The Independent : Robert R. Amsterdam: Allowing this sale of 'stolen goods' is a disgrace

Published: 10 July 2006

I was involved in defending Mikhail Khodorkovsky during one of the worst show-trials since the Stalin era. I was forcibly deported from Russia, and other lawyers were, and remain, incarcerated for defending Mr Khodorkovsky. But nothing prepared me for the London Stock Exchange allowing itself to be involved while Mr Khodorkovsky and other entrepreneurs involved with Yukos have been sent to the gulag to silence them.

The imminent flotation of Rosneft, the main Kremlin-controlled state oil company, is anticipated by foreign investors seeking to profit from Russia's growing oil wealth. This flotation presents a new calculus in investment management. Russia has invented the "Kremlin Index", based on the "complicity discount". What price will the Kremlin oil barons need to strike to motivate people to join them in their violations of human rights and the rule of law?

This offering is all about legitimising Rosneft's ill-gotten gains. The lion's share of the value of Rosneft is made up of assets formerly belonging to the Yukos oil company, built into one of the world's largest private oil companies by Mr Khodorkovsky.

With Mr Khodorkovsky and others jailed on specious charges, and Yukos crumbling under the weight of baseless tax claims, Rosneft obtained billions of dollars worth of Yukos assets through a questionable auction orchestrated by the Kremlin.

These are the assets now being brought to the London Stock Exchange, with the assistance of bankers who have been crucial in bringing the expropriated assets to the London Market. Rosneft's acquisition of Yuganskneftegaz, the main production subsidiary of Yukos, was described as the "swindle of the year" by a universally respected Russian presidential adviser, who resigned in protest.

Andrei Illarionov said "the enigma of the year" was to know how a shady front company, created just days before the auction with charter capital of only $300, was able to win Yukos' core production assets for $9.35bn, then transfer these assets to Rosneft in its sale to the latter days after its winning bid.

In a legitimate auction, the Yukos assets could have fetched more than $20bn. Where did the front company gather $9.35bn, given that all foreign banks stayed away from financing bids at the auction for fear of the legal consequences? Mr Illarionov said the funds were "taken from the citizens", adding: "Russia is no longer a free country."

This flotation presents foreign investors with a choice and an opportunity. The choice is whether or not to invest in what I consider stolen goods. Choosing to invest in Rosneft is investing against human rights and the rule of law, since brutal disrespect for both is what made the flotation possible.

At the close of his trial, Mr Khodorkovsky said: "The whole country knows why I have been put in prison. It is so that I do not hinder the pillaging of Yukos."

The opportunity presented by the Rosneft flotation is to take a principled stand, responding with a resounding nyet, to send a clear message to Moscow that the funds and the respect of foreign investors must be earned.

The proposed Rosneft financing raises numerous critical issues for international investors and capital markets. These concerns include the failure of the Russian state to adhere to international standards of disclosure, its attempt to strong-arm international investment banks into supporting its international financing efforts, its riding roughshod over foreign investors in Yukos, and its wilful disdain for the rights in property of investors.

Unless governments and regulators of Western capital markets stop this financing, not only is it probable that investors foolish enough to purchase Rosneft will suffer the sort of shabby treatment meted out to Yukos shareholders, but their tacit support of these Russian initiatives will harm western capital markets.

Robert Amsterdam is International defence counsel of Mikhail Khodorkovsky