Company News

UPDATE 1-Russian ex-PM says tycoon's arrest was political

* Ex-PM says tycoon angered Putin by funding Communists

* Kasyanov says 2003 arrest of Khodorkovsky was political

* Russia has always denied politics were behind the arrest

(Adds details, background)

By Aydar Buribayev

MOSCOW, May 24 (Reuters) - The Kremlin ordered the arrest of Russian tycoon Mikhail Khodorkovsky in 2003 because he had angered Vladimir Putin by funding an opposition party, Putin’s former prime minister testified on Monday in court.

Once Russia’s richest man, Khodorkovsky’s business empire -- which pumped more oil than OPEC member Qatar -- was carved up and sold to state-controlled companies after his arrest, sending a signal to Russia’s tycoons to stay out of politics.

Mikhail Kasyanov, who became a vociferous Kremlin critic after serving as Putin’s prime minister from 2000 to 2004, told a Moscow court that Putin, while president, had been angered by Khodorkovsky’s support of the Communist Party.

“He said approximately the following: that YUKOS not only financed the (Western-leaning) Union of Right Forces and Yabloko parties, which he, President Putin, had permitted, but it also bankrolled the Communist party which he, President Putin, had not permitted,” Kasyanov said.

Called as a witness by Khodorkovsky’s lawyers, Kasyanov’s testimony gave a rare insight into the tightly controlled political system Putin crafted as president and the motives behind a battle with one of Russia’s most powerful businessmen.

Khodorkovsky has always said he is the victim of corrupt officials under Putin who feared his political ambitions and wanted to carve up his YUKOS oil company, which was once widely held by U.S. and European emerging market investment funds.

Putin stepped down as Kremlin chief in 2008 and is now prime minister. He has rejected any hint of politics in the case against Khodorkovsky, whom he compares to U.S. gangster Al Capone.

The government says Khodorkovsky was found guilty of serious crimes by a court and should serve his jail term.

Officials have also alleged that Khodorkovsky bought influence on a grand scale in Russia’s State Duma lower house of parliament to further his interests.

Kasyanov said the arrest in July 2003 of Khodorkovsky’s business partner, YUKOS shareholder Platon Lebedev, a move that is seen as the start of the public battle with Khodorkovsky, had come as a surprise.

“It was a surprise for me when in July 2003, Platon Lebedev was arrested,” Kasyanov said. “Both (YUKOS) co-owners were arrested on politically motivated grounds.”

Soon after Lebedev’s arrest, Khodorkovsky was detained by armed officers from the FSB security service at an airport in Siberia.

The arrest sent shockwaves through the Russian business community which feared the Kremlin could try to regain control of raw materials companies which had been sold off at rigged auctions after the fall of the Soviet Union.

Russia’s stock market tumbled as investors dumped shares in YUKOS. Russian equities later soared as the economy boomed under Putin, but some major investors had steep losses when YUKOS was bankrupted by billions of dollars of back tax claims.

Kremlin critics say Khodorkovsky’s arrest marked a turning point in Putin’s presidency by giving hardliners the upper hand and creating enduring uncertainty about the security of those assets sold off in the privatisations of the 1990s. (Reporting by Aydar Buribayev, writing by Dmitry Solovyov, editing by Guy Faulconbridge and Maria Golovnina)