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Russia: Khodorkovskii Trial Due To Open Tomorrow In Moscow

Ex-CEO Khodorkovskii The long-awaited trial of Russian oil tycoon Mikhail Khodorkovskii is due to open in Moscow tomorrow. Khodorkovskii, the former head of Yukos, faces charges of fraud and tax evasion and could receive up to 10 years in a labor camp if found guilty in a case that is being closely watched by investors inside and outside Russia.

Prague, 15 June 2004 (RFE/RL) -- For years, Russians have been addicted to Latin American soap operas. One of the most popular is titled "The Rich Also Cry."

That would be an apt designation for the real-life drama that is due to begin tomorrow, in a Moscow courtroom, when Russia's richest man is brought from his jail cell to face the country's highest-profile fraud trial ever.

Khodorkovskii, the former CEO and biggest shareholder of Russia's second-largest oil company, Yukos, faces seven criminal charges, including defrauding the state and evading billions of dollars in taxes. If found guilty, he could face 10 years in a penal colony.

Platon Lebedev, another major Yukos shareholder, faces similar counts and will be tried alongside Khodorkovskii. The authorities say six other top former managers at Yukos are under investigation and could also be charged.

Since his arrest eight months ago, Khodorkovskii has accused the government of pursuing him for political reasons. Khodorkovskii says the Kremlin felt threatened by his company's business success and his growing political activities, which included generous funding of opposition political groups ahead of presidential elections.
"It's in everybody's interest -- certainly in the West's interest -- to be able to open some of these new fields." -- Stephan De Spiegeleire, a Russia analyst at the RAND Europe think tank in The Hague

The Kremlin rejects the allegations, pointing to Khodorkovskii's murky past financial dealings and his dubiously acquired fortune as reasons for his prosecution.

But by that same token, critics argue, all of Russia's so-called oligarchs -- who made their money by exploiting loopholes during the sell-off of state assets -- could be up on fraud charges. Khodorkovskii says his crime was to break an implicit agreement not to meddle in politics. One of his lawyers this week called his impending trial "worthy of a banana republic."

The court case is being closely watched by foreign observers and especially Western investors in Russia's oil and gas sector, who worry about the independence of the country's judiciary.

Those worries were stoked further this week, when the Moscow Arbitration Court removed the judge who was due to preside over the case, deeming her biased in Yukos's favor. The venue of the trial was also switched to a small courtroom away from the city center, where few journalists will be able to be accommodated despite promises of open proceedings.

Stephan De Spiegeleire, a Russia analyst at the RAND Europe think tank in The Hague, told RFE/RL that it appears that Khodorkovskii will face a "show trial" in the Soviet tradition.

"All the indications that we're seeing so far -- both the preparations for the trial, which have been entirely secret, and some of the recent developments -- certainly indicate that this might be something that will be reminiscent of some of the worst episodes in even the Soviet history of legal trials," De Spiegeleire said.

The irony is that a "victory" for the government and a "crushing defeat" for Yukos will benefit no one at this stage, according to De Spiegeleire, especially as Russia's oil sector seeks more foreign investment to expand its fields and export pipelines, with the aim of doubling gross domestic product within a decade. The decline of Yukos, which once accounted for one-third of all trades on the Moscow RTS stock exchange and was held up as a model of Western-style management, has spooked investors. The company's possible liquidation could scare them off for good.

"With oil prices being at the levels that they are, with the uncertainty in the Middle East continuing, it's in everybody's interest -- certainly in the West's interest -- to be able to open some of these new fields, which at current oil prices are becoming very interesting indeed. And Russia, of course, for a variety of reasons, is still more attractive as a potential alternative to Middle Eastern oil than some of the other alternatives that are out there, including, for instance, the Caspian Sea. So it does seem to me that from a purely economic point of view, there's a good case to be made that Russia should be waiting for new investment and should be attracting it. That's why this whole case has been a public relations fiasco for the Russian economy," De Spiegeleire said.

Perhaps the Kremlin is counting on the fact that Russia's oil market is simply too vast and attractive to ignore, as Julian Lee of the London-based Centre for Global Energy Studies told RFE/RL.

"At the end of the day, big oil companies need to do big deals and need to develop big projects. And Russia's one of the few places in the world where they have access to that," Lee said.

Given the security and political risks associated with oil drilling operations in many parts of the Middle East, Africa, and Latin America, Russia's problems might seem acceptable to multinationals that invest all over the world, Lee argued. Nevertheless, a politically driven Yukos bankruptcy -- should it happen -- would probably dampen enthusiasm among foreign investors.

Even as the trial is about to start, both sides -- Yukos and the government -- continue to face off in a high-stakes game of brinkmanship, with the Tax Ministry presenting ever-increasing back tax demands and the company saying it has no money to foot the bill -- a claim doubted by most economists.

Some observers say a face-saving out-of-court settlement may still be reached, allowing Yukos to pay off its debts by forfeiting some of its stock to the state. Short of an acquittal for Khodorkovskii, that would be the outcome most welcomed by investors.

As far as most ordinary people are concerned, few would shed tears for Khodorkovskii if he were sent to a labor camp. It would be proof that, even in real life, the rich also cry.