Mikhail Khodorkovsky

Menatep

In 1987, Khodorkovsky and his partners opened a Center for Scientific and Technical Creativity of the Youth. In addition to importing and reselling computers, the "scientific" center was involved in trading a wide range of other products. The opening of the center eventually made possible the founding of Bank Menatep.

Employees of the Bank of New York, which was closely associated with Bruce Rappaport, worked very closely with his Menatep helping Menatep to list its stock in the United States. Natasha Gurfinkel Kagalovskaya, who is married to a former senior executive at Bank Menatep Konstantin Kagalovsky, supervised the Bank of New York's Eastern European business beginning in 1992. She had been a banker with Irving Trust since 1986 which was acquired by the Bank of New York in 1988. Vladimir Kirillovich Golitsyn or "Mickey" Galitzine had previously headed the Eastern European business at the Bank of New York and travelled for the first time to Russia in 1990.

He and his partners obtained a banking license, supposedly from money made from selling secondhand computers, to create Bank Menatep in 1989. As one of Russia's first privately owned banks, Menatep expanded quickly, by using most of the deposits raised to finance Khodorkovsky's import-export operations, which is a questionable

practice in itself. Moreover, the government granted Bank Menatep the right to manage funds allocated for the victims of the Chernobyl nuclear accident. Khodorkovsky said:

Many years later I talked with people and asked them, why didn't you start doing the same thing? Why didn't you go into it? Because any head of an institute had more possibilities than I had, by an order of magnitude. They explained that they had all gone through the period when the same system was allowed. And then, at best, people were unable to succeed in their career and, at worst, found themselves in jail. They were all sure that would be the case this time, and that is why they did not go into it. And I...I did not remember this! I was too young! And I went for it."

It was during this period that Khodorkovsky acquired the Yukos oil company for about $300 million through a rigged auction. Khodorkovsky subsequently went on a campaign to raise investment funds abroad, borrowing hundreds of millions. When the 1998 financial crisis struck Russia, Khodorkovsky defaulted on some of his foreign debt and took his Yukos shares offshore to protect them from creditors.

Yeltsin adviser

Khodorkovsky also served as an economic adviser to the first government of Boris Yeltsin. "During the failed 1991 coup by Communist hard-liners", Gessen wrote, "he was on the barricades in front of Moscow's White House, helping to defend the government." Shortly thereafter, having lost his faith in Communism, he and his business associate Leonid Nevzlin wrote a "capitalist manifesto" entitled The Man with the Ruble, which stated in part: "It is time to stop living according to Lenin!... Our guiding light is Profit, acquired in a strictly legal way. Our Lord is His Majesty, Money, for it is only He who can lead us to wealth as the norm in life."

Yukos acquisition

In 1992, Khodorkovsky was appointed chairman of the Investment Promotion Fund of the fuel and power industry. He was appointed Deputy Minister of Fuel and Energy of Russia in March 1993. In 1996, Menatep acquired a major Russian oil producer, Yukos, which had debts exceeding $3.5 billion, for $309 million.

In the 1990s, noted Gessen, "Khodorkovsky made millions in currency trading. He also bought up privatization vouchers—documents distributed to every Russian citizen and entitling them to a share of the national wealth—which many Russians were happy to unload at a discount for ready cash. Khodorkovsky eventually acquired controlling stakes in some 30 companies. When Russia staged its greatest property giveaway ever, in 1995, Khodorkovsky was poised to take advantage of that too." As Gessen explained, the Russian government, after the fall of Communism, "still nominally controlled Russia's largest companies, though they had been variously re-structured, abandoned, or looted by their own executives." A dozen men, the "new oligarchs", including Khodorkovsky, hit upon the stratagem of lending the government money against collateral consisting of blocks of stock that amounted to controlling interests in those companies. The oligarchs and government both knew that the government would eventually default and that the firms would thus pass into the oligarchs' hands. "By this maneuver", wrote Gessen, "the Yeltsin administration privatized oil, gas, minerals, and other enterprises without parliamentary approval." This was how Khodorkovsky came to own Yukos.

When he came into possession of Yukos, a conglomerate consisting of over 20 firms, most of them were "in terrible condition", and he enjoyed the job of turning them into well-functioning units. According to Gellin, Khodorkovsky was "the most reticent among the oligarchs", choosing not to "buy yachts or villas on the Côte d’Azur" or to become a fixture of "the Moscow playboy scene". To be sure, he did buy "a gated compound of seven houses on 50 forested acres about half an hour outside Moscow" in the late 1990s, calling it Apple Orchard and housing Yukos's leading executives, who lived together as "one large happy family". His social life consisted mostly of "Barbecuing for fellow Yukos managers". At nights he would stay up and "read until two". He later wrote that during this period "I saw business as a game.... It was a game in which you wanted to win but losing was also an option. It was a game in which hundreds of thousands of people came to work in the morning to play with me."

Nevzlin told Gessen about a time when Khodorkovsky was in Poland on business and the Soviet economic-crimes unit began harassing Nevzlin, who feared arrest under Soviet-era laws. He found the situation "terrifying", but when Khodorkovsky returned from Poland he said, "Let me go home, take a shower, get some sleep, and we'll talk about it tomorrow morning." Nevzlin told Gessen: "There was just no way to shake him, ever." Nevzlin described Khodorkovsky as a "data addict", a man with "an iron will," and "someone dependent on human stimulus for information and ideas." Although Khodorkovsky "has strong emotions," Nevzlin said, he is capable of turning them off.

European Union Bank in Antigua

For one week in 1994, he was the director of an online internet bank known as the European Union Bank based in Antigua after which it collapsed. Numerous banking regulators claimed it was a scam.

Bank failure

By 1998, Khodorkovsky had built an import-export business with an annual turnover of 80 million rubles (about US$10 million). In the 1998 Russian crash, however, his bank went under and Yukos had serious problems owing to a drop in the price of oil. Realizing that "business could no longer be just a game" and that "capitalism could make people not only rich and happy but also poor and powerless", he "swore off his absolute faith in wealth just as he had sworn off his absolute faith in Communism."

Merger with Sibneft

In April 2003, Khodorkovsky announced that Yukos would merge with Sibneft, creating an oil company with reserves equal to those of Western petroleum multinationals. Khodorkovsky had been reported to be involved in negotiations with ExxonMobil and ChevronTexaco to sell one or the other of them a large stake in Yukos. Sibneft was created in 1995, at the suggestion of Boris Berezovsky, comprising some of the most valuable assets of a state-owned oil company. In a controversial auction process, Berezovsky acquired 50% of the company at what most agree was a very low price.

When Berezovsky had a confrontation with Putin, and felt compelled to leave Russia for London (where he was granted asylum), he assigned his shares in Sibneft to Roman Abramovich. Abramovich subsequently agreed to the merger. With 19.5 billion barrels (3 km3) of oil and gas, the merged entity would have owned the second-largest oil and gas reserves in the world after ExxonMobil and would have been the fourth largest in the world in terms of production, pumping 2.3 million barrels (370,000 m3) of crude a day. The combination of the companies closed in October 2003, just prior to the arrest of Khodorkovsky, but through a series of questionable legal maneuvers, the former Sibneft shareholders were able to get the transaction negated.

2003: Richest man in Russia

Khodorkovsky hired McKinsey & Company to reform Yukos's management structure, and Pricewaterhouse to establish an accounting system. Thanks partly to the rising oil prices, partly to modernized operations, and partly to its "new transparency", Yukos thrived. "By 2003, Khodorkovsky was the richest man in Russia, and potentially on his way to becoming the richest man in the world. In 2004, Forbes placed him 16th on its list of the world's wealthiest people, with a fortune estimated at $16 billion."

Khodorkhovsky has been involved in various philanthropic endeavours since the beginning of the 21st century:

Open Russia Foundation

Khodorkovsky Foundation

its subsidiary the Oxford Russia Fund

the London-based Future of Russia Foundation or the Future of Russia Trust

and the organization European Choice ("европейский выбор")

Khodorkovsky is openly critical of what he refers to as "managed democracy" within Russia. Careful normally not to criticise the current leadership, he says the military and security services exercise too much authority. In 2010 he told The Times:"It is the Singapore model, it is a term that people understand in Russia these days. It means that theoretically you have a free press, but in practice there is self-censorship. Theoretically you have courts, in practice the courts adopt decisions dictated from above. Theoretically there are civil rights enshrined in the constitution; in practice you are not able to exercise some of these rights."

Khodorkovsky promoted social programs through Yukos in regions where the company operated, one example being "New Civilization", in Angarsk, which promoted student government to young adults. The scout program incorporated aspects of student government. Participants from throughout the country spent their holidays organizing student-governed bodies at summer camps.

Masha Gessen, writing in 2012, recalled meeting Khodorkovsky in 2002, "when he met with a group of young authors to try out what would become his stump speech as he traveled the country, urging the creation of a new kind of economy in Russia, one based on intellectual rather than mineral resources."

Reactions in Russia and abroad

Initially news of Khodorkovsky's arrest had a significant effect on the share price of Yukos. The Moscow stock market was closed for the first time ever for an hour to ensure stable trading as prices collapsed. Russia's currency, the ruble, was also hit as some foreign investors questioned the stability of the Russian market. Media reaction in Moscow was almost universally negative in blanket coverage, some of the more enthusiastic pro-business press discussed the end of capitalism, while even the government-owned press criticised the "absurd" method of Khodorkovsky's arrest.

Yukos moved quickly to replace Khodorkovsky with a Russian-born U.S. citizen, Simon Kukes. Kukes, who became the CEO of Yukos, was already an experienced oil executive.

The U.S. State Department said Khodorkovsky's arrest "raised a number of concerns over the arbitrary use of the judicial system" and was likely to be very damaging to foreign investment in Russia, as it appeared there were "selective" prosecutions occurring against Yukos officials but not against others.

A week after the arrest, the Prosecutor-General froze Khodorkovsky's shares in Yukos to prevent Khodorkovsky from selling his shares although he retained all the shares' voting rights and received dividends. In 2003, Khodorkovsky's shares in Yukos passed to Jacob Rothschild under a deal that they had concluded prior to Khodorkovsky's arrest.

On 28 June 2005, the Izvestia newspaper published as an advertisement a "letter of the fifty" - "Appeal of cultural figures, scientists, members of the public in connection with the verdict passed on the former leaders of the Yukos Oil Company", expressing support for the guilty verdict. The authors of the letter expressed dissatisfaction with the fact that "the voices of those who doubt the fairness of the decisions made sounded with renewed vigor", and the discussion of the verdict, in their opinion, "has the character of discrediting the entire judicial system, the state, and society and calls into question the foundations of law and order in the country". On 11 September 2009, four years after the publication of the "letter of the fifty", the famous figure skater Irina Rodnina stated that she did not put her signature under this letter and condemned the very form of such an appeal. Another of the signatories, Anastasia Volochkova, on 2 February 2011, in an interview with Radio Liberty, explained her signature as a misunderstanding and that United Russia misled her about the letter's content. As part of the same Radio Liberty project, on 4 February 2011, Alexander Buinov expressed regret about his signature under this letter: "I have a feeling that I got into trouble then. In any case, there are insane acts that I am ashamed of... If the interview with Radio Liberty is enough for my abdication, I am ready to say it now."

The first trial, 2004–2005

The charges against Khodorkovsky and his associates were that, in 1994, while chairman of Menatep, he "created an organized group of individuals with the intention of taking control of the shares in Russian companies during the privatisation process through deceit." This was with particular reference to supposedly "illegal actions" he had taken in the privatisation of the State-owned mining and fertiliser company Apatit.

Khodorkovsky's longtime business partner, Platon Lebedev, was arrested on 2 July 2003, and they were put on trial together. A few weeks later, Yukos's security head Alexei Pichugin was arrested and became the subject of a separate prosecution. Leonid Nevzlin of Menatep reportedly suggested at this moment that he and Khodorkovsky should

"leave the country and try to bargain from a position of freedom. We should take our money out and start a new business and a new life."

Nevzlin did just that and moved to Israel. Khodorkovsky remained in Russia. "In his value system, fleeing the country once Lebedev was in jail would have been immoral", Gessen wrote, "regardless of whether he could do anything to help his friend." Instead, Khodorkovsky began to give speeches arguing that Russia must modernize socially and espouse an open and transparent economy, promoting technology over purely natural resources.

Khodorkovsky was defended in court by an experienced team led by Yury Schmidt and including Karinna Moskalenko. The prosecutors claimed they were operating independently of the presidential administration. The Prosecutor-General, Vladimir Ustinov, was appointed by the former President Boris Yeltsin. He was not seen as particularly close to Putin, who had once tried to remove him. However, he was politically ambitious and prosecuting Russia's most prominent and successful tycoon was perceived as a boost to his political career and intended candidacy for the Duma.

The first Khodorkovsky-Lebedev trial lasted 10 months. There were few defense witnesses, noted Gessen, "not only because the court turned down most of its motions but also because the prosecution's case seemed so flimsy." Also, it was perceived as risky to testify for the defense. "Ten people affiliated with Yukos, including two lawyers, had already been arrested. Nine more had evaded arrest only by fleeing the country."

Khodorkovsky and Lebedev were both declared guilty and sentenced to nine years in penal colonies. The verdict of the trial, repeating the prosecutors' indictments almost verbatim, was 662 pages long. As is customary in Russian trials, the judges read the verdict aloud, beginning on 16 May 2005 and finishing on 31 May. Khodorkovsky's lawyers alleged that it was read as slowly as possible to minimize public attention.

Independent support

Khodorkovsky received support from independent third parties who believed that he was a victim of a politicized judicial system. On 29 November 2004, the Council of Europe Parliamentary Assembly (PACE) Committee on Legal Affairs and Human Rights published a report, which concluded, "the circumstances of the arrest and prosecution of leading Yukos executives suggest that the interest of the State's action in these cases goes beyond the mere pursuit of criminal justice, to include such elements as to weaken an outspoken political opponent, to intimidate other wealthy individuals and to regain control of strategic economic assets."

In addition, Khodorkovsky has received admiration and support from members of the UK parliament who have noted the decline of human rights in Russia.

In June 2009, the Council of Europe published a report which criticized the Russian government's handling of the Yukos case, entitled "Allegations of Politically Motivated Abuses of the Criminal Justice System in Council of Europe Member States":

"The Yukos affair epitomises this authoritarian abuse of the system. I wish to recall here the excellent work done by Sabine Leutheusser-Schnarrenberger, rapporteur of the Committee on Legal Affairs and Human Rights, in her two reports on this subject. I do not intend to comment on the ins and outs of this case which saw Yukos, a privately owned oil company, made bankrupt and broken up for the benefit of the state owned company Rosneft. The assets were bought at auction by a rather obscure financial group, Baikalfinansgroup, for almost €7 billion. It is still not known who is behind this financial group. A number of experts believe that the state-owned company Gazprom had a hand in the matter. The former heads of Yukos, Mikhail Khodorkovsky and Platon Lebedev, were sentenced to eight years' imprisonment for fraud and tax evasion. Vasiliy Aleksanyan, former vice-chairman of the company, who is suffering from Aids, was released on bail in January 2009 after being held in inhuman conditions condemned by the European Court of Human Rights.3 Lastly, Svetlana Bakhmina, deputy head of Yukos's legal department, who was sentenced in 2005 to six and a half years' imprisonment for tax fraud, saw her application for early release turned down in October 2008, even though she had served half of her sentence, had expressed "remorse" and was seven months pregnant. Thanks to the support of thousands of people around the world and the personal intervention of the United States President, George W. Bush, she was released in April 2009 after giving birth to a girl on 28 November 2008."

Statements of support for Khodorkovsky and criticism of the state's persecution have been passed by the Italian Parliament, the German Bundestag, and the U.S. House of Representatives, among many other official bodies.

In June 2010, Elie Wiesel, a Holocaust survivor and human rights activist, began a campaign to raise awareness of Khodorkovsky's trial and advocate for his release.

In November 2010, Amnesty International Germany began a petition campaign demanding that President Medvedev get an independent review of all criminal charges against Khodorkovsky, to coincide with the 60th anniversary of the European Convention on Human Rights. On 24 May 2011, Amnesty International criticized Lebedev and Khodorkovsky's second trial, named them prisoners of conscience, and called for their release on the expiry of their initial sentences.

A two-hour documentary about his plight was released in 2011.

Yelena Bonner, the widow of Andrei Sakharov, never stopped defending Khodorkhovsky: "I think that any person becomes a political prisoner if the law is applied to him selectively, and this is an absolutely clear case. This is a glaringly lawless action."

A cartoonist present at the trial created a cartoon series depicting the events. These cartoons compared Khodorkovsky's trial to the trial of Franz Kafka's The Trial. As of August 2015, these cartoons are on display at the Dox Gallery of Prague.

In prison

On 30 May 2005, Mikhail Khodorkovsky was sentenced to nine years in a medium security prison. At the time, he was detained at Matrosskaya Tishina, a prison in Moscow. On 1 August 2005, a political essay written by Khodorkovsky in his prison cell, titled "Left Turn", was published in Vedomosti, calling for a turn to a more socially responsible state. He stated:

"The next Russian administration will have to include the Communist Party of the Russian Federation and the Motherland Party, or the historical successors to these parties. The left-wing liberals, including Yabloko, and right-wing Ryzhkov, Khakamada and others should decide whether to join the broad social-democratic coalition or to remain grumpy and without relevance on the political sidelines. In my opinion, they have to join because only the broadest composition of a coalition in which liberal-socialist (social-democratic) views will play the key role can save us from the emergence, in the process of this turn to the left turn, from a new ultra-authoritarian regime. The new Russian authorities will have to address a left-wing agenda and meet an irrepressible demand by the people for justice. This will mean in the first instance the problems of legalizing privatization and restoring paternalistic programs and approaches in several areas."

On 19 August 2005, Khodorkovsky announced that he was on a hunger strike in protest against his friend and associate Platon Lebedev's placement in the punishment cell of the jail. According to Khodorkovsky, Lebedev had diabetes mellitus and heart problems, and keeping him in the punishment cell would be equivalent to murder.

On 31 August 2005, he announced that he would run for parliament. This initiative was made possible by the legal loophole: a convicted felon cannot vote or stand for a parliament, but if his case is lodged with the Court of Appeal he still enjoys all electoral rights. Usually it takes around a year for an appeal to make its way through the Appeal Court, so there should have been enough time for Khodorkovsky to be elected. For a member of Russian parliament to be imprisoned, the parliament needs to vote to lift his or her immunity. Thus he had a hope of avoiding prosecution. But the Court of Appeal, unusually, took only a couple of weeks to process Khodorkovsky's appeal, reducing his sentence by one year and invalidating any electoral plans on his part until the end of his sentence.

As reported on 20 October 2005, Khodorkovsky was delivered to the labor camp YaG-14/10 (Russian: Исправительное учреждение общего режима ЯГ-14/10) in the town of Krasnokamensk in Zabaykalsky Krai. The labor camp is adjacent to a uranium mine, which it once served. Khodorkovsky was put to work in the colony's mitten factory. He slept in a barracks and often spent his days in a cold solitary cell in retribution for his supposed violating of various rules.

The second part of Khodorkovsky's essay "Left Turn" was published in Kommersant on 11 November 2005, in which he expressed social democratic views.

On 13 April 2006, Khodorkovsky was attacked by prison inmate Alexander Kuchma while he was asleep after a heated conversation. Kuchma cut Khodorkovsky's face with a knife and said that it was a response to sexual advances by the businessman. Western media accused the Russian authorities of trying to play down the incident. In January 2009, the same prisoner filed a lawsuit for 500,000 rubles (about $15,000) against Khodorkovsky, accusing him of homosexual harassment. Kuchma said in an interview that he was compelled to attack Khodorkovsky by two officers, beaten and threatened with death to commit the attack. In 2011, Kuchma admitted that he had been told to attack Khodorkovsky "by unknown persons who had come to the prison colony and beaten and threatened him."

On 5 February 2007, new charges of embezzlement and money laundering were brought against both Khodorkovsky and Platon Lebedev. Khodorkovsky's supporters pointed out that the charges came just months before Khodorkovsky and Lebedev were to become eligible for parole, as well as a year before the next Russian presidential election.

On 28 January 2008, Khodorkovsky began a hunger strike to help his associate Vasily Aleksanyan, who is ill and was held in jail and who was denied the medical treatment he needed. Aleksanyan was transferred from a pre-trial prison to an oncological hospital on 8 February 2008, after which Khodorkovsky called off his strike.

"No single cause has done more than Khodorkovsky's to inspire Russian speakers everywhere", Gessen wrote in 2012. "Three of Russia's best-selling writers have published their correspondence with Khodorkovsky; composers have dedicated symphonies to him, a dozen artists attended his trial and put together an exhibition of courtroom drawings." Gessen noted that "a group of Soviet-born classical musicians traveled to Strasbourg to mount a concert in honor of Khodorkovsky." While Khodorkovsky was imprisoned, Arvo Pärt, the Estonian composer, wrote his Symphony no. 4, and dedicated it to him. The symphony had its premiere on 10 January 2009 in Los Angeles at the Walt Disney Concert Hall, under the direction of Esa-Pekka Salonen.

Khodorkovsky spent more than half of his prison time in the Matrosskaya Tishina Detention Facility in Moscow, where, according to Gessen, "living conditions are far more punishing than those in a distant penal colony." Yet, Gessen noted, he "declined to describe" in any detail the conditions under which he was imprisoned, "arguing that he is no different from other inmates."

In prison, Khodorkovsky announced that he would research and write a PhD dissertation on the topic of Russian oil policy. The third part of Khodorkovsky's essay/thesis "Left Turn" with the subheading "Global Perestroika" was published in Vedomosti on 7 November 2008. In it he stated:

"Barack Obama's victory in the US presidential elections is not simply the latest change of power in one individual country, albeit a superpower. We are standing on the threshold of a change in the paradigm of world development. The era whose foundations were laid by Ronald Reagan and Margaret Thatcher three decades ago is ending. Unconditionally including myself in that part of society that has liberal views, I see: ahead – is a Turn to the Left."

In May 2010, Khodorkovsky went on a two-day hunger-strike to protest what he said was a violation of the recent law against imprisonment of persons accused of financial crimes. The law was pushed by President Medvedev after the death of Sergei Magnitsky who died in pre-trial detention in a Moscow prison in 2009.

On appeal, Khodorkovsky and Platon Lebedev's sentences were reduced from 11 years to 10 years and 10 months meaning they could be released in August 2014 and May 2014, respectively. Khodorkovsky's appeal read: "In this case, the usual mantra that everything is legal and well-grounded just won't do."

He wrote a book, My Fellow Prisoners, detailing his time incarcerated. Khodorkovsky has spoken about how his incarceration has changed his "value system" in life, and that there are now, for an example, more important things for him than business pursuits.

Second trial, 2009–2010

Charges

Khodorkovsky became eligible for parole after having served half of his original sentence, however, in February 2007, state prosecutors began to prepare new charges of embezzlement, leading up to a second trial which began in March 2009.

Prosecutors filed new charges against Khodorkovsky, alleging that he stole 350 million tons of oil, charges which Kommersant described as "Compared with the previous version, only stylistic inaccuracy has been improved, and some of the paragraphs have been swapped." Others pointed out that the new charges were impossible given that he was previously convicted on tax evasion of the same allegedly stolen oil. According to Khodorkovsky's lawyer Karinna Moskalenko, "The position of the prosecutors is also self-contradictory.... Khodorkovsky is now serving a sentence for tax evasion, and if they are asserting that he stole all the oil his company produced, what did he go to prison for the first time if there was nothing to be taxed?"

Judicial controversy

On 14 February 2011, Natalya Vasilyeva, an assistant to Judge Viktor Danilkin, said that the judge did not write the verdict, and had read it against his will. Essentially, Natalya Vasilyeva said the judge's verdict was "brought from the Moscow City Court".

In her statement she also noted that "everyone in the judicial community understands perfectly that this is a rigged case, a fixed trial". On 24 February Vasilyeva underwent a polygraph test, which indicated that she likely believes that Danilkin acted under pressure. Judge Danilkin responded that "the assertion by Natalya Vasilyeva was nothing more than slander".

Appeal and Amnesty International statement

On 24 May 2011, Khodorkovsky's appeal hearing was held, and Judge Danilkin rejected the challenge. Following the rejection of the appeal, the human rights group Amnesty International declared Khodorkovsky and Lebedev as "prisoners o