Courtroom Report: March 10, 2010
Morning Session.
The "out-of town witness" was here. She was Ms. Olga Dmitriyeva, current Finance Director at AO Tomskneft VNK. Ms. Dmitriyeva joined Tomskneft in May 2001 as deputy-Finance Director and ascended to her current post in January 2002. Prior to joining Tomskneft, Ms. Dmitriyeva rose through the ranks at Yuganskneftegaz, where she began working in 1993.
After the usual preliminaries were out of the way and Ms. Dmitriyeva briefly explained her responsibilities, Ms. Ibragimova motioned to read three loan agreements concluded between YUKOS Capital S.a.r.l. (lender) and Tomskneft (borrower). On three separate dates in 2004 - July 20, July 27 and August 4 - YUKOS Capital lent Tomskneft a total of 4.3 billion Rubles. Ms. Dmitriyeva signed on Tomskneft's behalf. After Ms. Ibragimova finished, Ms. Dmitriyeva examined the contracts and confirmed that her signature appeared on each one.
Asked about the circumstances surrounding the signing, Ms. Dmitriyeva testified that she received the first agreement accompanied by a resolution of YUKOS - Tomskneft's sole shareholder - authorizing Tomskneft to obtain loans from YUKOS Capital totaling not more than 4.35 billion Rubles, as well as a power of attorney authorizing her to enter into loan agreement. Each subsequent loan agreement was accompanied by a single use power of attorney, authorizing her signature for a specific loan amount. All power of attorney letters were signed by Mr. Yuri Beylin, President of YUKOS-EP. [YUKOS-EP was the managing company for all YUKOS production subsidiaries, including Tomskneft. -Eds.] Ms. Dmitriyeva testified that she did not know whose initiative it was for Tomskneft to enter into these loans. Ms. Ibragimova asked if Tomskneft was paying interest on these loans. [Each loan contained interest provision for a 9% annual rate. -Eds.] Ms. Dmitriyeva testified that interest payments were calculated, but interest was never paid, because there was never a decision made to do so. [We should point out that on March 9, 2010, Commercial Court of Tomsk Region began hearings in an enforcement proceeding, wherein YUKOS Capital S.a.r.l. is seeking enforcement of an arbitration award issued by the International Court of Arbitration at the International Chamber of Commerce of over 7.2 billion Rubles against Tomskneft, arising from the aforementioned loan agreements. In that case, Tomskneft's representative moved to halt the proceeding until a verdict was issued in Khamovnicheskiy Court. Next hearing in that case is scheduled for March 29, 2010. -Eds.]
Ms. Ibragimova asked whether Ms. Dmitriyeva ever objected to signing these loan agreements. Ms. Dmitriyeva testified that she never objected, because a decision by the sole Tomskneft shareholder seemed sufficient.
Ms. Ibragimova asked whether Tomskneft was profitable from 2001 through 2003. Ms. Dmitriyeva testified that the company reported a profit in 2001, but had losses in 2002 and 2003. Ms. Dmitriyeva testified that in 2001 Tomskneft reported approximately $1 billion Rubles in profit, while its capital investments and amortization costs were about 5 billion rubles. Based on these numbers, Ms. Dmitriyeva explained that Tomskneft used about 4 billion Rubles from the Financial Support Fund, a fund set-up to provide additional funding for YUKOS subsidiaries. Ms. Dmitriyeva testified that in 2002-2003 capital investments were between 7-10 billion Rubles, with amortization costs adding about 2 billion more.
Ms. Ibragimova asked about Ms. Dmitriyeva's responsibilities during that time period. Ms. Dmitriyeva testified that at the time her responsibilities were to implement Tomskneft's budget, as it was planned by YUKOS-EP.
Answering a series of questions, Ms. Dmitriyeva testified that when she signed the aforementioned loan agreements she was not aware that YUKOS Capital was part of YUKOS consolidation perimeter. She knows this now, both from the mass media and various court decisions. Ms. Dmitriyeva named other companies that were consolidated, including Fargoil, Evoil, Ratibor and Spray. She was not notified why Tomskneft needed to borrow funds, but knew that the company was in a difficult financial position. Ms. Dmitriyeva was aware that there was a court decision currently going through an enforcement action in Russian courts. [Ms. Dmitriyeva was likely referring to the Tomsk proceeding described above. -Eds.] Ms. Ibragimova asked who made the decision that Tomskneft was to borrow funds from YUKOS Capital. Ms. Dmitriyeva testified that the decision was made by YUKOS, Tomskneft's sole shareholder.
Ms. Ibragimova motioned to read Ms. Dmitriyeva's interrogation transcript, arguing that there were contradictions. She declined to explain what contradictions they were, telling the court that it would result in her disclosing what was in Ms. Dmitriyeva's transcript, yet added that during interrogation Ms. Dmitriyeva said that "they" thought the loans were unnecessary.
Mr. Rivkin objected, telling the court that prosecution was not limited in time and was free to question their witness. [Ms. Dmitriyeva's interrogation lasted less than 30 minutes. -Eds.] Mr. Lebedev added that Ms. Ibragimova was misleading the court by not explaining who "they" were. Mr. Lebedev noted that loans were approved by YUKOS and Yuri Beylin.
Ms. Ibragimova's motion was granted. Ms. Dmitriyeva's transcript was a very close match to today's testimony. Mr. Lebedev was proved right - during interrogation Ms. Dmitriyeva testified that she though the loans were unnecessary because Tomskneft was going to get an inflow of funds from crude oil exports. Ms. Dmitriyeva told the investigator that she called the management company, but her arguments were disregarded. She did not remember who she spoke with at YUKOS-EP.
Ms. Dmitriyeva affirmed her transcript testimony. Looking at payment receipts which were added to the transcripts as supplements, she confirmed that Tomskneft received all funds under loan agreements. Ms. Ibragimova asked if Ms. Dmitriyeva could refuse to sign the loan agreements. Ms. Dmitriyeva testified that she could not refuse, first because there was a decision made by the shareholder, second, because Tomskneft was in a difficult financial position. Ms. Dmitriyeva explained that she thought these loans were unnecessary because Tomskneft was going to receive revenue from crude oil exports, and if the counter-party (YUKOS) had issues, it should have been the one to take out loans.
Ms. Ibragimova did not have additional questions at this time. Mr. Khodorkovsky took over.
Mr. Khodorkovsky asked whether Ms. Dmitriyeva was aware that at the time of the aforementioned loans YUKOS accounts were frozen at the request of the General Prosecutor and, although YUKOS had funds in its bank accounts, it was prevented from transferring them. Ms. Dmitriyeva replied that she may know this now, but was not sure she knew it when she signed the loan agreements. Mr. Khodorkovsky asked for more certainty in her reply and Ms. Dmitriyeva testified that when she thought the loans were unnecessary she did not know that the only way for Tomskneft to receive emergency funds was through a loan agreement.
Ms. Dmitriyeva testified that the only manager of the Tomskneft was YUKOS-EP. She testified that she was an employee with a defined set of responsibilities.
Ms. Dmitriyeva testified that she was aware that Tomskneft realized profit from business activities other than crude oil sales. Those included transactions with promissory notes. Ms. Dmitriyeva was unable to confirm that in 2002-2003 Tomskneft had gross profit - difference between crude oil production cost and sales revenue. Mr. Khodorkovsky asked if she would be able to do so if shown Tomskneft's balance sheet. Ms. Dmitriyeva said that she would. Mr. Khodorkovsky asked if she happened to bring Tomskneft's financial statements with her. Ms. Dmitriyeva replied that she did not.
Ms. Dmitriyeva testified that no one protested the fact that Tomskneft transferred most of its crude oil into the Transneft pipeline. Ms. Dmitriyeva remembered that Tomskneft received payments according to its sales contracts with Fargoil, YUKOS-Mordovia, Spray and Ratibor.
Mr. Khodorkovsky asked if Ms. Dmitriyeva could remember why Tomskneft reported losses in 2002-2003. Ms. Dmitriyeva did not remember. Mr. Khodorkovsky asked whether it could have something to do with Tomskneft's putting back on its balance sheet certain assets - like service complexes. Ms. Dmitriyeva did not remember.
Ms. Dmitriyeva testified that she was never ordered to do anything illegal. Her functions and those of her Directorate were clearly defined.
Mr. Khodorkovsky asked who tracked crude oil balance at Tomskneft and whether Ms. Dmitriyeva participated in crude oil inventory. Ms. Dmitriyeva testified that she did not participate in crude oil inventory, but inventory was performed by production departments and accounting. Ms. Dmitriyeva testified that no instances of crude oil embezzlement were ever found.
Before Mr. Khodorkovsky could resume after a short break, Ms. Ibragimova informed the court that Ms. Dmitriyeva had a return flight on Thursday and asked the court to ensure that the witness concluded testifying today.
As Mr. Khodorkovsky asked Ms. Dmitriyeva to examine a contract for purchase of crude oil between Yuganskneftegaz and Spray, Ms. Ibragimova objected. She demanded to know why Mr. Khodorkovsky was asking about Yugansk and Spray, then added that it wasn't even established that the witness knew what Spray was. Mr. Khodorkovsky reminded the prosecutor that Ms. Dmitriyeva used to work at Yugansk, testified earlier that she remembered Spray as one of the crude oil traders, and she just testified earlier that she was familiar with crude oil purchase contracts. Ms. Dmitriyeva testified that she did not see these specific crude oil contracts. Mr. Khodorkovsky asked if she heard about these or similar contracts. Another objection from Ms. Ibragimova followed, insisting that the witness "could not hear" about contracts. Then she turned to Ms. Dmitriyeva and told her that she should only "talk about what you know, not what you saw or heard." "They changed Lakhtin!" Mr. Khodorkovsky chuckled. The gallery chuckled with him.
Mr. Khodorkovsky asked if Tomskneft's statements from 2004 and on showed losses incurred due to crude oil embezzlement 1998 through 2003. Ms. Ibragimova objected, arguing that Mr. Khodorkovsky's question was unrelated to the indictment. Judge Danilkin asked if the witness understood the question. Ms. Dmitriyeva testified that she never saw this particular type of loss. Mr. Khodorkovsky told the court that he would not be asking these questions if defense had access to all the documents prosecution was hiding.
Mr. Lebedev took over. He asked if Ms. Dmitriyeva knew the substance of the criminal case for which she was interrogated in June 2007. She did not. Mr. Lebedev asked whether she knew the substance now. She did not.
Mr. Lebedev asked whether Ms. Dmitriyeva may be familiar with Luginetskaya Gas Compressing Station project. Ms. Dmitriyeva, pausing for a second, answered that she was. She was unable to tell the court any additional details about the Luginetskaya project, except that all operating costs were attributed to Tomskneft. Ms. Dmitriyeva testified that she never cared to find out if the station generated income for Tomskneft. Mr. Lebedev asked why, in 2002-2003, Tomskneft, while turning profit from its crude oil sales, reported losses when activity for all of its segments was added-up and whether that could have had anything to do with the newly built Luginetskaya Station. Ms. Dmitriyeva told the court she could not be sure without having a chance to examine documents. She added that Tomskneft's gas production operated at a loss. Mr. Lebedev asked whether there were plans to spin-off the Luginetskaya Station. Ms. Dmitriyeva did not know.
Mr. Lebedev asked whether Tomskneft financial statements existed for 2001-2002. Ms. Dmitriyeva replied that of course they did. Mr. Lebedev asked whether she could provide these to the court. Ms. Dmitriyeva answered that she did not know where they were kept and whether she had access.
Mr. Lebedev asked why Tomskneft did not pay back the loan after additional funds became available after 2004. Ms. Dmitriyeva explained that no one made a decision to do so and she did not know why. Ms. Dmitriyeva testified that Tomskneft continued to calculate the interest on the loan and reflect it in its statements. She confirmed that the loan hasn't been repaid still.
Mr. Lebedev asked if Ms. Dmitriyeva remembered what company audited Tomskneft. Ms. Dmitriyeva remembered that PwC conducted an audit for 2003, but she did not remember who the auditor was during prior years. Audits were conducted in compliance Russian Accounting Standards. Ms. Dmitriyeva testified that auditors visited Tomsk. There were at least 3 of them. She met with some of them. She explained that they had questions about the settling of accounts with counter-parties. Mr. Lebedev asked what information the settlement acts contained. Ms. Dmitriyeva explained that these acts contained information on who owed what to whom. Ms. Dmitriyeva testified that auditor's reports did not contain conclusions that there was any embezzlement of crude oil.
Mr. Khodorkovsky took over for Mr. Lebedev. He asked additional questions about Luginetskaya Station. Ms. Dmitriyeva did not remember the volume of natural gas that Tomskneft extracted. The Luginetskaya was a very large facility, with Ms. Dmitriyeva comparing its size to a factory. Mr. Khodorkovsky asked what funds were used to build it. Ms. Dmitriyeva testified that Tomskneft did not have available funds to spend on Luginetskaya, so these must have come from general capital investment expenditures. [Ms. Dmitriyeva likely referred to funds allocated from YUKOS. -Eds.]
Mr. Lebedev was back. He asked whether Ms. Dmitriyeva knew that Tomskneft was one of the alleged victims and civil complainants in this case. Ms. Dmitriyeva had no idea. "Did you know that I embezzled all of the crude oil from 1998 through 2003?" Mr. Lebedev asked. "No," Mr. Dmitriyeva replied, laughing. Ms. Ibragimova was loudly whispering to her colleagues her indignation.
Mr. Lebedev asked if Ms. Dmitriyeva participated in preparing any documents on behalf of Tomskneft. Ms. Dmitriyeva told the court that she did not. Ms. Dmitriyeva reiterated that she was not aware of any changes in Tomskneft's accounting to reflect the alleged embezzlement. Mr. Lebedev asked whether Tomskneft was aware that the indictment alleged embezzlement of its entire crude oil production. Ms. Dmitriyeva testified that what she knew about the case she learned from the news media - no one briefed her on the specifics. Mr. Lebedev asked if Ms. Dmitriyeva was currently a member of Tomskneft's management team, with more responsibilities than she had when YUKOS-EP managed the company. Ms. Dmitriyeva testified that she was a member of Tomskneft's upper management. "So when Tomskneft was declared to be a victim in this case no one informed you? And this information can't be found in financial statements?" Mr. Lebedev wondered. "No," was Ms. Dmitriyeva's short and categorical reply.
Judge Danilkin asked if there were anymore questions from either side. Ms. Ibragimova informed the court that prosecution would redirect after lunch.
Afternoon Session.
Ms. Ibragimova demanded to know how Ms. Dmitriyeva knew that Tomskneft never paid back the loans to YUKOS Capital. Ms. Dmitriyeva explained that, as far as she knew, the case was currently being heard in court. Ms. Dmitriyeva explained that sometime in 2007-2007, YUKOS Capital sent letter to Tomskneft, addressed to its Executive Director, demanding repayment. She did not know who signed the letters on YUKOS Capital's behalf and did not know if Tomskneft replied.
Next, the gallery witnessed a display of Ms. Ibragimova's attitude towards Mr. Lebedev and to the court. After confirming with Ms. Dmitriyeva that Tomskneft entered into the loan agreement with YUKOS Capital as a result of a decision by YUKOS, Ms. Ibragimova posed the following question: "YUKOS told Tomskneft to borrow funds from YUKOS Capital, at the same time as YUKOS was managing YUKOS Capital. How could this be a transaction of parties dealing on equal terms?" Mr. Lebedev objected, correctly pointing out to the court that prosecution's own case materials showed that YUKOS never managed YUKOS Capital, adding that almost a year in and the prosecutor could not be bothered to study her own case materials. He added that Ms. Ibragimova was misleading the witness.
Judge Danilkin asked Ms. Ibragimova to clarify her question. Instead he heard "I asked my question how I asked it. As far as defendant Lebedev's interpretations - I could care less, Your Honor. The only option he has available to him is to ask for the court to strike the question - not stand here and explain his opinions in front of the witness. I could care less, pardon me, how Lebedev understood my questions.... It's not Lebedev's place to explain to me what I understand and don't."
Ms. Dmitriyeva did not understand what the prosecutor was asking. Ms. Ibragimova took another shot. "You said that it was unnecessary for Tomskneft to enter into the loan agreement, yet Tomskneft entered into a transaction where its rights were being [trampled on] - why was the transaction entered into if it was disadvantageous?" Ms. Ibragimova asked. The witness could not answer, still.
"If YUKOS Capital had common, including Tomskneft's, funds, why the need to pretend that you received them as a loan?" Ms. Ibragimova went for it for the third time. Mr. Lebedev was ready to object, but Judge Danilkin was asking Ms. Dmitriyeva if she understood the question. Ms. Dmitriyeva did not. Ms. Ibragimova, instead of clarifying, withdrew her question, explaining that if she could only explain it by providing an answer.
But Ms. Ibragimova was not done. "If Tomskneft, by borrowing from YUKOS Capital, got back its own funds - revenue from sales of crude oil - can you explain how YUKOS Capital is now demanding a repayment of those funds by using [legal proceedings]?" ms. Ibragimova made the fourth attempt. Mr. Lebedev was laughing, the gallery was chuckling.
Judge Danilkin asked if Ms. Dmitriyeva understood the question. Ms. Dmitriyeva speculated that what prosecutor was asking reflected Tomskneft's posture at the enforcement proceedings, explaining that Tomskneft is arguing that the loan was actually part of profits that Tomskneft never received. Judge Danilkin asked if Ms. Dmitriyeva was explaining Tomskneft's position. Ms. Dmitriyeva confirmed that she was.
Ms. Ibragimova remained unsatisfied. Rising from her chair, she began by telling the court that the following question was for its benefit. "At this time YUKOS Capital, based on a decision of a Dutch court, is trying to get back its own funds from Tomskneft. Can you explain, please, if YUKOS Capital, which was part of the consolidation perimeter and, basically, had funds from crude oil sales, including Tomskneft's, can legally demand repayment of the loan?" Ms. Ibragimova took the fifth shot. [We should note that YUKOS Capital won an award against Tomskneft in New York. It was Rosneft that lost an 11 billion Rubles enforcement claim in Netherlands and is currently fighting an enforcement action in New York. -Eds.] It seemed that Judge Danilkin had enough, asking the prosecutor if she was questioning a witness or an expert. Ms. Ibragimova insisted that it was Ms. Dmitriyeva who brought up foreign courts. "But you're the one asking ‘legally" or ‘illegally'!" Judge Danilkin shot back. Ms. Ibragimova asked if she could withdraw her question. "No, your question is stricken!" Judge Danilkin replied. Ms. Ibragimova told the court that she had no more questions.
Mr. Khodorkovsky asked Ms. Dmitriyeva to clarify an earlier comment that Tomskneft was borrowing funds not on its own initiative. He asked Ms. Dmitriyeva to confirm that YUKOS was the sole shareholder and that YUKOS-EP, represented by Mr. Beylin, was Tomskneft's only management apparatus. She did. Mr. Khodorkovsky asked ff those were true, then what other initiative could Tomskneft have. Ms. Dmitriyeva, after a pause, clarified that no employees of Tomskneft initiated a request for a loan, but she did not know if Mr. Beylin did.
Then, Mr. Khodorkovsky and Ms. Dmitriyeva went over various costs Tomskneft had in connection with production, with Mr. Khodorkovsky attempting to find out if indeed the entire Tomskneft was a money-loosing operation in 2002-2003, or if the losses came from its natural gas business. Ms. Dmitriyeva readily confirmed that salaries were paid, utilities and services were paid for and capital investments were made. However, as soon as the talk drifted towards acknowledgement that what Tomskneft received for its crude oil was more than enough to cover its crude oil production costs and other costs, Ms. Dmitriyeva would either forget or tell the court that she needed to review documents before answering Mr. Khodorkovsky's question.
Ms. Dmitriyeva insisted that she did not know how Tomskneft's crude oil price was calculated, even as she testified earlier that her department developed monthly budgets based anticipated crude oil prices. Mr. Khodorkovsky asked if Ms. Dmitriyeva knew what "cost plus" formula was. She did not. She testified that she never cared to find out how crude oil price was calculated.
Mr. Lebedev took over. Ms. Dmitriyeva confirmed that as of March 10, 2010, PwC did not recall any Tomskneft audits. Mr. Lebedev asked Ms. Dmitriyeva to explain how Tomskneft, beginning in 2001, was exporting crude oil, where it obtained funds necessary to pay for various fees, including transportation and customs. Ms. Dmitriyeva explained that Tomskneft was never a direct exporter and relined on agents. As with other topics, Ms. Dmitriyeva did not remember who those agents were. Ms. Dmitriyeva had similar answers for 2002, 2003 and 2004. Mr. Lebedev asked why line for customs fees was missing from Tomskneft's financial statements. Ms. Dmitriyeva did not know. Looking at a copy of Yuganskneftegaz's planned budget, Ms. Dmitriyeva explained that Tomskneft received a similarly looking document every month, from Mr. Moskalets, YUKOS-EP Financial Director. Even so, she was unable to explain why a monthly budget of a production company did not plan for customs fees in connection with crude oil exports.
Mr. Lebedev asked whether any tax audit determined that YUKOS Capital had any funds that belonged to Tomskneft. Ms. Dmitriyeva explained that she was only expressing Tomskneft's position on why the company was refusing to pay back the loans. Mr. Lebedev asked what decision of a Dutch court about Tomskneft Ms. Dmitriyeva was discussing earlier with Ms. Ibragimova. Ms. Dmitriyeva insisted it was the decision to order Tomskneft to pay back the loans with interest and penalties.
Ms. Ibragimova gave it one more shot. "Do you know whether YUKOS forced [Tomskneft] to borrow its own revenue from crude oil sales, and with interest?" Ms. Ibragimova read the latest version of her question from a piece of paper. Judge Danilkin asked Ms. Dmitriyeva if she understood the prosecutor. Ms. Dmitriyeva began with an explanation of intra-company pricing, but soon asked the prosecutor to repeat the question. Ms. Ibragimova re-read the question. Ms. Dmitriyeva testified that she did not know. Ms. Ibragimova began to insist that Ms. Dmitriyeva was contradicting an earlier attempt at an answer, but Ms. Dmitriyeva told the court that she just did not know.
Mr. Lebedev asked about Tomskneft's tax cases and why it was found to have underpaid profit taxes. Ms. Dmitriyeva was still unable to explain why tax authorities found Tomskneft to have been under-reporting profits in 2001-2003.
Mr. Lebedev did not have anymore questions, but reminded the court that defense wanted to find out about some of the documents Ms. Dmitriyeva mentioned during the hearing. Mr. Lakhtin was heard saying that Ms. Dmitriyeva was a witness for the prosecution. Judge Danilkin told Mr. Lebedev that defense could ask for them later.
After a short break, Mr. Miroshnichenko reminded the court about several motions filed on March 2. Ms. Ibragimova told the court that prosecution did not bring its response. In any event, it was defense's fault - the prosecution was ready to reply last Thursday. Judge Danilkin told the parties that tomorrow's hearing will begin with prosecution's response to defense's motions.
The trial will resume on Thursday, March 11, 10:30 Moscow Time.