Posted Saturday, July 17, 2004

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The Times 

Saturday, July 17, 2004

Defiant Oligarch says fraud charges are absurd

From Jeremy Page in Moscow

RUSSIA's richest man began his defence at his trial for tax evasion and fraud yesterday with a defiant statement dismissing the charges as absurd, sloppy and groundless. Mikhail Khodorkovsky accused the Kremlin of making him a scapegoat for the flawed privatisations of the 1990s in his first formal response to the charges since his arrest at gunpoint on a Siberian runway in October.

"I intend to prove that it is an awkward attempt to write off at my expense the mistakes made in privatisation laws at the beginning of the privatisation process," he said from inside a cage in the courtroom.

The billionaire founder of the oil giant Yukos has been preparing his defence from his cell at the Matrosskaya Tishina (Sailor's Rest) detention centre by poring over thousands of pages of the indictment against him.

Khodorkovsky, LebedevAfter a year-long legal barrage against him and his company, he clearly relished his first chance to hit back at the State in what the Kremlin's critics have compared to Stalin's show trials of the 1930s. Looking relaxed and cheerful in a black, short-sleeve pullover and jeans, he even shared a joke with one of his guards.

"I have never had so many pictures taken of me in my life," he said, beaming as he posed for photographers allowed briefly into the coutroom.

He and his co-defendant, Platon Lebedev, (right) both pleaded not guilty this week to charges of defrauding the state of more than $1 billion in connection with the privatisation of a fertiliser plant in 1994. If convicted, they face up to ten years in prison.

The case is widely seen as part of a Kremlin campaign to curb Mr Khodorkovsky's power and intimidate other oligarchs into returning to the state some of the vast fortunes they built by buying state assets on the cheap after the collapse of the Soviet Union.

Yukos, Russia's largest oil producer, has been ordered to pay $3.4 billion in back taxes for 2000, which the company says could drive it into bankruptcy. The Tax Ministry is also claiming another $3.4 billion for 2001 and has warned of further bills for 2002 and 2003. Yukos has offered to pay $8 billion over three years to cover all its tax arrears if the Government releases assets frozen during the investigation into Mr Khodorkovsky. He has offered to give up control of the company to prevent it from going bust.

But Mr Khodorkovsky insisted yesterday that the Arbitration Court's decision to uphold the initial $3.4 billion tax claim was illegal.

"I will prove that Yukos paid not less in taxes but more than many other companies, while legally, and on a limited scale, using the tax breaks provided by the law," he said.

He said that Yukos was Russia's second biggest tax payer after the gas monopoly, Gazprom, and contributed 5 per cent of the federal budget.

"I am not going into other charges which are as sloppy and groundless. We don't have time for that," he said. "I will only say that the demonstration of force indifferent to the law - albeit going through the motions of observing its procedures on the surface - is extremely dangerous for the prospects of the development of our country."

Mr Lebedev, a key Yukos shareholder, made a similar statement, dismissing the charges as absurd, false and framed-up, but he looked frail and weak, clutching the bars of the cage and sipping regularly from a bottle of milky liquid.

His lawyers say that he needs an independent medical check because of a liver condition, but the court has refused to grant one.

Dmitry Shokhin, the State Prosecutor, accused the defendants of playing to the crowd. "They can quite skilfully juggle with facts," he said. "Their attempt to create a big fuss around their case by making loud statements can only be regarded as an attempt to apply pressure not only to the mass media and the participants in the court procedures but also to public opinion."

But analysts say that the cases against Yukos and Mr Khodorkovsky have raised serious concerns overseas about the independence of the judiciary in Russia and the safety of doing business there.

Alexander Vershbow, the American Ambassador to Moscow, said yesterday that Washington was monitoring the Yukos case "with some concern".

The trial was adjourned until Tuesday.


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