RA Exclusive Translation: Overshooting the Mark

[Editor’s note: We’re proud to bring you the first in a series of exclusive translations of recent articles regarding the Khodorkovsky case from the Russian publication “Kommersant Vlast.”] A Case of Overshooting the Mark (original Russian version here) №5 [709] OF 12.02.2007 By Ekaterina Zapodinskaya



On 5 February, the Procuracy-General filed a second charge against Mikhail Khodorkovsky and Platon Lebedev, sentenced to an eight-year term of imprisonment, threatening them with an analogous term at minimum. The former owners of YUKOS were alleged to have stolen more than $23 bln from its production enterprises and laundering part of this money by way of charitable works. With the help of the new charge, the Procuracy-General will attempt to deprive Khodorkovsky, Lebedev, and their émigré comrades-in-arms of a financial base. One of the main National Projects—removal of Mikhail Khodorkovsky from the political field—turned out to have been accomplished only in part after he was sent off to a colony beyond Baikal. In the Kremlin, they are extremely irritated because, as they assert there, “Khodorkovsky’s money keeps on working all over the world”. It is precisely this that highly-placed officials use to explain the fact that the PACE continues to speak out in defense of YUKOS, American senators and influential European politicians speak about the political subcurrent of the case against Khodorkovsky. While in Russia, something on the order of twenty experienced highly-paid lawyers work for the imprisoned Khodorkovsky and Lebedev, and have already written six applications to the European Court of Human Rights about the wrongfulness of the criminal prosecution of their clients. Two of these, already communicated (that is, proceedings have in fact already begun on them) in Strasbourg, promise serious moral losses for the Russian side.


The filing of new charges against Mikhail Khodorkovsky and Platon Lebedev in the Chita Oblast Court (photo) had the character of a police special operation (Photo: ITAR-TASS)

The administrator of “Khodorkovsky’s money” after his arrest became Leonid Nevzlin, the extradition of whom from Israel the Russian Procuracy-General is striving to obtain for a third year already. The procurators see as the reason for their lack of success that “Nevzlin bought himself Israeli citizenship and indeed bought half of Israel with financial gifts”. Employees of the procuracy seriously believe that if Leonid Nevzlin could be denied access to the monetary funds of the Gibraltar offshore Group MENATEP Ltd. – in which he is a shareholder and through which billions of YUKOS dollars passed in the years 1998-2003 –the chances of seeing him on a Russian prison bed would suddenly increase. Mikhail Khodorkovsky’s and Platon Lebedev’s first sentence helped the state take YUKOS’s main asset, OAO “Yuganskneftegas”, in consideration for tax arrears, fines, and penalties. However, the offshore Group MENATEP Ltd. Was mentioned in the tax episode of the verdict only in passing – as the company into which YUKOS’s “capital was taken out”. This was not enough for the investigation to be able to ask the courts of foreign states about the freezing and subsequent seizure of money and property having to do with Group MENATEP Ltd. Therefore, second case was born in the Procuracy-General against Mikhail Khodorkovsky and Platon Lebedev—about the receipt on the accounts of Group MENATEP Ltd. Of money from “stolen” oil, which was subsequently “laundered” with the help of charitable works. Only thus, the investigators decided, would they be able to convince foreign courts of the criminal origin of the money and property of the Gibraltar offshore and its subsidiary firms. But the Procuracy-General clearly overdid it and imputed to Khodorkovsky and Lebedev the theft in the years 2001-2003 of more than $23 bln of oil, which is comparable to three years of YUKOS receipts. According to the investigation’s story, crude oil produced by YUKOS subsidiary enterprises “Yuganskneftegas”, “Samaraneftegas”, and “Tomskneft-VNK”, was delivered on paper to companies registered in Mordovia, Evenkiya, and other regions in zones with concessionary taxation. The crude oil purchased “at marked down prices” these firms now sold at market prices. In the first charges, this same scheme was considered “evasion of a legal entity from taxation”. The reason why “evasion from taxation” has been transformed into “theft” in the new charges is obvious: the more serious the charges, the greater the chances that the state will be able to get its hands on the money of Group MENATEP Ltd. as having been “previously stolen”. It is intriguing how the RF representative at the European Court of Human Rights, Pavel Laptev, answered the query of the court as to whether the tax optimization that took place at YUKOS with the use of firms in zones of concessionary taxation a criminal act under Russian legislation. In a memorandum written in response, Laptev replied in the affirmative and clarified that on 30 August 2004, the Procuracy-General of Russia had initiated a criminal case under Article 199 of the CC RF (“evasion from taxation by a legal entity”), the sole accused in which, in his words, is former YUKOS head accountant Irina Golub (there is an international warrant out for her arrest).


In the opinion of YUKOS lawyers, the same thing that their clients are being accused of is being practiced to advantage by the company “Rosneft” (photo – chairman of the “Rosneft” board of directors Igor Sechin – credit: DMITRY AZAROV)

Let us note that Laptev is silent about the case of Mikhail Khodorkovsky and Platon Lebedev, who have already been convicted of evasion from taxation, because it is quite difficult to explain to the Strasbourg court why persons have been convicted under Article 199 of the CC RF – to which only the head and the head accountant of a legal entity are subject – the first of whom was the official head of YUKOS for a very short time, while the second was only a shareholder. Need it even be said that Laptev also did not say a word about the second case of Mikhail Khodorkovsky and Platon Lebedev, which had already long been initiated at the moment he wrote the memorandum (the case had been started up back at the end of the year 2004) and in which the use by YUKOS of firms in zones with concessionary taxation is qualified as “theft”. In that same document, Pavel Laptev reported to the Eurocourt that the use of the given scheme of evasion from taxation bore a massive character and that the state had subsequently recovered taxes, fines, and penalties through the courts from other violators, among them “Ufaneftekhim”, TNK-BP, OAO “Vimpelkom”, ZAO “Ford motor company”. However, Laptev does not mention a single other criminal case initiated in this connection. As “Vlast” was able to ascertain, only one such case is being investigated in Russia – about evasion from taxation through internal offshores at Baikonur [the cosmodrome in Kazakhstan—Trans.] by subsidiary firms of OAO “Korus-holding”, the director-general of which is Igor Izmestiev (prior to his election as a member of the Federation Council in the year 2001). Izmestiev himself, already being an FC deputy (in December of last year he voluntarily resigned, while in January he was arrested on two murder charges), related that he considers this tax case to be revenge for his refusal to give away his mansion, located 600 meters from Vladimir Putin’s Novoogarevo residence, to the FSO [Federal Protection Service—Trans.]. By the way, there still are no accuseds in the “Korus-holding” case, which was initiated in the year 2005, while Izmestiev was interrogated in connection with it but once last year in the capacity of a witness. But let us return to Chita, where on 5 February in the building of the oblast procuracy, surrounded by machine-gunners in helmets and masks, Khodorkovsky and Lebedev were presented with charges of stealing oil and laundering criminally amassed capitals. Both of them, as was expected, did not admit their guilt. Their lawyers were immediately required to sign a statement of non-disclosure of the data of the investigation, which also includes the 148-page decree of senior investigator of the Procuracy-General for particularly important cases Salavat Karimov on bringing Khodorkovsky and Lebedev into the case in the capacity of accuseds. Therefore, the lawyers limited themselves to an assessment of the bill of indictment as “absurd”. And advised “Vlast” to take a peek at the official website of the state-controlled “Rosneft”, on which is placed its report for the first quarter of the year 2006 and an analogous report for OAO “Yuganskneftegas” (YNG) for the year 2005. The defenders assert that in the year 2005, “Rosneft” likewise resold oil acquired from “Yuganskneftegas” at a higher price (it is for just such a deed that Mikhail Khodorkovsky and Platon Lebedev are being charged). Thus, in the year 2005, “Rosneft” and its subsidiary enterprise OOO “RN-Trade” bought oil from YNG at 3.7 thsd rubles per metric ton, while reselling it for 5.8 thsd rubles per metric ton. Hence, “Rosneft” earned more than 2 thsd rubles from the resale of each metric ton produced by YNG, that is a total for the year of around 100 bln rubles. In so doing, the profits of YNG itself before the payment of taxes comprised 36.3 bln rubles. It should be noted that “Rosneft” at that moment owned 77% of the charter capital of YNG, the remainder belonging to YUKOS. But for some reason the Procuracy-General did not hold “Rosneft” liable for in fact taking away the greater part of YNG’s profit and causing harm to YUKOS as the minority shareholder. In the conditions of the forced refusal of the lawyers to comment in detail on the charges filed, particular interest is presented by a letter from Platon Lebedev received by the Procuracy-General and addressed to Yuri Chaika. In it, Lebedev declared that the Procuracy-General, in having subjected to evaluation the activity of the Gibraltar offshore Group MENATEP Ltd., in which he was director right up until his arrest, has overstepped the bounds of its competence, since the company “acts outside the jurisdiction of the RF”. Lebedev called “defamatory” the assertion that funds obtained from stolen oil were legalized through the accounts of Group MENATEP Ltd. In his words, only dividends from its subsidiary firms were received on the accounts of the Group MENATEP Ltd. holding company.


Not for the first year already, the investigation in the YUKOS case is being conducted by anti-oligarchic jurisprudence expert Salavat Karimov (Photo: ANDREY SARAYEV)

Platon Lebedev declared that the charitable contributions of this holding company to the regional civic organization “Open Russia” do not fall under Article 174, note 1 – “Legalization (laundering) of monetary funds or other property acquired by a person as the result of the commission by him of a crime”. “Over the period that I was director of the international investment holding company Group MENATEP Ltd. from January of the year 1998 through 2 July of the year 2003” (the date of arrest—Vlast), writes Lebedev, “the holding company and its subsidiary enterprises expended on the order of $2 bln on various charitable and civic-social objectives in Russia, Western Europe, and the USA”. For example, at the instruction of Platon Lebedev, a subsidiary firm of the holding company, MENATEP Ltd., transferred $66.6 mln into the federal budget of the RF in the form of voluntary compensation for the after-effects of the crisis of the year 1998. “Investigator Karimov does not attribute to laundering the billions of rubles transferred by a hundred-percent [wholly-owned] company of the Group MENATEP Ltd. holding company, as well as by me personally into the federal and local budgets of the RF, to Russian organizations, churches, children’s homes, citizens, and no charges have been filed with respect to them”, noted Lebedev. It is noteworthy that the accused Lebedev seems to believe Yuri Chaika more than his predecessor Vladimir Ustinov. For the latter had been a relative of deputy head of the presidential administration Igor Sechin, who headed the board of directors of “Rosneft” and was considered the head “gravedigger” of YUKOS. And it was precisely with the aim of reducing the influence of the group of Kremlin siloviki with Sechin at its head that president Putin dismissed Ustinov in the summer of last year. But it did not need to be explained to the new procurator-general, Yuri Chaika, that the YUKOS case is the personal project of the president, conveniently coinciding with the commercial interests of his entourage. For Chaika is not only a professional procurator, but also an experienced party apparatchik, twice in the 1980s exchanging work in the procuracy for posts in the Irkutsk oblast committee of the CPSU (he worked at first as an instructor of the oblast committee, and several years later as a department head in the same place). Moreover, both times, service in the party apparat was instrumental in the end to his advancement up the procuratorial ladder. And the foremost commandment of the apparatchik is to serve the one who placed you in your post. Add to this the fact that Yuri Chaika has a possible successor breathing down his neck – Alexander Bastrykin, placed by the Kremlin in the autumn of last year in the post of deputy procurator-general for oversight of investigation – an old LGU [Leningrad State University—Trans.] buddy of the president’s. Platon Lebedev still believes that someone will be found in the Procuracy-General of the times of Yuri Chaika to correct Salavat Karimov, who called charitable contributions “laundering”, and who, by the way, considers the recently-departed-from-life Turkmenbashi to be his idol (something the investigator recently admitted to one of the lawyers). But Lebedev’s and Khodorkovsky’s lawyers consider that one should put one’s hope only on the European Court and the international public – that same [international public] which the Kremlin is convinced speaks out only as long as “Khodorkovsky’s money” that still has not been taken away by the state keeps working.