Putin Foe Navalny Convicted Amid Outcry Before G-20 Meeting

Photographer: Kirill Kudryavtsev/AFP via Getty Images

A protester detained by police during a demonstration in central Moscow holds a portrait of opposition leader Alexey Navalny, who was sentenced to a five-year prison term in a Russian court, July 18, 2013. Close

A protester detained by police during a demonstration in central Moscow holds a... Read More

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Photographer: Kirill Kudryavtsev/AFP via Getty Images

A protester detained by police during a demonstration in central Moscow holds a portrait of opposition leader Alexey Navalny, who was sentenced to a five-year prison term in a Russian court, July 18, 2013.

Alexey Navalny, who spearheaded the biggest protests against Russian President Vladimir Putin’s 13-year-rule, was sentenced to prison, bringing thousands into the streets as global finance leaders gather in Moscow.

Navalny, 37, was defiant after being handed a five-year sentence for embezzlement and led away in handcuffs by court officers in Kirov, 900 kilometers (560 miles) northeast of Moscow. Local prosecutors said in a statement later they’d seek to free him on bail pending appeal provided he stays in Russia. If Navalny is freed, he will run for mayor on Sept. 8, Interfax reported, citing his campaign head Leonid Volkov.

Thousands of protesters gathered for an unsanctioned rally in support of Navalny near the Kremlin, the nearby Group of 20 summit venue and blocking the Duma. Police arrested several people amid minor scuffles and blocked off nearby streets as demonstrators shouted “Freedom to political prisoners” and “Putin -- thief.” About 500 gathered in St Petersburg and about 40 were arrested, Interfax reported.

A lawyer and anti-corruption activist who helped mobilize tens of thousands of anti-Putin supporters in rallies in 2011 and last year, Navalny had vowed to contest the next presidential election in 2018 and put Putin and his billionaire allies in jail if he won. The ruling would preclude him from ever holding public office and risks transforming him into an even greater political threat to the Russian leadership.

“We won’t wait till Putin will die,” Gennady Gudkov, a former Duma deputy and opposition leader, told reporters at the protest. “We’ll take action. We’ll take millions to the street.”

Walesa, Havel

“The Kremlin’s political planners are clearly fearful of a Russian Lech Walesa or a Vaclav Havel appearing in the lead-up to 2018,” Chris Weafer, founder of consultancy Macro Advisory, said by e-mail, comparing Navalny to the two biggest symbols of opposition to totalitarian rule in the former Soviet bloc. “The danger, for the Kremlin, is that a jail sentence is often the fastest way for an opposition activist to be promoted to national opposition leader.”

Navalny encouraged his supporters in the world’s biggest oil producer last year to continue rallying against the authorities while he serves his sentence.

“Don’t miss me,” Navalny said on his Twitter account after the sentence was read out. “The most important thing is not to sit idle; a toad won’t lift itself off the oil pipe.”

‘Disturbing Trend’

The verdict was criticized by Europe and the U.S., with U.K. Foreign Secretary William Hague saying in a statement that the decision “has highlighted once again the concerns felt by many about the selective application of the rule of law in Russia.” The European Union echoed the sentiment, with Michael Mann, spokesman for foreign policy chief Catherine Ashton, saying that the charges “have not been substantiated” during the trial and that she was “concerned” about the ruling.

U.S. President Barack Obama’s spokesman, Jay Carney, said the conviction of Navalny on “politically motivated charges” was part of a “disturbing trend” in Russia. He said the Russian government should cease its campaign of pressuring those who attempt to expose corruption.

Central bank governors and finance ministers from the world’s 20 largest economies will start a two-day meeting in Moscow tomorrow to discuss issues ranging from global stimulus measures to taxation. Russia holds the group’s rotating presidency this year and Putin is hosting a summit of G-20 leaders in September.

Stocks Plunge

Russian shares sank the most in a month after the announcement and the ruble weakened against the dollar for the first time in four days. The benchmark Micex Index (INDEXCF) reversed gains, closing down 1.1 percent at 1,416.41 in Moscow and snapping a five-day winning streak.

A judge in Kirov ruled that Navalny, who’s campaigned to expose fraud and waste at state companies and corruption by officials, defrauded state-owned timber company Kirovles of 16 million rubles ($494,000). Outside the activist’s backers chanted in support, with two detained.

“Navalny’s arguments that he’s being persecuted for political reasons are groundless,” said the judge, Sergei Blinov.

‘Bad Taste’

Former Soviet leader Mikhail Gorbachev, 82, who has criticized the rollback of democracy under Putin, said the verdict “left a very bad taste in the mouth.”

“Using the courts to fight political opponents is unacceptable,” Gorbachev said in a statement on his foundation’s website.

Political fallout from the case risks further unsettling Russia’s financial markets, with equities trading at the cheapest valuations based on estimated earnings among 21 emerging economies tracked by Bloomberg.

Russia’s benchmark gauge trades at 5.4 times its 12-month estimated earnings, having lost 3.2 percent this year. That compares with a multiple of 10 times for the MSCI Emerging Market Index, which has dropped 9.3 percent this year.

Navalny denied any wrongdoing and has said the case was payback for his opposition to the Russian leader. Former Finance Minister Alexei Kudrin said in a Twitter posting that the aim of the authorities was to “isolate him from public life.”

‘Alexey Knew’

“Alexey knew very well that he would get a real prison term, and a long one,” his wife, Yulia, told reporters outside the courtroom. Navalny’s anti-corruption fund will continue its work, she said.

More than 10,000 people signed up to attend today’s rally against Navalny’s sentencing from 7 p.m., according to a Facebook page set up by the organizers. Police cordoned off Manezh Square, where protesters gathered until 11 p.m. when some started dispersing.

Stefan Kuenzi, a German businessman from Bavaria, said he and his wife were blocked by the protest from entering their five-star National Hotel, which is opposite the Kremlin. “It’s a bit like the carnival at home except the police frown and they have crash helmets and batons,” Kuenzi said.

Putin, 60, has hardened his response against critics since winning a new six-year presidential term last year. Some protesters have been imprisoned while non-government organizations that get funding from abroad are being threatened with fines or possible closing unless they declare themselves foreign agents. Critics fearing prosecution, economist Sergei Guriev and former chess grandmaster Garry Kasparov, have fled Russia this year.

Putin Backlash

Investigators allege Navalny and two others embezzled more than 10,000 cubic meters of wood products at Kirovles between May and September 2009. The lawyer was working at the time as an unpaid adviser on corporate governance in Kirov to regional Governor Nikita Belykh, who’s defended Navalny. Federal investigators twice overruled regional prosecutors who had dropped the case.

Navalny faces further prosecution. Russian authorities opened a fourth criminal case against the anti-corruption activist in April. All relate to separate cases of alleged fraud and carry a maximum penalty of 10 years.

To contact the reporters on this story: Anton Doroshev in Moscow at adoroshev@bloomberg.net; Jason Corcoran in Moscow at jcorcoran13@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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