Reuters - 06.16.2004

Tax Evasion Trial Opens of Russia's Richest Man

By Maria Golovnina

MOSCOW (Reuters) —  Russia's richest man, oil tycoon Mikhail Khodorkovsky, went on trial on Wednesday charged with fraud and tax evasion in a case widely seen as initiated by the Kremlin and which even his own lawyers expect him to lose.

Khodorkovsky, chief owner of oil giant YUKOS, sounded confident and looked well in the defendants' cage despite more than seven months in detention. He denied the charges.

The trial before three women judges promises to be one of the most important since the 1991 end of Soviet rule. Critics say it could be little more than a Soviet-style show trial.

"I am not a naive person. As for the accusations made against me, I can say that there are no real grounds for them," Khodorkovsky, 40, told the court.

"The charges represent the opinion of the general prosecutor's office and contain no facts."

Hours after the trial opened against Khodorkovsky and Platon Lebedev, another major YUKOS shareholder facing similar charges, judges postponed the hearing until an unspecified date because of the ill-health of a member of the defense team.

They were also considering an appeal to allow the defendants to go home rather than be returned to prison during the trial. Analysts suggest hard-liners have pressed the case to send a message to "oligarchs," who became fabulously wealthy from 1990s privatizations, to toe the state line. Khodorkovsky, they say, was singled out because he tried to sway public policy.

Khodorkovsky, who funded liberal parties, has paid a heavy price for his perceived opposition to the Kremlin. Since his arrest in October, YUKOS has lost nearly two-thirds of its market value but it is still worth nearly $14 billion.

YUKOS shares sank 3.88 percent to close at $6.20 on the RTS stock exchange on Wednesday, the lowest level since early 2002.

Khodorkovsky, in jeans and a brown leather jacket, was handcuffed to a guard as he stepped into the courtroom, waving with a smile to his parents, reporters and lawyers. He read from legal documents and took notes as the trial proceeded.

Lebedev, detained last July, looked pale and held on to the cage as he sought his release on bail.

TEST CASE FOR PUTIN

The trial is a test case for the rule of law under President Vladimir Putin, who has said tax evasion will not be tolerated and other oligarchs could face prosecution.

One of Khodorkovsky's legal team said he had little doubt his client and Lebedev, who face seven counts of fraud and tax evasion, would be convicted and sentenced for up to 10 years.

"I'm expecting nothing more than I have seen in the past. This is a country which destroys its finest company while its senior members languish in jail illegally," Robert Amsterdam, a Toronto-based lawyer, told journalists.

"The final verdict? Guilty!," he added.

Dozens of Khodorkovsky supporters gathered outside the court wearing red t-shirts with the defendant's picture.

The hearing was part of a two-pronged judicial assault on YUKOS and its owners which could send it into bankruptcy.

A Moscow court will hear an appeal on Friday by Russia's tax ministry aimed at forcing YUKOS to pay a $3.4 billion bill for back taxes immediately.

If the court finds in favor of the tax authorities, as expected, YUKOS says it may go broke because another court has frozen the company's assets.

Some analysts believe that if YUKOS is driven out of business, Khodorkovsky and his associates, who control the group through a company called Menatep, will lose their prize asset.

Opinions differ on whether a broken YUKOS would be taken over as a going concern by court-appointed administrators or carved up with the choicest morsels thrown to Russian state energy enterprises such as Gazprom or Rosneft.

Khodorkovsky has been held in pre-trial detention since his arrest at a Siberian airport in October. His plight raises little sympathy among mostly impoverished Russians who view oligarchs as little better than thieves of state wealth. 

(Additional reporting by Oleg Shchedrov and Mikhail Yenukov)