The Enrons of Russia. (Market Horizons).

Readers of Russian newspapers were not at all surprised by recent stories about Enron. During the '90s, Russian energy companies were notorious for cooking their books, defrauding their shareholders and using political connections to cover shadowy deals.

After the Soviet Union's collapse, the country's centralized oil sector was among the first to be privatized. A number of new, private oil companies with vast reserves and huge potential for export revenues quickly became one of the leading global investment stories. Foreign investors rushed headfirst into Russia's stock market, triggering the ascent of such energy blue chips as Gazprom, Lukoil, Surgutneft and Tatneft.

In those heady days, many American officials grew hoarse criticizing Russia's dubious financial management practices and demanding better disclosure and shareholder protection. Despite their efforts, most foreign investors ended up losing money. It should have been a warning to U.S. mutual fund managers that, in some cases, the analysts pushing Enron's stocks were the same people who had promoted Russian energy companies just before the Russian stock market bubble burst in August 1998.

As with Enron, Russia's oil giants were able to massively mislead investors. Recent investigations into Gazprom's long-time management team, for instance, revealed that they had routinely guaranteed inside loans and also made investments into businesses set up by close relatives of Gazprom senior executives. Russian oil companies often devised ways to hide profits to keep them from investors and tax authorities. In Russia, many such practices are legal -- or at least not expressly forbidden.

Russian energy companies were able to fool investors largely because they were protected by powerful political connections. Viktor Chernomyrdin, the long-serving prime minister in Boris Yelstin's government, had previously been the head of Gazprom and is rumored to have become Russia's first billionaire as a result of his big oil contacts. Many government officials, regulators and managers of the state-owned oil pipeline, Transneft, have close ties to the oil giants. Tatneft, the Tatarstan-based oil company whose ADRs trade on Wall Street, is a virtual fiefdom of the autonomous Tatarstan government.

The favors went both ways. Most Russian energy companies rushed to support Vladimir Putin once he became prime minister and helped to finance his subsequent presidential campaign. Since then, two of the largest energy concerns, Gazprom and Lukoil, helped throttle the two remaining media groups that dared criticize the government. Gazprom took over the anti-Putin NTV television channel and replaced newscasters and writers with Putin loyalists. The offending journalists found shelter for a while at another TV station, TV6. But earlier this year, Lukoil's pension fund, a large shareholder in the media group, convinced the court to shut down TV6 on the grounds that it wasn't a profitable investment.

At least Enron stakeholders have the cold comfort of congressional hearings and public indignation. No Russian oligarch has ever been punished for defrauding investors or taking minority shareholders and tax authorities for a ride. Many have tried unsuccessfully to sue the Russian oil companies in court. BP-Amoco, for example, is involved in a long and acrimonious dispute, alleging that a Chernogorneft oil field was effectively stolen from it by a rigged auction. Even if an investor wins a decision, it's nearly impossible to enforce it.

When Putin was elected, he promised voters he would eliminate the oligarchs as a class. In reality they have become more powerful and wealthier than ever under his rule -- though he did, at least, send his top assistant to correct the murky business affairs at Gazprom. Since coming to Gazprom, Putin's appointee Alexei Miller has replaced the top managers and started to clean up their mess. Executives of SIBUR, an obscure subsidiary, have recently ended up behind bars on charges of embezzlement.

But despite scandals in both countries, one discomforting parallel between the United States and Russia remains. For whatever reason, the rise to political power is all too often financed by companies with questionable business practices.

Stephan Richter is publisher of TheGlobalist.com. Email him at [e-mail].