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Russia: Leadership Struggles With Yukos Affair

The Russian Audit Chamber has disclosed details of its coming probes into big business. Prime Minister Mikhail Kasyanov has renewed his defense of the Yukos energy giant . Later this week, the Moscow city court is set to hear an appeal by jailed Yukos boss Mikhail Khodorkovskii challenging the legality of his pre-trial detention, which was prolonged late December 2003. RFE/RL reports that the Russian leadership still appears to be split on how to handle the business dealings of the country's oligarchs, and the Yukos affair in particular.

Moscow, 13 January 2004 (RFE/RL) -- Russian Prime Minister Mikhail Kasyanov was blunt. He told the Russian business daily "Vedomosti" in an interview yesterday, "If legal activities to optimize tax payments are declared illegal retroactively, then I see this as negative."

His declaration came days after the Tax Ministry had presented Yukos with a 98-billion-ruble -- equivalent to almost $3.4 billion -- tax arrears and fraud bill for 2000, following a tax audit in December 2003 and a new probe by the Russian audit chamber into big business.

A Tax Ministry press release said that Yukos's alleged backlog includes taxes avoided on tax-optimizing schemes through domestic offshore zones and closed companies.

The new tax bill follows a string of accusations against former Yukos CEO Mikhail Khodorkovskii that landed him in jail. Some analysts say Khodorkovskii, in addition to having political ambitions -- which some believe are responsible for landing him in jail -- had also run into conflict with those that support state ownership of strategic resources, over his plans to make available Russian oil resources to foreign owners.

For weeks following Khodorkovskii's October arrest on tax evasion and illegal privatization charges, Yukos management had hoped to keep the company out of the conflict. But the tax-arrears accusations are a direct attack on the company itself. Yukos Vice President Bruce Misamore called December's two-week audit "not a standard tax audit." But today he expressed careful optimism.

"It's encouraging when anybody at a very senior level in the government comes out fairly strongly and expresses its position with respect to the legal system within Russia and how it should work, particularly as it relates to the tax allegations that have been made," Misamore said.

Tax arrears and fraud accusations against the company itself are late developments in the affair. They target the company directly for using tax schemes in domestic offshore zones. Oil companies were able to save taxes by setting up companies in underprivileged Evenkia, Mordovia, and Kalmykia. As a result, Yukos was contributing 12 percent of the local Mordovia budget in taxes, but paying less overall.

Such privileges were outlawed in a blitz reform by the outgoing Duma last December, however.

Misamore rebutted allegations of corporate tax evasion. "Every citizen and every company in Russia and in other locations around the world have the right to only pay the taxes that they are legally required to pay. And that surely is a social obligation," Misamore said. "But in addition, I think, from a shareholders' standpoint, that companies should -- and are obligated to their shareholders to -- not overpay their taxes, and therefore, by definition, to minimize the taxes that they pay."

Kasyanov appeared to be following the same logic. He said, "There were loopholes that made optimizations legal. The law did not forbid Yukos and other companies to field deals through domestic offshores. [So] the authorities that [supervised this] should have done all they could to [close] these loopholes. For three years, all they did was not criticize very loudly; then they must also bear the responsibility. But not only the tax minister, and the finance minister -- the whole government bears that responsibility, including myself," Misamore said.

To criticism aired by President Vladimir Putin and populist politicians about the unfairness of tax privileges, Kasyanov replied, "If those actions were governed by law at the time, then today we must go according to legal criteria and not by ideas of fairness."

Yukos's internal audit department head Galina Antonova called the 98-billion-ruble tax bill a "myth" in an interview in "Vedomosti." She argued that it would represent -- together with 55 billion rubles already paid in taxes -- 87 percent of Yukos's profits for 2000.

Misamore said that Yukos is replying to the ministry's inquiries but that "no formal claim" has been lodged so far. According to Russian law, Yukos will have to pay only when the court procedures are completed.

Kasyanov's remarks support earlier remarks indirectly criticizing the law-enforcement authorities for their handling of the Yukos affair. In the past, Kasyanov had expressed concern about Russia's image as a result of the attacks against Yukos.

Economist Ksenya Yudaeva, a fellow with the Carnegie Endowment in Moscow, says that Kasyanov's statements reflect his position as the last influential authority opposing the law-enforcement clan's attack against Yukos.

"I think it is a demonstration of his consequential position, that he shows that he didn't submit to the general line," Yudaeva said. But she added, "I don't think it will have any strong influence over the case against Yukos."

Kasyanov joined the cabinet under former President Boris Yeltsin's pro-oligarch government in 1995, and is widely believed to be the last major figure of the Yeltsin group still in power after the resignation of the presidential chief of staff, Aleksandr Voloshin, in the aftermath of the Yukos scandal.

Yudaeva says Kasyanov's stance does not necessarily mean the pro-Yukos faction has any political weight. Yudaeva adds, however, that it may reflect the opinion of second-rank members of the cabinet's economic bloc, like Deputy Economy Minister Arkadii Dvorkovich.

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