Khodorkovsky & Lebedev Communications Center

This week, one witness testified that YUKOS had the highest credit rating amongst Russia's corporate borrowers and was a pioneer amongst its peers in transparency. Another witness was questioned on her work as section head in accounting and tax compliance department at YUKOS-FBC. Interrogation transcripts of another witness focused on a tax case involving Forest Oil. As Mr. Khodorkovsky noted, the prosecution continued to focus on everything but crude oil, which only gave more weight to suspicions that they are using the courtroom as an interrogation room to collect evidence for another case.

On Monday, prosecutors called Mr. Pavel Maliy to the witness stand. Mr. Maliy was a director at the Directorate for Corporate Finance at YUKOS-Moscow, from April 2002 through May 2004. Mr. Maliy was questioned solely about the proposed YUKOS listing on the NYSE and spent most of the day explaining details of the draft project, named "Voyage." Mr. Lakhtin's questions focused on specific points Mr. Maliy briefed Mr. Sheiko, his manager at the Directorate, about. Those included history of YUKOS' privatization, YUKOS' ownership structure and discussions surrounding Behles Petroleum, Baltic Petroleum and South Petroleum. Not achieving success and even complaining that the witness was not answering the way he answered during investigation, Mr. Lakhtin, through minimum effort, persuaded the court to allow him to read interrogation transcripts. The rest of the hearing was devoted to Mr. Maliy's interrogation by investigator Iogan. The transcript covered same topics Mr. Maliy testified about in court, albeit in a bit more detail. The interrogation audio tape was not found in the case file and the trial was adjourned to give prosecution time to find it.

On Tuesday, Mr. Maliy was absent, but prosecution had someone else lined up. Ms. Elena Timoshenko worked at various YUKOS affiliates from 1997 through 2007, her last place of work being section head in accounting and tax compliance department at YUKOS-FBC. Ms. Timoshenko testified that her section provided accounting services to several YUKOS affiliates and, later, took on the responsibility of tracking short term investments for some of those companies. Despite Mr. Lakhtin's inability to explain the procedural origin of some of Ms. Timoshenko's transcripts, Judge Danilkin allowed Mr. Lakhtin to read all transcripts into record. Afterwards, Mr. Krasnov noted that one transcript was incomplete, with a 3 page transcript covering an almost 3 hour long interrogation, while another transcript listed an interrogation taking over 8 hours, which violated the Code of Criminal Procedure. In a short afternoon session Ms. Timoshenko, cross-examined by Messrs. Khodorkovsky and Lebedev, testified that her department worked closely with auditors from Pricewaterhouse Coopers and no one ever asked her to conceal any documents from them. The companies that her section prepared tax statements for were sometimes audited by tax authorities, but any recalculations were insignificant. Finally, during her 10 year tenure at YUKOS, neither her colleagues nor her superiors ever pressured her to do anything illegal.

On Wednesday, Mr. Maliy was back and prosecution had the audio tape to play back. After the play back, Mr. Khodorkovsky took over. Mr. Maliy discussed other important projects, in addition to "Voyage," which he worked on after joining YUKOS. Mr. Maliy testified that the Directorate of Corporate Finance was laying the groundwork for a YUKOS Eurobond issue. To do that, YUKOS needed to secure a credit rating, with the company choosing Standard & Poor's and Moody's as the agencies to rate the company. During the process, the company's business-plans and financial information were given prime attention. In meetings with representatives from each agency, each lasting several hours, YUKOS' representatives were questioned extensively on the company's state. Mr. Maliy described the question and answer session with a slang term meaning "detail-oriented," with questions focusing on the company's financial health, future income and crude oil production volumes. Mr. Maliy testified that the ratings awarded to YUKOS were the highest amongst Russia's corporate borrowers. As a matter of fact, the rating was on par with Russia's sovereign credit rating.

YUKOS/Sibneft merger was another project that Mr. Maliy worked on. According to Mr. Maliy, at the time of the merger Sibneft had more liabilities than cash on hand, while YUKOS had about $4 billion USD more in cash and securities on its balance sheet than it had in liabilities. Mr. Maliy explained that YUKOS, in addition to paying large dividends, made an open tender offer for up to 10% of outstanding YUKOS shares, allocating $2.6 billion for the tender, based on YUKOS capitalization of $26 billion.

Mr. Maliy described a wide array of YUKOS information available to the public, from its filings with the SEC to the Russian and English versions of the company's website. Mr. Maliy confirmed that transportation of crude oil through Transneft and differences in pricing between Urals and Brent types of crude oil were widely known. Returning to the Form F-1 draft, Mr. Maliy explained that this information was borrowed from YUKOS US GAAP consolidated statements. He noted that PWC verified all figures before they were added to the Form F-1 draft. Mr. Khodorkovsky inquired whether anyone asked Mr. Maliy to distort anything when putting together the presentation for credit rating agencies or drafting Form F-1. "God forbid! Never!" Mr. Maliy responded with certainty.

On Thursday, the hearing was punctuated by Mr. Khodorkovsky's voicing suspicions that prosecution was using the trial to round up evidence for another investigation. Without their witness, prosecutors read interrogation transcripts and responded to Mr. Lebedev's motion for exclusion of all transcripts from interrogations conducted by investigator Nikandrov.

As the trial resumed, Mr. Lebedev filed motion to obtain from Investigative Committee the full version of the March 29, 2005, transcript of Ms. Timoshenko's interrogation. As Mr. Lebedev pointed out, Ms. Timoshenko affirmed all of her testimony, but with a transcript of an almost 3 hour long interrogation containing an excerpt of an answer to one question, no one knows what Ms. Timoshenko was affirming. Prior to making his demand, Mr. Lebedev pointedly highlighted to the court the fact that OOO Ratmir paid taxes on sales, which ran counter to the indictment allegations of embezzlement and money laundering.

Afterwards, Judge Danilkin informed the parties that Ms. Alla Karaseva was unable to come to court to testify. After hearing arguments from the parties, Judge Danilkin granted prosecution's motion to read Ms. Karaseva's interrogation transcripts into trial record.

Ms. Karaseva, who was tried and convicted for fraud by facilitating illegal refunds for overpaid taxes, was questioned on several companies registered in zones with preferential tax treatments and on her interactions with several SP RTT and YUKOS-FBC employees, including Mss. Golub and Kuchusheva and Messrs. Anilionis, Kraynov, Kartashov and others. Several interrogations focused on circumstances surrounding her staying on Cyprus and in Ukraine, prior to returning to Russia in 2007. [After her return, Ms. Karaseva was arrested, placed into Matrosskaya Tishina SIZO and was tried in a closed proceeding with special procedures. She was given a suspended sentence of five and a half years, with four years probation. -Eds.]

In the afternoon, Mr. Lebedev's motion to exclude transcripts of all interrogations conducted by investigator Nikandrov was denied.

Before the hearing ended, Messrs. Khodorkovsky and Lebedev summed up for the court their suspicions of what the prosecution was attempting to achieve by interrogating witnesses on irrelevant subjects. Mr. Khodorkovsky pointed out to the court that not one of the prosecution's witnesses discussed issues connected with the substance of the charges - physical movement of crude oil. Instead, their witnesses talk of revenues and profits from transactions by "the so-called victims." In addition, testimony about YUKOS and the victims having profit destroyed the concept of damages. Mr. Khodorkovsky told the court that he was left with a feeling that prosecution, after realizing it lost in this process, is attempting to fabricate another criminal case and is using the courtroom as an interrogation room for a preliminary investigation. "Since they don't know what else to accuse me of, they are looking for it in this courtroom," Mr. Khodorkovsky explained to the court.

Mr. Lebedev pointed out to the court that Ms. Karaseva's transcripts were about "tax episodes," which were tried in Meschanskiy Court, meaning Mr. Khodorkovsky and he were being re-tried. Mr. Lebedev, echoing Mr. Khodorkovsky, told the court that the indictment contained many of these "poisoned pills" - dormant allegations without charges. According to Mr. Lebedev, either the issue was embezzlement of crude oil, or Mr. Khodorkovsky was correct in his suspicion that the courtroom was being used as an interrogation room for witnesses for some other criminal case.

The trial will resume on Monday, February 8, 10:30 Moscow Time.