Putin tries to calm fears over tycoon's arrest

MOSCOW -- With Russian financial markets tumbling and political turmoil building after the arrest at gunpoint of oil tycoon Mikhail Khodorkovsky, President Vladimir V. Putin yesterday sought to justify the billionaire's detention on fraud and tax evasion charges and avert fears that the move augured a reversal of post-Soviet privatization and democratic reforms.

The steely former intelligence officer did not comment on the allegation by much of Russia's political and business establishment that former KGB agents in his administration had Khodorkovsky locked up in a Moscow jail to punish the magnate for openly supporting political parties competing against pro-Kremlin blocs in December parliamentary elections.

Putin also brushed aside the appeals of Russian business leaders to rein in prosecutors. And he dismissed complaints that Khodorkovsky's arrest Saturday signaled new risks for potential investors in Russia and a weakening of the Kremlin's commitment to democracy.

"I would like everyone to stop the speculation and hysteria on this issue," Putin said, repeating prosecutors' assertion that Khodorkovsky's case had no political motivation and did not signal a rollback of reforms.

"Everyone should be equal before the law, irrespective of how many billions of dollars a person has in his personal or corporate account," Putin said in televised remarks at the start of his regular Cabinet session. "Otherwise, we will never teach and force anyone to pay taxes . . . and defeat organized crime and corruption."

Putin said that Khodorkovsky, whose fortune as the head of the Yukos oil Company has been estimated by Forbes magazine at $8 billion, had been put in jail on a court order, which meant "the court had reason to do that."

Putin's words may have been aimed at the millions of Russian voters who resent tycoons like Khodorkovsky, but they seemed unlikely to satisfy commentators like the business daily Kommersant, which warned of the "KGB-ization of government."

"Capitalism with Stalin's Face," read a banner headline in the daily Nezavisimaya Gazeta. The United Financial Group brokerage called Khodorkovsky's arrest "a disgraceful setback in Russia's post-Soviet development." Gleb Pavlovsky, a political adviser for Putin's 2000 election campaign, warned of a "show trial."

Investors also reacted. Yukos shares lost 20 percent of their value, triggering a 10 percent overall drop on the Moscow stock exchange.

"It raises questions about the selective application of the law, and raises doubts about the investment climate," said a senior US diplomat, voicing the consternation expressed by many analysts in Washington, D.C., just one month after President Bush said during Putin's visit to Camp David that Russia is "a country in which democracy and freedom and rule of law thrive."

Few doubt that Khodorkovsky benefited from the rigged insider deals, legal loopholes, and heavy-handed tactics that allowed a handful of moguls to end up with Russia's most lucrative assets in the years following the 1991 Soviet collapse.

But Khodorkovsky has since built Yukos into a profitable company by leading the effort to bring Russian business up to Western standards of accountability and transparency.

Even pro-Putin politicians suggested that hard-liners in the Kremlin administration, whose vision of Russia differs from the Westernizing approach often voiced by the Russian president when he travels abroad, had gone too far toward Soviet-style repression.

"At any moment, prosecutors can open a criminal case, launch an investigation, freeze bank accounts, destroying any company," said centrist lawmaker Vladimir Ryzhkov.

"Yukos pays more than 2 billion dollars in taxes -- the company is completely transparent."

When he came to power in 2000, Putin told Khodorkovsky and other leading tycoons that their business empires were safe as long as they stayed out of politics -- after two moguls were forced to flee Russia.

But Khodorkovsky, seeking to expand his influence, has been financing political parties critical of the Kremlin, and hinting about his own political ambitions in 2008, when Putin will be completing his second and final term as president if he is reelected as expected next year.