[Congressional Record (Bound Edition), Volume 149 (2003), Part 14]
[Extensions of Remarks]
[Page 19893]
[From the U.S. Government Publishing Office, www.gpo.gov]




   LACK OF ADHERENCE TO DEMOCRATIC PRINCIPLES UNDERMINES FREE MARKET 
                          ECONOMICS IN RUSSIA

                                 ______
                                 

                          HON. ELIOT L. ENGEL

                              of new york

                    in the house of representatives

                         Friday, July 25, 2003

  Mr. ENGEL. Mr. Speaker, I rise to call to the attention of the House 
of Representatives an article in the Washington Post on July 10, 2003 
entitled, ``The Big Shakedown on Russian Business.'' This article by 
Masha Lipman, editor of the Moscow Carnegie Center's Pro et Contra 
Journal, exposes a pattern of arrests and investigations of prominent 
business executives in Russia. Calling this behavior by Russian 
security agencies ``shakedown justice'', Masha Lipman makes a strong 
case that ``this mock justice compromises the credibility of the 
Russian President when he pledges that Russia is a lawful state.''
  One of the key factors in the development of a nascent democracy, 
like Russia, is the rule of law, as it underpins all aspects of the 
society. If Russia, or any other country for that matter, is to attract 
investment or create an environment conducive to business growth, it 
must be clear that investments and entrepreneurial activity will be 
protected under a system governed fairly and equitably according to the 
law.
  The arrests and investigations described by Masha Lipman send 
precisely the wrong signals about Russian free-market economics, 
democracy, and the rule of law. Perceptions about a hostile business 
climate in Russia could have a chilling effect on foreign investment in 
Russia at a time when the country's economy is rapidly improving. I 
urge my colleagues to read this important article and join with me in 
urging the Russian government to take affirmative actions to support 
and uphold, and not to undermine, free market principles and democracy 
in Russia.
  I submit the article by Masha Lipman into the Record at this point.

               [From the Washington Post, July 10, 2003]

                 The Big Shakedown on Russian Business

                           (By Masha Lipman)

       Moscow.--Mikhail Khodorkovsky is an oil magnate and, by 
     most accounts, Russia's wealthiest man. He is also having 
     some difficulty with law enforcement. Late last week he was 
     summoned to the chief prosecutor's office for interrogation 
     regarding the activities of some of his associates. Of 
     course, this kind of thing isn't unique to Russian business 
     executives; Westerners have seen many important people led 
     away in handcuffs over the years. But in the case of 
     Khodorkovsky's associates and other prominent business 
     executives here, it's not so much a matter of the rule of law 
     as it is of what might be called shakedown justice. This mock 
     justice compromises the credibility of the Russian president 
     when he pledges that Russia is a lawful state. It is also 
     detrimental to Russia's economic development. It threatens to 
     stultify the country's efforts to attract badly needed 
     foreign investment.
       Several cases have been opened recently against people 
     associated with Khodorkovsky's big and successful oil 
     company, Yukos. The allegations include embezzlement, fraud 
     and murder. Two people are in jail, one of them being Platon 
     Lebedev, a billionaire and a co-holder of Yukos's controlling 
     stake. Yesterday the prosecutor's office was also reported to 
     be examining an alleged case of tax evasion by Yukos. (Also 
     yesterday, the U.S. Embassy in Moscow formally asked the 
     Russian government to explain its investigation of 
     Khodorkovsky, according to a senior U.S. diplomat.) Theories 
     abound as to what may be behind the shakedown, or nayezd, as 
     this action is being commonly referred to in the media and 
     among professional analysts. Nobody among them believes that 
     the case against Lebedev, or any of the other cases related 
     to Yukos, is a purely legal matter. In attacking Khodorkovsky 
     and his company, the prosecutor's office and the state 
     security agency, the FSB, appear to be acting on orders from 
     somebody with huge political clout.
       Khodorkovsky believes that Yukos was picked as a target 
     because it's a world-class company and, especially after its 
     recent proposed merger with another Russian oil giant, a 
     tasty morsel attractive to a number of people in this 
     country. Ultimately, Khodorkovsky claims, this is a struggle 
     for power ``between different wings in the inner circle of 
     Vladimir Vladimirovich Putin.'' He offers no details to back 
     up this allegation, but there is no doubt that whoever is 
     attacking him would have to be very highly placed.
       Early in his tenure as Russia's president, Putin announced 
     as his guiding principle the ``dictatorship of the law.'' But 
     at the same time, the prosecutor's office and the FSB were 
     used by the Kremlin to attack Putin's nemesis, media tycoon 
     Vladimir Gusinsky (for whose company, I should note here, I 
     worked for a time). The campaign against Gusinsky and his 
     associates lasted more than a year and included various 
     intimidating actions: raids by masked security agents, 
     searches, arrests and investigations. The cases mostly fell 
     apart, but the tactics worked: Gusinsky was forced to leave 
     Russia, and his media business was ruined. Similar methods 
     were used against another business tycoon, Boris Berezovsky, 
     who currently lives abroad. As a result, people who felt they 
     weren't getting their fair share of the goodies saw the 
     benefits of ``hiring'' law enforcers to improve their 
     position against a competitor, or just to extort money.
       Igor Yurgens, vice president of the Russian Union of 
     Industrialists and Entrepreneurs, a group of business 
     tycoons, said in a recent interview that his organization 
     gets ``dozens or hundreds'' of calls from provincial 
     businessmen who complain of similar--if much more small-
     time--shakedowns. They tell stories of visitors calling on 
     local businessmen and informing them that their businesses 
     had not been properly registered some nine years before. The 
     unfortunate entrepreneur then has a choice of paying the 
     extortionists money or facing ``variants,'' which means, 
     according to Yurgens, ``the use of law enforcement bodies 
     with the purpose of redistributing property.'' In a similar 
     fashion, Khodorkovsky's attackers may hope to rectify what 
     they believe has been unfair distribution of the oil business 
     or, for that matter, of political power.
       Khodorkovsky may still be able to defend himself and defeat 
     his attackers. He claims the president feels no hostility 
     toward him. Because Putin is sure to be reelected next year, 
     Khodorkovsky said, the current struggle is about ``who's 
     going to be in the second echelon of his team.'' If 
     Khodorkovsky's guess is right and it is indeed a faction in 
     the Kremlin--not the president himself--going after him, his 
     connections, money, reputation and skilled advisers may be 
     enough to repel the attack. But however this affair turns 
     out, it will have little if anything to do with proper 
     judicial procedure. The general understanding in Russia is 
     that in cases such as this, the ultimate decision is made not 
     in the courtroom but at the top level of the Kremlin.
       Certainly one would think that Putin would be concerned if 
     indeed his top aides are using law enforcers to engage in 
     self-seeking pursuit of power and wealth. But there is an 
     even more important reason why he should worry about this 
     sort of thing. Putin has for some time emphasized the need to 
     lure foreign capital to Russia. He has not had much success. 
     During his grand visit to Britain recently, the Russian 
     president did his best to tout his country's ``favorable 
     conditions for investors.'' The question is: How interested 
     are foreign investors going to be when they see that even a 
     world-class business cannot feel secure in Russia or expect 
     to get justice in a court of law?

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