- The Washington Times - Monday, November 10, 2003

“The vast individual and corporatefortunes?which have marked the development of our industrial system create new conditions and necessitate a change from the old attitude of the state and the nation toward property … More and more it is evident that the state, and if necessary the nation, has got to possess the right of supervision and control as regards the great corporations which are its creatures.”

These words belong not to Russian President Vladimir Putin, but to Teddy Roosevelt. They articulate why Roosevelt felt it was necessary to take on the Robber Barons, who at the turn of the 20th century dominated America’s economy and political system. There are strong parallels between T.R.’s actions then and Mr. Putin’s arrest of oil tycoon Mikhail Khodorkovsky for tax evasion, bribery and fraud.

Roosevelt declared war on the Robber Barons in 1902. He secretly tasked Attorney General Philander Knox with developing a case against America’s richest financier, John Pierpont Morgan, for criminal violations of the Sherman Anti-Trust Act. At the time, Morgan was the richest man in the world. He had substantial political power inside Roosevelt’s own political party and Cabinet. While Knox reviewed his legal grounds for the impending charges, Teddy kept it secret from even his most trusted Cabinet members.

Two weeks before filing the case, Roosevelt had his attorney general announce it to the press. Upset by the dramatic change in the unofficial understanding between the politicians and the Robber Barons, Morgan met with T.R. and demanded to know why Roosevelt hadn’t negotiated to “fix” any problems privately. Teddy’s response was all-revealing. He told the astonished oligarch that a private fix “is just what we didn’t intend to do!”

Roosevelt chose to confront Morgan to bring the Robber Barons to heel. Similarly, Mr. Putin is prosecuting Mr. Khodorkovsky to bridle the Russian oligarchs who have run rampant since the corrupt “loans for shares” privatization sales of 1995.

Then, as now, supporters of the status quo urged restraint by the politicians to avert economic damage. BoththeMorganand Khodorkovsky prosecutions briefly roiled the stock markets. In theKhodorkovsky case, hysterical Western media reports made it seem that Mr. Putin’s action will destroy Russia’s economy. In fact, the Moscow exchange lost 18.1 percent before rebounding, while shares in Mr. Khodorkovsky’s oil company slid 14 percent.

For perspective, consider that a recent UBS Warburg study shows that over the past year, one-third of all U.S. tech stocks have had one-day losses of at least 20 percent. The volatility on the Moscow market is unremarkable, considering that shares in Alliance Capital’s stock dipped 8.8 percent last Thursday on the news that it was being added to the growing list of mutual fund companies under investigation. Neither American nor Russian stock markets are immune to corporate criminality.

Khodorkovsky apologists say his prosecution will chill foreign investment. If so, some of the world’s biggest oil companies haven’t gotten the word. Since Mr. Khodorkovsky’s arrest, Royal Dutch and BP have reaffirmed planned Russian oil investments worth $8.1 billion.

Mr. Putin’s pretrial asset seizure of almost half of Yukos stock was a smart move. The action is widely misunderstood. Only about 18 percent of Yukos stock trades publicly. The rest is held by insiders. As the tax evasion investigation proceeded, Yukos’ board of directors declared an extraordinary $3 billion dividend distribution, an increase of 400 percent over the previous year. There was no market justification for the huge dividend. Prosecutors seized the stock after deducing that the intent was to loot the company’s cash and send it overseas before the criminal case concludes. Mr. Khodorkovsky is suspected of cheating the government out of $1 billion in taxes. The seizure guarantees that the government can recover the money if it wins the case.

The modus operandi of the oligarchy is to use its immense wealth to buy political influence and support. It is true that Mr. Khodorkovsky has given much money to charities, think tanks and political parties, including the Communist Party for which he once ran the Komsomol youth league. Khodorkovsky defenders, like the American Enterprise Institute’s Leon Aron (A.E.I. as a matter of policy will not disclose information relating to its donors) say this philanthropy exoneratesMr.Khodorkovsky of wrongdoing. Morgan’s defenders also cited his philanthropy. Roosevelt had an answer for both.

“No amount of charity in spending such fortunes,” T.R. said, “in any way compensates for misconduct in making them.”

@$: Russia’s Road to Corruption, a House policy report issued in 2000 by Republican Rep. Chris Cox, is a must-read for spectators of the Putin-Oligarchy showdown(www. policy.house.gov/Russia). It exhaustively chronicles how Russia’s corrupt privatization process gave rise not only to the oligarchs and organized crime, but also to widespread disillusionment with democracy and growing anti-Americanism.

Those who cherish democracy have a stake in the outcome of this struggle. Just as Teddy ushered in the Progressive Era in American politics by going after Morgan, Putin can revitalize Russia’s democracy by asserting state control over the oligarchs. As Edmund Burke put it: “Society cannot exist unless controlling power upon will and appetite be placed somewhere.”

John B. Roberts II has extensive political experience in the former Soviet Union. He served in the Reagan White House.


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