07MOSCOW697, RUSSIA: KHODORKOVSKIY/LEBEDEV CHARGES DETAILED

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Reference ID Created Released Classification Origin
07MOSCOW697 2007-02-16 12:53 2011-08-30 01:44 CONFIDENTIAL Embassy Moscow

VZCZCXYZ0007
PP RUEHWEB

DE RUEHMO #0697/01 0471253
ZNY CCCCC ZZH
P 161253Z FEB 07
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 7531
INFO RUEAIIA/CIA WASHDC PRIORITY
RUEAWJA/DOJ WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RHMFISS/FBI WASHINGTON DC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY

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 &#x0
00A;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

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