Committee for Russian Economic Freedom
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Persecution of Mikhail Khodorkovsky
In 2003, in the blink of an eye, Mikhail Khodorkovsky (“MBK”) was transformed from Russia’s mostrespected businessman as head of Yukos Oil Company (“Yukos”), to Russia’s most famous politicalprisoner. And Yukos went from being Russia’s most progressive and profitable company, lauded for itstransparency, corporate governance, and international business practices, to a bankrupt company underthe burden of more than $40B in fictitious tax debt. The regime stole its assets, selling them in shamauctions to state-owned companies at knock-down prices. Its shareholders, many of them US citizens,lost $40 billion in equity.MBK and his colleague, Platon Lebedev (“PLL”) were jailed, charged and convicted, in a show trial oftheft, fraud and corporate and personal tax evasion. They were sentenced to eight years in a Siberianpenal colony. The European Court of Human Rights has found that PLL’s rights were violated during thepre-trial phase of the proceedings. Appeals to the ECHR by MBK and PLL are pending. MBK and PLLbecame eligible for parole in 2007, which was denied.Just before they became eligible for parole, the Russian government again charged both men, this timewith embezzlement and money laundering. Specifically, the regime alleged that MBK and PLL embezzledall of Yukos’s oil production (350 million metric tons) and shares held by a Yukos subsidiary in sixoperating companies, and laundered the sales proceeds of the oil and the shares themselves. The trialon these charges began in March 2009 and is ongoing.The current allegations against MBK and PLL go beyond meritless; they are absurd. The oilembezzlement charge requires that MBK and PLL physically stole the oil. However, the prosecution offersno evidence that any oil was ever missing or of where the defendants may have stored 20% of Russia’sannual production. In fact, the allegedly embezzled oil is more than Yukos produced in six years.Contrary to what is alleged, Yukos booked all oil sales revenues on its independently audited financialstatements. Yukos could never have paid operating expenses, taxes (Yukos was Russia’s largesttaxpayer), capital expenditures, dividends, or acquired companies for cash, if they had embezzled the oil.The allegedly embezzled shares were actually moved for a legitimate business purpose, asset protection,as part of transactions that benefitted all of the company’s investors. What’s more, the allegedlyembezzled shares remained on Yukos’s books as reflected in its independently audited financialstatements. In essence, MBK and PLL, as part of the majority shareholder in Yukos, are accused ofstealing from themselves! The new charges cannot be squared with the prior tax evasion conviction. Thenew charges are irreconcilable with MBK and PLL’s conviction in the first case. MBK and PLL could nothave caused Yukos to evade corporate taxes on the sale of oil, i.e., the first case, if, as they are nowbeing charged, they embezzled the same oil and laundered the proceeds for their personal gain.The impetus for what is now known as the “Khodorkovsky Affair” was the fear among Russian PresidentPutin and his supporters that MBK and Yukos’s success posed a political and personal financial threat.World leaders are united in condemning the attack on MBK, PLL, and Yukos as politically motivated. Forexample President Obama, VP Biden (then Senators) and Senator McCain co-sponsored a SenateResolution 322 (in 2005) condemning the prosecution of MBK and PLL. German President Merkelpublicly condemned Russia’s political prosecution of MBK and PLL. The Parliamentary Assembly of theCouncil of Europe has adopted reports and passed resolutions finding the attack violated human rightsand was politically motivated. Recently, the Italian Parliament called for government officials in Italy andthroughout Europe to use diplomatic channels to compel Russia to give MBK and PLL a fair trial.
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