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Yukos Executive Trial Opens in Moscow - 2004-06-16

The fraud and embezzlement trial of former Yukos oil executive Mikhail Khodorkovsky opened in Moscow Wednesday. The government's case against Yukos and its chief executives has brought Russia's most successful company to the brink of bankruptcy.

Mikhail Khodorkovsky waved to a jostling crowd of supporters before being led into the small Moscow courtroom, where he and key shareholder, Platon Lebedev, are on trial on multiple charges of tax evasion, embezzlement and fraud. The government says the two men robbed Russia of more than $1 billion.

Both men, who face up to 10 years in prison if convicted, deny any wrongdoing. Lawyers for Mr. Khodorkovsky say he and other Yukos associates have been singled out unjustly because of Mr. Khodorkovsky's strong support for opposition political candidates in recent parliamentary and presidential elections.

Human rights groups have charged the Kremlin with manipulating the judicial process to suit state interests, a charge President Putin has vehemently denied. Mr. Putin has said all people must be equal before the law in Russia, from pensioners to wealthy oligarchs like Mr. Khodorkovsky.

The trial is open to the public, but access was restricted, and there was scuffling in front of the Moscow courthouse in the morning, as journalists and scores of onlookers tried, without much success, to gain entry. In a rare concession to the defense, a three-judge panel, rather than a jury, is hearing the case, which is expected to last several months.

The defendants, both of whom have been in jail for nearly a year, were kept inside a metal cage during Wednesday's proceedings.

The trial was adjourned indefinitely shortly after it opened to allow a lawyer for the defense to recover from eye surgery.

The joint Khodorkovsky-Lebedev trial is just one part of a multi-pronged approach on Yukos and its owners. Later this week, a Moscow appeals court is expected to hear a Russian tax ministry claim that Yukos also owes $3.4 billion in back taxes.

Yukos officials have said they could pay the fines, if another court would reverse a ruling allowing them to sell off now frozen assets. But most analysts agree that looks unlikely and that Yukos could be headed for bankruptcy.

Financial analyst Roland Nash of Renaissance Capital Brokerage in Moscow says a decision by the appeals court in favor of the government would be a setback for investors in Russia.

"That's the Armageddon outcome," he said. "That would be a real disaster I think, not only for the company, but also for investor perception on Russia for quite some time. I personally don't think it is in anybody's interest to see that happen. I also think that, for the Kremlin, it means dragging this case through the courts for a very long period of time. And Russia will be under the spotlight at a time when [Mr.] Putin has a very ambitious policy agenda. So, I think in the end it's in everybody's interest to come to a deal and I'm still hoping that that is what will happen."

Mr. Nash adds that the Yukos case has already had a devastating impact on the Russian financial markets, causing it to go from being one of the world's best performers just a couple of months ago, to just about one of the worst.

"Russia was really in the sweet spot of international sentiment," said Mr. Nash. "It was just about to get upgraded to investment grade, there was money flowing in from all sides, and now its become a place where people just feel that they can't trust the rule of the law, and can't trust property rights. And once you start questioning that then, obviously, funds are going to pull out."

Mr. Nash says the tax case against Yukos is also likely to have a significant impact on the Moscow stock exchange. On Wednesday, Yukos shares dropped 12 percent on the Moscow Micez stock exchange.

But he says the impact the Khodorkovsky-Lebedev trial will have on the perception of democracy and law and order in Russia may be even more significant.