Putin’s Pardon of Tycoon Buoys Russia Before Sochi Games

Russian President Vladimir Putin’s surprise announcement that he plans to pardon the country’s highest-profile prisoner stands to buoy the leader’s sagging human-rights stature just weeks before the country hosts the Winter Olympics.

Putin said yesterday he’d pardon Mikhail Khodorkovsky, the former owner of Yukos Oil Co. and once Russia’s richest man. Khodorkovsky has been in prison for more than a decade on tax-evasion and embezzlement convictions that the U.S. and European Union have said represent selective administration of justice.

A decision to free Khodorkovsky could help distract from international outrage that Russia has stoked on several fronts - - including its plan to enforce a ban on what it calls gay propaganda at February’s Winter Olympics. World leaders including Barack Obama say they’ll skip the 2014 Games in the Black Sea resort of Sochi.

Putin’s move “is best understood as part of a domestic and international charm offensive ahead of the Sochi Olympics,” said Alexander Kliment and Yael Levine of the Eurasia group. “It does not presage a fresh commitment to substantive reform of Russia’s political economy or business climate.”

The announcement caps a week in which Russia has battled back against international allegations of human-rights abuses. Lawmakers approved a broad amnesty Dec. 18 that includes 30 Greenpeace crew members who’ve faced hooliganism charges for an Arctic drilling protest. Two members the punk-rock collective Pussy Riot, jailed for two years after an anti-Kremlin protests in a Moscow cathedral, will be offered freedom under the amnesty, according to their lawyer.

Strong Position

Rather than representing a concession to international disapproval, the Khodorkovsky pardon would appear to come from a position of strength, said Masha Lipman, an analyst at the Carnegie Moscow Center. Putin has shown he can stand against international wishes -- by supporting Syria’s president, granting asylum to American leaker Edward Snowden and pulling Ukraine’s government toward Russia and away from a deal to get closer to Europe.

“There is no reason to suspect that he’s pardoned Khodorkovsky because he is under pressure,” said Lipman. “With negative publicity pouring all over him, Putin has dramatically changed the news cycle.”

Putin’s surprise statement came after his year-end news conference, an annual affair that this year stretched four hours. During the meeting, Putin defended his human-rights record, showing visible anger when asked about Moscow’s ban on adoptions by Americans, which Russia instituted after Washington passed a human-rights law targeting Russian officials.

‘Humanitarian Circumstances’

The Kremlin said Putin’s decision came after Khodorkovsky sought a pardon -- an act that in Russia would require an expression of guilt that the jailed magnate has long rejected. Khodorkovsky made the request as his mother is receiving medical treatment, the Kremlin said.

“He cited humanitarian circumstances -- his mother is ill,” Putin said. “I believe that such a decision can be taken and soon a decree will be signed pardoning him.”

In 2010, Putin had said at a call-in news conference that “thieves should sit in jail.” A year later, he insisted that to get an amnesty, Khodorkovsky would have to admit his guilt.

Khodorkovsky, 50, was imprisoned after convictions for tax evasion, money-laundering and oil embezzlement. He maintained his innocence, saying the cases against him were retribution for financing opposition parties. The Kremlin has denied that.

Written Request

An appeal for clemency was received “recently” in the form of a letter signed by Khodorkovsky, Putin’s spokesman, Dmitry Peskov, said by phone. The petition amounts to an admission of guilt, he told Interfax.

Khodorkovsky’s attorneys declined to comment, saying they hadn’t yet spoken with their client.

Khodorkovsky’s first stop will be Germany to be with his mother, said Dmitry Gololobov, former chief attorney at Yukos.

“Putin couldn’t do anything else: Khodorkovsky’s mother has cancer and is being treated in Germany,” Gololobov said by phone from London. “After he’s free, Khodorkovsky will concentrate on caring for his family and mother. He’ll drop out of the public eye. He won’t speak out against Putin.”

Khodorkovsky’s mother, Marina, told RT television that Putin’s decision came as a “bolt from the blue,” according to a transcript of her remarks e-mailed by the state-run broadcaster. She said she last saw her son in prison in August and is only allowed to call him once a week, on Saturdays.

Investor Concern

The case against Khodorkovsky came to represent investor concern about the rule of law in Russia, where this year concerns over corporate governance helped spur the biggest outflows from equity markets since 1996. Russia is seeking to stem more than $400 billion in capital outflows since 2008.

After Putin’s comments, Russia’s benchmark Micex Index climbed to the highest level since Nov. 25. The gauge rallied as much as 1.5 percent before closing up 0.7 percent at 1,497.99.

Russian stocks trade at the cheapest valuations among 21 emerging-market economies monitored by Bloomberg, with the average multiple on the Micex at 4.5 times forward earnings, nearly half the 10.3 level for the MSCI Emerging Markets Index.

While investors were encouraged by Putin’s announcement, more fundamental reforms are required to lure additional foreign investments, according to Firebird Management LLC.

‘Many Problems’

“Khodorkovsky’s imprisonment is just one of many, many problems that Russia has to solve to change the sentiment, to prove to international investors that they can invest reliably and safely in Russia,” Ian Hague, founding partner of New York-based Firebird Management LLC, which manages $1.1 billion of assets including about $400 million in Russian stocks, said by phone from Tbilisi, Georgia.

Between 1993 and his arrest 10 years later, Khodorkovsky turned Yukos from a Soviet-era Siberian producer into Russia’s largest oil company, importing U.S. drilling techniques to revive dilapidated wells.

After his imprisonment, Khodorkovsky’s company was dismantled and sold at auction. Most of its assets, including the giant Yugansk field, found their way to OAO Rosneft, a state-owned producer that had been a quarter of Yukos’s size.

Now headed by Igor Sechin, a close Putin ally who Khodorkovsky says orchestrated his fall, Rosneft has added production through a series of takeovers. The company produces more than 4 million barrels a day, or about 5 percent of the world’s oil. The government denies Khodorkovsky’s claims.

Airport Arrest

Khodorkovsky was arrested on the tarmac of a Siberian airport in 2003 and served time in a penal colony in the Chita region near the border with China before his transfer to a prison in the northwestern region of Karelia in 2011.

The jailed billionaire also risked additional charges, with investigators working on a $10 billion money-laundering case related to Yukos, Interfax reported Dec. 6. Officials were probing several criminal cases, Deputy Prosecutor General Alexander Zvyagintsev told the news service.

“It is a surprise he is being freed because the Investigative Committee was possibly looking at cooking new charges against him,” Chris Weafer, a senior partner at Moscow-based consultancy Macro Advisory, said by phone in Moscow. “It shows Russia has a serious intention to try to curb the capital outflows. There is a greater focus on reform issues as we have seen with the political amnesty.”

‘Major Positive’

The Russian government is struggling to lure foreign investors to counter capital outflows. Putin, who was also president when Khodorkovsky was detained, returned to the Kremlin last year after four years as prime minister with a pledge of pushing Russia to 20th in the World Bank’s Doing Business ranking by 2018. It ranked 92nd this year.

“The Yukos case is the single most obvious case of selective justice and lack of rule of law in Russia,” Vladimir Osakovskiy, Moscow-based chief economist for Russia at Bank of America Merrill Lynch, said by e-mail. This “could potentially be major positive news for Russian markets.”

“What should have happened several years ago has happened,” billionaire Mikhail Prokhorov, a former presidential candidate, said in a statement. “I am happy for Mikhail and his family.”

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