RUSSIA: KHODORKOVSKIY/LEBEDEV CHARGES DETAILED

C O N F I D E N T I A L MOSCOW 000697

SIPDIS

SIPDIS

STATE FOR EUR/RUS
DOJ FOR OPDAT/LEHMANN, OIA/BURKE/DITTOE, OCRS/OHR/SHASKY
NSC FOR KLECHESKI AND MCKIBBEN

E.O. 12958: DECL: 02/16/2017
TAGS: PREL ECON PGOV RS
SUBJECT: RUSSIA: KHODORKOVSKIY/LEBEDEV CHARGES DETAILED

Classified By: Ambassador William J. Burns, by reason 1.4(b) and (d).


1. (C) Summary. Russia's Attorney General has charged
Mikhail Khodorkovskiy and Platon Lebedev with two counts of
embezzlement and two counts of money-laundering (under
Articles 160 and 174 of the Russian Criminal Code),which
carry a maximum sentence of 15 and 10 years, respectively.
The case is now in the preliminary investigation phase, which
could last up to 18 months, and should result in a formal
indictment. As the case is currently configured (and it is
possible for charges to be added or dropped up to the time of
the trial) the two will not be eligible for a jury trial.
Speculation is rife as to why the charges are being brought
now, but the most prevalent explanation making the rounds in
Moscow is that eight years in jail may just not be enough for
Khodorkovskiy's detractors. Little detail is available about
the allegations, but our preliminary assessment suggests they
are less credible than the tax evasion case brought in the
first round against Khodorkovskiy End summary.


2. (SBU) The Charges. According to the General Procurator,
the charges against Khodorkovskiy and Lebedev are based on
their alleged illegal acquisition of state shares in Eastern
Oil Company (VNK) and in VNK subsidiaries. The prosecutor
alleges that to conceal these illegal actions and launder the
illegal proceeds, Khodorkovskiy and Lebedev transferred the
VNK shares to a series of offshore companies. The charges
also allege that between 1998 and 2003, some 850 billion
rubles (some USD32 billion) in oil from YUKOS subsidiaries
Samaraneftegaz, Yuganskneftegaz, and Tomskneftegaz were
illegally obtained by Khodorkovskiy and Lebedev through
transfer pricing schemes. As part of this scheme, the two
men are charged with allegedly laundering 450 billion rubles
(USD17 billion) between 1998 and 2004.


3. (SBU) Indictment Still to Come. The charges detailed this
week by the General Prosecutor are contained in an a
preliminary charging document issued when "there is
sufficient evidence establishing grounds to charge a person
with commission of a crime," but before the completion of the
preliminary investigation. (It is generally not made public,
but must be presented to the accused and his counsel.) The
next step is usually a final charging document, or
"indictment," issued upon the completion of the preliminary
investigation.


4. (SBU) Preliminary Investigation Underway. Press reports
suggest that the preliminary investigation has already begun,
and that Khodorkovskiy and Lebedev have both denied guilt and
refused to give testimony. Russian law does not stipulate a
minimum time frame for the preliminary investigation, but it
should take no longer than 12 months, with a possible
extension to 18 months if the case presents "extraordinary
circumstances." According to a February 9 statement by the
General Prosecutor, the court has granted the prosecution's
request that the two men be held in investigative detention
in the city of Chita pending completion of the preliminary
investigation.


6. (SBU) No Jury Trial, No Venue Yet. None of the current
charges against Khodorkovskiy and Lebedev are eligible for
trial by jury. This means the case as it now exists will be
tried either by a single judge or by a panel of three judges.
Under Russian law, a criminal case must be tried in the
venue where the crime or crimes were committed. If the case
involves crimes committed in more than one place (as in this
case),then the case must be heard in the location where the
majority of the crimes were committed. The venue has not yet
been determined.


7. (SBU) Timing Theories. There has been a lot of
speculation in the media about the timing of the new charges.
Many believe the charges are designed to prevent
Khodorkovskiy from winning release on parole in October 2007.
Under Russian law, a prisoner is eligible for parole upon
completion of half of his sentence. Because Khodorkovskiy was
arrested in October 2003 and subsequently sentenced to 8
years incarceration, he could in theory be eligible for
parole this October. There is some confusion about whether
Khodorkovskiy would actually be eligible for parole, given
the apparent number of his infractions while in prison - to
which Khodorkovskiy himself admitted. Some suggest that it
is not the parole possibility, but the fact that he would be
released during the first term of the next President that is
driving the process forward now. Still others suggest that
the charges were brought to delay review of Khodorkovskiy's
appeal of his conviction to the European Court of Human
Rights (ECHR),although a well-known Russian human rights
lawyer with an active practice before the ECHR tells us that
under ECHR rules, the filing of additional charges should not
affect the review of an appeal arising from a prior case.


8. (C) Comment. We understand that money-laundering
investigation has been underway for some time. (A prominent
Moscow lawyer told the Embassy that she had been asked by
Khodorkovskiy's lawyers in 2005 to join the defense team for
what they then termed "the second case" which would involve
money laundering charges.) Yet, how these charges actually
fit together is still a puzzle. Yukos began acquiring VNK in
1997, gaining controlling ownership in 2000, and outright
ownership by April 2002 -- each time through a combination of
privatization auctions and purchases on the secondary market.
VNK was the parent company of Tomskneftegaz, but had no
corporate relationship to either of the two other production
facilities named in the preliminary indictment. Likewise,
the USD17 billion in alleged money laundering is hard to
reconcile with what we know about the firm's finances for the
years in question. Between 1998 and 2003, Tomskneftegaz
produced roughly USD10 billion in oil, and only part of that
went to Yukos, as the firm did not own the facility outright
until 2002. How the other major production facilities,
Yuganskneftegaz and Tomskneftegaz (which Khodorkovskiy
obtained in 1995 through the loans-for-shares scandal) get
wrapped up in the VNK affair is also beyond our current
understanding.
BURNS