Russian Oil Tycoon Sentenced to Nine Years

05/31/2005

MOSCOW (AP) - One year and three days after it began, the biggest trial in post-Soviet Russia ended Tuesday with a nine-year sentence for fallen tycoon Mikhail Khodorkovsky, whose oil empire was broken up after he became a political challenge to President Vladimir Putin.

The 41-year-old Khodorkovsky vowed to clear his name of the charges, which included tax evasion and fraud, and his Yukos oil company promised to fight a series of court battles - keeping a spotlight on doubts about the rule of law in Russia.

“Shame! Shame!” Khodorkovsky supporters chanted outside the Meshchansky court, where they rallied daily holding portraits of the capitalist-turned-philanthropist and yellow and green balloons, the colors of the Yukos company he founded and turned into Russia’s biggest oil producer.

The case also has made foreign investors anxious about doing business in Russia, with capital flight tripling in the year after Khodorkovsky’s arrest. The growth of oil exports has slowed sharply, raising questions about the state taking a stronger hand in the vital industry.

In Washington, President Bush criticized Khodorkovsky’s trial in unusually blunt language aimed at a U.S. ally in the war on terrorism. “Here, you’re innocent until proven guilty and it appeared to us, at least people in my administration, that it looked like he had been adjudged guilty prior to having a fair trial,” Bush said.

While Khodorkovsky, once estimated to have a $15 billion fortune, is widely unpopular as one of the “oligarchs” who became immensely wealth during the murky post-Soviet privatization of state industries in the 1990s, many Russians saw political motives behind his trial.

His supporters contend it was part of a Kremlin-driven campaign to punish him for financing opposition parties and to stifle his own political ambitions. After spending 583 days in custody, he faces 7 1/2 years more in prison, which would him jailed past the 2008 election to pick Putin’s successor and potentially the 2012 ballot as well.

Natalya Vishnyakova, a spokeswoman for the prosecutor-general, denied the case had anything to do with politics. She said it was only about “banal theft.”

Pale and with lips pursed, Khodorkovsky looked straight ahead as Judge Irina Kolesnikova pronounced the sentence in a packed, sweltering courtroom. Tears streaked the cheeks of his wife, Inna, and his parents, Boris and Marina, took turns comforting her as he tried to send reassuring glances from the defendants’ cage.

In a statement read outside by defense attorney Anton Drel, Khodorkovsky said he would not harshly criticize the judge, noting “the pressure she has come under from the initiators of the case when preparing the verdict.”

“The problem, finally, is not with Kolesnikova. But it is that the judicial powers in Russia have turned into a blunt instrument of the authorities,” he said.

The statement said Khodorkovsky would try to devote his efforts in prison to an array of charitable and social works, including a proposed fund for aiding inmates.

“I do not admit my guilt and consider my innocence proven, so I am going to appeal the sentence,” Khodorkovsky said. “For me it is matter of principle to achieve truth and justice in the motherland.”

A co-defendant, Platon Lebedev, found guilty of the same charges and given the same prison sentence, told the judge, “There’s not a sane person who can understand what you have said.” She then read his sentence again.

A third defendant, Andrei Krainov, got a 5 1/2-year suspended sentence.

Khodorkovsky and Lebedev, who will serve their time in a medium-security prison, also were ordered together to pay more than $615 million for taxes and penalties the court found to be owed by companies they were involved in. Khodorkovsky was additionally ordered to pay $42.5 million in income taxes and Lebedev to pay $581,000.

Asked if she had expected the tough sentence, Khodorkovsky’s mother said: “Of course, I live in this country. ... I lost (hope) the day we elected Putin.”

Most analysts have interpreted the Yukos affair as essentially aimed at imposing government supremacy over business after a decade in which big business, epitomized by Khodorkovsky’s empire, exploited the weakness of the post-Soviet state to amass ever larger fortunes.

In this, market watchers say, Putin’s administration succeeded - at a heavy cost.

“I don’t think any of the big business groups will want to take on the Kremlin openly now,” Roland Nash, head of research with Renaissance Capital, told Dow Jones Newswires.

But the result is that concerns about Russia’s observance of legal propriety and respect for shareholders’ rights are deterring foreign investment and spooking foreign governments.

Still, there was some relief in the business world that the marathon trial - including 12 days devoted just to reading the verdict - had come to an end. The Russian stock market’s benchmark RTS index rose 0.8 percent to a five-week high of 672.88.

Parallel to Khodorkovsky’s trial, Yukos has been battered by some $28 billion in back taxes claims. Yukos’ main production unit was sold off by the government to meet some of the tax arrears, in a shadowy auction that eventually led to the unit being acquired by a state-controlled oil company.

Yukos announced shortly after Khodorkovsky’s sentencing that it had filed a court challenge to the production unit’s sale and would seek $11.6 billion in damages. A hearing was scheduled for June 16.

Yukos also opened another legal front, filing suit in London seeking billions of dollars in damages from the owners of the Sibneft oil company, the Interfax news agency reported. The suit charges them with bad faith for allegedly engineering the collapse of a merger the two companies had announced in 2003.