I had set myself the goal in the years ahead of building an international energy company – a leader of the world economy. But the situation that has developed today forces me to set aside my plans to continue my personal involvement in Yukos’s development. As a manager, I have to do all I can to pull our workforce safely out from under the blows that are being directed at me and my partners. I am leaving the company … We were the first Russian business to consistently implement the principles of financial transparency and socially responsible business behaviour. We introduced international standards of corporate governance. We were able to achieve absolute recognition and trust on the Russian and global markets … Taxes paid by the company to all levels of government will be in excess of $5 billion this year. Over $100 million is spent annually on philanthropic programmes … I shall now devote myself to building in Russia an open and truly democratic society through my continuing work as chairman of Open Russia.… Wherever I may work, I shall give my all for my country, my Russia, in whose great future I firmly believe.
As well as resigning as head of Yukos, I also gave up my stake in the company. I transferred all my shares to my deputy, Leonid Nevzlin, who was by now in Israel, and informed the Kremlin that I would be happy for the whole of my personal fortune to be used to pay off any bill for Yukos tax arrears, if that would help to save the company.
Putin was playing a devious game. He continued to send conciliatory messages via Mikhail Kasyanov and others, suggesting that the whole affair was a mistake and would soon be sorted out. But he was toying with us. At the same time, Igor Sechin was showing no mercy. Sechin and the Siloviki were intent on destroying Yukos for their own reasons. They wanted to put an end to the era of free markets and private ownership, to return to state dominance or, rather, their own control of the economy; to humiliate the remaining liberals in the Kremlin by publicly demonstrating their impotence to stop this happening; and, most importantly, to satisfy their own personal greed. Putin directed the operation personally, using Sechin and Viktor Ivanov to do the dirty work. He crushed Yukos and handed its assets to his cronies as a reward. Yukos was gobbled up by the state oil company, Rosneft, shortly after Sechin was appointed its chairman. Absorbing Yukos made Rosneft a giant in the industry and Sechin had ultimate control over where its profits went.
But the importance of the Yukos case was not just the great financial interests at stake, the vast fortunes lost and gained; not just the personal dramas, the years wasted in the jails and prison camps, the loss of health and happiness and even, on occasions, lives – it was the pivotal role it played in the battle between the liberals and the new hardliners in Russia. It was the test case that demonstrated the annihilation of the former and the apotheosis of the latter. From Yukos onwards, the country would increasingly turn its back on the Yeltsin years of liberalisation and opening to the West; it would see the inexorable rise of nationalist, conservative forces who believe that economic freedoms and individual rights must be subservient to the interests of the state, that America and Western Europe are natural enemies, not natural collaborators. In February 2004, four months after my arrest, Putin announced that he was firing his Prime Minister Mikhail Kasyanov and the whole of his government. He said he wanted a clean break with the old administration in advance of the following month’s presidential elections.
CHAPTER 10
THE TRIAL
For a thousand years, Russia has vacillated between two distinct models of society and governance. Geographically split between Europe and Asia, the Russian mentality has been torn between East and West, between the European template of liberal, market-oriented openness and the ‘Eastern’ model of coercive autocracy, which places the wielders of power above the law, allowing them to rule by divine right or ‘by the dictatorship of the people’, but almost always by brute force. Educated Russians – the intelligentsia – have traditionally looked to the West, but the forms of governance that the nation imbibed in the early years of her history, what Russians refer to as the silnaya ruka, the iron fist of centralised power, have remained a powerful presence.
The intelligentsia of the nineteenth century were repelled by the authoritarian nature of tsarist autocracy. The writer Pyotr Chaadayev attributed Russia’s failure to emulate Western democratic principles to the baleful legacy of the Mongol occupation, which lasted from 1237 to 1480. Chaadayev’s arguments for a decisive turn towards Western values of law and social justice coalesced into a powerful school of so-called Westernisers. But an equally vigorous movement emerged, in stark disagreement with Chaadayev’s solution and proposing instead a return to the supreme ‘Russian values’ of Orthodoxy, collectivism and nationalism. These were the so-called Slavophiles, nationalist conservatives who supported tsarism and autocracy.
The Slavophiles saw Russia’s strength in its unique historical mission and communal institutions that gave Russia an advantage over the decadent, individualistic West. Dostoyevsky summed it up in the 1870s: ‘Our land may be destitute and chaotic … but it stands as one man. All eighty million of its inhabitants share a spiritual unity which does not, and cannot, exist anywhere in Europe.’ The Slavophiles were anti-Western in the sense that they rejected European social values and lamented Peter the Great’s attempts to introduce them. They believed in the old social model of an autocratic, Orthodox society in which everyone knew their place and did not challenge the power of autocracy. The Slavophiles proclaimed Russia’s moral superiority and need to avoid contamination by the West, reviving the old myths of ‘Holy Rus’ and Russia’s divine mission to save the world. The crusading conviction that Russia’s destiny was to teach the rest of humanity how to live would characterise Slavophile teachings in the nineteenth century and surface again in the messianic communism of the twentieth.
In 2003, we clearly saw the pendulum swing precipitously from one historic model to the other, an epochal political pivot from the Westerniser ideal of openness, participatory government and social guarantees to the Slavophile glorification of Russian nationalism, isolationism and quasi-feudal authoritarianism. The Yukos managers who took control after my resignation came up with a jolt against the new despotism that had taken hold in Putin’s Kremlin. Despite knowing that the demands for tax arrears against the company were bogus, they engaged with the authorities and made constructive offers to resolve the standoff, spending months trying to negotiate with the Kremlin. But the charges of tax evasion, which had begun at $1 billion, mysteriously escalated to $3.5 billion and then, ludicrously, to $5 billion or even $20 billion. When Yukos agreed to pay $1 billion, then $2 billion, then $20 billion and more, the prosecutor simply thought of a higher number. It was clear that Putin had no intention of resolving the dispute.
The Tax Ministry, directed by the Kremlin, justified all the additional taxes and fines by inventing entirely new legal concepts, which were applied only to Yukos, and by misapplying Russian tax law, notably by retroactively assigning profits made by Yukos’s trading subsidiaries to the parent company at a higher tax rate. Yukos’s alleged back-tax bill for 2000 to 2004 ended up exceeding $30 billion. According to an analysis by the Parliamentary Assembly of the Council of Europe, published in January 2005, ‘the total tax burden for Yukos, including the retroactive reassessments, is indeed about triple that of its Russian competitors’ and ‘the tax burden for 2002 exceeds Yukos’s whole turnover for that year’.