Kommersant: YUKOS: Case Live and Kicking

The Prosecutor General's Office publicly announced a search of banks that have dealings with YUKOS money. The next logical step is the interrogation of drivers who buy YUKOS gas.

“At present, searches and seizures in the village of Zhukovka-88, the ALM Feldmans legal firm, the Trust Investment Bank, Trust National Bank, and YUKOS-FBTs are in their final stages.” That announcement appeared on the evening of October 5 on the official website of the Prosecutor General's Office and was instantly picked up by information agencies. “The investigation has obtained information that certain managers and employees of YUKOS embezzled and legalized by exporting funds in the amount of about $7 billion in 2002 and 2003,” the prosecutor claims. “The investigation has disclosed schemes developed for the embezzlement of proceeds from the production of oil and its consequent legalization as dividend payments to dummy firms registered in a number of foreign countries.”

I have to confess that I do not really understand the meaning of the phrase “embezzlement as payment of dividends” (the question immediately arises as to whom the owners of the company stole the proceeds from) but, if I were a YUKOS stockholder, I would be feeling pretty insecure about the future right now. And clearly that is how they feel. In the hour of trading left that evening, the company's stock, which has already been falling that day, lost another 5 percent, bringing the whole market down with it. The RTS index lost 3.4 percent that day. Stocks continued its descent the next day – the RTS index lost almost another 3 percent just in the first hour of trading and dipping below 1000.

It is, of course, impossible to say how long and how low this fall will be. If the Kommersant account is accepted, according to which the prosecutor's aim is to bring new charges against Mikhail Khodorkovsky and Platon Lebedev in order to keep them in the Moscow holding facility longer and not send them to a prison colony, the market may settle down quickly. But events may take an even uglier turn.

Those active on the Russian stock market say that it meteoric rise was due mainly to purchase by nonresidents. They were probably the sellers last Wednesday and Thursday as well, and they had good reason for their panic. Simultaneously with the Moscow searches, a similar operation was carried out in the offices of Yukos Finance B.V. in The Netherlands. This points to the long arm of the Russian prosecutor and the possibility of it reaching Western investors. Considering the brisk activity of the prosecutor, the seriousness of the accusations of money laundering, just when there is an international campaign against it, connected with the widespread practice of paying dividends, makes the risks of investment in the Russian market simply astronomical for foreigners. It is hard to believe that paying stockholders dividends can be officially equated with embezzlement. The state likes to make money that way itself. But isolated instances cannot be ruled out, and that will do the investment climate in the country no good.

And that is but the tip of the iceberg. The mention of the searches of the two Trust Banks by the prosecutor in a public statement is also cause for serious concern. The fact of the searches is not surprising. Those banks, previously called the Assurance Investment Bank and MENATEP St. Petersburg Bank, were formerly part of MENATEP Group, as YUKOS had. And the seizure of documents from a bank when a criminal case is brought against one of its clients is a standard procedure, even if it does shake up bank employees.

It is striking thought that a serious crisis in liquidity arose in the Russian banking system a year and a half ago that many experts say was caused by incautious statements by the head of the committee for financial monitoring (financial investigation) about a blacklist of banks that are engaged in money laundering. And everyone remembers several times last year when banks' licenses were rescinded for exactly that reason. Now there are new public statements by securities agencies about searches related to money laundering.

The Trust National Bank was recently subjected to a thorough verification by the Central Bank in connection with its admission to the deposit insurance system. (Trust Investment Bank did not apply to enter the system, since it does not work with individual depositors.) A financial monitoring committee exists in this country that is supposed to track banking operations to winnow out money laundering. It apparently had no questions about those banks' activities.

Of course, fact may have been uncovered in the course of the prosecutor's investigation that had not been noticed by the financial monitoring committee. But that still does not explain why the prosecutor needed to reveal the names of the financial institutions. I will risk two guesses. The milder guess is that they just didn't think about that. That happens, although it would be desirable for employees of security agencies to think about the economic consequences of their actions. The more frightening version is that the prosecutor is intentionally displaying his plans to go after anyone who has ever had any relation to YUKOS, whether there were any clear economic misdeeds or not. In that case, anyone who bought the company's gasoline at any time could theoretically be called in for questioning. It is known already that that business was highly criminal and used for the laundering of money.

by Petr Rushailo

Kommersant, 10.11.2005