Will Baron Rothschild give shares to President Putin?

Will Baron Rothschild give shares to President Putin? It seems that the main problem is solved: oil oligarch, head of Yukos Mikhail Khodorkovsky is waiting for his attorney in a cosy chamber meant for four prisoners of the detention center #4. But according to the Russian tradition, as soon as people do something they start thinking why it has been done. As it turns out, this aspect of the problem has not been considered yet. The Russian mass media report that for fear to lose the control over Yukos, Russia's largest and one of the world largest oil companies, the authorities decided it would be better to detain Mikhail Khodorkovsky. This is particularly important now when the Tyumen Oil Company (TNK) after the merger with British Petroleum is controlled by the international finance. Does Russian authority actually control Yukos?

Alexander Shokhin, the Renaissance-Capital supervisory board chairman, former Duma deputy who occupied the position of labor minister in Yegor Gaidar's government was the first to sound the alarm. The day before yesterday, he said that the Group MENATEP international offshore company controlled Yukos shares. The shares may be thus handed over to somebody or sold and nobody would even learn of this fact.

Alexander Shokhin said that if an offshore organization sold shares to another offshore company representing the interests of a great customer, the change of the owner might go unnoticed. There is no person in Russia who might control the process.

MFO Menatep and Yukos deny that an extraordinary force majeur system of assets management has been introduced in the oil company. However, nowadays there are foreigners at head of the oil company controlled by the international offshore companies.

When head of the Yukos managing company Vasily Shakhnovsky became a member of the Federation Council representing the Evenkia autonomous district, his seat passed on to Yukos First Vice-premier American Steven Theede. Financial Director of the oil company, American Bruce Misamore is now responsible for Yukos financial issues. International relation are controlled by Norwegian Hugo Erikssen; his wife Yelena is known among Moscow journalists for her close friendship with former head of the Federal Guards Service Alexander Korzhakov. There is only one Russian who is now responsible for important issues: Yury Beilin oversees oil extraction. But if he is arrested or suddenly leaves for Israel, his responsibilities will be executed by American Joe Mach from US's Schlumberger.

Former British Foreign Secretary Lord Owen, now the head of Yukos International UK is in charge of Yukos relations with the European governments. Documents of Group MENATEP, the company controlling 61 per cent of Yukos shares, say that in case of Mikhail Khodorkovsky's death or non-ability 50 per cent of the Group shares that are currently in trust ownership may only go to one of the co-owners of a Gibraltar company who have been earlier appointed by Mr. Khodorkovsky himself. It is not clear if this may be Leonid Nevzlin who has escaped to Israel or somebody else. One thing is for sure is that Lord Jacob Rothschild, the prominent international financier, the head of Britain's Rothschild Family is on the list of those who are to have control over the Yukos assets. The British Family is known for its seriousness and solidity.

Thus, Yukos is now safely covered with the participation of prominent figures from the international financial circles. To tell>Latest News Russian Stock Market To Recover Soon World Interested in Russia's Unique Technologies for Subs A Kerch Strait Gibraltar Monument to Turkish Soldiers To Be Built in Sevastopol Every Fifth Russian Works for Free

the truth, against the background of these titans Russia's Prosecutor General Vladimir Ustinov looks rather vague. Some time ago, when the USSR experienced even harder times, it still managed to subdue claims of the international capital and came to an agreement with foreign financiers. Many Russian experts believe that no matter that Russian law enforcement structures make much effort to ban operations with Yukos shares they do not have enough resources to see the plans fulfilled. Others seriously believe that very soon Yukos shares may be arrested. Analysts of the OFG investment group told the idea to Utro.Ru. The RF Prosecutor-s Office declared actions of Mikhail Khodorkovsky and Platon Lebedev illegal and stated the damage they caused to the country exceeded $1 billion. The sum is very big; and if the prosecution is sure that Yukos shares may go to somebody else it may impose an arrest upon them. At least, it may arrest the shares held by Mikhail Khodorkovsky, Platon Lebedev and senator Vasily Shakhnovsky who has been released. Their shares in the Menatep group make up transparent assets, and information about the assets was exposed by the holders. Analysts think that authorities may try to arrest the shares, but in fact it may turn to be a really hard task to do it.

In addition to the general distrust to the Russian justice system in the West, there is practically no precedent of execution of decisions passed by the Russian court abroad. On the contrary, foreign judges use every convenient opportunity to ignore or cancel these decisions passed by the Russian court. The Russian Federation has not yet signed important international juridical documents; as a result, the rights of Russian companies and the country itself are not protected abroad.

Does the Prosecutor's Office need to seek arrest of Yukos shares? The situation is perfectly clear today: all the parties involved in the scandal are anticipating open investigation at court and are not inclined to make any abrupt movements so far. If Yukos foreign investors are scared away, the shares may disappear once and for all. This is rather unfavorable for all the sides. That is why the government should keep up a dialogue with Yukos foreign shareholders. The very fact that recently Russia's President Vladimir Putin has met with Former US Secretary of State Henry Kissinger interested in Yukos affairs and with Lord Jacob Rothschild suggests that the parties of the conflict are in touch and can discuss measures that are to be taken.

On the other hand, no matter how owns Yukos shares and foreign assets, the riches of the company are Russian natural resources. In fact, Yukos is of no interest without oil extracted in Russia. The US's ExxonMobil is interested in the developed oil resources now controlled by Yukos. If Yukos loses the fields one day, the ExxonMobil president will come to Russian Primer Minister Mikhail Kasyanov to discuss the issue and will absolutely forget about Mikhail Khodorkovsky staying in prison. These are the rules of business.

It is difficult to suppose that the situation may develop according to a different scenario. But if figures of the international business and Russian authorities fail to come to an agreement, the operation of Russian enterprises controlled by Yukos and their bank accounts may be blocked in an instant. It means that people interested in Yukos profits will lose much more money that they have done on the panic day on the exchange on October 27.

Neither foreign shareholders nor Russian authorities are interested in this scenario of the situation development. That is why the Russian court will hardly impose arrest on Khodorkovsky's shares.

Read the original in Russian: http://economics.pravda.ru/economics/2003/7/21/58/14459_YUKOSACTIVY.html (Translated by: Maria Gousseva)

Russian shares fall after oil firm seizure

CHRIS MARKS DEPUTY FOREIGN EDITOR

THE Russian stock exchange slumped yesterday, after judicial authorities seized control of the giant Yukos oil firm in a dramatic escalation of the conflict between the Kremlin and big business.

The decision to freeze the majority of shares in the company came as Vladimir Putin, the Russian president, met leading investors in an attempt to calm financial and political nerves in the wake of the arrest of Mikhail Khodorkovsky, the Yukos chief executive. He was arrested at gunpoint by special forces operatives at a Siberian airport on Saturday, jailed and charged with fraud and tax evasion.

Russia’s general prosecutor’s office confirmed last night that it had seized shares from two companies - one registered on the Isle of Man and the other on Cyprus.

Alexander Shadrin, a Yukos spokesman, said: "I can confirm that a controlling stake of 61 per cent of shares has been seized, although these shares still retain voting and dividend rights."

The seizure came hours after Yukos had offered shareholders a record $2 billion (£1.2 billion) dividend in an effort to steady the beleaguered firm.

Yukos shares closed almost 12 per cent down after the seizure, and the Russian RTS index fell 8.14 per cent. Yukos shares have fallen more than 30 per cent from their all-time high of $16 on 17 October.

Analysts say the drive against the company has been initiated by Kremlin "hawks" seeking to strengthen their influence over Mr Putin, reassert state authority over businesses and exert control over elections.

Platon Lebedev, a major Yukos shareholder, is also behind bars, charged with theft linked to a 1994 privatisation deal.

Prosecutors are seeking the annulment of the election to parliament of Vasily Shakhnovsky, who has a 4.5 per cent share in the company, and want to end his immunity to charges of tax evasion.

Khodorkovsky, one of the "oligarchs" who, like Roman Abramovich, the oil magnate who bought Chelsea Football Club, made their fortunes in the post-Soviet sell-off of state assets, supports liberal opponents of Mr Putin in December’s parliamentary polls. Mr Putin is seeking re-election in a separate poll in March.

The massive dividend announced by the firm yesterday would benefit holders of shares before 25 September, including Khodorkovsky and Lebedev.

"The dividend exceeds market expectations, which may reflect a desire by Yukos’s core shareholders to raise additional cash from the company at a time of heightened political uncertainty," an analyst said.

"The payout simply shows that either Yukos will have a bigger than expected cash flow in the third quarter, or it will have a higher debt, when it merges with Sibneft," said Oleg Maximov, from the Troika Dialog brokerage, referring to the pending tie-up with a smaller oil rival.

In another sign of the Kremlin hawks’ ascendancy, the Russian media reported the resignation of Mr Putin’s chief of staff, Alexander Voloshin, a leader of a rival pro-business camp.

Mr Voloshin and like-minded officials left over from the Boris Yeltsin era are viewed as tainted by links to the oligarchs.

The choice of a successor to Mr Voloshin, who holds one of the most powerful jobs in the Kremlin, will be a key signal of Mr Putin’s commitment to reforms.

A choice of one of the many administration officials linked to the state security apparatus is likely to be taken as a bad sign for reform prospects.

Khodorkovsky’s jailing has sent Russian stocks down amid fears the Kremlin could launch a broad revision of the privatisation of the 1990s, in which tycoons snapped up prized chunks of state assets at giveaway prices in dubious auctions.

Stock traders apparently saw yesterday’s seizure as confirmation of those fears. The move was the first in the probe against property rather than individuals.

"This unlawful approach to the seizure of assets of persons allegedly guilty of some trumped-up charges of inflicting damage will soon allow blocks of flats and individual flats to be seized," said Mr Shadrin.

The transfer of state-owned flats to their residents was the only part of the post-Soviet privatisation programme which was widely accepted by the Russian public.

Stockholders may take government to human rights court
By Andrew Jack in Moscow
Published: November 2 2003 20:21 | Last Updated: November 2 2003 20:21

Key Yukos shareholders are considering launching high-profile international and domestic challenges in the coming days to the actions brought by the Russian authorities against Mikhail Khodorkovsky, according to advisers to the company.

Lawyers are studying the possibility of appealing abroad as well as within Russia over the validity of the freeze brought by prosecutors last Thursday on more than 42 per cent of Yukos' shares, which they claim are controlled by Mr Khodorkovsky.

Another specialist legal team, which includes attorneys from North America, is examining options for seeking an emergency ruling from the European Court of Human Rights in Strasbourg in relation to procedural violations in the criminal cases brought against Mr Khodorkovsky, who was arrested last month, and other key Yukos shareholders.

Russian lawyers are nervous about taking their legal battle abroad, as it is likely to irritate the Kremlin. Such a move could escalate diplomatic tensions between the Russian authorities and foreign countries, which have already openly criticised the conduct of the investigation and argued that it may be political. It could also make any attempts to reach a negotiated settlement with Mr Khodorkovsky still more difficult.

Advisers to Mr Khodorkovsky say that ownership of his shares, including voting rights and the possibility of selling them to third parties, was transferred after his arrest, in accordance with a trust document that he made public last year.

One of his advisers firmly denied reports that control of his shares had passed to the influential British financier Jacob Rothschild, and indicated that it was instead held by Leonid Nevzlin, Yukos's second-largest shareholder and a long-standing partner of Mr Khodorkovsky who is now based in Israel.

Mr Rothschild may play an intermediary role in the legal and lobbying battle in the weeks and months to come. He is a trustee of the British branch of Mr Khodorkovsky's Open Russia philanthropic organisation, and has got to know him over several years.

"Jacob is the man who first gave Khodorkovsky access to British society and politicians, the first man to take him seriously," said one acquaintance of Mr Rothschild.

A Moscow-based western lawyer with no links to the case said on Sunday that criminal charges would normally override any commercial document, so that the clause permitting the automatic shift in Mr Khodorkovsky's ownership after his charging and arrest could in theory be annulled.

However, if legal actions are brought by the new owners under English law - which is likely because the shares were held by Menatep Gibraltar, which falls under the jurisdiction of the English courts - then Russian prosecutors would have to demonstrate their charges "beyond reasonable doubt" to justify the share seizure.

A challenge to the asset freeze in Moscow's courts could also pose problems for the Russian prosecutors. They have up until now used the Basmanny Court in Moscow, which has a long tradition of finding in their favour.

However, they could face greater problems if the asset freeze is challenged in the Moscow commercial courts, which have shown greater independence from political or corporate pressure in the past few years. "They risk compromising their entire reputation," the foreign lawyer said.

He added that Russian courts often accept procedural violations as grounds for appeal, and that Menatep shareholders might be able to argue that seizing all Mr Khodorkovsky's former shares was "inappropriate or disproportionate".

The ultimate new owners of Mr Khodorkovsky's shares may also be able to argue that they acquired them in good faith and should not be penalised for any "taint" that existed on the shares as a result of action by the previous owner. He said that this argument has been accepted by Russian courts in other cases in the past.

However, aside from political pressure over judicial decisions in Russia, appeals by Mr Khodorkovsky's team also face an important technical challenge. President Vladimir Putin himself, his new head of administration, Dmitry Medvedev, and his deputy Dmitry Kozak are all trained lawyers.

Mr Putin, renowned for his command of detail, and his advisers in the Kremlin have been following the investigations closely, and will have tried to ensure no errors were made in the prosecutors' actions.

One lawyer in Mr Khodorkovsky's team studying the criminal charges described as "the nuclear option" the decision by prosecutors last month to raid the office of Anton Drel, Mr Khodorkovsky's personal lawyer.

The prosecutors took away documents and refused to show him either a judicial warrant or allow him to accompany them during the search. They later attempted to call him for questioning in the investigation.

He argued that these actions alone represented a fundamental violation of lawyer-client privilege, due process and a "fishing expedition" beyond acceptable conduct under legal procedures that renders a fair trial in the Russian courts impossible. This could justify an intervention by the European Court of Human Rights, which normally requires that all domestic remedies be first exhausted.

Mr Rothschild may play an intermediary role in the legal and lobbying battle in the weeks and months to come. He is a trustee of the British branch of Mr Khodorkovsky's Open Russia philanthropic organisation, and has got to know him over several years.

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.