Catherine Belton, AP Staff Writer
27 October 2003
Yukos chief Mikhail Khodorkovsky was jailed Saturday night after security agents stormed aboard his plane during a refueling stop in Novosibirsk and hauled him back to Moscow, where a court sanctioned his arrest on charges of massive theft and tax evasion.
In arresting Russia's richest man, the Kremlin moved to the endgame in a politically charged battle to check the increasingly powerful oil magnate.
In what they said was an "unprecedented" case for the sheer scale of the alleged fraud and investigation work involved, prosecutors issued seven charges against Khodorkovsky, including personal income tax evasion, overseeing corporate tax evasion, falsifying documents and theft.
In all, Khodorkovsky and his associates cost the state more than $1 billion in lost revenues, Prosecutor General's Office spokeswoman Natalya Vishnyakova said on Rossia television. Later, she was quoted by Interfax as saying the charges could be broadened to include other crimes, which she did not specify.
Analysts and investors speculated Sunday that Khodorkovsky's arrest could be used to squeeze him into giving up control over Yukos, an oil major now worth $28 billon that he won for just over $200 million in a rigged auction in 1995.
His jailing in the overcrowded Matrosskaya Tishina prison in Moscow capped nearly four months of mounting pressure that began with the July 2 arrest of fellow core Yukos shareholder Platon Lebedev. In the weeks and months that followed, prosecutors tightened the noose, launching a series of raids on Yukos-affiliated companies and pressing charges of tax evasion against another Yukos billionaire, Vasily Shakhnovsky. A Yukos security chief was also jailed, on charges of murder and attempted murder.
Yukos denies all the charges.
Businessmen and analysts have seen the escalating attack as aimed at crushing Khodorkovsky's attempts to undermine President Vladimir Putin's power base ahead of elections. He has been openly financing opposition parties in a bid to lock in his own loyal faction and has tried to challenge the state's monopoly hold on strategically important pipelines.
Khodorkovsky was brought back to Moscow from a business trip to the regions. His chartered plane had landed at a Novosibirsk airport for refueling while en route to Irkutsk at 5 a.m. local time when it was surrounded by vehicles with their headlights on.
About 20 black-uniformed agents broke into the first-class compartment where Khodorkovsky and his entourage of aides and bodyguards were, brandishing weapons and shouting "FSB! Put your weapons on the ground, don't move or we'll shoot!" said Yukos spokesman Alexander Shadrin, citing people who were with Khodorkovsky.
Khodorkovsky was flown back to Moscow, where he was questioned by prosecutors before being charged. He was then sent to Moscow's Basmanny court, where after just over four hours a judge approved prosecutors' request that he be held until trial. Khodorkovsky's lawyer Anton Drel said he could be in jail until at least Dec. 30.
After the ruling was announced, Khodorkovsky was whisked away Matrosskaya Tishina, and Drel read out a statement from the oil magnate to the crowd of reporters gathered outside the court: "I don't regret anything I have done; nor do I regret what has happened today."
That statement seemed typical from an oligarch who has consistently defied investor expectation he would back down from a standoff with the state in the face of mounting threats from prosecutors. Instead of seeking to find a compromise, Khodorkovsky upped the stakes, lashing out at prosecutors and buying a liberal newspaper in a bid to create an opposition platform.
"Plenty of warning shots were fired. We all thought Khodorkovsky would back down," said Eric Kraus, chief analyst at Sovlink. "But if you grow up in a kommunalka and then become worth $8 billion, people lose their sense of proportion.
"There is no rational reason for why he did not back down. Khodorkovsky has foreign support and a good security service. Putin has a nuclear arsenal. In a collision course, Khodorkovsky was always going to come out the loser," Kraus said.
Putin had made a tacit agreement with the oligarchs soon after he was elected in 2000 that he would not touch the huge wealth they had gained in crony dealings with state officials in the 1990s. In return, he told them, they would have to stay away from politics and pay taxes.
Khodorkovsky appeared to tip over that pact with shrill complaints that state bureaucracy was stifling business.
In January of this year, as he fought with the Kremlin over the right to build privately owned oil export pipelines, he said Russia's overgrown bureaucracy was turning it into Saudi Arabia. Then, in February, in a televised meeting with Putin, he openly accused state-owned oil company Rosneft of corrupt dealings in acquiring Severnaya Neft.
A source close to Yukos said that ever since that meeting "huge intelligence resources have been thrown at the company and all the top managers' movements are being monitored."
Khodorkovsky has also been at loggerheads with Rosneft over licenses in east Siberia, and he has openly eyed gaining a chunk of Gazprom, the state-controlled gas monopoly. He also was the only oligarch to openly state his intention to lock in loyal factions in the State Duma.
In contrast, other oligarchs who made their fortunes just as controversially have kept their heads down.
Kremlin-connected political analyst Sergei Markov said Khodorkovsky's arrest could usher in new rules of the game for big business and the state.
"After Khodorkovsky's loss there could be a change in the rules of the game," he said. "Khodorkovsky will be made an offer he can't refuse. He can accept the new rules of the game, or he can stay in prison.
"Those who do not agree with the new rules of the game will lose control over their property. That was what happened with [Vladimir] Gusinsky and [Boris] Berezovsky."
Markov speculated that Khodorkovsky could be forced to give up his stake in Yukos and step down in favor of other managers more ready to cooperate with the state. He could not say exactly what the new rules for business might involve, apart from plans to raise taxes on extraction of raw materials.
Yukos spokesman Hugo Erikssen said Sunday that Khodorkovsky had seen his imprisonment coming.
"He saw this coming as a potential threat. He was not fazed by it and there was no question of him standing down," he said.
He said Yukos had informed prosecutors that Khodorkovsky was away on a business trip immediately after the company received written notice Thursday evening that prosecutors wanted him in for questioning the next morning. He said the company had assured prosecutors that Khodorkovsky would appear on Tuesday morning after his scheduled return on Monday afternoon.
On Wednesday, just two days before Khodorkovsky left for Siberia, a senior prosecutor said investigators wanted to call him in for questioning but did not specify when.
"Why should Khodorkovsky be intimidated by statements made by prosecutors at pressers? He is a law-abiding citizen," Erikssen said. "This trip to the regions is a routine thing for Khodorkovsky. Why should he stop running his company because someone is making an unveiled threat?"
Yukos released a statement Saturday denying the seven charges brought against Khodorkovsky and calling them "absurd." It said it considered "the brute force" used to detain Khodorkovsky as "humiliating for the whole Russian law enforcement system."
A spokesman for the prosecutors outlined some of the charges brought against Khodorkovsky. He said Khodorkovsky together with Lebedev was accused of defrauding the Murmansk administration in the Apatit fertilizer factory sell-off in 1994 and selling Apatit fertilizer to offshore firms at cut prices from 2000 to 2002, in a scheme that lowered the pretax profit of the plant by $200 million. The spokesman also said Khodorkovsky and Lebedev as the main shareholders of Yukos stood accused of organizing an offshore tax evasion scheme in 1999 to 2000 for sale of oil and oil products. He said that in this period they paid taxes with Yukos promissory notes instead of cash, which he said cost the state $556 million.
Khodorkovsky was also personally accused of not paying income taxes and Pension Fund contributions to the tune of $1.7 million in 1998-99.
Deputy Justice Minister Yury Kalinin told Interfax on Sunday that Khodorkovsky was being kept in a cell with room for fewer inmates than usual -- just five -- in the notoriously overcrowded Matrosskaya Tishina. He said average cells held 15 or more.
Drel, Khodorkovsky's lawyer, said he had been unable to see his client on Sunday because the prison was closed. He said he expected to be able to meet with him on Monday, but in the meantime had no idea how he was doing.
Drel denied reports that Khodorkovsky had been beaten and that he had had a bag flung over his head when he was seized on the airplane.
Lawyers are preparing to appeal Khodorkovsky's detention, he said.
Yukos, meanwhile, said that in Khodorkovsky's absence the company would be supervised by Steven Theede, a former ConocoPhilips manager who was hired in August as first vice president.
Yukos Biographies
Note: Kukes official biography fails to mention that he is an American citizen (see article that follows)
U.S. Execs Take Over Russian Oil Giant
4 November 2003, AP
MOSCOW — Three Americans will have a major role in running Russia's embattled Yukos oil giant after the company named a new management team today following the resignation of its jailed chief executive.
With U.S. citizens as CEO, chief financial officer and another top post, Yukos may in part be seeking to protect itself as prosecutors investigate it and move forward against Mikhail Khodorkovsky, a case some see as politically motivated.
Khodorkovsky — Russia's richest man, whose arrest on fraud and tax evasion charges sparked a drop in Yukos shares and, in turn, a plunge in the Moscow Stock Martet — resigned as CEO yesterday, saying he wants to deflect the blows from his company.
In a brief statement today, Yukos said it had appointed Simon Kukes, a Russian-born U.S. citizen, to replace him as chief executive.
Steven Theede, also an American, was named executive director of Yukos-Moscow, a subsidiary under which many of Yukos' central corporate functions are incorporated, the company said.
They join Bruce Misamore, also a U.S. citizen, who remains Yukos' chief financial officer.
Khodorkovsky has pursued close ties with the United States and its oil companies — last year Yukos became the first Russian oil company to export crude oil directly to the United States — and led a trend among Russian companies toward hiring Westerners to improve their image and their business practices.
Kukes, who once attended Rice University, was elected chairman of the Yukos board of directors in June. He was formerly president and chief executive officer of the Tyumen Oil Company, or TNK, which merged with British Petroleum's Russian subsidiary earlier this year.
Theede, a native of Hutchison, Kan., joined Yukos this year after heading European and Caspian exploration and production for Conoco Phillips. Misamore, a native of Findlay, Ohio, and a veteran of U.S.-based companies including PennzEnergy, Pennzoil and Marathon Oil, joined Yukos in 2001.
Putting a large number of Americans in the new Yukos management team aims in part "to make it more protected" from Russian authorities, said Konstantin Reznikov, chief oil analyst at Moscow-based Alfa Bank.
Prosecutors may be more hesitant to arrest American citizens, and aggressive moves against Yukos could draw further complaints from Washington. The State Department has already expressed concerns about the freezing of Yukos shares and other moves against the company since Khodorkovsky's arrest.
The Oct, 25 arrest and the 4-month-old investigation into Yukos has raised questions about Russia's economic and political course.
The price of Yukos shares shot up by 3.9 percent in Moscow trading on Monday immediately after Khodorkovsky announced his resignation as chief executive. Shares ended up 12 percent at $12.65 — though they remain more than 20 percent below their all-time high, which was posted shortly before Khodorkovsky's arrest.
Yukos' statement today said Khodorkovsky would not seek any executive position within YukosSibneft, the world's fourth largest oil company, which will be created by Yukos' agreed takeover of another major Russian oil producer, Sibneft.
Critics say Khodorkovsky was chosen as a target by President Vladimir Putin's fellow ex-KGB officers in the Kremlin to curb his growing financial and political clout. Khodorkovsky has funded opposition parties.
Putin has denied any political motives behind the probe. He denied that the investigation was aimed at revising results of the controversial privatization of the 1990s, in which tycoons such as Khodorkovsky won quick fortunes by snapping up state assets at rock-bottom prices.
In an interview with Italian journalists that was posted on the Kremlin Web site today, Putin said that while the results of privatization "weren't ideal," changing them would entail negative economic and social consequences.
"There will be no deprivatization or review of privatization results, but everyone must learn to live in accordance with the law," he said.
Putin also dismissed the allegations that the prosecutors had unfairly singled out Yukos from among many companies that could be prosecuted on the same charges, saying that some of its officials were accused of involvement in murders. Yukos has denied the accusations.
Putin defended the prosecutors, saying that "they are acting correctly as long they don't go beyond the law.''
Turning to the resignation of his chief of staff, Alexander Voloshin, Putin said that the probe against Yukos had served as a "catalyst" for the Kremlin reshuffle. He had words of praise for Voloshin, but added that he had long planned to replace him.
Putin said that Voloshin's replacement and other new appointees were "people of liberal, democratic views, committed to the development of democracy and a free-market economy in Russia."
