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. Last Updated: 07/27/2016

Sins of Omission From Enron to the Oligarchs

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WASHINGTON -- Imagine a magazine article three years from now about Ken Lay's exciting new pig-farm-and-movie-theater holding company. "Lay leads a new generation of responsible CEOs, who renounce the free-wheeling excesses of the past," the article intones -- without mentioning the name of Lay's old company, Enron.

Absurd? Not at all. Merely the latest Western business journalism out of Russia.

When the ruble collapsed a few years ago, journalists, academics and Big Five auditors were plunged into 30 seconds of introspection: It seems all had been too busy composing odes to the debt market to notice it was a Ponzi scheme. (Sound familiar?)

In those dark days of 1998 and 1999, Russia's leading banks were stiffing clients -- and laughing about it. Uneximbank became the first Russian institution ever to default on a Eurobond, but founder Vladimir Potanin just shrugged, telling The Wall Street Journal, "We like to be first." Uneximbank changed the sign out front to "Rosbank" and left the problems (i.e., the desperate depositors lined up out front) behind in "Uneximbank." Next Potanin threw an elite party in the French Alps for friends and employees. "I understand the perception that people are spending money when they are not paying debts," Potanin told the Journal about that soiree. "But look, let's be realistic here. This does not mean you can't live a normal life."

But why single out Potanin? Alexander Smolensky of SBS-Agro mocked people who had savings at his bank. "They must be idiots," he told the Journal. (He added solemnly that his "new" bank would be different.)

Mikhail Khodorkovsky's Bank Menatep moved the goods to "Menatep St. Petersburg" and left the bads in "Menatep." Whenever I visit Moscow, I admire the Menatep sign near Mayakovskaya metro: It has a "St. Petersburg" patch riveted to it.

Ugly behavior? Sure. But nothing new. The same oligarchs in 1995 paid laughable sums for oil fields and nickel mines bought at rigged auctions. In 1996, they bragged about carrying the presidential election for Boris Yeltsin on a sea of ill-gotten and illegal political spending. In 1997, the privatization of the Svyazinvest telecommunications company sparked a government-threatening row that pitted Potanin and the "young reformers" against the equally repugnant oligarchs Boris Berezovsky and Vladimir Gusinsky.

So here we are in 2002. Journalists in the United States are upset over misreading Enron; colleagues in Moscow are doggedly misrepresenting the oligarchs.

Forbes, for example, on Feb. 2 profiled mover-and-shaker Potanin, freshly elected to the board of New York's Guggenheim Museum. Forbes puts Potanin's worth at $1.8 billion. (For comparison: wage arrears across Russia are still estimated at $1 billion, including wages owed to public-sector teachers and doctors.)

Potanin in November sold the Sidanko oil company for $1.1 billion, and he still controls the nickel and platinum mines of Norilsk -- all courtesy of rigged auctions, and the only reason he merits a splash in Forbes. But Forbes insists Potanin has turned his attention away from oil and nickel and toward businesses "that add value by producing goods and services for long-suffering local consumers."

As examples, Forbes quotes Potanin talking about a $100 million investment into a pig-and-poultry farm, some vague investments into "retail," and investing into an unnamed outfit that plans to open movie theaters. Forbes also tells us Potanin is "researching" the tourism business. (For those keeping score: So far, we've got a pig farm and some vague talk.) Forbes sniffs that tourists won't visit Russia, "a country known for crime, surliness and bad food." But Potanin reassures Forbes that Russia may lack a "culture of service" -- but "the desire to serve exists."

Forbes is not alone in shilling for an oligarch. The Times of London in a Feb. 2 article tells us Khodorkovsky of Yukos "came to oil via banking, seizing his chance to consolidate his holdings." That's like saying: "Jesse James came to the railroad business via horseback riding," or "German troops came to the Sudetenland via marching." And what sort of tortured logic could equate wresting wealth away from the public to "consolidating his holdings?" (His?)

Khodorkovsky, we are told, was one of the "freewheeling tycoons of the Yeltsin era." But happily, "that era is rapidly coming to an end," and "now Khodorkovsky is held up as an example of the new breed of businessmen," a group that "may yet succeed in instilling a culture of honest dealing and transparency into Russia." In fact, Khodorkovsky is "the archetype of the new, sober, responsible industrialist." As to Yukos, "there is a distinctly un-Russian feel to the place," in part because "all is clean, computerized and tasteful."

Did I mention Khodorkovsky is "emerging as a patron of the arts"?

Neither article describes the "free-wheeling Yeltsin era," even as both breathlessly insist it's over. In fact, neither the profile of Potanin nor that of Khodorkovsky includes a single mention of their failed flagships. Uneximbank and Menatep were as mighty in their day as Enron, yet they are lovingly airbrushed away: "Ken Lay, patron of the arts, fights for honesty and transparency."

Then there's the Financial Times, which cuts to the chase. A Feb. 1 article begins: "It was scandalous. Grotesque. The looting of a nation. Or so said many people when Russia privatized much of its oil industry in the mid-1990s, letting a clique of financiers grab the best bits for next to nothing."

"But," the article continues, "a few years on, the results are looking quite respectable. The proprietors have learnt how to manage their assets. They have discovered corporate governance. They have grown secure enough in their ownership to reinvest profits in new fields and new technology."

So let me get this straight: The looting of a nation is starting to look "respectable" -- because those who engineered it are (supposedly) doing a better job managing the loot?

Does all this carping make me "a Russophobe?" Well, in 10 years of living in Russia I never wrote of it as "a country known for crime, surliness and bad food." I never found cause to characterize cleanliness and taste as "distinctly un-Russian."

To write such things requires a distinctly un-Russian source of inspiration. From The Times:

"The foreign multinationals prowling round the carcass of the old Soviet oil industry during the chaotic days of privatization in the mid-1990s found themselves up against a man whose soft-spoken manner and rimless glasses hid [blah blah blah, Khodorkovsky]."

This is the only nod to the Great Oil Field Robbery: When they were stealing the oil companies, those evil oligarchs didn't give BP Amoco a turn!

And now, the foreigners' turn is here. Potanin has sold Sidanko; the FT notes rumors that Yukos itself might be for sale, and suggests foreign oil majors are ready to buy out the oligarchs.

The emerging story line: The oil field "auctions" were once, ahem, troubling, if only because foreign oil majors were snubbed. Yet today, as foreign majors move in, suddenly it's "Oil Oligarch Finds Jesus" -- oligarchs recast as champions of honesty and transparency, cleanliness and taste, good food and good service, pork and poultry, fine art and foreign managers.

Gee, how did we miss that Enron story?

Matt Bivens, a former editor of The Moscow Times, is a Washington-based fellow of The Nation Institute [www.thenation.com].