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Theatrical UK Trial Offers Lessons on Russian Business From a Former Kremlin Svengali


A battle over past profits shows what's changed in Putin's Russia, and what hasn't.

Americans have Herman Cain to provide comic relief in these tough times. Over in Britain, a court battle between two famous Russian businessmen has been providing welcome diversion.

Boris Berezovsky and Roman Abramovich were once mentor and apprentice in the enormously lucrative, and dangerous, business of privatizing post-Soviet raw materials assets in the 1990s. Now the teacher is suing his erstwhile pupil for $5 billion and change in Crown Court in London.

Berezovsky claims Abramovich blackmailed him into parting too cheaply with his stakes in oil company Sibneft (now a division of Gazprom) and aluminum holdings that were later folded into Rusal. The time period was 2000-2001, Berezovsky had fallen afoul of new Russian president Vladimir Putin, and Abramovich allegedly told him: Take the money I offer or get nothing at all.

Abramovich denies that Berezovsky ever owned anything. He just paid the older oligarch $1.3 billion as a sort of goodwill gesture when Berezovsky was forced to flee Russia. (He has lived in Britain for the decade since.)

The details of the dispute are complex, and richly cinematic. Testimony dwells on business meetings held in a James Bondesque whirl of yachts, villas and gentlemen's clubs across Europe. The principals show up in court flanked by the sort of sharply dressed goons passe to denizens of Moscow but titillating to the U.K. press.

The litigants also enhance the drama with diametrically opposed characters. Berezovsky, now 65, remains an undaunted, strangely charismatic chatterbox, someone it is hard not to like even when you know the often-sordid details of his career. Abramovich, 20 years younger, is spare and terse, but has managed to come up with the trial's best one-liners. Asked why he at one point sent Berezovsky's Georgian partner, Badri Patarkatsishvili, $585 million in cash, he replied, "Our relationship was not based on documents." Explaining why he was reluctant to enter the aluminum business, he quipped: "Someone was killed there every three days."

The underlying issue of the case is fairly simple, though. Berezovsky was old enough to have worked for decades in the Soviet system, and inherited its preference for deliberately muddied power structures and chains of command, where what really counted was personal obligation and who could ultimately muster force.

In his mind he was the boss whose brilliance at manipulating the Kremlin had delivered Sibneft and his various other properties. Abramovich was a glorified clerk he had plucked from obscurity to look after paperwork details. The younger Abramovich realized that details, such as whose name was on the stock certificates, were what counted in an evolving capitalist economy. When political winds shifted against Berezovsky, the one-time Kremlin Svengali was left with nothing (well, just $1.3 billion). It's doubtful he can persuade a British judge to restore a financial order sustained by words of honor.

The London oligarch trial will prove a rich historical resource. But what can it teach us about today's Russia? The first answer has to be that it reminds us what Putin has achieved as national leader. He took over a country in 2000 that was sliding toward a form of anarchy under economic warlords like Berezovsky. A place Abramovich's lawyer not inaptly compared to "medieval England," only armed to the teeth with nuclear weapons.

Putin, who was supposed to be Berezovsky's patsy, chased away his benefactor and imposed a modern version of the King's peace -- an imperfect but basically reliable regime without which Russia's impressive economic progress over the past decade would hardly have been possible.

Now, though, Putin finds himself with a dilemma not so unlike Berezovsky's back in the day. He has overseen the creation of huge new fortunes derived from oil trading, pipeline building, and everything else that produces easy billions in Russia. He cannot overtly own the companies involved while acting as president or prime minister. Russia has sufficient pretensions to European civilization that he cannot control them through his immediate family either. (The Qaddafi/Assad variant.) Hiding enormous sums offshore becomes increasingly difficult in a Wiki-ed world.

So Putin has to hope that when the time comes his proteges will treat him better than Abramovich did Berezovsky, if he does not intend to live modestly on a state pension and the royalties from his memoirs. Or better yet, just keep the ball rolling by staying in office. Insecurity on all sides about what happens to Putin's highly personalized machine without Putin is probably the strongest reason he is digging in for another six or 12 years. Russia is stable enough to go on without Putin, but his cronies may not be.

That all points to Putin's greatest failure as a leader. He amassed enough power to push Russia toward being a durable modern society of laws, but didn't, maybe because he better understands the old ways of private understandings and huge untracked packets of cash. Russia may not get another chance for a long time.

No positions in stocks mentioned.

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