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Tycoon Decries Russia's 'Criminal Bureaucracy' as Trial Ends

In Impassioned Speech, Founder of Yukos Oil Tells Court He Worked for Benefit of Country

By Peter Finn
Washington Post Foreign Service
Tuesday, April 12, 2005; Page A15

MOSCOW, April 11 -- Mikhail Khodorkovsky, the imprisoned Russian oil tycoon, made an impassioned speech on the last day of his politically tinged trial here Monday, blaming a "criminal bureaucracy" for jailing him and defiantly refusing to ask the court for leniency.

"I will not seek the indulgence of the court because I worked for the good of my country," Khodorkovsky, 41, said from the courtroom cage where for nine months he has watched proceedings in a case alleging tax evasion, fraud and embezzlement.


Mikhail Khodorkovsky, the richest man in Russia before his arrest 18 months ago, speaks from cage in Moscow courtroom. (Sergey Ponomarev -- AP)

_____Special Report_____
Putin and the Oligarchs

"I did not ruin the Soviet Union and Soviet industry," said Khodorkovsky, who was Russia's wealthiest man when he went to jail. "I was restoring it. . . . Dozens, hundreds of enterprises. Now they are all working for the benefit of Russia. And though I am no longer their co-owner, I am proud of that." The public benches in the small courtroom, packed with supporters, erupted in applause when he finished his 40-minute statement.

Prosecutors call the case against Khodorkovsky a necessary step to rein in financial crime. But his supporters see the case, along with the dismantling of his Yukos Oil Co. in a parallel tax case, as Kremlin retaliation for Khodorkovsky's political activities and proof that rule of law has yet to take hold in post-communist Russia.

Before his arrest in October 2003 by masked commandos who stormed his private plane at an airport in Siberia, Khodorkovsky appeared to be building a political identity in opposition to President Vladimir Putin and had begun funding opposition groups.

Judge Irina Kolesnikova of the Moscow City Court said a verdict would be announced on April 27. Khodorkovsky, along with his co-defendant and business partner, Platon Lebedev, faces up to 10 years in prison if found guilty of all the charges.

After Monday's court session, prosecutors dismissed Khodorkovsky's speech, possibly his last public statement for years, as empty words.

"All the eloquence and rhetoric we heard in court today about innocence and concern for the good of Russia were just words and nothing more," said prosecutor Dmitri Shokhin, speaking to reporters. "In almost a year of court hearings we have seen that a cynical, impudent theft running to tens of billions of rubles lies behind all of this. So we think huge damage has been inflicted on the state and society, and on citizens in general."

Khodorkovsky was one of a handful of Russian businessmen known as oligarchs who built fortunes by buying state facilities that were privatized in hurried and often dubious transactions after the breakup of the Soviet Union. Khodorkovsky built Yukos into a company that had a market value of $40 billion, pumped a fifth of Russia's oil and was praised by foreign business analysts for its adherence to Western financial practices.

In addition to prosecuting Khodorkovsky, the government has reopened the Yukos books and served it with bills for back taxes totaling $28 billion.

Last December, the company was gutted by the forced sale of its prime asset, Yuganskneftegaz, a subsidiary that pumped more than a million barrels of oil a day. That unit was acquired by a state-owned company, Rosneft, which will merge this year with Gazprom, creating an energy giant in which the state has majority control.

An analysis by Moscow-based Hermitage Capital Management found that the case has apparently changed the tax practices of other companies. The annual tax payments of major Russian energy companies, including Lukoil and Sibneft, shot up after the state targeted Yukos, according to the Hermitage analysis of the companies' financial statements.

"If it hadn't been Yukos, it would have been some other company required to answer for its tax-evasion schemes," Igor Shuvalov, a presidential aide, said in a speech last month. "No one wants another Yukos affair, but if this is required in order to make companies pay their taxes, the government will do it even at the cost of damaging its own image."

Such damage is mostly international. There is little sympathy for Khodorkovsky among the Russian public, where people are sometimes unaware of his claims of political persecution. In one news broadcast Monday night, on NTV, Khodorkovsky's speech was ignored; the station's report focused almost exclusively on Shokhin's rebuttal, with a short comment from one of Khodorkovsky's attorneys.

Fears that Yukos might be the first in a series of prosecutions leading to the re-nationalization of some property has unsettled investors. Capital flight jumped fivefold, to about $9.5 billion last year, according to the Russian government. The Kremlin is now trying to reassure investors that Yukos is an exceptional case.

"I insist on the fact that all the speculation on possible preparations being made in Russia to review privatizations is without any basis," Putin said Sunday in Germany, where he was attending the opening of the Hanover trade fair. On Monday, Putin and Chancellor Gerhard Schroeder announced a series of multibillion-dollar business deals, including German involvement in the development and transit of natural gas and the sale of high-speed trains to Russia.

"We understand well that the possibilities for industrial growth and diversification depend directly on the level of economic freedom in the country," Putin said.

But one of Putin's economic advisers, Andrei Illarionov, who has spoken against some of his own government's actions in the past, said on Monday that the country had much more to do to repair the damage from the Yukos prosecution.

"The actions of the Russian authorities in 2003 and 2004 prompted many in the world to wonder where Russia is heading," Illarionov said at the Russian Economic Forum in London. "The authorities are taking steps to offset the damage, but these steps aren't yet convincing enough to offset it."

Prosecutors have also targeted key figures in the company, imprisoning some and forcing others into exile. The Yukos security chief, Alexei Pichugin, for instance, was sentenced to 20 years in prison last month on charges of murder and attempted murder following a secret trial that drew widespread condemnation abroad for its lack of openness.


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