Mikhail Khodorkovsky and Platon Lebedev have been charged with misappropriating over $23 billion from YUKOS production subsidiaries. They are alleged to have laundered part of this money via charity donations to the non-profit Open Russia Foundation. The new case could increase their prison terms to 10-15 years.
As the Kommersant newspaper reports, both former YUKOS executives are facing charges under Article 150 of the Criminal Code (misappropriating entrusted property, with a penalty of up to ten years) and Article 174.1.4 (legalization of criminal gains by an organized group, 10-15 years).
According to Khodorkovsky’s lawyer, Yuri Schmidt, the charge of misappropriating oil worth over $23 billion “is ludicrous, simply because no one could ever steal that much: it’s more than the revenues of YUKOS.”
In an interview with the Vedomosti newspaper, Schmidt notes that Khodorkovsky is also “surprised” by the figures investigators are using: “He has described this charge as insane, since it would be absolutly impossible to steal anywhere near that sum without leaving traces of the theft in accounts.”
The new case is being investigated rapidly. A source close to investigators told the Interfax news agency that their work will be completed in short order, since a substantial part of the evidence has already been collected. The source said: “Investigators expect to complete the preliminary investigation within about a month and hand over the case materials to lawyers and the accused.”
According to the media, the real reasons behind the new charges are greed and the wish to “distance” Khodorkovsky from the upcoming presidential election campaign. Vedomosti reports that a number of experts attribute the new charges to the state’s wish to gain access to YUKOS assets and bank accounts abroad. The Wall Street Journal (in an article translated at Inopressa.ru) views these charges as a guarantee that “the former YUKOS oil magnate and Putin’s political opponent won’t leave his Siberian prison before next year’s presidential election.”
On February 7, Khodorkovsky’s press center website posted his comments on the new charges from the Prosecutor General’s Office. He said that Russia’s law enforcement agencies are used “in the mercenary and personal political interests of state officials,” and predicted that this will be followed by “falsified pseudo-evidence, testimony from intimidated or deceived pseudo-witnesses, and a rapid conviction.”
In Khodorkovsky’s view, the YUKOS case was invented in order to “steal Russia’s most prosperous oil company.” He maintains that the people who did this are very much afraid of seeing him released and are seeking to safeguard themselves against any possibility of him being paroled. “They don’t understand that they’re only making their position worse with each new step, driving both themselves and their direct superior, Vladimir Putin, into a corner. I’m not sure that Putin will thank them for this.”
Khodorkovsky says that the only solution for those who have deprived him of liberty is “to step down from power on schedule and voluntarily, and hold a free, fair, transparent election to elect a new president for our country.” Khodorkovsky maintains that this new president should be “a person who has nothing to do with the gigantic corruption machine which has fettered Russia hand and foot – it should be a person who respects the independence of courts.”
Khodorkovsky is certain that the “submissive” court will convict him once again. His objective is “to demonstrate by this example that justice in Russia is made to order” and the law enforcement agencies are used “in the mercenary and personal political interests of state officials.”
Vedomosti suggests that the new phase in the Khodorkovsky affair could indeed change the situation in Russia’s law enforcement system.
According to Vedomosti, Khodorkovsky’s role in the Russian economy and Russian politics has yet to be fully evaluated. YUKOS used to be a leading company in terms of its oil production volumes, financial performance, and presentation. The company changed as its owner changed. Khodorkovsky described these changes as follows: “It took the Rockefellers three generations to move from robber baron to magnate to respected businessman. I’ve moved through all three stages in a decade.”
Philanthropy and education development programs were equally important to him. But these only became truly important after Khodorkovsky had become a pariah: the state started preaching to companies about corporate social responsibility, and taxation discipline among Russia’s major companies increased sharply after the destruction of YUKOS.
Alexander Shokhin, head of the Russian Union of Industrialists and Entrepreneurs (RUIE), told Vedomosti: “The past three or four years, which may be described as the Khodorkovsky and YUKOS affair period, have seen Russian business owners develop the habit of paying their taxes scrupulously. In that sense, Khodorkovsky accomplished a certain mission in sacrificing his freedom and his assets.”
Vedomosti maintains that the destruction of YUKOS has had a negative impact on Russia’s image. “In this regard, it’s symbolic that Khodorkovsky had long spoken of the need for some deliberate work on Russia’s image,” says Vedomosti. “As far back as 2002, he proposed to his RUIE colleagues that they should establish an English-language website and business magazine, and run an advertising campaign in the Western media. During Khodorkovsky’s second year in prison this concept became generally accepted, and some of the English-language media plans were implemented.”
Vedomosti says that the new YUKOS case could play one final and very substantial role. Khodorkovsky may indeed demonstrate, by his own example, that “made-to-order justice” does exist in Russia – and just as his case changed tax discipline, he might manage to change the situation in the Russian law enforcement system at the price of his own freedom.
Intentionally or not, the Prosecutor General’s Office issued the new charges against Khodorkovsky at the same time as President Vladimir Putin held an anniversary meeting with RUIE leaders. According to Gazeta.ru, at this meeting “the owners of multi-billion-dollar assets in Russia and abroad didn’t dare to say a word about Khodorkovsky’s fate.”
Nezavisimaya Gazeta quotes RUIE Vice President Igor Yurgens as saying that these days the RUIE is entirely contented with the role of “a younger brother who can express the private sector’s responsible position on all economic policy issues – from professional and technical education to pension reforms and joining the World Trade Organization.”
Meanwhile, Novaya Gazeta observes that this meeting – Putin’s first meeting with RUIE representatives for some time – was held in dialogue mode. The business leaders not only heard what the authorities want from them, but also had an opportunity to convey their wishes, and even complaints, to the authorities.
“Yet it’s too early to announce the end of the equidistancing era,” says Novaya Gazeta. “This is more like a situational alliance.” Novaya Gazeta maintains that this alliance is based on the new economic policy course announced by the Kremlin: diversifying the Russian economy.
Ekspert magazine presents a quote from Putin’s speech to RUIE leaders: “We should learn to move beyond profitable exports of crude oil, gas, mineral ores, and timber – we should process our natural resources in Russia and export full-value high-tech products.”
Vedomosti quotes experts as saying that the diversification objective will be the final stage in Putin’s economic policy. ING Bank analyst Yulia Tseplyaeva told Vedomosti that the oil sector’s prosperity has become the misfortune of other sectors, and Putin has run up against a situation where the problem of diversification cannot be postponed any longer.
In the private part of the RUIE meeting, Putin even said that he will guarantee the continuity of the president’s policy course regardless of which individual becomes the next head of state – so business leaders can confidently consider long-term major investment programs. This statement from Putin was reported to Vremya Novostei by RUIE President Alexander Shokhin.
Alexei Makarkin, an analyst from the Political Techniques Center, told Vedomosti that the economic diversification issue is also relevant for Putin from the political standpoint. The Russian economy’s dependence on energy prices will be a campaign issue, and Putin’s successor will need some weighty arguments for it. According to Makarkin, diversification will also be mentioned in Putin’s address to parliament this year. Makarkin concludes that diversification measures will also enable Putin to shape a new image for Russia, raising it to the same level as other G8 countries – none of which are dependent on oil prices.
However, while Putin is busy “raising” Russia to the G8 level, Lenta.ru reports that Tom Lantos, chairman of the House Committee on Foreign Affairs in the US Congress, has proposed expelling Russia from the G8 due to those new charges against Khodorkovsky.
According to Kommersant, Lantos has sent a strongly-worded letter to Barry Lowenkron, Assistant Secretary of State for Democracy, Human Rights and Labor, who is responsible for preparing the US State Department’s report on the human right situation in various countries in 2006. Lantos requested Lowenkron to include the statement that “Khodorkovsky and Lebedev are political prisoners” in the report’s Russia section. Lantos insists that the former YUKOS executives “have been imprisoned not for any crimes they committed, but for their political activities that threatened the Putin regime’s totalitarian expectations.”
Even before Lantos’s letter, US State Department spokesman Sean McCormack mentioned intentions to discuss the continued prosecution of Khodorkovsky and Lebedev with Russia. At a press briefing on February 6, McCormack read out a statement about the former YUKOS executives.
McCormack said: “As we have commented in connection with the original trial, the continued prosecution of Mikhail Khodorkovsky and the dismantlement of YUKOS raise serious questions about the rule of law in Russia. Khodorkovsky and his associate, Platon Lebedev, would have been eligible to apply for parole this year, having served half of their terms. These new charges would likely preclude their early release.”
According to McCormack, many actions in the YUKOS-Khodorkovsky case “have raised serious concerns about the independence of courts, sanctity of contracts and property rights, and the lack of a predictable tax regime.”
The State Department emphasizes that the conduct of Russian authorities in the YUKOS affair has damaged Russia’s reputation and undermined confidence in Russian legal and judicial institutions. “Such actions as this and other cases raise questions about Russia’s commitment to the responsibilities which all democratic, free market economies countries embrace.”
Kommersant notes that Washington’s reaction to the new charges against the former YUKOS executives has been faster and harsher than its reaction to Khodorkovsky’s arrest in October 2003. Back then, a State Department spokesman only noted that “the action taken against Mr. Khodorkovsky indicate that justice in Russia is selective.”
Back in 2003, Congressman Tom Lantos and senators Joe Lieberman and John McCain submitted a draft resolution to Congress, calling on the President to expel Russia from the G8. At the time, this proposal didn’t even get the support of Senate and House leaders, let alone the White House. These days, the situation is different. Last November, the Democrats won a majority in Congress – and they have a tradition of being stricter about the observance of rights and liberties in Russia. Thus, there is a substantially greater chance of Congress passing a resolution calling for Russia’s suspension from the G8.