In 2003, in the blink of an eye, Mikhail Khodorkovsky (“MBK”) was transformed from Russia’s most respected businessman as head of Yukos Oil Company (“Yukos”), to Russia’s most famous political prisoner. And Yukos went from being Russia’s most progressive and profitable company, lauded for its transparency, corporate governance, and international business practices, to a bankrupt company under the burden of more than $40B in fictitious tax debt. The regime stole its assets, selling them in sham auctions to state-owned companies at knock-down prices. Its shareholders, many of them US citizens, lost $40 billion in equity.
MBK and his colleague, Platon Lebedev (“PLL”) were jailed, charged and convicted, in a show trial of theft, fraud and corporate and personal tax evasion. They were sentenced to eight years in a Siberian penal colony. The European Court of Human Rights has found that PLL’s rights were violated during the pre-trial phase of the proceedings. Appeals to the ECHR by MBK and PLL are pending. MBK and PLL became eligible for parole in 2007, which was denied.
Just before they became eligible for parole, the Russian government again charged both men, this time with embezzlement and money laundering. Specifically, the regime alleged that MBK and PLL embezzled all of Yukos’s oil production (350 million metric tons) and shares held by a Yukos subsidiary in six operating companies, and laundered the sales proceeds of the oil and the shares themselves. The trial on these charges began in March 2009 and is ongoing.
The current allegations against MBK and PLL go beyond meritless; they are absurd. The oil embezzlement charge requires that MBK and PLL physically stole the oil. However, the prosecution offers no evidence that any oil was ever missing or of where the defendants may have stored 20% of Russia’s annual production. In fact, the allegedly embezzled oil is more than Yukos produced in six years.
Contrary to what is alleged, Yukos booked all oil sales revenues on its independently audited financial statements. Yukos could never have paid operating expenses, taxes (Yukos was Russia’s largest taxpayer), capital expenditures, dividends, or acquired companies for cash, if they had embezzled the oil. The allegedly embezzled shares were actually moved for a legitimate business purpose, asset protection, as part of transactions that benefitted all of the company’s investors. What’s more, the allegedly embezzled shares remained on Yukos’s books as reflected in its independently audited financial statements. In essence, MBK and PLL, as part of the majority shareholder in Yukos, are accused of stealing from themselves! The new charges cannot be squared with the prior tax evasion conviction. The new charges are irreconcilable with MBK and PLL ‘s conviction in the first case. MBK and PLL could not have caused Yukos to evade corporate taxes on the sale of oil, i.e., the first case, if, as they are now being charged, they embezzled the same oil and laundered the proceeds for their personal gain.
The impetus for what is now known as the “Khodorkovsky Affair” was the fear among Russian President Putin and his supporters that MBK and Yukos’s success posed a political and personal financial threat. World leaders are united in condemning the attack on MBK, PLL, and Yukos as politically motivated. For example President Obama, VP Biden (then Senators) and Senator McCain co-sponsored a Senate Resolution 322 (in 2005) condemning the prosecution of MBK and PLL. German President Merkel publicly condemned Russia’s political prosecution of MBK and PLL. The Parliamentary Assembly of the Council of Europe has adopted reports and passed resolutions finding the attack violated human rights and was politically motivated. Recently, the Italian Parliament called for government officials in Italy and throughout Europe to use diplomatic channels to compel Russia to give MBK and PLL a fair trial.
Perhaps most telling, in July 2009, ex-Russian Prime Minister Mikhail Kasyanov, in a sworn affidavit to the European Court of Human Rights based on his first-hand knowledge, confirmed that the Yukos-related cases were politically motivated. Kasyanov was stating fact, not opinion, based on his direct conversations, as Prime Minister, with then-President Putin. The reliability of Kasyanov’s remarkably courageous testimony must be read in the light of Russia’s history of retaliation against political opposition.
Independent Courts in the United Kingdom, Switzerland, the Netherlands, Lithuania, Cypress, Israel, and the Czech Republic have ruled that the attacks on MBK, PLL, and Yukos are politically motivated and have refused extradition requests, denied Russian mutual legal assistance requests related to the attack, and refused to recognize related Russian Court Orders, respectively. Several courts expressly found that no one affiliated with MBK or Yukos could receive a fair trial in Russia.
