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Russia tax probe steps up pressure oil giant YUKOS
By Larisa Sayenko and Mikhail Yenukov

MOSCOW, July 16 (Reuters) - Russia ordered a lengthy tax inspection at oil major YUKOS on Wednesday, the latest twist in a row pitting Russia's business elite against the Kremlin that could seriously hamper the firm's operations.

Deputy tax minister Rinat Dosmukhamedov said the prosecutor's office had ordered a full investigation of YUKOS's business activities, only days after masked police raided company offices in Moscow.

"We are now preparing an inspection...we will investigate across the whole country, in every YUKOS enterprise," he told a news briefing. "The law gives us two months for every enterprise, so it will take time."

Chief Executive Mikhail Khodorkovsky, who returned to Moscow from the United States on Wednesday, dismissed the whole case as politically motivated.

"It has a purely political character, but as to which groupings are behind it, I will not comment," he said on his arrival at Moscow's Vnukovo airport.

Khodorkovsky, Russia's wealthiest man, has publicly backed the liberal opposition to President Vladimir Putin's government.

Earlier this month a key YUKOS shareholder, Platon Lebedev, was arrested and charged with theft of state property in a 1994 privatisation case, and Khodorkovsky himself was called in for questioning.

On Friday, armed, masked police raided the company, currently Russia's second biggest oil firm behind LUKOIL, in a highly visible show of strength.

The full-blown tax investigation could seriously compromise the company's ability to go about its business. The authorities have the right to stop employees touching documents or making telephone calls.

Despite the legal wrangle, however, Khodorkovsky said a deal to merge YUKOS with another Russian oil company, Sibneft, would go ahead, creating the Russia's largest oil company and the fourth largest private producer in the world.

"The process of merging with Sibneft is going fine, according to schedule," he said.

But he warned the YUKOS case would still have a damaging effect on the Russian economy, costing it billions of dollars.

"There will be a significant outflow of capital from the country. Many investment decisions will be put off. I felt this in my meetings with powerful business people in the United States," Khodorkovsky said.

YUKOS shares were trading 3.3 percent lower at $11.65 at 1010 GMT in a thin Moscow market which was two percent down.

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