Global Policy Forum

Tycoons seek a deal with the president as his anticorruption drive starts to bite.

By Fred Weir

Vladimir Putin assured leaders of the Group of Eight leading industrial democracies at the weekend that his country is firmly on the path to political stability and a liberal market economy. But the Russian president returned to Moscow to face a storm of criticism from business leaders who accuse him of inciting a purge against Russia's rich.

Mr. Putin was elected in March on promises to install a 'dictatorship of law' and restore order to Russia's anarchic business sector. Police say the criminal investigations launched into the alleged misdeeds of half a dozen of the biggest tycoons are simply the fulfillment of those pledges.

Some prominent business people, however, warn that the campaign is generating fear and uncertainty and could plunge the country into a new round of political turmoil.

A Kremlin spokesperson said Monday that Putin will probably meet with several tycoons this week to discuss their demands for an amnesty on any questionable acquisitions during the freewheeling 1990s.

"In an ideal world there would be justice, but in Russia today what we need most is stability," says Fyodor Shelov-Kovidyayev, a former Russian deputy foreign minister who now heads Krossinvestbank, an investment firm. "The situation is in danger of flying out of control. Putin should urgently sit down with business leaders and sign a charter spelling out the future rules of the relationship between power and business. Unless it is clear, there will be no investment and no economic growth in Russia."

The recent behavior of Boris Berezovsky, the most outspoken of Russia's powerful "oligarchs," is one of the clearest signs that the attack on the Yeltsin-era business elite is starting to bite. Mr. Berezovsky resigned his parliamentary seat last week and announced that he will devote himself to building "a constructive opposition" to Putin's regime.

Berezovsky is one of a handful of Russian businessmen who attained fabulous wealth and influence during the past decade by getting close to the Kremlin and allegedly manipulating the post-Soviet sell-off of state assets to their personal advantage.

Berezovsky moves out

Barely two months ago Berezovsky was bragging about his role in persuading ailing former President Boris Yeltsin to resign, and in promoting Putin into the office. Last week, however, he was singing a very different tune. "I don't want to take part in the destruction of Russia and the creation of an authoritarian regime," he said. "There is a deliberate campaign being unleashed aimed at destroying big business in Russia. All power is being concentrated in the president's hands."

Few doubt that Berezovsky, who parlayed a car dealership into vast holdings in oil, aluminum, and media, is acting out of self-preservation. Though the current wave of police raids has yet to touch him directly, the tycoon was charged with embezzlement and money-laundering last year by the government of former Prime Minister Yevgeny Primakov. When Mr. Primakov was removed from power, the arrest warrant against Berezovsky was lifted.

In a 1997 interview Berezovsky boasted that he and six other "oligarchs," owned economic empires controlling a total 50 percent of Russia's gross domestic product.

"Berezovsky clearly understands that his number is coming up," says Svyatoslav Kaspe, chief analyst of the Public Politics Centre, an independent Moscow think tank. "That's why he has been moving for the past month into opposition to Putin. When the police come for him, he wants to be able to say that it's about political repression, not a criminal investigation."

During Russia's 1996 presidential elections, Berezovsky convinced a group of top businessmen to throw their wealth and media resources behind then-President Boris Yeltsin in his uphill battle against a strong Communist challenger. After the Kremlin leader's reelection, several of the tycoons were rewarded with high government posts. All of them were handed assets at knock-down prices, including oil companies, mines, and smelters.

Top 5 hit list

Five top business magnates are currently under investigation. They include Vladimir Gusinsky, owner of Media-MOST, Russia's largest independent media empire, who was jailed for three days last month. Last week police searched his home and froze all his personal property. Prosecutors say Mr. Gusinsky embezzled $10 million in state property when he privatized a small TV firm three years ago. Vladimir Kadannikov, the chairman of Russia's largest automaker and former deputy prime minister, is accused of massive tax evasion. Another former deputy prime minister, Vladimir Potanin, is charged with fixing the auction of a state-owned nickel producer. The others are Anatoly Chubais, former deputy prime minister and currently head of the giant Unified Energy System, Russia's electrical monopoly; and Vagit Alekperov, chief of the petroleum giant Lukoil.

It is not clear how far Mr. Putin intends to press what is being dubbed the "anti-oligarch war" by the Russian media. "This is a very popular campaign," says Mr. Kaspe. "The Russian public hates these businessmen for the way they acquired their wealth while the country was collapsing. If Putin runs into trouble, he can appeal to the people for support."

That's just what business leaders fear. "The Russian people might cheer to see the rich get torn down," says Mr. Shelov-Kovidyayev. "The mind-set of our security services is well known. They will do this enthusiastically and ruthlessly. But where will that leave all our hopes for economic reform?"

In the West, some worry that the crackdown could spin out of control. "The idea of leaving some of these people with their ill-gotten gains is morally unpalatable, but we have to realize that the cure could be worse than the disease," says a Moscow-based Western diplomat.