Committee for Russian Economic Freedom

Mikhail Khodorkovsky in 2010

In a letter this week to the head of Russia’s Supreme Court, former Yukos chief Mikhail Khodorkovsky called for the annulment of his second conviction on trumped-up charges.

Last month a lower Supreme Court judge upheld the sentence, originally handed down in 2010. Late last year Khodorkovsky completed the term of his first conviction.

Khodorkovsky notes in the letter that his case “has acquired a symbolic meaning for millions of entrepreneurs, executives and all the educated and concerned citizens of Russia” – themselves harmed by the outcome of his case, as “thanks to it, the rate of much needed economic growth has been lost.” Russian equities continue to lag behind their BRIC counterparts thanks to what a number of analysts have termed the “Khodorkovsky discount.”

More on Khodorkovsky’s letter here. Read the full text of the letter here.

Reuters

Pavel Ivlev, founder and chairman of the Committee for Russian Economic Freedom, condemned today’s verdict by the Moscow City Court upholding the false conviction of Mikhail Khodorkovsky, former Yukos CEO and Russia’s most well-known political prisoner, saying the result compounds investment risk in Russia.

Putin’s regime today put its own greed ahead of the interests of ordinary Russians who are starved for the capital they need to bolster their economy, create jobs and modernize the country,” Ivlev said. “The court’s decision mocks the rule of law and reconfirms the wide-held belief that it’s unsafe both physically and financially to invest in Russia.

Khodorkovsky and his business partner and co-defendant Platon L. Lebedev were found guilty by a lower court in Dec. 2010 on a second round of trumped up charges stemming from bizarre allegations that they embezzled the entire production of the Yukos Oil Company from 1998 to 2003. Today, the Moscow City Court upheld the verdict. Both men, who have been in jail since 2003, now face prison camp terms through at least 2016.

Years after Russia began its so-called modernization, the country still looks very much as it did two or three decades ago, where individuals can be locked up indefinitely based on little or no evidence,” Ivlev said. “Investors should be wary of putting their money in a country where the judiciary fails to follow the rule of law and where the rulers pick the market’s winners and losers.”

Khodorkovsky, who entered the Moscow courtroom to applause, spoke about the Dec. 2010 verdict, saying,

In what dusty cellar did they dig up that poisonous Stalinist spider who wrote this drivel? What kind of long-term investments can one talk about with such justice? No modernization will succeed without a purging of these cellars.”

“There is no way to correct this verdict,” Khodorkovsky continued. “Either overturn and terminate this shamefulness, or join ranks with the criminals, who spit on the law. I have nothing to talk about with criminals, even those in a judge’s robe. And indeed there is no reason for me to. I do not need mercy from criminals.”

Verdict Destroys Hopes for the Rule of Law, Independent Courts, Protection of Property Rights and Government Anti-Corruption Drive in Russia

Defense Slams “Charade of Justice”

Reuters

New York, December 27, 2010 – Today a Moscow court found Mikhail Khodorkovsky and Platon Lebedev guilty of embezzling a staggering two thirds of the total production of the Yukos Oil Company over a six-year period. The conviction in this 22-month mock judicial process confirms the subservience of the judicial system in Russia to corrupt officials who continue to view Khodorkovsky as a threat and who seek to prevent his scheduled release in 2011. Khodorkovsky is already serving an 8-year sentence, handed down in 2005, but dating from his arrest in 2003. Had he been found not guilty he would have been released in 2011, a few months before Russia’s 2012 presidential elections. The new unlawful prison term will be announced either this week or shortly after the Khamovnichesky Court reconvenes from holidays in mid-January. Prosecutors have asked for 14-year sentences for Khodorkovsky and Lebedev.

According to lead defense lawyer Vadim Klyuvgant: “The trial was a charade of justice, the charges were absolutely false, but I fear the sentencing will be very real.”

The behavior of the prosecutors and of the judge turned the trial into a fiasco. Despite filling time by reading from a 188-volume case file, and parading numerous witnesses into court, prosecutors were unable (and did not even try) to prove how it was possible that Yukos covered its operating costs, invested heavily in capital expenditures and acquisitions and paid taxes and dividends when the entire oil production of Yukos over a six-year period was being stolen, as alleged in the indictment. At the end of the trial, prosecutors further confused their case when they attempted to save face by reducing the volume of oil allegedly stolen by approximately one third.

“This verdict diminishes Russia’s legitimacy in the world stage and signals to policy makers and investors that Russia’s political leaders apply the law as they see fit,” said Pavel Ivlev, former corporate counsel to Khodorkovsky.

The authorities misleadingly attempted to portray the process as legitimate. The defendants were permitted to speak in court almost without restrictions, but the judge blocked their lawyers from introducing exculpatory documentary evidence and refused to hear many witnesses and experts. Illusions of adversarial process and legitimacy were created by allowing the defense to file motions and objections to serious procedural violations, however the judge routinely quashed the vast majority of these motions and failed to react to the objections. The defense and the defendants persisted to the end in doing anything they could to document the full extent of the mistrial, and have publicly released online all submissions rejected by the court.

The verdict in this trial is based on patently false allegations that are incompatible with the first case against Khodorkovsky and Lebedev and with the enormous tax claims that bankrupted Yukos to the benefit of persons controlling state-run Rosneft. The conviction is also impossible to reconcile with numerous decisions of Russian courts that have recognized the tax claims against Yukos. Today’s ruling also contradicts Russia’s official position as it attempts to defend its treatment of Khodorkovsky, Lebedev and Yukos before the European Court of Human Rights. There, the Russian authorities allege that it was lawful to impose grossly punitive taxes on proceeds from the sale of oil owned, sold and accounted for by Yukos. On the other hand, in the Khamovnichesky Court the prosecutors allege on behalf of the Russian Federation that the same oil was stolen from the company by Khodorkovsky and Lebedev, and therefore could not have been sold by Yukos. The court supported the slanderous allegations of oil theft despite the fact that the so-called “injured parties”, production subsidiaries of Yukos, received not only full compensation for their production costs but also 2 billion USD profits from sales.

Politically it is notable that in the most high-profile trial in Russia, closely-watched by the public and media all over the world, the court could so openly ignore applicable procedural and substantive laws as well as basic notions of fairness. This is testament to the power of those corrupt officials who zealously seek to justify their seizure, control and ownership of Yukos assets and to isolate Khodorkovsky and Lebedev from Russia’s business and public spheres – and to keep them in jail as long as possible to achieve these goals. Prime Minister Vladimir Putin’s most recent (but far from the first) public intervention in the case and undisguised pressure on the court came in televised remarks on December 16, 2010, one day after a last-minute postponement of the reading of the verdict to December 27, 2010. With the judge still deliberating on the case, the Prime Minister directly mentioned the current charges and stated that Khodorkovsky’s guilt had been proven in court and that he must stay in jail.

The trial and its verdict are an open challenge – and indeed an affront – to President Dmitry Medvedev’s highly-publicized efforts to ensure the rule of law and to reform Russia’s criminal justice system and to fight government corruption. If upheld on appeal, this verdict shall be a triumph of corrupt officials controlling Russia’s law enforcement and judicial bodies, and a setback for an entire country that aspires yet continually fails to modernize.

PWC, Kommersant

Accounting Firm Drops Audits Under Pressure from Kremlin

PricewaterhouseCoopers (PWC) today finds itself thrust into the middle of the world’s highest-profile political show trial – accused by the defendant, Mikhail Khodorkovsky, former Yukos Oil CEO, of improperly withdrawing ten years of certified financial audits to keep PWC executives out of deadly Russian prisons. As the “trial” in Moscow edges towards the end of its critical defense phase, lawyers for Khodorkovsky and his co-defendant Platon Lebedev are engaged in proceedings in the U.S. to show that PWC executives caved to threats by corrupt government officials to help prosecutors bolster their fabricated case, which numerous independent courts and political observers have dismissed as a farce. The stakes are running high as a guilty verdict in the Moscow trial would land Khodorkovsky and Lebedev in prison for another 15 years and thwart much-needed investment in Russia. In the U.S., Khodorkovsky’s defense team has asked the California Board of Accountancy to revoke the licenses of Douglas Miller, the then-PWC partner who approved the audit-opinion withdrawal, and requested the U.S. District Court in Manhattan to order PWC to produce documents related to its decision.

 This situation symbolizes why the Russian business community is not free — a business leader is jailed because he is viewed as a political threat and then his company’s independent auditor, a leading international firm, is attacked and forced to choose between its professional integrity and its professional survival in Russia,” said Pavel Ivlev, Chairman, Committee for Russian Economic Freedom.

Reuters recently released an article outlining three key risks in Russia: the variable price of oil, political shake up in the Kremlin and further insurgency attacks. Though the world’s largest energy producer, Russia’s manufacturing, construction and retail industries continues to contract as domestic consumption and foreign investment continues to lag, increasing the economy’s dependence on oil prices for growth.

Prime Minister Vladimir Putin remains popular and the driver behind the co-governance team with President Dmitry Medvedev. Despite highlighting their differences and indicating Medvedev’s intentions of political and judicial reform, Reuters notes that Russian markets would rebound only if Putin remained in place. The maintenance of the status quo despite Russia’s world renown for government corruption and weak rule of law seems curious. With foreign investors, such as IKEA, Hermitage Capital, and now HBK investments scaling back or pulling out of Russia due to corruption and extortion, why would the markets value Russian companies more if the status quo remained?

And how does the continued expropriation of private business by government officials add to Russia’s economic capital?

The extraction of Russia’s economic and natural resources by the politically connected few leads to only self-enrichment. Perhaps this self-enrichment would be tolerable if the proceeds were reinvested in Russia and the Russian people, but this is rarely the case. What Russia needs is investment to update oil and pipeline infrastructure, capital to encourage innovation and a stronger rule of law to benefit all Russian people.

Russia’s most famous political prisoner, Mikhail Khodorkovsky began his spirited defense yesterday against his Kafka-esque second trial. The government charged Khodorkovsky and his business partner Platon Lebedev with stealing 2.5 billion barrels of YUKOS’s crude oil or a third of the United States’ entire annual consumption of oil.

The trial is also viewed domestically and abroad as a test of Medvedev’s commitment to ending “legal nihilism” and his power and control within the Kremlin. Medvedev even started a national anti-corruption drive this March. According the Associated Press,

The trial is considered a test of whether President Dmitry Medvedev, himself a lawyer, is serious about reforming Russia’s judicial system. In other cases, judges have come forward to complain they face political pressure.

Only time will tell if Medvedev makes good on his words.

On the heels of the Moscow Times op-ed, “A Year of Increased Graft and Deadly Disasters,” the Russian Supreme Court found the 2003 arrest of Platon Lebedev illegal on procedural grounds.

Before his politically motivated arrest on July 2, 2003 as part of a case against former Yukos owner Mikhail Khodorkovsky, Lebedev was director of Group MENATEP, a holding company with diversified assets of $20 billion. Group MENATEP was the majority shareholder of Yukos.

Lebedev’s arrest and prosecution were widely perceived to have been a warning to Khodorkovsky, as well as a means for the government to facilitate the re-nationalization of Russia’s oil and gas industry. Lebedev’s ordeal has been replete with violations of the most basic human rights.

After his arrest in his hospital bed in July 2003, the denial of independent medical attention during the trial, and his sentence at a work camp in Russia’s inhospitable Arctic, this ruling will hopefully bring an end to Lebedev’s six year legal farce.

Now President Medvedev needs to make good on his talk of ending legal nihilism, battling corruption and respecting the rule of law by setting Platon Lebedev free.

From the Khodorkovsky and Lebedev Communications Center

On October 28, 2009, Mikhail Khodorkovsky’s defense counsel served a federal subpoena on former PricewaterhouseCoopers (PWC) audit partner Douglas R. Miller, requiring the accountant to provide sworn testimony about his work in Moscow on behalf of the expropriated oil giant and the various legal proceedings initiated by the Russian authorities concerning PWC’s work for Yukos.

But on December 11, 2009, the Russian Prosecution attempted to disrupt Miller’s deposition. Its representatives filed a motion with the Khamovnichesky Court in which they asked the court to issue a decision finding Miller’s scheduled deposition inadmissible as evidence. The court found the motion did not comply with Russian law and denied it.

Miller was the lead partner on the Yukos account in Moscow for PWC, Yukos’ longtime outside auditor and consultant. At the end of 2006, the Russian authorities started a criminal investigation, which is ongoing, targeting PWC and its employees, including Miller, in connection with alleged illegal operating activities and tax evasion in Russia. As a result of increasing pressure on PWC by Russian authorities, in a manner clearly designed to undermine the reliability of the Yukos audited financial statements and to secure incriminating testimony from the management and employees of PWC against Khodorkovsky and Lebedev, PWC subsequently withdrew 10 years of audits of the Yukos financial statements. Miller signed one of the letters officially withdrawing PWC’s audits.

The subpoena already has provided dividends to the defense and established the Russian Prosecution’s further violation of Khodorkovsky and Lebedev’s rights. Miller has produced documents which reveal the prosecution selectively submitted records into the case materials and intentionally withheld documents containing exculpatory evidence.

A witness in the trial of former Head of YUKOS oil Mikhail Khodorkovsky, and former Group Menatep Director Platon Lebedev, revealed in court on Monday 23rd November that a secret and illegal parallel investigation is underway for a new case against the two political prisoners, used by the prosecution to put pressure on witnesses.

Nadezhda Sheck, a former employee of the International Financial Alliance MENATEP said during her cross-examination in court that investigators: summoned her into the Prosecutors Offices on Wednesday 18th November, just two days before her testimony in court on Friday and was interrogated regarding a new investigation against Mikhail Khodorkovsky and Platon Lebedev. Ms Sheck signed a non-disclosure agreement and was prevented from sharing any additional information in court on the subject of her questioning last week.

This new information shared by the witness in open court on Monday is a clear example of how the prosecution continue to use illegal tactics and place undue pressure on witnesses before giving their testimony in court. Under Russian law, use of secret parallel investigations against defendants to obtain information or meet with witnesses in the ongoing trial is prohibited practice.

In response to the witness’ revelation, Judge Viktor Danilkin openly aided and abetted the prosecution, threatening Ms Shek with criminal liability if she discussed further details of her recent interrogation.

Commenting on the new evidence of corrupt practices by the prosecution and Judge Danilkin’s reaction, Vadim Klyuvgant, Khodorkovsky’s Lead Defence Lawyer, said:

“The whole time this second case has been going on, we have been relentlessly insisting that there is a parallel investigation taking place. What the witness Shek said – this is just one of a multitude of illustrations, evidence that there is a parallel inquiry going on – constantly, ceaselessly, secretly, and illegally.”

“…the behaviour of the presiding judge…shows a major shift in his position. If before he merely sat by silently and did not try to stop all this illegal activity by the party of the prosecution as a whole – both that of the prosecutors in the courtroom and that of the investigative bodies behind their backs, about which we are learning – today he openly aided and abetted them. He helped conceal the traces of this activity, even to the point of intimidating the witness, even to the point of obvious discrimination against the defence in relation to the prosecution during the questioning of the witness, when the prosecution has the opportunity to ask everything it wants, irrespective of whether this does or does not bear a relation to the case.”

“…the court has no right to intimidate a witness. A witness in court is obligated by law to answer all questions irrespective of any other circumstances whatsoever. Intimidating a witness with some kind of consequences of some kind of written undertaking, made with respect to some obscure case — this is simply a complete and total outrage.”