Khodorkovsky & Lebedev Communications Center

The prosecution spent three out fours day this week questioning former directors of several YUKOS subsidiaries, including OOO Ratmir, OOO Terren, OOO Alta-Trade and YU-Mordovia. These witnesses confirmed functioning as “nominal directors,” as described by Mr. Khodorkovsky and numerous previous witnesses. In addition, some of the witnesses provided detailed explanations into how a vertically integrated crude oil company functioned. The last day of the week was devoted to Mr. Lakhtin stalling for time during the first half of the day, so that Ms. Ibragimova could ready a motion attempting to preemptively challenge the defense’s efforts to depose Mr. Douglas Miller, a former head of the PricewaterhouseCoopers Moscow office.

Monday was spent with both sides questioning Mr. Bogdan Konoshenko, former director of OOO Ratmir. His responsibilities consisted of insuring that all necessary paperwork to effectuate transactions was completed and signed. During his time at Ratmir he saw and signed numerous financial and accounting documents that were prepared for the company, including company books, financial statements and tax statements. Mr. Konoshenko explained how Ratmir functioned on the crude oil market. The company paid Transneft for crude oil delivered from Samaraneftegaz to Syzran Refinery. All deliveries were paid for, with neither Ratmir nor Transneft having any complaints, and Ratmir paid all expenses for crude oil storage. Once Syzran Refinery prepared petroleum products, Ratmir would sell some to foreign purchasers through Yukos Export Trade, while the rest was sold by YUKOS-M under a commission agreement. Mr. Konoshenko explained to the court that YUKOS owned refineries, storage facilities and terminals. Because Ratmir had access to these facilities, it did not need to own any of these facilities. According to Mr. Konoshenko, Ratmir operated at a profit. Because Ratmir was registered in Mordovia, it could take advantage of preferential tax treatment. The company identified this fact in tax returns filed with the appropriate authorities. According to Mr. Konoshenko, Ratmir made regular payments into the Republic of Mordovia’s budget. Mr. Konoshenko told the court that he did not keep track of market crude oil prices, because pricing was not one of his responsibilities.

Prior to cross-examining Mr. Konoshenko, the defense convinced the court to enter into evidence transcripts of Mr. Konoshenko’s interrogations. In addition to highlighting several inconsistencies in Mr. Konoshenko’s testimony, the transcripts detailed Mr. Konoshenko’s career within YUKOS and his working relationship with Mr. Brudno. The day ended with Messrs. Khodorkovsky and Lebedev making statements. Both were directing the court to easily identifiable mistakes and contradictions found in the indictment.

Tuesday continued with a string of witnesses testifying about their directorship of YUKOS crude oil trading subsidiaries. During the morning session both sides questioned Ms. Alla Arefyeva, a former director of OOO Terren and OOO Alta-Trade. Ms. Arefyeva testified that her main responsibility at Terren was signing crude oil purchase and similar contracts on Terren’s behalf. According to Ms. Arefyeva, “being a director” meant having administrative responsibilities and making sure that all paperwork was properly managed and recorded. Ms. Arefyeva was shown a number of crude oil purchase contracts. While being cross-examined by Mr. Lebedev, she confirmed that average crude oil prices listed in those contracts were within a range of Russian average prices. Mr. Lakhtin asked a series of questions about Mr. Malahovsky. Ms. Arefyeva’s glowing praise for her former colleague prompted a crude smear attempt by Mr. Lakhtin, who asked Ms. Arefyeva if she knew what Mr. Malahovsky was currently doing. The answer was that Mr. Malahovsky was serving a prison sentence.

The next witness, Mr. Tyan, testified that he worked at YUKOS from 1998 until 2007 and was, for a brief period of time, director of YU-Mordovia. Among other things, the department where Mr. Tyan worked would make sure that a crude oil purchase agreement was drafted and implemented, crude oil was delivered and appropriate supporting documentation was created and filed. Mr. Tyan explained that YUKOS production subsidiaries – Tomskneft, Samaraneftegaz and Yuganskneftegaz, - did not sell their own crude oil, so all sales went through Mr. Tyan’s department. Mr. Tyan testified that crude oil prices were determined based on market conditions. According to Mr. Tyan, if the price paid was not enough, then production subsidiaries would not be able to function. Mr. Tyan explained to the court the basics of crude oil sales transaction between YUKOS and YU-Mordovia, based on copies of agreements shown. As he did with Ms. Arefyeva, Mr. Lakhtin brought up Mr. Malahovsky and asked Mr. Tyan when was the last time they saw each other. The last time was at Mr. Malahovsky’s trial.

On Thursday Mr. Khodorkovsky extensively questioned Mr. Tyan on the latter’s knowledge of crude oil shipments and production subsidiary relationship to the parent company. Mr. Tyan explained that Transneft, the government-owned pipeline system, physically shipped crude oil for export, in addition to transferring crude oil to refineries. But while Transneft was the actual shipper, YUKOS was identified as the shipper in all paperwork. Documentation that was prepared for these shipments contained the names of all companies involved in the shipment chain, beginning with production companies all the way to the ultimate purchaser. The process began with production companies transferring crude oil into the Transneft pipeline, where that crude oil was mixed with other crude oil and shipped to its destination. Mr. Tyan testified that other crude oil companies used the same process for getting crude oil delivered to refineries. According to Mr. Tyan, production subsidiaries did not have direct access to refineries, while refineries did not have storage capacity and did not have a distribution chain. In effect, Mr. Tyan was describing the daily functioning of a vertically integrated oil company.

At the end of the hearing, Messrs. Khodorkovsky and Lebedev made statements to the court. Mr. Khodorkovsky proposed that the court decide on an approach for how investigative nondisclosure agreements signed by testifying witnesses impact the court proceedings. Explaining Mr. Lakhtin’s inconsistent positions, Mr. Khodorkovsky proposed that witnesses should be able to testify about anything relevant to the charges. Mr. Lebedev proposed that the prosecution carefully study the laws and regulations that govern crude oil shipments. This would save time and prevent incompetent questions from being asked of witnesses. [During Thursday’s hearing, Mr. Lakhtin wanted to know if Mr. Tyan ever personally witnessed crude oil being shipped inside Transneft pipeline. –Eds.]

On Friday Mr. Lakhtin used the first half of the day to question two witnesses about their relationship with Mr. Danilin, who prepared a 1997 crude oil valuation report and copied the appraiser’s certificates of these witnesses. Messrs. Gaidenko and Gorbachev testified that they did not know anything about the valuation report. They knew very little about Mr. Danilin. Mr. Gorbachev testified that the last time he saw Mr. Danilin was about 15 years ago. Mr. Lakhtin’s attempts at soliciting negative character evidence against Mr. Danilin did not produce any results and were shut down by the court.

Mr. Lakhtin’s requests for extra time to allow several more witnesses to arrive ended up being a stalling tactic to allow Ms. Ibragimova to prepare a motion asking the court to preemptively disqualify any testimony that defense attorneys may obtain from Mr. Douglas Miller, former head of PricewaterhouseCoopers’ Moscow office. The prosecution argued that the defense, by utilizing Section 1782 of Title 28 of the United States Code to file a motion to depose Mr. Miller, behaved unethically and mislead the federal judge in the Southern District of California. Ms. Ibragimova argued that the defense violated the Criminal Procedure Code by not letting Khamovnicheskiy Court and the Office of Prosecutor General know in advance about their intent to depose Mr. Miller. Mr. Miller’s deposition, scheduled for December 2, was postponed until December 18.

Despite being given only an hour and a half to prepare a response, the defense fully explained the necessity of deposing Mr. Miller and countered each of Ms. Ibragimova’s assertions. Ms. Ibragimova’s arguments about the defense having the opportunity to question Mr. Miller when he testifies in court rang hollow in light of the defense being informed by Mr. Miller’s attorney that Mr. Miller would not, under any circumstances, return to Russia. Further, correspondence from investigator Mikhailov to Mr. Miller implied that Mr. Miller’s decision to leave Russia could be mutually beneficial for everyone involved. Furthermore, the defense provided documents, including a letter from the Russian Embassy in Washington to Mr. Karimov, disproving Ms. Ibragimova’s contention that the Office of the Prosecutor General was notified of the proceeding taking place at the federal court in the Southern District of California.

After hearing both sides out, Judge Danilkin denied the prosecution’s motion, stating that it was filed prematurely.

The trial will resume on Monday, December 14, 10:30 Moscow Time.