Khodorkovsky & Lebedev Communications Center

Testimony Dates:

June 1, 2010.

Bio:

Mr. Gerashchenko served two terms as the head of Russia's Central Bank. In June 2004 he was elected Chairman of the YUKOS Board of Directors. He served in this capacity until July 2007.

Testimony Summary:

Mr. Gerashchenko was asked whether he knew Messrs. Khodorkovsky and Lebedev were charged with. Not mincing words, Mr. Gerashchenko called the charges "[nonsense]." Mr. Gerashchenko told the court that it was a completely illegal indictment - if all crude oil was stolen then YUKOS could not have become the largest producing, refining and retailing company in the country, beating LUKOIL. "Otherwise Exxon wouldn't have offered to buy 45% of YUKOS for $25 billion USD - they examined everything to the last detail!" Mr. Gerashchenko concluded.

Mr. Gerashchenko testified that prior to his joining the YUKOS Board the company management explained to him the tax problems the company was facing and told him they needed someone who would be able to competently work on these issues. Mr. Gerashchenko told the court that he was told by [a former Finance Minister] that YUKOS tax problems seemed to be arising from a modern interpretation of the existing tax laws, which had many holes and were used by other major Russian crude oil companies. Mr. Gerashchenko explained that the substance of the tax complaints was incorrect payment of taxes. There was also pressure being applied to YUKOS auditor PricewaterhouseCoopers, that they also missed the incorrect tax payments.

Mr. Gerashchenko testified that after he became Chairman he was in continuous contact with YUKOS management, particularly Messrs. Beylin and Gololobov. Mr. Gerashchenko explained that almost immediately after his election, court bailiffs, accompanied by 50 members of a Special Forces unit, raided the company's headquarters and conducted seizure of documents. Mr. Gerashchenko testified that he went to the Court Bailiffs Service and attempted to negotiate the sale of YUKOS's stake in Sibneft in order to pay off the tax liability. But the bailiffs declined, seizing Yuganskneftegaz instead. Mr. Gerashchenko called that decision a "gross violation of the law."

Mr. Gerashchenko testified the no one from the management or anyone else from YUKOS reported to him disappearance of any crude oil. Mr. Khodorkovsky asked whether Mr. Theede, after becoming President of YUKOS, complained to the Board that he took over a company where everything was stolen. Mr. Gerashchenko replied with a resounding "No."

Mr. Gerashchenko told the court that YUKOS management expected him to make contact with someone from the government to resolve the tax situation. He contacted Mr. Putin's apparatus, but was informed that Mr. Medvedev was the one to talk to. [Mr. Medvedev was the head of Presidential Administration. -Eds.] He tried contacting Mr. Medvedev, but to no avail. He finally met with Mr. Medvedev's deputy, Mr. Shuvalov.

Mr. Gerashchenko explained that at the time he met Mr. Shuvalov the other was aware of Group MENATEP's offer to turn their shares of the company over to YUKOS. With the liability for 2000 and 2001 known and with the management expecting no more than another $5 billion USD for 2002 and 2003 the expectation was that the company would be able to resolve the situation. "Who knew that they were going to hit us with double of everything?" Mr. Gerashchenko almost sighed. Mr. Gerashchenko explained that in all his contacts with anyone in the government no one ever mentioned or complained that any crude disappeared or was embezzled.

Mr. Gerashchenko testified that he was in continuous contact with Mr. Rebgun and the latter never complained that any crude oil disappeared from 1999 to 2003. Instead, Mr. Rebgun was complaining that he was being pressured to do things in certain way and he was concerned with a possibility of lawsuits being filed against him. Mr. Gerashchenko testified that none of those companies which snapped up YUKOS assets - primarily Rosneft - ever complained or supplied information that crude oil disappeared from YUKOS, either.

Mr. Gerashchenko testified that he knew that PwC was YUKOS's auditor. He remembered that sometime in March of 2006 it became publically known that PwC's license was in jeopardy because of the work they did for YUKOS. Mr. Gerashchenko explained that all commentators were in agreement that tax authorities were willfully misinterpreting the auditor's role. In any event, on June 14, 2007, he met with a PwC director who informed him that tomorrow the auditor will issue letters recalling all audit reports it did for YUKOS. Mr. Gerashchenko testified that after the recall PwC's license was no longer in jeopardy. Mr. Gerashchenko testified that he understood that PwC was under a lot of pressure. After reading the letter he was even more certain that the grounds for recall "[weren't worth a fig's leaf]."

On cross-examination the prosecution was not interested in the specifics of Mr. Gerashchenko's work at the company as much as in how much he was getting paid. The prosecution did not address the government's charges against Messrs. Khodorkovsky and Lebedev, with the questions wondering from Bank MENATEP's bankruptcy to prosecutor Lakhtin's insistence that Mr. Gerashchenko personally helped Mr. Khodorkovsky to move $10,000 USD overseas. The prosecution insisted on misrepresentation of case materials, arguing, for example, that Brittany Assets Ltd., had $7 billion USD in cash on its balance sheet, while badgering Mr. Gerashchenko with questions on why he failed to transfer the cash to Russia.

Prosecution's combative and personally aggressive style of questioning was similar to that displayed during Mr. Gerashchenko's direct questioning, when Mr. Lakhtin frequently interrupted the questions and even accused Mr. Gerashchenko of lying.

Some of the prosecutor's questions allowed Mr. Gerashchenko to provide answers clearly injurious to the government's position. Mr. Lakhtin asked about each of YUKOS production subsidiaries and whether they were indeed some of the best in the Russian Federation. Mr. Gerashchenko described Yuganskneftegaz as being one of the best production companies, performing better than its neighbor Surgutneftegaz across the river. He even told the court that when Yuganskneftegaz was acquired by Rosneft through "the shill" BaikalFinansGrup, its production rate fell under the new management. He reminded the court, once again, that YUKOS ended up owning 9.44% of Rosneft after the latter went onto a single share and that block of shares was undervalued when sold at an auction to Rosneft.