political parties that will take on the pro-Putin United Russia faction in parliamentary elections next month.

"Putin’s Praetorians have given a clear sign that they will go after Khodorkovsky and they will not stop until he leaves the country," said Lilia Shevtsova, a specialist in domestic politics at the Moscow Carnegie Centre.

Cornered by special forces on October 25 as his jet refuelled at a Siberian airport, Khodorkovsky was whisked to Moscow and charged with forgery, tax evasion and cheating the state out of £600m. He now awaits trial at a notorious pre-trial detention unit in northern Moscow called Matrosskaya Tishina (Sailors’ Rest).

The businessman’s fate appears to have cowed into silence other oligarchs such as Chelsea Football Club boss Roman Abramovich, and Vladimir Potanin, who owns the world’s largest platinum and nickel company, Norilsk Nickel.

Other oligarchs include Boris Berezovsky - who lives in exile in London and is a fierce critic of Putin - and Oleg Deripaska, whose company Base Element controls more than 70% of Russia’s aluminium capacity. There is also Mikhail Fridman, a financier whose Alfa Bank controls TNK, a leading oil company which recently merged with BP in the largest-ever foreign investment in Russia.

Indebted to his sponsors, Yeltsin ceded huge power to these oligarchs, who turned political control to their business advantage with the help of a coterie of loyal officials.

When President Putin came to power in 2000 he made a specific pledge to push the oligarchs out of politics. He rapidly sidelined Berezovsky, who fled into exile.

Khodorkovsky first came under fire this summer when he was hauled in for questioning over the arrest of another Yukos shareholder, Platon Lebedev, on fraud charges.

Investigations into Yukos became overtly political earlier this month when prosecutors searched a public relations firm employed by Yabloko, one of the parties funded by the company. The probe reached a crisis point with Khodorkovsky’s arrest and imprisonment, and deepened further on Thursday when prosecutors seized a huge block of Yukos shares.

A statement from the General Prosecutor’s Office said the shares were being sequestered as collateral against damage caused to the state by Khodorkovsky.

But commentators say the move was possibly illegal, and has huge implications for investor confidence, both at home and abroad.

"The biggest question is what will happen to this block of shares," said James Fenkner, head of research at Troika Dialog investment bank in Moscow. "Will they be returned, will they be taken by the state, or will they be sold to a foreign oil company? It’s a complete coin toss."

On the same day as the shares were seized, there was blood on the Kremlin carpet, with the resignation of Alexander Voloshin, President Putin’s hugely powerful chief of staff.

A big hitter in the Yeltsin ‘Family’, Voloshin had apparently clashed with his boss over Khodorkovsky’s arrest.

His replacement as Putin’s top aide is Dmitry Medvedev, a level-headed economist who many hope will douse the flames of the Yukos crisis.

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