Witness Testimony Summary: Ilya Yurov
Bio:
Ilya Yurov is the Chairman of the Board of Directors of TRUST National Bank. Mr. Yurov joined Bank MENATEP in 1994 and, by 1998, became the head of Bank MENATEP's Treasury Department. Mr. Yurov continues to be qualified as "an accused" under case #18/41-03. [Mr. Yurov refused to answer any questions related to his status in any criminal investigation, citing to a non-disclosure agreement he signed, describing it as covering "everything connected with this process." The case file in Messrs. Khodorkovsky and Lebedev's case contains 10 interrogation transcripts where Mr. Yurov is identified first as "a suspect" then as "an accused." -Eds.]
Testimony Dates:
Testimony Summary:
On direct examination, Mr. Yurov was questioned about Bank MENATEP's relevance. Although defense strenuously objected to this line of questioning, arguing that it was irrelevant to the charges of crude oil embezzlement, Mr. Lakhtin convinced the court that his questions were relevant to "charges of laundering of embezzled funds from crude oil sales." [Messrs. Khodorkovsky and Lebedev are not charged with money laundering of proceeds from crude oil sales. -Eds.] Mr. Yurov testified about meetings between bank's management and shareholders, including Mr. Khodorkovsky. Mr. Yurov discussed various efforts undertaken by the bank's management to stave off liquidation. Mr. Yurov explained that, through careful planning and maneuvering, majority shareholders were able to prevent the auctioning off of controlling block of bank's shares. Furthermore, by being able to acquire majority of outstanding collection rights, the owners were able to influence bankruptcy proceedings. Finally, through well-documented restructuring efforts, public and business reputation of the bank's owners continued to grow. Mr. Yurov remembered Mr. Lebedev as being the one handling Bank MENATEP's bankruptcy, developing strategies and negotiating with bank's creditors.
Mr. Yurov testified that Bank MENATEP ended 1997 with good results. The end of 1998 saw the bank facing trusteeship. According to Mr. Yurov, due to the financial crisis in the summer of that year, most of Russia's banks did not finish the year with positive results. Mr. Yurov confirmed that Russia's Central Bank prohibited Russian banks from making foreign currency payments to non-resident institutions. Bank MENATEP did not attempt to circumvent the moratorium on foreign currency transactions. After Bank MENATEP failed to make interest payments on its loans, its creditors demanded full performance. Mr. Yurov explained that foreign creditors sold collateral the bank put up to secure various loans and presented claims for the difference between the loan amount and what they received for collateral. Mr. Yurov confirmed that DIB, after transactions with Standard Bank, ended up in possession of financial instruments representing securitized YUKOS debt. Reluctantly, Mr. Yurov confirmed that it was in the oil company's interest to purchase these instruments at a discount. After looking at additional documents and discussing other Bank MEANTEP creditors, Mr. Yurov confirmed that Standard Bank London was not the only bank to be repaid in full. Other banks included Eurobank, Vnesheconombank and Vneshtorgbank, among others.
Under Mr. Lebedev's questioning, Mr. Yurov went over various aspects of Bank MENATEP's liquidation. Mr. Yurov confirmed that Bank MENATEP SPb, DIB and Arthur Andersen formed a triumvirate of companies to supervise an orderly liquidation. He discussed various assets that were sold, with the funds going to creditors' pool. In addition to loans made to other banks, the federal and regional governments had outstanding loans from Bank MENATEP. Mr. Yurov did not deny when Mr. Lebedev told him that Group MENATEP forgave all loans issued to regional governments and municipalities. Further, Mr. Yurov confirmed that at the time Russia did not have deposit insurance and that all individuals who had funds on deposit with Bank MENATEP were paid in full by Group MENATEP. Mr. Lebedev asked what happened to those individuals who borrowed from Bank MENATEP.
Mr. Yurov testified that after Bank MENATEP filed for bankruptcy, Mr. Khodorkovsky approached him with an offer to head YUKOS Treasury Department. According to Mr. Yurov, he wanted to continue working in the banking industry and recommended Mr. Andrey Leonovich for that position. Mr. Yurov went to work at Trust and Investment Bank (DIB). Mr. Yurov testified that when he joined DIB in February of 1999, most of the founding capital came from YUKOS, Apatit, OAO Russian Product and Volgotanker. Between 1999 and 2004, more than 50% of DIB's liability was to YUKOS and its subsidiaries.
Mr. Yurov did not find anything unusual in following Messrs. Khodorkovsky and Lebedev's directives, even when they were not identified in any management positions. He called it a "normal routine." Mr. Yurov testified that although he followed Mr. Lebedev's orders, he would never do so if he saw anything illegal would result from their execution. Mr. Lebedev asked if he ever ordered Mr. Yurov to do anything illegal. "Of course not, I never received any orders which would have led to violations of the law," Mr. Yurov replied with certainty. Asked about companies registered in Closed Administrative Territorial Formations (ZATO), Mr. Yurov testified that he would contact Mr. Leonovich if there were questions. What he heard from Mr. Leonovich was that registering companies in various ZATO was part of legitimate tax minimization strategy.
Prosecution directed numerous questions, while showing copies of documents found in the case materials, on the purchase of Bank MENATEP collecting rights and YUKOS shares from a group of Western banks. Mr. Yurov, examining copies of various agreements, described what he knew about the substance of those transactions. But after being shown a resolution by Yukos Universal, writing off as a loss over $200 million USD as a result of acquisition of Bank MENATEP collecting rights, Mr. Yurov testified he was not aware that Yukos Universal purchased Bank MENATEP collecting rights. Mr. Yurov admitted that he did not remember signing an agreement between DIB and Yukos Universal. According to Mr. Yurov, investigators did not show him any documents in connection with Yukos Universal's transactions and he testified based on what he thought he remembered. Mr. Yurov confirmed that one of the reasons YUKOS purchased Bank MENATEP collecting rights was to use them to offset own indebtedness to the bank. He was unable to explain why he did not say that to investigator Rusanova.
Mr. Yurov confirmed that YUKOS, Yuganskneftegaz, Samaraneftegaz, Tomskneft, YUKOS-Moscow, YU-Mordovia and YUKOS-M, among others, had accounts at DIB. Ratibor and Ratmir had accounts at Bank MENATEP SPb. Speaking about DIB, Mr. Yurov testified that all paperwork about these companies was filed and processed according to banking regulations. Mr. Yurov went on to describe in detail various internal and external controls that were utilized by the bank. Furthermore, Mr. Yurov testified that foreign banks exercised detailed scrutiny of transactions made by DIB by using its accounts established in foreign banks. Mr. Yurov testified that no one from Russia's foreign currency control agency ever had any issues with DIB's operations. Mr. Yurov confirmed that DIB's management, including himself, did not conceal any major issues which could have had negative impact on DIB from the bank's Board and its Chairman, Mr. Lebedev.
Mr. Yurov confirmed that he and his employees saw payment orders issued by YUKOS subsidiaries for utilities, transportation, materials and salaries. Additionally, tax payments were made from the accounts maintained at DIB. Mr. Yurov confirmed that YUKOS production subsidiaries paid their invoices. He did not remember any major litigation concerning unpaid bills. Mr. Yurov testified that the funds came from YUKOS.
He testified about consolidation of YUKOS shares and those of its subsidiaries, describing Kenneth Dart as "well-know international raider." He told the court that Group MENATEP Limited became a holding company managing Russian assets in three key areas - crude oil assets, financial assets and everything else. Prosecution sought to find out about instances when funds belonging to YUKOS may have left the YUKOS consolidation perimeter. Mr. Yurov testified that the only instances he knew of when funds regularly left YUKOS consolidation perimeter included payments to suppliers and service companies, transfers to conduct financial transactions with western banks and payments of taxes into regional and federal budgets.