Courtroom Report: March 4, 2010
Before the trial resumed, a group of cameramen was allowed into the courtroom to shoot several minutes of Messrs. Khodorkovsky and Lebedev preparing for today's hearing. As the trial resumed, Mr. Lebedev began cross-examining Mr. Zubkov. Mr. Lebedev tuned to the first set of documents he wanted to show to the witness. Mr. Zubkov confirmed that he knew of no facts that could contradict information disclosed about ownership structure of YUKOS shares, GML's ownership, and the voting arrangement for YUKOS shares controlled by YUL.
Turning to accounting and audit standards, Mr. Zubkov testified that YUKOS used Russian Accounting Standards when drafting mandatory financial statements under Russian laws and US GAAP to draft consolidated financial statements. PricewaterhouseCoopers applied US GAAS (Generally Accepted Accounting Standards) to audit YUKOS' US GAAP consolidated financial statements. Mr. Zubkov confirmed that PwC, in addition to being the official auditor of YUKOS, audited YUKOS' crude oil production subsidiaries, Yuganskneftegaz being one those. Mr. Zubkov explained that the purpose of an audit is to verify that the company's financial statements were accurate. To do that, a series of tests is performed on selected transactions.
Mr. Zubkov testified that, although he was never involved in auditing Yuganskneftegaz, he was aware that the company produced and sold crude oil. Mr. Lebedev asked whether Mr. Zubkov was aware that Yuganskneftegaz was one of the civil complainants in the case. Mr. Zubkov was not and told the court that none of the investigators who interrogated him ever mentioned this particular circumstance. Answering additional questions, Mr. Zubkov confirmed that, although he was not a member of Yuganskneftegaz' working group, group members would have been required to report any crude oil embezzlement, if uncovered during an audit. As far as Mr. Zubkov was aware, no crude oil embezzlement was discovered during Yuganskneftegaz audits and that Yuganskneftegaz data was contained in YUKOS' consolidated financial statements. Mr. Lebedev asked if Mr. Zubkov may have come across commentary in the audit repository that described crude oil embezzlement, but Mr. Zubkov never saw this type of commentary.
Mr. Lebedev asked what PwC was auditing. "Revenues from sales of crude oil," Mr. Zubkov replied. He went on to explain that the Moscow office did not audit crude oil export sales. Those audit operation were performed by PwC's Geneva office, with the Moscow office using their information. Prompted by Mr. Lebedev's questions, Mr. Zubkov explained that during his work on YUKOS audits, export sales were made through Petroval S.A., based in Geneva, acting as a commission agent for Routhenhold Holdings Ltd. After arranging the sale of crude oil shipment, Petroval transferred the funds, minus commission, to Routhenhold.
Answering a series of questions while examining YUL's resolution and YUKOS' financial statements, Mr. Zubkov testified that, while not privy to the exact details of all transactions involved, he did not know of any facts to disprove information contained in a resolution by YUL directors, where over $224 million in Bank MENATEP collection rights, acquired from YUKOS, were being written off. Mr. Zubkov, while examining the draft SEC Form F-1, testified that the information about YUKOS receiving over 89 million of its shares and $30 million USD in cash during sale of Bank MENATEP collection rights was correct.
Mr. Lebedev asked if Mr. Zubkov, who was actively involved in the 2001 audit, had heard about any crude oil embezzlement accusations made by Kenneth Dart in the news media or in any lawsuits filed during that year, as alleged in the indictment. In addition to not having heard of anything related to Kenneth Dart during that time period, Mr. Zubkov testified that if his colleagues saw anything in the media about crude oil embezzlement, a question would have been posed to YUKOS' management concerning the issue.
Mr. Khodorkovsky took over and returned to questions about YUKOS' consolidated financial statements. Mr. Zubkov testified that YUKOS' financial statements were available through the company's website and were widely discussed in the business press. Furthermore, after the company began coming out with quarterly statements, Mr. Misamore, YUKOS' CFO, participated in quarterly conference calls with investors and journalists.
Mr. Khodorkovsky asked, after quoting from Mr. Zubkov's explanation of what the latter meant by "YUKOS group of companies" and explaining that the prosecution accuses Mr. Lebedev and him of embezzling 350 million tons of crude oil between 1998 and 2003, whether YUKOS sold crude oil to third parties. Mr. Zubkov testified that YUKOS sold crude oil and petroleum products to third parties, with the revenue being reflected in consolidated financial statements.
Mr. Zubkov, when asked whether PwC conducted any analysis to make sure that YUKOS' profit ratios did not abnormally exceed that of the industry, testified that part of the audit consisted of an analytical review. He explained that there was a mandatory analysis of the company's balance sheet and export sales. A comparison of average monthly prices at which crude oil was sold to market price data would be made.
Mr. Khodorkovsky asked whether PwC found any information which suggested fraud or embezzlement. Mr. Zubkov testified that he could not remember anything specific that came to mind.
Mr. Khodorkovsky asked whether consolidated financial statements contained figures for undistributed profit. Specifically, he wanted to find out if part of undistributed profit could disappear from one year to the next. As an example, Mr. Khodorkovsky referred to a trading company with undistributed profit being consolidated one year and disappearing the following year. Mr. Zubkov, showing lines containing figures for undistributed profit, testified that he could not recall instances where part of undistributed profit simply disappeared.
The trial will resume on Tuesday, March 9, 11:30 Moscow Time.