14 April 2005, Volume 5, Number 15
KHODORKOVSKII CASE IS A SIGN OF THE TIMESBy Victor Yasmann
The 10-month trial of former Yukos CEO Mikhail Khodorkovskii, Menatep Chairman Platon Lebedev, and former Volna General Director Andrei Krainov came to a close on 11 April, with Khodorkovskii giving his final statement to the court. A verdict will be announced on 27 April, Russian media reported.
In his closing remarks, Khodorkovskii said that he "didn't make a good oligarch," and that he had not fled Russia despite being repeatedly advised to do so. He said that Yukos was the target of "greedy bureaucrats" and that he was imprisoned to prevent them from ransacking the oil giant. Khodorkovskii maintained his innocence on all charges. "I sincerely tried to work for the good of my country, and not for my own pocket," Khodorkovskii said. "All that I have left is an awareness that I was right, my business reputation, and the power of my will."
In the prosecution's concluding statement on 29 March, prosecutor Dmitrii Shokhin asked the court to convict Khodorkovskii and Lebedev and to sentence them to 10 years' imprisonment on fraud, embezzlement, and tax-evasion charges, newsru.com reported. Shokhin told the court the defendants "deserve" severe punishment because they have refused to admit their guilt. He charged that Lebedev "repeatedly demonstrated his disrespect to the court" and that Khodorkovskii deserved particular severity because he had "organized a criminal group." Shokhin also asked the court to confiscate the assets of Khodorkovskii and Lebedev that have already been frozen, including a 60 percent stake in Yukos and a 30 percent stake in Sibneft that belong to Menatep, "to compensate for harm they caused the state." He also asked the court to make the men ineligible to hold senior public or managerial posts.
Shokhin asked the court to give Krainov a 5 1/2-year suspended sentence because of his "repentance and partial admission of guilt."
Defense lawyers asked the court to acquit their clients on all charges. Lebedev's lawyer, Yevgenii Baru, said that "enough evidence has been presented for any competent, independent court to acquit Lebedev," newsru.com reported on 6 April. Khodorkovskii lawyer Genrikh Padva said Khodorkovskii not only did not commit the crimes ascribed to him but that "no crimes were committed at all." In his statement, Padva meticulously went over all the prosecution's arguments in an effort to demonstrate that there is no evidence of "the slightest signs of criminal activity."
Padva paid particular attention to the charge that Khodorkovskii and Lebedev had formed a criminal group. He denied the existence of any such group, saying that the prosecution had not shown "what the composition of the group was or what were the roles of its members, and so on." "The joint maintenance of a business cannot be proof of a 'criminal group,'" Padva told the court on 7 April.
"I hope that on the day the verdict is pronounced, the iron gates will swing open and the watchmen will release Khodorkovskii into freedom," Padva said.
Another Khodorkovskii lawyer, Yurii Shmidt, told RFE/RL on 10 April that prosecutors and the public continue to view Khodorkovskii and other rich Russians as "criminals by definition." In the case of Khodorkovskii, he added, they are ignoring the fact that he owes his fortune not only to his hard work and managerial skills, but also to the fact that he invested his money into the loss-making Yukos in 1996 when oil was selling for about $8.50 a barrel.
Shmidt added that it will not be easy for the court to deliver the verdict that the Kremlin expects. He noted that Deputy Prosecutor-General Vladimir Kolesnikov said in October 2003, well before the trial began, that Khodorkovskii should be sentenced to 10 years in prison, the very term that prosecutors at the trial are seeking. However, Shmidt said, it will be difficult for the court to convict without violating the law.
Karina Moskalenko, another Khodorkovskii lawyer, said on 7 April, according to newsru.com: "This case will not be decided in the court, or the Moscow Municipal Court, or the Supreme Court, or the European courts. It will be decided in the court of history, and the court of history will be harsh with all of us."
Throughout the trial, the Kremlin and the state-controlled media did a lot to boost the perception that Khodorkovskii and his colleagues are criminals. The arrests of Lebedev and Khodorkovskii in July and October 2003, respectively, came in the wake of a scandalous report by the National Strategy Council that asserted that the oligarchs were plotting a quiet coup in Russia.
In September 2004, just as prosecutors began presenting their case in court, NTV screened a documentary called "A Terrorist Act, Paid In Advance," which charged that Khodorkovskii used profits from the sale of Siberian oil to provide material aid to Chechen "terrorists." The film included references to some events that happened as early as 1995, before Khodorkovskii took over Yukos.
On 30 March, NTV showed a documentary called "Brigade From Yukos," in which Menatep shareholder and former Yukos executive Leonid Nevzlin was directly accused of organizing paid killings and Khodorkovskii was implied to have been involved. The film linked Khodorkovskii to former Yukos security chief Aleksei Pichugin, who was convicted of murder and attempted murder on 25 March. The documentary included footage of Khodorkovskii, Nevzlin, and Pichugin shooting rifles during a hunting trip or similar outing. The information in this documentary was repeated on state-owned RTR the same evening.
Moscow human rights activists have long argued that the case against Pichugin, a former Federal Security Service (FSB) officer, was manufactured to pressure him into revealing compromising information against Khodorkovskii. The first jury in the Pichugin case was released after it asked the court to dismiss the charges against him, and a second jury was later convened, which convicted him.
The cases against Yukos and Khodorkovskii are a pivotal moment in the history of post-Soviet Russia. When Khodorkovskii was arrested by the Alfa special-forces unit in Novosibirsk on 25 October 2003, Russia was a different country. Mikhail Kasyanov was the prime minister and Aleksandr Voloshin was the head of the presidential administration. Both were viewed as oligarch-friendly holdovers from the regime of former President Boris Yeltsin. Many in Russia and the West continued to believe cautiously that President Vladimir Putin was leading Russia gradually but perceptibly toward a more democratic future. Some believed that Putin was sincere in his desire to combat corruption.
Putin's policies in the ensuing period have cast such claims in serious doubt. Many of those who believed Putin was combating corrupt oligarchs have come to believe now that he was merely fighting his political opponents and those who financed them. Many of the old oligarchs have not only kept their properties, but have seen their fortunes increase steadily during Putin's administration. At the same time, new oligarchs have emerged from the bureaucracy and the secret services. As a result, Russia had the second-largest number of billionaires (27) on the "Forbes" magazine list of global billionaires that was released in March.
TNK-BP HIT WITH LARGE TAX CLAIM -- AGAINBy Jeremy Bransten
At first glance, the scenario seems all too familiar. Following an audit, Russia's Federal Tax Service presents a major oil company with a bill for unpaid taxes dating back several years.
The initial sum is relatively modest, but it gradually grows as the tax service uncovers more and more alleged arrears. That is what happened to Yukos, landing its chairman Mikhail Khodorkovskii in court and burying his company under $27 billion of tax debt.
Now, TNK-BP, a Russian-British joint venture that is currently Russia's No. 2 oil producer, is being hit with similar claims. For now, the tax bill is much lower than it was for Yukos -- but the sums being demanded have been growing exponentially in recent weeks, raising concerns among investors.
TNK-BP initially received a revised tax bill for 2001 amounting to 4 billion rubles ($144 million). This week, the company announced the tax authorities are now demanding an extra 22 billion rubles ($791 million), bringing the firm's total tax liability to nearly $1 billion. And that is just for the year 2001. Russia's Federal Tax Service says it cannot exclude the possibility that arrears for the following years will also be found.
All this happened just days after Russian President Vladimir Putin flew to Hannover, Germany, where he tried to boost foreign investor confidence. Putin reiterated on 10 April that his government will limit prosecutors' ability to review privatizations and that the Kremlin does not intend to interfere with business.
"Any allegations that Russia is preparing to revise the privatization results are groundless. On the contrary, we are currently considering reducing the statute of limitations on privatization deals from 10 to three years to stabilize ownership relations and not to allow any possibility of redistribution [of property]," Putin said.
How should investors interpret this apparent mixed message? Dmitrii Loukashov, an oil analyst at Aton Capital, a Moscow-based brokerage house, believes there is no cause to worry at this time that another Yukos-style affair is in the making. Not all recent tax claims in Russia, he notes, have ended in victory for the tax authorities.
"[People] probably forgot that there have been other outcomes in modern Russia -- different outcomes than in the Yukos case. As an example, everyone should remember the Vimpelcom charges, which amounted to $1 billion as well and were reduced to meaningless figures," Loukashov told RFE/RL.
Indeed, to back Loukashov's point, there was news on 13 April that a subsidiary of Japan Tobacco in Russia has won a court victory against the tax authorities for an arrears bill amounting to $79 million.
But on the other hand, many foreign business leaders say the timing of the claims against TNK-BP is too coincidental for comfort.
John Bamford, head of the International Business Management and Computer Consultancy that matches British investors with investment opportunities in Russia, noted that the announcement about the TNK-BP tax claims came in the middle of the Russian Business Forum in London. The forum is the leading annual gathering of politicians and entrepreneurs from both countries.
Bamford said many participants at the forum could not help but think politics -- as in the Yukos affair -- may be playing a role. "It's quite extraordinary that this particular thing should come up exactly to make the headlines in the newspapers for discussion at the forum," he said. "Somebody's trying to make a point, I think, and I don't necessarily think it's the tax collectors. I think that the timing is probably a little more than just a nice innocent tax collector saying, 'We've found this gap.'"
Bamford also said the fact that the tax authorities are looking into arrears from the year 2001 also contradicts Putin's statement on 10 April that a three-year statute of limitations would be imposed on such investigations:
"There was supposedly this line drawn under past taxes, which has been brought back from 10 years to three years, and one wasn't expecting this one -- which is to 2001, which is rather more than three years," Bamford said.
It all adds up to some worried investors. Back in 2003, when the TNK-BP merger took place, the deal was one of the largest by a Western company in postcommunist Russia and seen as proof of the forward momentum of economic reforms. If the company is now under attack, investors fear the business climate in Russia could turn sour.
Loukashov said the worst-case scenario, which remains impossible to verify, is that members of President Putin's own administration are trying to undermine him -- using the tax service. The implications, he said, are too grim to contemplate -- especially if one sees Putin as a guarantor of economic stability.
"What I'm afraid of is that these charges were not authorized by the president and the president's office, which could mean that the president is losing his grip," Loukashov said.
For his part, the British head of TNK-BP, Robert Dudley, said on 12 April that he does not believe his company will find itself in a "Yukos situation." But he added that state authorities in Russia were gradually reasserting their influence over the economy -- something he said should be a cause for concern.
BASHKIR OPPOSITION COMES TO MOSCOWBy Claire Bigg
The place where Bashkortostan's opposition chose to stage its demonstration in Moscow on 7 April had a certain significance. Protesters met on Lubyanka Square in front of Russia's Federal Security Service (FSB) building and near a monument to the victims of Stalin-era political repression.
They were calling on the federal authorities to dismiss Murtaza Rakhimov from his post as president of Bashkortostan. The authoritarian Rakhimov has ruled the Muslim-majority republic in the South Ural mountains since 1993.
One of the protesters held a placard reading "Rakhimov's regime is arbitrary, corrupt, and violent." A handful wore striped uniforms supposed to represent those worn by prisoners in Nazi concentration camps.
Airat Dilmukhametov, leader of the Bashkir National Front, one of the republic's more radical opposition movements, told RFE/RL that Rakhimov has presided over a dictatorship where human rights are regularly violated.
"Over the past 15 years there have been many cases of death, murder, poisoning, car crashes, torture, illegal punishment," Dilmukhametov said. "A dictatorship has been established [in Bashkortostan]. This is why people are disappointed and many of them are scared."
The Bashkir opposition also accuses Rakhimov of corruption. It charges that the oil companies controlled by Rakhimov's son, Ural, have mismanaged millions of dollars through tax evasion.
The demands of the Bashkir opposition, however, are likely to fall on deaf ears. Dilmukhametov said he has little hope that Rakhimov, who was reelected president in 2003 with the support of Russian President Vladimir Putin, will be sacked. The Kremlin is widely regarded as turning a blind eye to Rakhimov's alleged abuses in return for his loyalty.
Unrest in Bashkortostan has been growing since police detained and injured several hundred people in a violent sweep of the town of Blagoveshchensk in December 2004.
Rights groups say more than 1,000 people were arrested and taken to police stations, where they were reportedly beaten and humiliated.
Dilmukhametov said he hopes the recent protest will draw Moscow's attention to the republic's problems in the face of growing unrest. "We are doing this [protesting] in order for our conscience to be clear in case the situation in Bashkortostan takes a different turn," Dilmukhametov said. "We are now warning the public and the federal leadership. This is one of our last warnings."
Dilmukhametov told RFE/RL the opposition movement in his republic was inspired by the recent mass protests that recently toppled the government in Ukraine and Kyrgyzstan.
Boris Kagarlitskii, a political analyst who heads Moscow's Institute for Globalization Studies, said he believes the Russian authorities will ignore the protest. But he argued that Bashkortostan's government is not viable and that the crisis could eventually destabilize the Kremlin.
"If you don't sacrifice Rakhimov, if you do not react to the demands of the opposition, which I think is going to be the case, then the movement will radicalize," Kagarlitskii said. "From being a movement against a local leader it will become a movement against Moscow as well."
According to the Bashkir opposition, Rakhimov's government has spared no effort to try to sabotage the protest.
Opposition leaders were delayed for five hour on 8 April after additional security checks at the airport in Ufa, the capital of Bashkortostan. The oppositionists said the checks were ordered by the Bashkir government.
They said airport officials also tried to confiscate boxes containing the lists of over 150,000 signatures in support of Rakhimov's dismissal. The boxes were later delivered to Putin's administration by the protesters in Moscow.
The Bashkir government was swift to fend off the allegations and branded the protest an attempt at undermining it.
AIDS AWARENESS CAMPAIGN OFF TO A SLOW STARTBy Robert Coalson
Deputy Prime Minister Aleksandr Zhukov created something of a media sensation on 30 March when he appeared at a Moscow conference and acknowledged that the spread of HIV/AIDS in Russia has become a threat to the country's security and development. The theme of the conference was public-private initiatives to combat the epidemic and one of the main projects discussed was a $200 million, three-year, public-service campaign by Russian media to raise HIV/AIDS awareness.
Gazprom-Media Chairman Aleksandr Dybal told the conference on 30 March that his company and other media outlets, including REN-TV, Muz-TV, MTV, and the radio stations of Russian Media Group are donating $200 million in cash, airtime, and print space to the effort.
Gazprom-Media controls NTV, NTV-Plus, TNT, Ekho Moskvy, and other media properties and is wholly owned by the state-controlled natural-gas giant Gazprom. Gazprom played key roles in the de facto nationalization of the empires of former oligarchs Vladimir Gusinskii and Mikhail Khodorkovskii.
Russian Media Group is controlled and headed by Kremlin-connected businessman Sergei Arkhipov. He told "The Moscow Times" on 18 March, "I do have friends in the Kremlin," although he denied that he discusses his business with them. In 2004, the company staged a free concert for people who could prove that they had voted in the presidential election, a move that was viewed as part of the Kremlin's effort to boost turnout in an election in which President Vladimir Putin faced minimal competition. The company's plans to turn its flagship station, Russkoye Radio II, to a largely news and information format has been viewed by analysts as part of a Kremlin effort to consolidate its control over the information sphere in the run-up to the 2007 and 2008 Duma and presidential elections, respectively.
Despite Dybal's "announcement" of the public-service effort on the heels of Zhukov's speech, the campaign was actually launched at a 29 November press conference at state-owned RIA-Novosti, to considerable media fanfare in connection with the 1 December World AIDS Day event. At that time, RIA-Novosti was also named as a participant, "Vechernyaya Moskva" reported on 9 December. Interfax reported on 29 November that the newspapers "Komsomolskaya pravda," "Izvestiya," and "Vedomosti" would also participate, but Dybal did not mention them in March.
At that press conference, participants also announced that the "Stop AIDS" campaign would mostly include a new, locally produced series featuring people living with HIV. Dybal did not mention this project at the 30 March conference.
In November, it was announced that "technical and financial" support would be provided by a number of Western foundations, including the Kaiser Family Foundation and the Bill and Melinda Gates Foundation. In addition, Dybal said at that time that he expected the state media to join the effort. "You might say that we consider this our patriotic, humanitarian duty," Dybal said, according to "Vechernyaya Moskva." "We have already signed up nearly 30 large companies and, of course, we certainly expect ORT and RTR to join our ranks -- [and we] hope that they will join our project. We are also talking to regional companies, whose support is very important to us." Dybal added that he expected the "active participation" of American actor Richard Gere in the campaign.
The online newspaper vsluh.ru reported on 2 December that the "Stop AIDS" campaign will include not only public-service announcements, but also the development of information resources and briefings for journalists.
Zhukov's appearance at the AIDS conference and recent calls by President Putin and other administration officials for businesses to do more to help the country give some reason to believe that "Stop AIDS" might gain some traction now.
RIGHTS GROUP URGES MOSCOW TO REOPEN KATYN MASSACRE INVESTIGATIONBy Claire Bigg
In 1943, German soldiers discovered a mass grave in the Katyn forest near Smolensk, in western Russia. The grave held the bodies of thousands of Polish soldiers, priests, doctors, and intellectuals killed three years earlier by the NKVD, the Stalin-era secret police.
Human rights groups and historians believe up to 21,000 people were murdered in what became known as the Katyn Forest Massacre. A Russian government investigation into the case has been ongoing since the early 1990s. However, the government closed the investigation on 11 March.
Boris Belenkin is a historian who works for Russia's prominent human rights group Memorial. He says his organization on 7 April sent a letter to the Russian authorities asking for the Katyn investigation to be reopened.
"The reason behind this letter was the general military prosecutor's announcement about the closure of the Katyn case and his claim that the death of 1,800 people had been confirmed with absolute certainty, when we know that at least 14,000 have died," Belenkin told RFE/RL.
Belenkin said that the government has failed to provide any other official information as to why the investigation has been closed.
Russia has been reluctant to acknowledge that the killings constituted a war crime. It wasn't until 1990 that Soviet leader Mikhail Gorbachev admitted his country's involvement in the massacre.
As a reconciliatory gesture, in 1992 the Russian government handed over to then-Polish President Lech Walesa previously secret documents testifying that Soviet dictator Josef Stalin had ordered the killings.
Russia's recent decision to close the investigation, however, could face criticism ahead of the grand ceremonies planned for 9 May to mark the 60th anniversary of the end of the World War II.
Estonia and Lithuania have also dealt a blow to Russia by turning down its invitation to attend the May celebrations in Moscow, after saying their countries were oppressed by the Soviet regime. Latvian President Vaira Vike-Freiberga has accepted an invitation to attend the celebrations.
The Katyn issue could further erode relations between Russia and Poland. Polish lawmakers last month renewed calls for Russia to classify the massacre as genocide and bring the remaining perpetrators to justice.
Belenkin views Russia's decision to close the investigation as a sign of the growing patriotic and nationalist trend under the government of President Vladimir Putin.
But Sergei Markov, director of the Institute for Political Studies in Moscow, said Moscow is mainly trying to protect its image.
"Moscow is trying to minimize the damage done to its image by talk about the Katyn case. Katyn is one of the tragedies of the Second World War -- a tragedy that was not admitted for a long time by the Soviet Union, which did not want to hurt relations with its ally, socialist Poland," Markov said.
Markov also speculated that Russia could be trying to avoid a potential series of damaging and costly lawsuits from descendents of victims if it fully admits to all the killings that took place.
"One can isolate several concrete episodes in the Second World War, and if Russia admits its responsibility in every one of these cases it might be sued for all of them," Markov said. "There would be a lot of economic consequences. I think Russia doesn't want to create the possibility of such lawsuits taking place."
Russian-Polish relations have been particularly strained over the past months, with Poland announcing in March that it planned to name a square in Warsaw after the slain Chechen separatist leader Djokhar Dudaev.
Moscow responded by threatening to rename the street in which the Polish Embassy has its seat in Moscow after Mikhail Muravev, a Russian Army general nicknamed the "hangman" for his ruthless suppression of the Polish uprising of 1863.
POLITICAL CALENDAR15 April: Duma expected to vote on second reading of amendments to the law on forming the State Duma that would introduce the proportional-representation system and eliminate the single-mandate districts.
15 April: Russian spacecraft scheduled to launch new crew to the International Space Station from the Baikonur cosmodrome in Kazakhstan.
16 April: Opposition in Bashkortostan planning a major demonstration calling for the resignation of republican President Murtaza Rakhimov.
17 April: Krasnoyarsk Krai and Taimyr Autonomous Okrug to hold referendums on the question of merging.
18 April: Moscow Arbitration Court to begin hearing case against Yukos regarding suspected tax arrears for 2003.
27 April: Verdict expected to be announced in the case of former Yukos CEO Mikhail Khodorkovskii and Menatep Chairman Platon Lebedev.
27-28 April: President Putin to visit Israel and the Palestinian Autonomy.
9 May: Commemoration of the 60th anniversary of the end of World War II.
10 May: Russia-EU summit to be held in Moscow.
30-31 May: Foreign Minister Sergei Lavrov to visit Japan.
19 June: Referendum in Samara on dismissing Mayor Georgii Limanskii.
23 June: Yukos shareholders meeting.
24 June: Gazprom shareholders meeting. Date by which merger of Gazprom and Rosneft to be completed, according to RBK.
4 July: 750th anniversary of the founding of Kaliningrad.
6-8 July: G-8 summit in Scotland.
August: CIS summit to be held in Kazan.
September: First-ever Sino-Russian military exercises to be held on the Shandong Peninsula.
1 November: New Public Chamber expected to hold first session.
2006: Russia to host a G-8 summit in St. Petersburg.
1 January 2006: Date by which all political parties must conform to law on political parties, which requires at least 50,000 members and branches in one-half of all federation subjects, or either reregister as public organizations or be dissolved.