With 25 years of legal experience, Dean A. Peroff has been involved in a number of constitutional and corporate human rights cases in Canada and other countries. Peroff is the co-founder with Robert Amsterdam of the Toronto-based law firm Amsterdam & Peroff, which currently represents the imprisoned Yukos’ ex-chairman Mikhail Khodorkovsky.

Peroff was recently in Houston to deliver a speech on the current state of Russia’s oil and gas industry following the Yukos affair, and he spoke with ET’s Michael Economides. Coincidentally, on that same day the London Stock Exchange launched the Rosneft IPO. In an opinion piece published on July 10 in The Independent, a London newspaper, Peroff’s partner, Robert Amsterdam, wrote: “This offering is all about legitimizing Rosneft’s ill-gotten gains…The choice is whether or not to invest in what I consider stolen goods. Choosing to invest in Rosneft is investing against human rights and the rule of law, since brutal disrespect for both is what made the flotation possible.”

ET: Who is Khodorkovsky and what happened to Yukos?

DP: Khodorkovsky is an extraordinary man, a philanthropist, a visionary, and a very successful businessman. His company, Yukos, was acknowledged as by far the most successful company in Russia. His treatment by the Russian authorities is an indication of the threat he posed to the old-style state-controlled companies. He was also a threat to the Kremlin’s centralization of power. After being detained for two years for alleged economic crimes, and after a Stalinist show trial, he is now in a Siberian prison camp. The camp is contaminated with high levels of radiation from an adjacent uranium mine. To visit him it takes an eight-hour flight from Moscow followed by an eight-hour [car] drive.

Khodorkovsky was a moral force. He was the first business leader to introduce corporate governance and transparency, never before done in Russia. He brought in western experts and managers. He established the Open Russia Foundation, a leading force promoting democracy, civil society, and market economics. He launched small-business development programs. He was a proponent of multi-party government.

With the assault on Khodorkovsky, Russian civil society has been attacked. Laws are constantly introduced to provide the means for total control. Political opponents are arbitrarily arrested and detained. The judiciary is completely under the Kremlin’s sway. In the Khodorkovsky case, judges were dismissed or resigned in protest due to political pressure to rule a certain way. The prime asset of Yukos, Yuganskneftegaz, was taken over and given to state-owned Rosneft through a rigged auction. All senior corporate officers of Yukos, including Americans, were either incarcerated or forced to flee.

ET: Why does all this matter to anybody outside of Russia?

DP: Let me pose three rhetorical questions and my answers to them. Isn’t this just a one-off case, an isolated incident? No, it is just one example of a systemic problem. Manipulation of the legal system to seize businesses in Russia has been widespread. But before, it was usually done by private interests. The difference in the Yukos affair is that the government was behind it. This affair gave a signal to bureaucrats that it is OK to do this to any business. A term was coined by a Russian professor, “business capture,” where state machinery is used to seize a private enterprise. Foreign investors, including large multinational oil companies, are especially vulnerable to business capture in Russia, and are left with almost no legal recourse.

This can’t be true. Isn’t the Cold War over and isn’t Russia now a normal democracy? Although the Cold War is over, the answer to the second part of the question is no, Russia is not now a normal democracy. Things have deteriorated considerably. Putin’s predecessor, Boris Yeltsin, established a chaotic democracy but a democracy nevertheless: free press, free enterprise, and especially a free oil industry. The Kremlin under Putin has reversed all that and extended control over every center of power in Russia. The legislature is dominated by Putin’s party; all regional governors have been stripped of all power; and a huge part of the media, and almost all TV, have been put under state control – this in a country where 80 percent of the population take their news from TV.

And now, why does any of this matter to anybody outside of Russia? What is the connection between one person’s plight and his company’s plight to anybody outside of Russia? What happened to Khodorkovsky and Yukos is a historical event. It has affected Russian society in profound ways but it has also affected Russia’s policies and diplomacy. It gives the United States and Europe a new challenge and opportunity to shape the future of their relationship with Russia and that country’s future.

ET: What are the motives of the Putin administration?

The second motive was to take over Yukos as a means towards another end: near complete state control over the oil and gas industry. Since Yukos, the Kremlin has taken control of Sibneft, reinforced Gazprom, and moved decidedly to fulfill its own expressed ambition to create a huge, state-controlled oil and gas conglomerate. Just recently it has launched the IPO for Rosneft, which was based almost entirely on the stolen Yukos assets. In the IPO prospectus Rosneft reserves the right and states so explicitly that for “political reasons” it can make decisions that may not maximize the investors’ equity. This IPO is the syndication of the gulag.

The third motive has been the deliberate use of oil and gas by the Kremlin, not just for internal political purposes but for foreign policy purposes. This is energy imperialism. What the former Soviet Union was not able to achieve with nuclear weapons, Russia now wants to do with energy, especially by controlling the means of transportation. The recent dispute with the Ukraine is a good example of how the Kremlin is using oil and gas to manipulate and divide energy-hungry former satellite states and interfere in their politics.

ET: How has the incarceration of Khodorkovsky had an impact on the global energy market?

Now that the Kremlin has illegally stolen the majority of the country’s energy assets, the Russian business environment looks quite different. The Russian state has no transparency, and any data it provides on oil and gas production is extraordinarily unreliable.

The brief opening of Russia and the liberalization of the energy sector was abruptly reversed with the persecution of Khodorkovsky. Now the only way U.S. firms can invest in Russian oil and gas is through joint ventures with state firms in which the Russians retain at least 51 percent. This is done so that the Russians don’t have to provide any information to shareholders or even consider their interests. As demonstrated by the gas cut-off to the Ukraine and the sudden “contract reviews” on the Sakhalin projects, the Kremlin does not hesitate to put political and foreign policy interests ahead of fair business practices. It is for these reasons that Khodorkovsky’s freedom is imperative to the U.S. energy sector. Russia is moving in the wrong direction and is turning into an ominous, unfriendly energy juggernaut that exports politics with its product. We need Khodorkovsky and more people like him to put Russia back on track.