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Moscow Times
March 31, 2009
Cracks in the Credibility of the Yukos Case
By Alexandra Odynova / The Moscow Times

Former Yukos CEO Mikhail Khodorkovsky will go on trial Tuesday on charges of secretly embezzling all the oil that his company pumped from 1998 to 2003, roughly 20 percent of the oil that Russia produced during those six years.

State prosecutors say they have 4,000 pages of evidence to back up their claims in Moscow's Khamovnichesky District Court that Khodorkovsky is the biggest embezzler in Russian history.

Just what prosecutors will offer in court remains unclear, because only excerpts of their mammoth case have been released publicly, including an eight-page summary posted on the web site of the Prosecutor General's Office.

But an examination by The Moscow Times of the publicly available information and interviews with independent lawyers raise questions about the legal soundness of the case, including whether the state is violating double jeopardy rules by trying a defendant twice for the same crime.

"I don't really understand how it is possible to charge one person for the same thing twice," said lawyer Yury Gervis, who is not involved in the case. "But the Prosecutor General's Office often fulfills orders from above with the 'as you say' principle."

Khodorkovsky and his supporters say his legal troubles are punishment from the Kremlin for his political and commercial ambitions. The Kremlin denies this.

"Neither the president nor any one else has a right to interfere in that situation," President Dmitry Medvedev said in an interview aired by the BBC on Sunday.

He said Khodorkovsky's fate will hang completely on the court's decision.

Prosecutor General Yury Chaika has said the evidence collected by investigators for the new trial leaves no doubt about the guilt of Khodorkovsky and his business partner Platon Lebedev, who are being tried together. He said Khodorkovsky managed to steal more money than anyone in Russian history.

Khodorkovsky and Lebedev are accused of embezzling 350 million tons of oil valued at about 900 billion rubles ($25 billion) between 1998 and 2003 from three Yukos-controlled production units Samaraneftegaz, Yuganskneftegaz and Tomskneft and laundering 487.4 billion rubles and $7.5 billion between 1998 and 2004.

Prosecutors say Khodorkovsky and Lebedev committed embezzlement by bribing the shareholders and managers of the three units to allow Yukos to buy oil at production cost, 50 percent to 75 percent lower than market prices, and pocketing the profit.

The two are suspected of making fake deals with front companies in Russia and abroad to launder the stolen oil and money, prosecutors say in publicly available documents on the investigation.

The schemes helped Khodorkovsky avoid paying taxes, and Yukos did not profit, according to the documents.

Khodorkovsky and Lebedev were arrested on tax evasion and fraud charges in 2003, and the latest charges accuse them of laundering money through 2004, while they were in jail.

The two were convicted of the first set of charges in 2005 and sentenced to eight years in jail. Those charges covered the years 2000 to 2003.

Several lawyers interviewed for this article said prosecutors could not accuse Khodorkovsky of embezzlement at the production units.

"It can't be called embezzlement if both sides agree to a deal in which one buys from the other company at its production cost," said Pavel Smyslov, a lawyer specializing in corporate policy, who is not involved in the Yukos trial.

Such a deal is illegal, but it involves tax evasion, not stealing, Smyslov said.

"It can be called embezzlement if, for example, the seller was physically forced to agree to the deal or a signature was forged," he said.

Khodorkovsky, 45, had built Yukos into Russia's largest oil company by the time he was jailed in October 2003. He was not charged with embezzlement upon his arrest.

Yukos subsequently was sold off at bargain prices to pay back tax claims in a series of controversial auctions won mostly by the state-owned Rosneft.

Investigators started working on the second case against Khodorkovsky in 2005, when the first trial was wrapping up. Now prosecutors say Khodorkovsky embezzled the money that he failed to pay taxes on.

Even Kremlin-loyal representatives of big business have questioned prosecutors' approach, cautioning that it looks like a possible violation of double jeopardy rights.

"I'm not a lawyer, but in my opinion, no laws in Russia or elsewhere allow [a defendant] to be tried twice for the same crime," said Alexander Shokhin, head of the Russian Union of Industrialists and Entrepreneurs.

"I don't understand why they are charging them [Khodorkovsky and Lebedev] twice for the same thing," he said in comments aired on Rossia state television on March 7.

Russia is barred from trying a person twice for the same crime under its obligations to the Council of Europe, Europe's top human rights watchdog, of which it is a member.

Gervis, the lawyer, said legally the charges just did not make sense.

"They considered Yukos' work legal and tried them for evading taxes in the first trial, but now prosecutors say that the work was illegal," he said.

For the new case to stand, prosecutors have to decriminalize the earlier tax charges, he said.

Repeated calls to the Prosecutor General's Office over the past two weeks for comment for this article went unanswered. The two prosecutors handling the case, Dmitry Shokhin and Valery Lakhtin, refused to discuss the charges when approached by a Moscow Times reporter as they left the court after preliminary hearings this month.

The court rejected about a dozen defense requests, including an appeal to change the state prosecutors, the judge and court, during the preliminary hearings.

An extraordinary amount of paperwork is involved in the second case. Prosecutors say they have prepared 182 volumes about their investigation, complete with copies of contracts from Yukos and its affiliates. The investigation was boiled down into 4,000 pages of charges, which are bound in 14 volumes.

An ordinary case usually fills about 100 pages, said Maxim Dbar, a spokesman for Khodorkovsky and Lebedev's defense team.

Khodorkovsky's lawyer Vadim Klyuvgant believes that prosecutors are trying to cover up their lack of evidence with the large number of pages.

"They don't have any evidence," Klyuvgant said. "There are only false charges filled with contradictions and masked with verbosity."

He said another problem with the charges is that they accuse Khodorkovsky and Lebedev of stealing the same amount of oil that Yukos produced from 1998 to 2003.

Prosecutors say Khodorkovsky organized the embezzlement of about 350 million tons of oil, an amount that roughly corresponds with how much oil Russia was pumping every year during that period. For instance, the Federal Anti-Monopoly Service reported in 2000 that Russia's oil output that year was 323 million tons.

Yukos produced 357.5 million tons from 1998 to 2003, according to reports from Standard & Poor's rating agency over that period.

Yukos saw its biggest production year in 2003, pumping 19 percent of all oil produced in Russia, RBK reported.

Prosecutors have not clarified how Khodorkovsky and Lebedev managed to steal all of Yukos' oil output for six years without being detected by any law enforcement agencies.

Khodorkovsky's and Lebedev's eight-year sentences end in 2011, but they face another 22 1/2 years in prison if found guilty in the new trial. A request by Khodorkovsky for parole was rejected last August.

"The system is quite common. As far as I have seen in other cases, first they need to put a person in jail, and then they start preparing a bigger case," Gervis said.

Khodorkovsky himself has said he doesn't understand what he is being accused of.

"Since the charges were filed in 2007, I've been trying to convince the investigators not to bring dishonor on themselves and the whole country with the absurd charges," Khodorkovsky said in a statement published on his press center's web site. "They wrote that I embezzled 350 million tons of oil this is physically impossible."

Khodorkovsky's defense team said several regional arbitration courts have rejected claims that Khodorkovsky committed embezzlement. It was not possible to verify this claim immediately.

Khodorkovsky intends to personally take on the bulk of the defense work at his new trial, his mother, Marina Khodorkovskaya, said in an interview on Ekho Moskvy radio last week.