A Khodorkovsky Retrospective

Given the stream of news from Russia over the past year, President Medvedev faces an increasingly difficult task convincing the world that his country has achieved the institutional stability that it so desperately needs in order to play a constructive role on the global stage. Against a backdrop of severe corruption, the growing economic precariousness facing Russia since last autumn demonstrates the reality that a state of normalcy eludes the country's economy and its governing institutions. Economic growth and one of its preconditions - the development of the rule of law - are failing in Russia. From human rights and property rights to democracy and governance, little seems to be guaranteed.

These failures are due in large measure to actions by certain powerful elites in Russia's own leadership. When the so-called "vertical of power", concentrating all authority in the Kremlin, is put to the test, it has most often looked more like a "horizontal of incompetence".

With the Russian authorities' tendency towards arbitrary and occasionally irrational acts, we have been left wary of a leadership that may not in fact have the answers to the present economic crisis. The abuses of the legal system, the massive and pervasive levels of corruption, and the musical chairs by which the Russian leadership manages the government half of the day, and Rosneft or Gazprom the other half, do not comport with rational views of how statecraft and business should be done.

Whether domestically or internationally, the Russian state has betrayed its responsibility to its own people to protect and adhere to the fundamentals of the rule of law. Not only have key constitutional norms been undermined, but the whole of the criminal justice and regulatory systems of the country have been abused and instrumentalized by a clique of powerful people who have brutally seized and consolidated the country's wealth for their own personal benefit - with global implications.

The last Khodorkovsky trial - which led to a conviction five years ago this month, in May 2005 - fed into a virus of kleptocracy and resource nationalism from which the world has yet to recover. This second trial now underway may be seen as the high water mark of authoritarian impunity for years to come.

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Khodorkovsky, former chief executive of the Yukos Oil Company, and his business partner Platon L. Lebedev, were convicted and sentenced to eight years imprisonment in 2005 and banished to Siberia. They were victims of severe abuses of institutions of Russian state power - from investigatory, prosecutorial and regulatory authorities to the judiciary - committed by a group of figures in the political establishment who viewed them as challengers or competitors. The interests of political and commercial adversaries had coalesced to orchestrate the state's incarceration of the two men and raiding of their company's assets. When Khodorkovsky became eligible for parole in 2008, those in power who still perceive him as a threat stepped up a long-dormant effort to find new grounds to keep him incarcerated for a long time to come. In addition to keeping Khodorkovsky isolated from society, his adversaries seek to conceal the corrupt and criminal actions committed against him and other victims of the Yukos affair with the participation and under the protection of high-ranking officials.

Politically-Driven Prosecution

The arrest, trial, conviction, and ongoing proceedings against Khodorkovsky have occurred not for reasons driven by the administration of justice, but rather for reasons completely alien to justice, including:

• to confiscate his property and to rule out any possibility of that property ever being restituted;
• to silence Khodorkovsky's criticisms regarding the causes and scale of corruption in Russia and to halt his engagement in the political life of the country;
• to force an end to disagreements over strategies for the development of the country's energy industry;
• to eliminate Khodorkovsky as a perceived threat to certain officials in the Russian presidential administration and government.

In attacking Yukos and the company's top managers and core shareholders, prosecutors paved the way for a group of officials at the top of the country's political establishment to achieve the objectives above.

The reckless and heavy-handed behavior of the Russian authorities in their dismantling of Yukos and the seizure of the company's assets through dubious and unlawful means are matters of historical record. Throughout the process, the implosion of the company's value was wholly unnecessary, unless the objective was to destroy Yukos as an entity and to integrate its assets into state-controlled enterprises.

Khodorkovsky's case is a watershed in Russia's modern political evolution because it was intended to be, and has in fact become, a lesson to all Russian citizens of the limits to the political freedoms that came with the dissolution of the communist system.

Obvious Groundlessness of New Allegations

The prosecutor's new embezzlement and "money laundering" allegations against Khodorkovsky and Lebedev are unprecedented in monetary scale and in the high level of distortion of both facts and laws. Khodorkovsky and Lebedev are accused of embezzling 350 million metric tons of oil worth over $25.4 billion and "laundering" over $21.4 billion. These figures imply that they somehow embezzled the entire oil production of Yukos subsidiaries over a six-year period and "laundered" the majority of the proceeds - without being caught by independent auditors or anyone else until today. The allegations are not grounded in law, not supported by evidence and are internally contradictory. Indeed, the allegations are absurd, and completely refuted not only by defense evidence which investigators refuse to admit into the case file, but also by common-knowledge facts that are obvious and undisputed.

Prosecutors are criminalizing and selectively attacking ordinary, widespread business practices. Criminal law is being invoked in circumstances where it is inapplicable, while relevant commercial laws are being ignored altogether. In so doing, the authorities are abusing their power of criminal prosecution.

The allegations of theft concern the activities of a great number of Yukos employees performing routine, independently audited transactions. The elements of theft - illegality and a lack of exchange for value - are simply not present. The prosecutors have taken it upon themselves to invent concepts that do not exist in Russian law, but that have a legalistic ring. For example, assertions made about transactions between subsidiaries do not consider the context and are instead labeled with invented terms such as "non-equivalent exchange" or "sale at an understated price" - terms that are simply not found anywhere in Russian law.

Likewise, the allegations of "money laundering" lack any grounding. To launder money, one transforms illegally-obtained funds into legally-held assets, or conceals the criminal source of funds or other property to create the appearance that ownership is lawful. The prosecutors neglect the fact that the funds and oil production they assert were "laundered" were in fact lawfully on the books of Yukos, lawfully dealt with in open transactions, and duly reported upon to the Russian authorities, including tax authorities. To assert that these assets were "laundered" is a nonsensical misapplication of the term.

The prosecutors' disregard towards acting within the bounds of the law also includes ignoring legally established procedural time limits. Prosecutors stubbornly pushed ahead with allegations surrounding supposedly improper share transactions, despite the expiry of the statutory time limit for bringing charges.

Closed Trials

Prosecutors have held closed trials in order to be able to rely upon invariably damning alleged facts against Khodorkovsky as having been established by a court of law.

Cases involving several Yukos managers have been pursued for precisely this purpose. On March 5, 2007, a news release was posted to the official website of the Russian Procuracy, announcing that a guilty verdict had been issued that day in a case against two Yukos managers. The cases involved allegations over Yukos transactions that have also been imputed to Khodorkovsky. Yet rather than examining the transactions and all alleged participants in one investigation, prosecutors proceeded against lower-level Yukos managers first. Having achieved guilty verdicts against the lower-level Yukos managers enables prosecutors to refer to court-validated findings in their new allegations against Khodorkovsky.

Despite their central roles in the alleged facts and obvious interest in the outcome of these cases, Khodorkovsky was not permitted to testify in court. Even written testimony and petitions from Khodorkovsky, stating a desire to testify, were not considered.

Another Yukos manager, Antonio Valdes Garcia, who is a Spanish citizen, left Russia after being subjected to severe abuses by investigators. Russian prosecutors have however chosen not to request his extradition back to Russia, as they are fearful of the light that would be shone on their abuses if a foreign court is asked to consider such a request. To avoid embarrassment and loss of credibility, the prosecutors have instead deemed it in their interest to pretend that the whereabouts of Valdes Garcia are unknown, and have absurdly pushed ahead with his trial in absentia.

A guilty verdict against yet another Yukos manager, announced on April 4, 2008, indicated the extent of the bias against Khodorkovsky. The verdict refers to Khodorkovsky as guilty of criminal allegations for which they have not yet been convicted in court. His constitutional right to be presumed innocent has been completely ignored.

Concealment and Distortion of Evidence through Procedural Manipulations,
Blackmail and Torture

Rather than pursue a comprehensive investigation of the facts pertinent to the allegations against Khodorkovsky, prosecutors created a series of separate and parallel cases, including secret investigations conducted without notice to those under investigation. In so doing, prosecutors have been able to impound, conceal and manipulate evidence in artificially isolated cases that would exonerate Khodorkovsky of the charges he currently faces. Prosecutors have thereby sabotaged the rights of Khodorkovsky to have access to critical information for the development of his defense.

Prosecutors have also ignored time limits established by law, and benefitted time and again from deadline extensions whenever desired. Investigations concerning Khodorkovsky and Lebedev were launched in 2004, yet neither was given any opportunity to testify. Their first interrogations as suspects did not occur until two years later in 2006. The law holds that preliminary investigations are not to last longer than two months. Prosecutors finally brought new charges against Khodorkovsky and Lebedev on February 5, 2007. After a prodigiously productive eleven-day investigation, on February 16, 2007 the prosecutors presented 127 case volumes for the defendants to become familiar with. Two years later, following numerous extensions of the pretrial detention period, their case was sent to court.

Since 2004, investigations of various matters were indiscriminately launched, paused, restarted or dropped by prosecutors, allowing them to corral witnesses and confiscate evidence. Meanwhile, petitions from Khodorkovsky and Lebedev asking for explanations of the charges against them were unsuccessful, regardless of the fact that they are entitled under law to request and receive such explanations.

Prosecutors have failed to meet the legal requirements for initiating their case on allegations of embezzled oil proceeds. Under Russian law investigators must open such cases based upon a complaint from a harmed party or a suspicion of criminal activity. Yet no case was ever formally initiated for the alleged embezzlement of oil proceeds. Nor has a proper investigation of the relevant facts occurred. Investigators have collected materials from cases they are pursuing separately, including copies of interrogation transcripts and other documents, and simply copied them into the new case file of Khodorkovsky and Lebedev. Virtually no real investigative work has occurred over the past two years, with the overwhelming majority of documentation on record simply pulled in from other cases. Reams of documents including raw financial data are dumped into the case file; their origin is unknown, their relevance is unintelligible, and the result is a mess of slapped-together data that is a nightmare to navigate. Many items are incomplete, being for example just one or several pages extracted from an unattributed document, the rest of which does not appear in the case file. In contrast, the investigators have refused to accept and consider over 270 documents and Yukos financial data provided by the defense.

Whereas prosecutors officially designated Chita, Siberia as the venue for the investigation of new charges against Khodorkovsky, in reality the case has been administered from Moscow. All key procedural decisions are taken in Moscow and case-related documents have been signed there and then transmitted to Chita. This is contrary to the legal requirement that the investigation actually be administered in Chita, the officially designated venue. Clearly, Khodorkovsky was simply being isolated thousands of kilometers away, in a place that had no connection with the activities under investigation. This significantly restricted his participation in the investigatory process and complicated communications with his defense counsel.

Furthermore, by holding Khodorkovsky for two years in a pretrial detention unit, the prosecutor changed his regime of incarceration from the more flexible conditions of a prison colony to the harsher conditions of pretrial detention in small jail cells. Holding him for so long as a criminal suspect under arrest allowed the prosecutor to isolate Khodorkovsky far more than if he was serving his sentence in a prison colony. In pretrial detention, he has been kept under round-the-clock surveillance, deprived of exercise and fresh air and had family visits restricted to a minimum. Under Russian law, even if prisoners are under investigation for new allegations, they are to continue to serve their existing sentence as stipulated by the court's verdict. If at all, Khodorkovsky should have been serving his sentence in an appropriate prison colony and not in a pretrial detention unit where the conditions are far more severe and inhumane.

An investigation was run in parallel against Vasily G. Alexanyan, former Yukos general counsel arrested in April 2006 and held in pre-trial detention until January 2009. Alexanyan refused to provide false testimony against Khodorkovsky and Lebedev in exchange for desperately-required medical treatment. Despite his release from pre-trial detention in January 2009, due only to an intervention by the European Court of Human Rights, Alexanyan is now near death due to a severe deterioration of his health while incarcerated in pretrial detention. His ordeal vividly demonstrates the methods and morals of the prosecutors, engaging in torture in order to pressure people to slander Khodorkovsky and Lebedev with lies.

Interference with Defense Counsel

Prosecutors have committed gross violations of procedural rules concerning defense counsel. Searches and seizures without court approval have become routine. Privileged and confidential documents have been confiscated. Authorities have temporarily detained defense counsel and harassed them and members of their families. Just this week the legal defense team was given reason to believe that its communications - by telephone and by other means - were being eavesdropped upon by the FSB, on the order of prosecutors. Yet to date complaints over any such actions have been consistently ignored.

Disbarment proceedings have been threatened against defense counsel by authorities without valid cause, as a form of intimidation and vengeance for defending Khodorkovsky and Lebedev. Prosecutors have gone as far as to implicate defense counsel themselves with criminal liability due to their professional association with Khodorkovsky and Lebedev. This has made it difficult or impossible for defense counsel to perform their duties.

For my part, I was ejected from Russia in September 2005, and have been banned from the country for five years.

Rulings by Foreign Courts and Law Enforcement Authorities

There is a prevailing consensus internationally that with respect to Yukos-related cases, Russia's justice system is so politically corrupted that no foreign court respecting human rights and the rule of law should morally or legally cooperate with Russian prosecutors.

In a landmark decision in August 2007, the Swiss Federal Tribunal ruled that Switzerland is no longer to comply with Russian prosecutors' requests for assistance concerning the Khodorkovsky/Yukos cases. The Tribunal validated a series of appeals from Khodorkovsky and several of his former business partners who had asserted that if Swiss authorities assisted their Russian counterparts, grave moral and legal injustices would result. The judgment cited several legal violations in the criminal proceedings against Khodorkovsky and his associates, and deemed those proceedings to be politically motivated. According to the judges, "Switzerland would be in breach of its international obligations if it cooperated with a foreign criminal proceeding presenting a risk of treatment of an accused, particularly discriminatory treatment, which is inconsistent with minimal guarantees recognised under international law." The Tribunal also revealed details of Russia's inability or refusal to satisfy Switzerland's requests for justifications regarding the Khodorkovsky-related requests: Russia's responses to legitimate Swiss questions were deemed "scattered and evasive" and without credibility. This was the first time in history, outside of extradition cases, that Switzerland rejected a request to provide assistance to prosecutors from another country.

In numerous other cases outside of Russia, courts and public authorities have consistently sided with Yukos-connected individuals fleeing the Russian justice system. Great Britain, Germany, Italy, Cyprus, Liechtenstein, Lithuania and Estonia have all refused to assist Russian justice officials in their efforts against Yukos-connected individuals abroad.

The Second Trial

In contrast to developments outside of Russia, Khodorkovsky has not been as fortunate in domestic courts.

From the outset of the trial this March, the defense has diligently filed motions addressing both the substance of the prosecutor's allegations and procedural failings. All defense motions are reasoned and grounded in accordance with Russian law. The most important of these motions, and related statements made in court by the defendants, have sought to force the prosecution to explain how there could be embezzlement of oil when the same volumes of Yukos production were reported, accounted for and heavily taxed; or how there could be "money laundering" without any underlying crime.

Khodorkovsky noted that despite repeatedly requesting explanations from the investigators regarding the charges, and despite signing a series of statements asserting that his questions had not been answered, the court nonetheless erroneously declared that answers had in fact been provided to Khodorkovsky in conformity with the law.

Another series of motions addressed the evidentiary base of the prosecution's case. The prosecution continues to bandy about the stigmatizing terms "embezzlement" and "money laundering" - yet has been unable to provide any rational explanation of the charges grounded in evidence. The defense therefore motioned for the following:

• That certain exculpatory evidence be added to the case file - either documents readily available to the defense, or documents being concealed or impounded by prosecutors;
• That where illegal seizures of evidence had occurred, such materials be excluded from the case file;
• That the court subpoenas over 250 witnesses to testify in support of the defense;
• That the court avail itself of procedures available to obtain relevant evidence from persons abroad, located in the United States and Europe, who have stated they are willing to cooperate with Russian authorities;
• That public records be subpoenaed in order to prove the whereabouts of the allegedly embezzled Yukos oil in what was a tightly-controlled state-run pipeline network;
• That publicly available Russian government documents from the 1990s be added to the case file, to demonstrate that government policy had been geared towards the development and functioning of Yukos as a vertically-integrated energy company;
• That the court consider a whole series of judgments in relevant cases adjudicated by other Russian courts; noting that official copies of the texts of several of these judgments, germane to supporting the defense position on numerous issues, had suddenly become impossible to acquire from either public or private database sources.

In addition, the defense filed motions regarding problems in the case file that are illustrative of the slipshod nature of the prosecution's work. Motions have sought corrective actions regarding the following:

• Mathematical errors in the charges;
• A multitude of inaccuracies and fabrications in documents translated by the procuracy from English to Russian;
• Numerous missing pages from documents in the case file;
• Entire documents referenced but absent from the case file.

The defense further pointed out the procedural ploys used by the prosecutors in order to ensure that Khodorkovsky remains in the confines of strict incarceration, reducing his access to legal counsel and family visits.

The defense motions were challenged by the prosecution, who routinely asserted either that the motions were "premature", trying to push the judge to rule on matters that should be dealt with later in the trial; or that the motions represented delay tactics by the defense.

The defense maintained that its position that all matters raised demanded immediate resolution, both for a fundamental understanding of the substance of the charges and for a fair hearing of the defense position. The prosecution's assertion that the defense was engaging in delay tactics was wholly disingenuous, since many of the defense's requests had been made - and ignored - on multiple occasions dating back two years. Furthermore, one effect of the investigators' and prosecutors' longstanding refusal to seek and admit corporate records to the case file is that as document retention periods expire, critical exculpatory evidence from 1998-2000 can legally be destroyed by third parties who are under no obligation to preserve data for the court.

Moreover, due to the prosecutor's long delay in bringing this case to trial, the statutory time limit for bringing charges on certain alleged improper share transactions has expired. Despite the expiry of this statutory time limit, the court has agreed to hear the prosecution's allegations. The defense has and will nonetheless vigorously defend the legality of those share transactions.

Almost every single motion filed by the defense was rejected by the court. The judge has overwhelmingly sided with the prosecutors, making short rulings that did not address the relevant law and legal reasoning presented by the defense. Such short rulings without reasoning are inconsistent with the requirements of Russian law. The only concessions made to the defense were to allow certain court precedents from 1999 and 2000 to be added to the case file, and to admit a list of defense witnesses - although the judge reserved the right to reject any particular defense witness on a case-by-case basis when the defense seeks their testimony later in the trial.

No evidence presented or requested by the defense has been added to the case file. In contrast, investigators and prosecutors have previously been allowed to add materials to the case file as they desire.

The defense noted that with the vast majority of their motions rejected by the judge, the capacity of the court to render a reasoned and lawful decision was substantially hampered - if not eliminated. Khodorkovsky asserted that some of the prosecutors had in fact exposed themselves to future prosecution for making false statements to the court.

The defense has posted the text of its motions and related documentation on the Internet, with English translations. Any interested person is free to conduct their own assessment of the validity of the new charges against Khodorkovsky, the strength of the defense team's arguments and the fairness of the trial to which the defendant is being subjected.

On April 21, 2009, Agence France Presse described the unfolding trial as a "theatre of the absurd". Prosecutors have stubbornly stuck to a script - their indictment - which denies legal and factual realities ranging from the fundamental definition of "crime" to the highly regulated structure and operation of vertically-integrated energy companies. They have failed to elucidate how it was possible that Yukos covered its operating expenses and invested heavily in capital improvements and acquisitions and paid dividends - all financial operations recorded on the books of Yukos and several other companies and banks - when the funds necessary for these operations were allegedly stolen. A rudimentary examination of the audited financial statements of Yukos renders the embezzlement allegations a factual impossibility. Furthermore, in their calculations of alleged theft, the prosecutors impute world prices for refined and transported oil to transactions for unprocessed wellhead output on the domestic Russian market - denying that differences in price represent refinement, storage, transport, taxation, and other downstream costs. The prosecutors also demonstrate complete ignorance of the transfer pricing practices of Yukos, which continue to be employed by Rosneft and other Russian and international companies today in full compliance with the law.

Ironically, the prosecutors will on one hand refuse to clarify major questions, such as whether they are alleging it was oil products that were stolen or proceeds of the sale of such products, and where the stolen goods or funds were taken; they will remain silent on the method, time and place the alleged crimes were committed; yet on the other hand they will carefully read out ruble and dollar sums allegedly embezzled to the level of detail of kopecks and cents. Prosecutors have been permitted to drone on for hours and days on end, reciting an indictment that everyone in the courtroom has already read; yet when the defendants have attempted to address the substance of the indictment, they have been continually interrupted by prosecutors and their statements have been cut short by the judge.

The defendants have concluded that the prosecutors do not comprehend basic principles of law and business management and fundamentals of the energy industry, and that they have a vested interest in a predetermined outcome at the trial and will exert enormous pressure on the judge to achieve that outcome.

On April 3, 2009, Sabine Leutheusser-Schnarrenberger, former German Minister of Justice and current representative of the Parliamentary Assembly of the Council of Europe, stated, "I cannot understand why Mikhail Khodorkovsky and Platon Lebedev have been put on trial a second time. I have the impression, however, that it is being done so as to keep them in prison as long as possible."

Is there Hope for a Fair Verdict?

The behavior of the prosecutors in the courtroom has only weakened their credibility and reinforced the incongruity between obvious facts and the allegations of embezzlement and "money laundering". With each ruling by the judge favoring the prosecution, the window of opportunity for a fair judgment seems to be closing, although it still cannot be excluded.

The judge is undeniably in the unenviable position of being the focus of incredible direct or indirect pressure by the prosecutors, and those behind them, to rule against the defendants. On the other hand, in line with President Medvedev's declarations regarding the importance of an authoritative and independent judiciary in Russia, the judge cannot render credible guilty verdicts on the deficient legal grounds that have been provided.

This trial carries enormous symbolic value for Russia and the world. Will the "tax terrorism", state-backed raiding of private property and trampling of human rights of recent years be validated and continued? What messages would guilty verdicts send about the competence and independence of the Russian justice system and the prospects of President Medvedev's desire to stamp out "legal nihilism"? What would be the effects on foreign investors, foreign governments and in foreign or international tribunals? If the court can ignore both facts and laws and render a judgment "on order", will that not signal to law enforcement and judicial authorities across the country that they can do the same, with impunity? As posited by Khodorkovsky, will the court "understand that it is a court, and not a cheap instrument for raiders and corruptioneers? Will it help the President and the country? We'll see."

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As the financial crisis takes its toll in Russia, we may not be that far from a real crisis of popular support for the regime. Having bought public complacency through several years of wild energy revenues, indications are that people are starting to care again about the fundamentals of Russian governance. Given the institutional weaknesses plaguing the country in these harder economic times, official rhetoric about reform must turn to real action, and really quickly. Otherwise, the country risks becoming a landscape of broken dreams contrasting the recent promise that Russia was building something new.

The pattern of abuse of state authority in Russia over the past several years has undermined the very legitimacy of those ruling the country today. This is unfortunate because the necessary architecture for the existence of the rule of law, and a thriving economy, largely exists in Russia. Yet enormous damage has been done to Russia's development through abuses permitted under the cover of state authority. Those guilty of this damage have betrayed the real progress that has been made - in law and practice - in the development of an increasingly prosperous rule-based market economy.

For Russia's international peers, including Poland and the countries of the European Union acting in unison, it has become more important than they might think not to turn a blind eye from incidents that time and again have demonstrated the country's crisis of governance when it comes to the rule of law and, in particular, human rights.

The events of the past five years have made Khodorkovsky the Sakharov of a new generation of Russian political prisoners. As with Sakharov, who was the father of the Soviet hydrogen bomb, Khodorkovsky's past - his actions and experiences in the difficult transition environment of the 1990s - should not cloud judgment about the fierce Kremlin campaign against him. Indeed, it was his experiences of the 1990s that solidified Khodorkovsky's convictions about government responsibility, corporate transparency and robust civil society.

If the international community begins to neglect Khodorkovsky, the Kremlin and other corrupt leaderships around the world will be further encouraged to devise legal processes using any of a broad variety of seemingly legitimate pretexts to deny the peaceful exercise of political rights by regime opponents.

Khodorkovsky provides one of the most prominent examples. Ignoring or downplaying his fate, or that of a long list of other victims of Moscow's authoritarian streak, is not only to do a great disservice to Russia today. This also undermines our own long term interests. A stable, prosperous and rules-based Russia would be a welcome contributor to the pressing global challenges that should unite us all.