Observations from the Courtroom

May 17, 2005

Presiding Judge Irina Kolesnikova began today's proceedings by discussing the charge relating to Article 199 from the Criminal Code, tax evasion by a legal entity. In this case, the court concluded that the use of tax exemptions presented by the City of Lesnoy, including the payment of taxes with promissory notes, to Business Oil, Vald Oil, Forest Oil, and Mitra, subsidiaries of Yukos, violated the law.

The other two judges shared the balance of the reading until Judge Kolesnikova announced a short recess from 11:25 am to 11:45 am. The panel of judges was able to conclude the presentation of its position with respect to the arguments presented by the defence and prosecution teams concerning the charges of theft of Yukos assets (which were transferred to Vladimir Gusinsky's Media Most), as found in Article 160 of the Russian Criminal Code, and the theft of government funds by Andrei Krainov.

Immediately following the break, Judge Kolesnikova moved to stage two by explaining the court's justification for agreeing with the prosecution's position in each charge separately. The judge began by providing an overview of Mikhail Khodorkovsky's and Platon Lebedev's employment history within the ROSPROM-MENATEP-Yukos structure. She continued with a detailed explanation of the circumstances surrounding the privatization of NIUIF. In one of her statements, Judge Kolesnikova concluded that, as head of Bank MENATEP, Mikhail Khodorkovsky must have known about certain decisions made with respect to Bank MENATEP's participation in NIUIF's privatization. Also mentioned was the use by Bank MENATEP of separate legal entities to bid in privatization auctions since privatization law forbade banks from direct participation. Judge Kolesnikova concluded her participation in today's proceedings with an analysis of the process used to purchase and sell NIUIF shares by Russian Trust and Trade and other firms.

Finally, the judge sitting to Ms. Kolesnikova's right reviewed the positions held by Messrs. Khodorkovsky and Lebedev within the Bank MENATEP structure. Shortly thereafter Judge Kolesnikova announced the proceedings were adjourned until Wednesday, May 18 at 10:30 am.

As a side note, it has been observed that foreign and Russian journalists alike have been reporting that the defendants have been found "guilty" of the charges filed against them. To clarify this issue, it should be noted that the ruling or verdict portion of the trial consists of three stages. The defendants were de facto found guilty during the first stage when the panel of judges announced that they essentially agreed with the position taken by the prosecution on all of the charges. However, the defendants will only be de jure "guilty" after the third stage concludes.