October 25, 2003

Russia Yukos Chief Charged With Tax Evasion, Fraud

Prosecutors charged Mikhail Khodorkovsky on Saturday with tax evasion and fraud after he was forcibly detained in Siberia and brought to Moscow. For months, the Russian prosecutor's office has been investigating Yukos company officials and shareholders, hoping to find evidence of tax evasion and theft of state property. Top Russian businessmen and political leaders have expressed deep concern about the developments surrounding Yukos, saying the investigation is damaging the Russian economy and dissuading foreign investors from investing in Russia. "The Russian business community believes that the legal system and its leaders have drastically worsened the situation. They have undermined the trust (of society) in business and the law enforcement bodies themselves," according to Anatoly Chubais, Yeltsin's former privatization chief and head of Unified Energy Systems.

(Source: Dow Jones International News. Similar stories appeared in BBC Monitoring, Reuters, Associated Press, Interfax News, The Russia Journal, CNN.)


November 1, 2003: Russian Premier Breaks With Putin Over Tycoon; Some Stock Shares Released, But Political Tension Intensifies: Prime Minister Mikhail Kasyanov broke with President Vladimir Putin on Friday over the state's freeze of a major stake in Yukos Oil Company, raising tensions in a case that has triggered the deepest political crisis of Putin's tenure. Kasyanov, who was appointed by Putin, said, "The arrest of shares in a joint stock company is a new phenomenon, the consequences of which are difficult to judge, as this is a new form of influence." Anatoly Chubais, head of the country's electricity monopoly, added that Putin has embarked on a "reinterpretation of the course" for the country. (Source: The Washington Post. Similar stories appeared in the New York Times, Financial Times, and Los Angeles Times.)

November 1, 2003: Kremlin Official Leaving May Spark Change: Alexander Voloshin's departure, following the arrest of Mikhail Khodorkovsky, stirred broad fears that Putin's fellow ex-KGB officers are crowding out Kremlin liberals and laying the groundwork for a redistribution of property that was privatized after the 1991 collapse of the Soviet Union. Voloshin, who was a strong advocate for Russia's business barons, openly opposed the probe against Yukos. Nikolai Petrov, a political analyst with the Carnegie Endowment, said it was clear that Putin would reshuffle his team before the presidential election and that Voloshin's dismissal was a sign the president has grown confident his ex-KGB lieutenants can run the administration without holdovers from Yeltsin's time. (Source: The Associated Press.)

November 1, 2003: OPINION: Russia's Future and the Fate of an Oligarch Rattling the Capitalists: The arrest of Mikhail Khodorkovsky has revealed differences in Russian attitudes on the economy, wealth and the role business should play on the political scene. Yukos seems an unlikely target for a government investigation because the company has done more than any other to distance itself from the lawless behavior of privatized businesses. Yukos' financial dealings are transparent; it was the first oil company to pay dividends to its shareholders; and the company and Mr. Khodorkovsky are committed to making enormous charitable donations. But Yukos also sinned: by contributing to opposition parties, by refusing to involve government functionaries in its planning – and simply by accumulating billions in a country where most people are poor. The economic conflict reflects a political one: between authoritarian statists who would control the Russian economy and society in general, and the liberal oligarchs who advocate greater economic and social freedoms. In the end, the goals of the oligarchs can move democracy forward for Russia. (Source: The New York Times.)

October 31, 2003: OPINION: Putin Threatens Russia's Democracy – Assault on Khodorkovsky is an Assault on the Law: President Putin, who might have gone down in history as a necessary antidote to the chaotic rule of his predecessor, Boris Yeltsin, is now plunging down the dangerous path to authoritarian rule. Many view the seizure of Khodorkovsky's controlling stake in Yukos as direct assault on the rule of law. Although Putin has served the West well in the war against terrorism his cooperation must not blind the United States and the EU to the threat he now poses to Russia. The abuse of state power creates much greater dangers for Russia than those posed by the inequalities caused by the collapse of communism and the controversial privatizations. (Source: The Financial Times.)

October 31, 2003: Power Struggle: Kremlin Battle with Oil Giant Shakes Up Russia – Freezing of Shares in Yukos Points to Political Motives, Signs of Authoritarianism – Yeltsin and U.S. Voice Concern: Russian prosecutors' decision to freeze 44 percent of Yukos shares threw the nation's economy into uncertainty and raised fears that President Vladimir Putin's drive to strengthen Kremlin control over the country is heading toward authoritarianism. The Yukos affair is the latest in a series of events fueling concerns about Putin's commitment to liberal reforms. "It is important for Russian authorities to dispel concerns that this case is politically motivated. We have raised this issue with Russian authorities in the past and will continue to do so," said Sean McCormack, National Security Council spokesman. (Source: The Wall Street Journal.)

October 31, 2003: Russia Freezes Stock of Oil Giant; Markets Slide; Putin Aide Resigns: After Russian declined sharply in response to the seizure of Yukos shares, President Vladimir Putin's chief of staff, Alexander Voloshin, resigned in protest of the campaign against Mikhail Khodorkovsky. Khodorkovsky's arrest touched off what has become the most serious political crisis of Putin's tenure, creating comments that he is taking the country back toward authoritarianism. The Bush administration has had "senior and serious discussions" with the Kremlin about the Khodorkovsky case in recent days. Advisor Richard Perle, said Russia should be expelled from the Group of Eight industrialized nations because Russia's politically motivated action against Yukos shows that it doesn't meet G-8 standards. (Source: The Washington Post.)

October 31, 2003: UK Ambassador Concerned About Yukos Case: UK Ambassador to Russia Roderick Lyne commented that the recent events decrease the confidence of investors – particularly Russians – in the stability of the Russian stock market. Lyne stated that the precedent with Yukos might negatively affect partnerships between Russian and foreign companies and, in particular, direct investments in Russia's economy. (Source: RosBusinessConsulting.)

October 30, 2003: One Russian in Three Sees Politics Behind Tycoon's Arrest – Poll: In a poll of 1,600 Russians conducted by the VTsIOM-A polling institute, those surveyed expressed doubts about the legitimacy of charges brought by the government against Mikhail Khodorkovsky. Over 80 percent were aware of Khodorkovsky's arrest. A third believe the motivation for the arrest was political, while one in four accept the government's explanation that it is related to fraud committed by Khodorkovsky and Yukos Oil Company. Nineteen percent believe President Putin has no power to end the investigation, while nearly one in three think he prefers not to become involved. However, while 26 percent think the state prosecutor acted against Yukos "on his own initiative," 30 percent believe the order came from Putin.(Source: Agence France-Presse.)

October 30, 2003: Prosecution Puts Russian 'Rule of Law' on Trial; Billionaire's Case Invites Scrutiny of Justice System: President Putin insisted this week that the case against Mikhail Khodorkovsky was about establishing the rule of law in Russia. However, experts, lawyers and politicians counter that the proceedings demonstrate a lack of due process; some even called the cases "Stalinist" in their selective application of the law. Yukos' lawyers have a full dossier of what they contend are violations of Russian or international laws. Both Khodorkovsky and fellow shareholder Platon Lebedev are being detained on white collar charges that would rarely result in pre-trial detention in the United States; they were held for days being before granted access to their attorneys. Russian prosecutors searched the offices of Khodorkovsky and Lebedev's lead defence attorney and summoned him for interrogation. There are even allegations of the use of torture against another Yukos executive. Most court hearings have been held in closed session, in one instance even denying access to the defence attorneys. (Source: The Washington Post.)

October 29, 2003: Billionaire's Arrest Delineates The Battle for Russia's Future – Reformers Despair; KGB Veterans Seen Triumphant: The arrest of Mikhail Khodorkovsky has touched off political turmoil within the Kremlin. While the Russian stock market has rebounded to some extent, attention is turning to the political fallout. The turmoil concerns the very strategy of Russia's direction, according to one analyst. (Source: The Washington Post.)

October 28, 2003: EU's Patten Says Russia Needs Rule of Law on Yukos: Russia must adhere to the rule of law in the Yukos matter if it wants closer trade relations with the European Union, according to External Relations Commissioner Chris Patten. Moscow's handling of the case could affect Russia's economic integration with Europe. Patten expects the issue to be raised when EU leaders meet President Putin in Rome on November 6. (Source: Reuters.)

October 28, 2003: Oil Tycoon's Arrest Scares Russian Financial Markets: Russia lurched toward a political and economic crisis on Monday as the country's stocks, bonds and currency plummeted after the weekend arrest of Mikhail Khodorkovsky. Although President Putin called for an end to "hysteria and speculations," his remarks did little to calm financial jitters or fears about his policies. Analysts say prosecutors began the investigation against Khodorkovsky to punish him for his contributions to political parties opposed to the President. Many consider the investigations politically motivated and indicative of a fight for the future of Russia. (Source: The New York Times. Similar articles appeared in The Washington Post, The Times, The Los Angeles Times, and The Wall Street Journal.)

October 28, 2003: Detention Spotlights Basmanny Court: The Basmanny District Court in Moscow was responsible for the decision to sanction Mikhail Khodorkovsky's detention and also has issued repeated rulings in favor of the prosecutors investigating individuals linked to Yukos. The Russian newspaper Kommersant recently published allegations by the Yukos attorneys that the court is in the Prosecutor's pocket. Another Russian news outlet, Gazeta, reported that one of the Court's judges, Andrei Rasnovsky, is a former employee of the Prosecutor General, which the Office of the Prosecutor General refused to confirm or deny. Other lawyers who have tried cases at the Court claim it is biased and that certain judges, such as Rasnovsky, are known for ruling in favor of prosecutors in criminal cases. Both the Basmanny Court and the Office of the Prosecutor General declined to comment. (Source: The Moscow Times.)

October 28, 2003: Affair Signals Assertion of Power by Former KGB Elite: The arrest of Mikhail Khodorkovsky marks the growing influence of Russia's unreformed security and power institutions on the political and economic process in the country, analysts say. "The arrest of Mr Khodorkovsky is a dangerous signal of the strengthening of the former KGB and growing totalitarian tendencies in the Russian political elite," according to Olga Kryshtanovskaya, a Moscow political scientist who states that Russia is moving towards totalitarian capitalism. (Source: The Financial Times.)

October 27, 2003: Crisis Grips Russia After Arrest of Tycoon, Putin Refuses to Intervene: Russia is embroiled in its biggest political crisis in years following the arrest of Mikhail Khodorkovsky. President Vladimir Putin refused to heed pleas by Russia's business leaders to intervene after prosecutors charged Khodorkovsky with fraud and tax evasion. "The object is to show the majority of the population, which doesn't like the rich, that no one is completely safe from probes and that the law can reach anyone," said Yevgeny Volk of the Moscow office of the Heritage Foundation. UFG brokerage stated that the legal process surrounding the arrest of Khodorkovsky resembles a farce and investors are right to be concerned. (Source: Agence France Presse. Similar stories appeared in Prime Tass, Reuters News, The Times, Associated Press.)

October 27, 2003: Tycoon's Arrest Clouds Russia Reform Prospects: The arrest of Mikhail Khodorkovsky risks undoing Putin's efforts during his three years in power to drag up the sagging economy and create a strong political system into which investors would happily invest. Recent tax evasion and fraud charges brought against Mr. Khodorkovsky raise doubts, for some, over Putin's commitment to radically reform the ex-Soviet state. "The arrest, indictment and imprisonment of Mikhail Khodorkovsky is a disgraceful setback in Russia's post-Soviet development. Everyone is a loser, including President Putin himself," stated a spokesperson from United Financial Group brokerage. (Source: Reuters News.)

October 27, 2003: Prosecutors' Conduct Raises Questions of Rule of Law: In the past five years, Mikhail Khodorkovsky has gone from pariah to poster boy in the eyes of the western investment community, and from irritant to Public Enemy Number One within Russia. Whatever the truth behind the charges Russian prosecutors have made against Mikhail Khodorkovsky and his colleagues, the conduct of the investigation against them over the past four months raises questions of the country's commitment to the rule of law. Anton Drel, the lawyer for both Platon Lebedev and Khordokovsky, commented that the prosecutors have indulged in a "fishing expedition," taking away documents and computers related to entirely separate clients and cases. Others stated that this is unprecedented in history, even in Nazi Germany or Stalin's Russia. (Source: The Financial Times.)

October 26, 2003: U.S. Concerned About Escalation of Yukos Affair with Tycoon's Arrest: Alexander Vershbow, U.S. ambassador to Moscow, says the United States is concerned about the escalation of the conflict surrounding Yukos after the arrest of its chief executive, according to Interfax. Although Ambassador Vershbow would not comment on the judicial aspect of this case, he said questions are beginning to arise about the selective use of the law in Russia. In a closed-door hearing, a Moscow court ruled that Mr. Khodorkovsky will be held in prison until December 30 pending trial. (Source: Agence France-Presse.)

October 26, 2003: Charges Brought Against Khodorkovsky Unfounded: The Yukos management says the tax evasion charges brought against Mikhail Khodorkovsky are absolutely unfounded. Mr. Khodorkovsky, who was the first businessman to declare his wealth voluntarily, has paid all taxes he owed as an individual. Furthermore, tax agencies have never had any conflicts with Mr. Khodorkovsky, according to Yukos officials. "The only purpose of detaining Mr. Khodorkovsky was to use this high-profile scandal for covering up the absolute absence of evidence to back the Yukos-related charges," stated Alexander Shadrin, a Yukos spokesman. (Source: Interfax News Service.)

October 26, 2003: Russian Tycoon and Putin Critic Arrested in Raid; Move is Widely Denounced as Political: Armed Russian security agents stormed Mikhail Khodorkovsky's private plane and arrested him on allegations of personal and corporate tax evasion, fraud, forgery and embezzlement. The arrest marked a dramatic escalation of an election-year battle between the Kremlin and Russia's wealthiest businessman. Reformist politician Boris Nemtsov called it a "political contract hit" and said in a telephone interview, "I'm absolutely certain the Kremlin is involved in this project." Several political analysts said that only President Vladimir Putin could have approved such a significant arrest and that it signaled a decisive turn by the president toward the security service veterans, known as "chekists," among his Kremlin advisers. (Source: The Washington Post. Similar stories appeared in The New York Times, The Los Angeles Times, The San Francisco Chronicle, The Times, Agence France Presse, Associated Press.)