Press Conferences

Press Conference at Khodorkovsky Press Center

August 2, 2004

Maria Ordzhonikidze introduced Sandy Saunders, John Pappalardo and Maria Logan to the media at the Khodorkovsky Press Center.




Saunders: We welcome the opportunity to come and speak with you here in Moscow. We have spent this morning at the trial. We were also there on Friday. We were there for the first week of the trial as well. We may have spoken to some of you after the first day of the trial. This is an ongoing effort, working with our Russian colleagues on this case. Since we left Moscow, we have spent some time in Switzerland working with other members of the international team representing Mr. Khodorkovsky and Mr. Lebedev and Group MENATEP and we keep going with our efforts in Switzerland. We are trying to build in Switzerland on the successes that we have had there. Originally, as was widely covered in the press, the Russian Government sought the assistance of the Swiss prosecutors and caused amounts of approximately $4.9 billion in U.S. currency to be frozen in accounts in Switzerland. Not all of this was in cash, but the total amount was roughly accurate since the freezing of the stock and actions taken by the lawyers on behalf of Khodorkovsky, Lebedev and Group MENATEP and various affiliated entities. The Swiss courts have now reviewed those freezing orders and have directed that approximately $4.5 billion of those dollars should be unfrozen and released. The Supreme Court ruling on unfreezing the stock was based on the fact that they found that the Russian government had failed to sufficiently allege facts, both actual criminal conduct, and they failed to weight any alleged criminal conduct to the funds that were frozen in Switzerland. The Russian government also submitted a request for assistance in Liechtenstein. This only involved a request for information. The court in Liechtenstein reviewed the request and came to the same decision as the Swiss court. It found the Russian request did not include adequate proof to substantiate its allegations of criminal conduct and instructed the Liechtenstein Ministry of Justice not to provide the information to the Russian Government in response to the request.

If people are interested in knowing the reaction of the Swiss government to the Russian requests for assistance and the Swiss government's handling [of that] - the Swiss Prosecutor General's handling of those requests - John, describe that.



Pappalardo: The Swiss Government as early as August of 2003, last August, which coincidentally was about the time we became involved in this case - since August of last year, there have been repeated requests which came from the Russian Government and repeated contact with the Swiss Prosecutors . This involved an expansion of the request to include documents, to include various bank accounts, not only of individuals, but also of companies. The request changed over time. It expanded, it became greater and more importantly, it became more focused. It had also included towards the end, the end was about March or April of 2004, specific requests that were accompanied by orders from the Basmanny Court that [showed that]the Russian Prosecutor sought the assistance of and received the assistance of the Basmanny Court in issuing orders concerning these particular documents and bank accounts. As a result of the collaboration between the Russian prosecutor and the Russian investigators and the Swiss federal prosecutor, the Swiss prosecutor, in accordance with the law, completely arbitrarily froze the monies in March of 2004. At that point in time in collaboration with our Swiss colleagues, we went to Switzerland. We held a press conference at that time which some of you may have attended, and explained that the Swiss order was inappropriate on its face; it was improper for the reasons that the crimes that were alleged in the Swiss order, first of all, had not taken place. Second of all, they were not properly documented, and lastly, there was no connection between the monies that were frozen in Switzerland and the activity alleged in Russia. And we went on to say that we would appeal the Swiss Prosecutor's ruling which we did, which was in writing. There was no hearing on the matter. The Supreme Court of Switzerland not only unfroze the money, but issued a rebuke to the Swiss prosecutor. And in fact, fined the Swiss prosecutor on two occasions 5,000 Swiss francs, so for a total of 10 [10,000 Swiss francs]. What they did was improper and they should be sanctioned. As a result of that, the money was unfrozen.



Saunders: After the Supreme Court directed that the assets be unfrozen, they [the Supreme Court] suggested that if the Russian Government had additional facts supporting the allegations, that they should of course submit them to the Swiss prosecutor. And in fact, the Swiss prosecutor issued a second freezing order to give the Russian Government the opportunity to submit additional facts. The Russian Government declined to do so. They said that they did not have any additional information to submit and a couple of days later the Swiss prosecutor withdrew the second freezing order voluntarily. We are aware that the Russian Government will continue to try to convince the Swiss to re-freeze the accounts and will try to re-write the old allegations to try to create the appearance of actual criminal conduct. We will continue to fight that and demonstrate to the Swiss courts, which have now already seen once and have been supported by the court in Liechtenstein that the Russian Government is not able to put together a real criminal case. In fact the Liechtenstein court has raised issues as to the accuracy of the information submitted by the Russian authorities because they identified discrepancies between the request in its Russian version which was flawed because it did not allege conduct that is criminal in Liechtenstein, that the charges, the language was changed in the version submitted by the Russian Government, translated into German, so that it did state crimes recognized in Liechtenstein. The Liechtenstein court that had picked up on this discrepancy and that was one of the reasons also for ruling against the Russian request because they doubted the accuracy of the information submitted by the Russian Government. We saw something reminiscent, something similar, in court this morning during the hearing while the Russian prosecutor was reading from documents that were allegedly signed by either Khodorkovsky or Lebedev. They have no basis for that assertion. The documents are not authenticated for legal terms and Mr. Padva and Mr. Drel, counsel for the defendants, objected to the use of the documents. The documents were handed to the defendants who denied that the signatures were theirs. It is not very difficult to make that determination, but the prosecutor persisted in trying to put these documents into the record.

Question (U.S. Embassy): Are there any legal impediments to using the funds that were unfrozen to pay the back taxes?

Saunders: Some of the funds would be appropriate to be used, approximately $2.5 billion of those funds, which are $1.7 billion which are funds in the retirement account for Yukos workers. They should have never been frozen in the first place. Admittedly that fund is not worth as much as it was at the time of the freeze because of the Russian government's attack on Yukos and its manipulation of the Yukos stock price, but hopefully, when this is over the stock price will return to its actual worth and those workers will have appropriate funds for their retirement.

Pappalardo: The amount of stock that was frozen last year by the Russian courts in connection with the investigation of Mr. Khodorkovsky at the time, depending on the fluctuation of the share price was more than enough to pay not only the alleged back taxes of Yukos, but also any penalty under Russian law that could be imposed as a result of the future conviction of Mr. Khodorkovsky and Mr. Lebedev by a factor, depending on what point in time, of two or three.

Question (Reuters): The $2.7 billion that was mentioned, do they belong to the Yukos owners presumably? And explain the 4.5 and 4.9 difference.

Saunders: Let me try to answer it this way. The 4.9 belonged to the Veterans Trust and various subsidiaries and related entities to Group MENATEP. For the most part, there are some small amounts that relate to some other companies, but an overwhelming majority of the remainder of the funds was in connection with Group MENATEP and its subsidiaries, including Pecunia, which was the next largest sum of approximately $1.7 [billion] and then there were various investment funds that MENATEP had for investments both outside of Russia and domestically.

Pappalardo: As I indicated before, the requests from the Russian government changed over time. At the end, the final request which resulted in a freezing of those assets in Switzerland included allegations that were not present in the Russian charges, including conduct that was not prescribed in the Russian charges. Of course the Swiss Supreme Court did not need to address that because there was no connection between the conduct charge and the money that was seized in Switzerland, but there was a substantial disparity between the conduct alleged and what was actually charged in Russia. Putting it a little bit differently, even with respect to the initial requests which took place in August, November of 2003, if there were to be a proper seizing of assets, under the treaty that exists between Switzerland and Russia, there needs to be what is called a duality test that is met where the activity that an individual is charged with in one jurisdiction is required to be a crime in the second jurisdiction. Obviously that duality requirement was not met because the thrust of the original requests dealt with transfer pricing and with personal income tax. Neither of those are crimes in Switzerland. The Swiss Supreme Court obviously did not even get into a long discussion of that because there was no evidence presented that substantiated those crimes.

Saunders: What the Swiss court did address are the charges that you are aware of. That the Russian government made the allegation in what is referred to as transfer pricing. That's an allegation that caused the Apatit product to be sold at one price inside the country at a low price, and then at a higher price in Switzerland and that Mr. Khodorkovsky and Mr. Lebedev and other members of Group MENATEP kept the difference in that price for their personal benefit to the detriment of Apatit shareholders. Part of the Russian allegation is that that money is what was found in Switzerland. The Swiss court found that they could find no evidence of any linkage between alleged illegal funds kept at Apatit transactions and the funds in Switzerland….Transfer pricing is sort of misnamed, it is really misappropriation, tax evasion. For purposes of being able to get documents to freeze accounts in Switzerland, they need to weight that to the money that is in Switzerland. It is interesting to note that in Liechtenstein the court had the option of addressing whether to also deny the request because this case is political in nature. The Liechtenstein court expressly said that they were not going to address that issue because there were so many other problems and flaws with the criminal charges themselves that it was unnecessary for them to address the political aspect. At this time the defence team made a decision not to address the political issue in Switzerland because we had other grounds that we could rely upon and we are not going to pursue that issue at this time. That will be pursued, if necessary, later on.

Question: Did you submit evidence [as to] where the money came from? Also who owns the Veterans Trust?

Saunders: We are not pension fund lawyers. The pension was funded with stock belonging to Group MENATEP. This was a purely philanthropic act on MENATEP's part to create the pension fund and to our knowledge, it is the only fund of its type in Russia. The technical aspects of the fund are too detailed to go into on how it operates. We cannot really talk about it since we do not understand all the terms on how the pension fund works. If the stock at the time is sold, it seeds a certain value. There is a residual interest that runs to Group MENATEP at some date well out into the future, but the purpose of the stock and the sale and the proceeds generated from that sale go to benefit the workers of Yukos, so the stock itself never returns to MENATEP.

The pension was funded with stock belonging to Group MENATEP. This was a purely philanthropic act on MENATEP's part to create the pension fund and to our knowledge, it is the only fund of its type in Russia.

Pappalardo: To put it a little differently, what is clear is that the stock described is owned by individual people in Yukos as part of a pension fund. When the stock is liquidated, depending upon when that is, there may be some residuals that may go back, but that is purely speculative. The second thing, and probably the most important thing, is the fact that there is no connection nor could any be demonstrated by the Russian government much less the Swiss prosecutor that there was a nexus between that fund or any of the activity described as crimes in Russia which made it improper to seize in the first place.

Saunders: In other words, to answer the first question, there was also evidence submitted that there were dividends paid to MENATEP as well as to the other shareholders of Yukos. As the Swiss court pointed out, those are unquestionably clean funds and if the Russian government wanted to seize that money as the proceeds of a crime, then they would have to go and seize the dividends paid to everybody who owns shares in Yukos and it is pretty clear that they did not do that and are not about to.

Pappalardo: And just let me highlight one thing, again in response to your question. We did not present evidence. What occurred was there was no hearing in this case. We did not call witnesses, we did not present documents. The only documents we presented were attachments to a brief that was filed. We did not conduct discovery. What we did was attack the request that was made in the form of the freezing order by the Swiss prosecutor. So it was a very defensive mechanism on our part, it was not an affirmative hearing. Which by the way would have come later if our request had been denied and at that point in time we would have raised other issues. Let me just add one other point. The Swiss prosecutor refused to meet with us.

Question: Why?

Saunders: We wrote a letter requesting a meeting and that letter was unanswered [the meeting was] denied.

Question (Reuters): What is the money that is still frozen?

Saunders: It is money in various companies that hold MENATEP investments both outside and inside Russia. For procedural reasons unique to Swiss law, the appeals were not filed on those funds at this time, they will be pursued at a later date. It is not because of any take on those funds. There were procedural issues that had to be addressed. That is why those appeals are deferred. We have not missed any deadlines, or lost any opportunities.

Question: Where do they invest?

Saunders: MENATEP has invested in real estate in Russia, in telecom interests in Russia and Eastern Europe. They invest in international funds run by third parties. It is no different from any other financiers or holding companies that have significant assets.

Question: Can you tell us whether the remaining $400 million is cash or equity?

Pappalardo: Let me just draw a simple distinction which is that with the remaining assets that you refer to, the $400 million or so: they are frozen which does not prevent them from accumulating interest or things of that nature. The step that we would intervene, of course, is when and if the Swiss prosecutor said I would file a motion to transfer those.

Another hearing in the case of Khodorkovsky, Krainov and Lebedev is taking place today at the Meshchansky Courthouse. By 10:30, TV cameras from NTV, RenTV and Euronews had lined up near the courthouse building and reporters from a number of print media, four news agencies (Interfax, RIA-Novosty, ITAR TASS and RBC), radio stations (Echo of Moscow and Russian Radio) and photo reporters from Kommersant newspaper and Reuters news agency had arrived. The defence lawyers did not make any formal statements prior to the start of the hearing.