Creating false appearances to cloak an undesirable reality is a fine tradition of Russian governance. The Russians invented the original Potemkin villages, elaborate fake settlements constructed by a Russian minister to conceal a desolate land from his ruler, Catherine the Great.

Stalin staged show trials to mask his murderous purges. His successors held elections with only one candidate on the ballot.

Vladimir Putin has now added his own page to this dubious history of Russian leadership. Putin had made up his mind to take control of Yukos, Russia’s largest private oil company, to bring its riches back under the umbrella of his Russian state. Call it expropriation by tax collection, or a Potemkin auction.

Rather than seizing Yukos outright, the Russian president created the appearance of the rule of law. He arrested the company head, Mikhail Khodorkovsky, and charged him with fraud and tax evasion. Then the authorities hit Yukos with a bill for $3.5 billion in unpaid taxes.

In Russia, all companies evade taxes. But inspectors pursued Yukos like no other. Six months later, the tax bill was doubled. More bills were piled on in the weeks that followed until Yukos officially owed the Russian state $27 billion, more than the company’s stated worth.

The intent soon became clear. The Russian authorities told Yukos executives to meet the bill by selling off their main oil production unit — whose annual output is greater than that of OPEC member Indonesia.

Next step, auction the unit. The state set a minimum bid of about $8.6 billion, less than half the unit’s market value based on its ownership of huge oil reserves. The only apparent bidder — surprise! — the state-owned gas giant, Gazprom, the largest supplier of natural gas to Europe.

But wait! A sudden wrinkle in the Potemkin plan! At the last minute, a U.S. federal court issued a 10-day injunction against the sale, responding to Yukos lawyers who argued the company is covered by U.S. bankruptcy law and its investors would lose the fair value of their assets in the auction. That was enough to scare off foreign banks who were ponying up the money for Gazprom’s bid.

But the Russian state is not to be outdone by mere laws. The auction proceeded with the care of one of Stalin’s trials. Russian and foreign journalists watched on closed circuit TV as a committee of men in business suits presided over the affair. Three tables for bidders were set up, but only two bidders showed up — Gazprom and a previously unknown firm, the Baikal Finance Group. And when it came time to bid, Gazprom kept silent. Three calls at the opening price of $9.3 billion and the hammer came down.

Afterwards authorities claimed ignorance about the company that had just bought one of Russia’s corporate crown jewels. The address of the firm was a building in a provincial city, home to a cell phone store and a grocery.

Observers were certain, however, that the trail of this mysterious entity would eventually lead to the Kremlin.

The next day Putin, at a meeting with the visiting chancellor of Germany, spoke soothingly. The buyer, he explained, was a group of people “with a long history in the energy sector.” They might, he hinted, join forces with “other energy companies in Russia,” widely taken as a reference to Gazprom. Russian newspapers reported that Baikal was actually a front for another Russian oil firm, Surgutneftegaz, a firm with close ties to the Kremlin, 45 percent owned by the state.

No one is fooled. Putin is now forging his own version of capitalism, one in which, as the communist slogan used to go, “the state controls the commanding heights of the economy.” Foreign investors who have bought into Russian firms are forewarned — play ball his way or expect a whopping tax bill.

Wait. I misspoke. Someone was fooled: President Bush. At his press conference last week, after the phony auction, the president was full of praise for his good friend Vladimir and the “good relationship” they have built.

They were going to work together to get Russia admitted to the WTO, the World Trade Organization, Bush told reporters.

The WTO? That would be the organization that requires countries to follow the rule of law in the global economy. Perhaps Bush is really Russian in his soul, creating an American version of the triumph of appearance over reality.

— Daniel Sneider is foreign affairs columnist for the San Jose Mercury News.