Tactical Grace
01-08-2006, 22:34
http://news.bbc.co.uk/1/hi/business/5233664.stm
Back in the early 1990s, the rules changed in Russia. And wherever the rules change, whatever the reasons, the first to master them are criminals.
A brief taste of how Mikhail Khodorkovsky acquired Yukos is detailed below:
Armed with cash from his business operations, Khodorkovsky and his partners used their connections to obtain a banking licence to create Bank Menatep in 1989.
Bank Menatep provided the foundation for Khodorkovsky's bidding for Yukos in 1995 in the infamous "loans-for-shares" scheme. In this manipulation, a small group of individuals well connected to government structures were handed valuable pieces of state property in return for cash "loans" (which in many cases were funded by the bank accounts of the state bank). One purpose of this operation was to help Boris Yeltsin's reelection in 1996. Khodorkovsky paid a small price of 350 million dollars for Yukos, considering that approximately $1.5 billion USD has been spent purchasing the assets that now make up Yukos, with a market capitalisation of $31 billion USD.
A higher bid from a group of rivals was ruled out of the process by Menatep on a technicality. Menatep won the auction with a bid for $350 million USD for 78% of the company, which implied a value of $450 million. When the company was listed two years later, it was valued at $9 billion. That transaction—and dozens like it—have led many Russians to believe that oligarchs like Khodorkovsky have stolen their fortunes from the state.
Khodorkovsky was charged with acting illegally in the privatisation process of the former state-owned mining and fertiliser company Apatit. It is alleged that the CEO of Bank Menatep and large shareholder in Yukos Platon Lebedev assisted Khodorkovsky. Lebedev was arrested and charged in July 2003.
According to the prosecution, all four companies that participated in the privatization tender for 20% of Apatit's stock in 1994 were shell companies controlled by Khodorkovsky and Lebedev, registered to create an illusion of competitive bidding that was required by the law. One of the shell companies that won that tender (AOZT Volna) was supposed to invest about US$280 million in Apatit during the next year, according to their winning bid. The investment wasn't made and Apatit sued to return their 20% of stock. At this point, Khodorkovsky et al. had transferred the required sum into Apatit's account at Khodorkovsky's bank Menatep and sent the financial documents to the court, so Apatit's lawsuit was thrown out. The very next day the money was transferred back from Apatit's account to Volna's account. After that the stock was sold off by Volna in small installments to several smaller shell companies, which were, in turn, owned by more Khodorkovsky-owned companies in a complicated web of relationships. Literally dozens of companies were registered for these purposes in Cyprus, Isle of Man, British Virgin Islands, Turks & Caicos and other offshore havens. Volna actually settled the Apatit lawsuit in 2002 by paying $15 million to the privatization authorities, even though it didn't own Apatit stock anymore at the time. However, according to the prosecution, that $15 million sum was based on the incorrect valuation which was too low. Allegedly, at the time Apatit was selling off the fertilizers it was producing to multiple Khodorkovsky-owned shell companies below market value, and, therefore, Apatit formally didn't have much profit, lowering its valuation. Those shell companies then resold the fertilizer at the market value, generating pure profit for Khodorkovsky, Lebedev and others.
http://en.wikipedia.org/wiki/Mikhail_Khodorkovsky
This is Enron-scale stuff, and we know how that ended. Khodorkovsky should count himself lucky he got 8 years - in the US, he could have got 25, which in the UK is longer than most life sentences.
I don't see how people can possibly view him as a victim of the Russian political establishment. He funded pro-democracy parties, yes, but with hindsight it was an attempt to buy respectability in the West, and it nearly worked. But ultimately he failed because although a smooth political operator, he was clueless with regards to popular culture. In comparison, his counterpart at Sibneft, Roman Abramovich, was far less subtle - few would argue he was a gangster - and yet he succeeded where Khodorkovsky failed by selling up and buying a football club and other property in the UK. He is thus effectively immune from prosecution, despite potentially being guilty of far graver crimes.
What we see is the end of one unhappy chapter in Russian history, the privatisation of assets in the absence of property law, which plunged the nation into poverty and social chaos, followed by the State's ongoing efforts to claw them back. Those who acquired national infrastructure assets worth billions in a property law vacuum, cannot be said to legally own it. And while the repossession may not look pretty, when you are dealing with people like this, you are not always going to have the luxury of good PR.
It's about time.
Back in the early 1990s, the rules changed in Russia. And wherever the rules change, whatever the reasons, the first to master them are criminals.
A brief taste of how Mikhail Khodorkovsky acquired Yukos is detailed below:
Armed with cash from his business operations, Khodorkovsky and his partners used their connections to obtain a banking licence to create Bank Menatep in 1989.
Bank Menatep provided the foundation for Khodorkovsky's bidding for Yukos in 1995 in the infamous "loans-for-shares" scheme. In this manipulation, a small group of individuals well connected to government structures were handed valuable pieces of state property in return for cash "loans" (which in many cases were funded by the bank accounts of the state bank). One purpose of this operation was to help Boris Yeltsin's reelection in 1996. Khodorkovsky paid a small price of 350 million dollars for Yukos, considering that approximately $1.5 billion USD has been spent purchasing the assets that now make up Yukos, with a market capitalisation of $31 billion USD.
A higher bid from a group of rivals was ruled out of the process by Menatep on a technicality. Menatep won the auction with a bid for $350 million USD for 78% of the company, which implied a value of $450 million. When the company was listed two years later, it was valued at $9 billion. That transaction—and dozens like it—have led many Russians to believe that oligarchs like Khodorkovsky have stolen their fortunes from the state.
Khodorkovsky was charged with acting illegally in the privatisation process of the former state-owned mining and fertiliser company Apatit. It is alleged that the CEO of Bank Menatep and large shareholder in Yukos Platon Lebedev assisted Khodorkovsky. Lebedev was arrested and charged in July 2003.
According to the prosecution, all four companies that participated in the privatization tender for 20% of Apatit's stock in 1994 were shell companies controlled by Khodorkovsky and Lebedev, registered to create an illusion of competitive bidding that was required by the law. One of the shell companies that won that tender (AOZT Volna) was supposed to invest about US$280 million in Apatit during the next year, according to their winning bid. The investment wasn't made and Apatit sued to return their 20% of stock. At this point, Khodorkovsky et al. had transferred the required sum into Apatit's account at Khodorkovsky's bank Menatep and sent the financial documents to the court, so Apatit's lawsuit was thrown out. The very next day the money was transferred back from Apatit's account to Volna's account. After that the stock was sold off by Volna in small installments to several smaller shell companies, which were, in turn, owned by more Khodorkovsky-owned companies in a complicated web of relationships. Literally dozens of companies were registered for these purposes in Cyprus, Isle of Man, British Virgin Islands, Turks & Caicos and other offshore havens. Volna actually settled the Apatit lawsuit in 2002 by paying $15 million to the privatization authorities, even though it didn't own Apatit stock anymore at the time. However, according to the prosecution, that $15 million sum was based on the incorrect valuation which was too low. Allegedly, at the time Apatit was selling off the fertilizers it was producing to multiple Khodorkovsky-owned shell companies below market value, and, therefore, Apatit formally didn't have much profit, lowering its valuation. Those shell companies then resold the fertilizer at the market value, generating pure profit for Khodorkovsky, Lebedev and others.
http://en.wikipedia.org/wiki/Mikhail_Khodorkovsky
This is Enron-scale stuff, and we know how that ended. Khodorkovsky should count himself lucky he got 8 years - in the US, he could have got 25, which in the UK is longer than most life sentences.
I don't see how people can possibly view him as a victim of the Russian political establishment. He funded pro-democracy parties, yes, but with hindsight it was an attempt to buy respectability in the West, and it nearly worked. But ultimately he failed because although a smooth political operator, he was clueless with regards to popular culture. In comparison, his counterpart at Sibneft, Roman Abramovich, was far less subtle - few would argue he was a gangster - and yet he succeeded where Khodorkovsky failed by selling up and buying a football club and other property in the UK. He is thus effectively immune from prosecution, despite potentially being guilty of far graver crimes.
What we see is the end of one unhappy chapter in Russian history, the privatisation of assets in the absence of property law, which plunged the nation into poverty and social chaos, followed by the State's ongoing efforts to claw them back. Those who acquired national infrastructure assets worth billions in a property law vacuum, cannot be said to legally own it. And while the repossession may not look pretty, when you are dealing with people like this, you are not always going to have the luxury of good PR.
It's about time.