Travel Reference
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But the most brilliant and byzantine scheme played out this way. The Russian govern-
ment mortgaged its assets to a few well-connected insiders for kopeks on the ruble (pennies
on the dollar, as Americans would say). These assets were then mortgaged to banks as se-
curity on bank loans. The government invariably failed to pay money due on the mortgaged
assets. The same happened for those who (in turn) had mortgaged assets to the banks. The
banks then put the assets up for auction, and a bidder's ring used the money
lent by the
banks
to buy the assets! An instructive example is Yukos Oil. It was bought by Russia's
new oligarchs for $159 million. In 1999 it produced oil worth $18 billion.
But money (as the cliché goes) does not always buy happiness. Because of Russia's
legal system (especially business and tax laws), it is difficult to run a large company
without breaking some law somewhere on the statute topics. Tax collectors and tax police
(wearing masks and carrying heavy weapons) stand ready to raid the offices of those who
fall out of favor with those bearing more political clout. Papers and records are seized; in-
vestigations can continue for a year, and a business tied up in tax-police limbo can collapse.
In 2003 the head of Yukos Oil was put in jeopardy when tax officials seized company
records and computer discs. Company officials expressed bewilderment, while a knowing
public offered at least three explanations for the tax raid. First, because Yukos Oil was one
of Russia's largest companies, the raid may have been a warning to other executives that
too much independence from government leaders can be a dangerous thing. Second, Yukos
had been rumored to be in a merger with American oil companies, which might then have
created the world's largest oil company. If so, Russia's political leaders might find their
control over the oligarchs in jeopardy. Third, the raid was a struggle between competing
groups of oligarchs.
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