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#11 - JRL 9118 - JRL Home
RIA Novosti
April 11, 2005
BUSINESS DRAWS CONCLUSION FROM YUKOS CASE AND PAYS TAXES MOSCOW
(RIA Novosti political commentator Yury Filippov) -

A trial that has caused a storm both at home and abroad is coming to an end in Russia. The prosecution is demanding ten years in prison for Mikhail Khodorkovsky and Platon Lebedev, once Russia's wealthiest people, fantastically successful entrepreneurs, and shareholders and owners of Russia's largest oil company, Yukos.

Prosecutors claim fraud, multi-billion dollar tax evasion, forgery, misappropriation and even contract killings (ex-Yukos security service head Alexei Pichugin has already been convicted of the latter) became almost routine in Yukos, which only quite recently was called the most transparent company in the country.

The defense argues that public prosecutor Dmitry Shokhin is misinterpreting the facts of the case: Khodorkovsky and Lebedev did not commit any crimes, and, in fact, there were no crimes at all. Yukos and the defendants acted according to the law of the times just like thousands of other individuals and companies that have not ended up in the dock.

The problem is that both the defense and the prosecution are right in their own way. Yukos was not an ideal company, but it did not do anything extraordinary if compared with other Russian businesses. Arkady Volsky, who as the chairman of the Russian Union of Industrialists and Entrepreneurs is equally close to Russian authorities and Russian business, is certain of this. He believes the Yukos case reflects many features of the Russian economy and politics from the past 10 to 15 years, i.e., the transition from the planned economy and the authoritarian political system to the market and democracy.

Some representatives of the Russian business community, especially major businessmen or the oligarchs, who like their Yukos colleagues received extensive former Soviet state property for next to nothing during the privatization drive of the 1990s, take the view that business in general is on trial. The press has started to speak about Russia's investment climate and image suffering, and about the economic costs caused by the Yukos case. So, what are the Russian businessmen guilty of? And is it worth risking the country's investment image to punish them?

Without going into too much detail, there are two sets of charges. The first focuses on legal violations in the privatization of state property, whereas the second deals with the subsequent distribution of revenues from privatized property, i.e., the money that went to the new owners and was paid in taxes.

The state's position on both counts became clear during the trial: violations during privatization can be forgiven and forgotten, but tax evasion will be harshly punished. Indeed, the state organized and conducted mass privatization in the 1990s, which is why it is evidently pointless to argue that the state rather than business is to blame for mass violations committed at that time. "The public authorities are entirely to blame for the negative consequences of privatization," says Sergei Stepashin, the chairman of the Audit Chamber, which prepared a report on Russian privatization in 1993-2003 last year.

This statement has a direct bearing on Khodorkovsky and Lebedev. They might get off the main charge of illegally acquiring a 20% stake in Apatit, which was then a state enterprise. This is not because they did not break law, but because the ten-year statute of limitations has expired. At a recent meeting with representatives of Russian business, President Putin promised to reduce the statute of limitations for claims on privatization deals even further to only three years. He gave the appropriate instruction to premier Mikhail Fradkov and personally commented on the essence of his proposal: the property relations that changed radically in the 1990s must be stable and the issue of property re-division will not be raised.

However, taxes are a different matter. In 2000 alone, according to the Russian Tax Service, Yukos avoided paying $3 billion in taxes. Presidential aide Igor Shuvalov recently called the trial of Lebedev and Khodorkovsky an example to those who tried to conceal their earnings from the state. If the Yukos case does not produce the desired effect, Shuvalov said the authorities would launch new high-profile proceedings and demonstrative actions.