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Mikhail Khodorkovsky

Mikhail Borisovich Khodorkovsky (Russian: Михаи́л Бори́сович Ходорко́вский, IPA: [mʲɪxɐˈil xədɐˈrkofskʲɪj]; born 26 June 1963) is a Russian businessman, an oligarch,[1] a philanthropist, a public figure and an author. In 2003, Khodorkovsky was named Person of the Year by Expert, sharing this title with Roman Abramovich and, in 2004, Khodorkovsky was the wealthiest man in Russia and one of the richest people in the world, ranked 16th on Forbes list of billionaires.

Khodorkovsky had worked his way up the Communist apparatus during the Soviet years, and began several businesses during the era of glasnost and perestroika. After the dissolution of the Soviet Union, he accumulated wealth through the development of Siberian oil fields as the head of Yukos, one of the largest Russian companies to emerge from the privatization of state assets during the 1990s. He was arrested on 25 October 2003, to appear before investigators as a witness, but within hours of being taken into custody he was charged with fraud. The government under Vladimir Putin then froze shares of Yukos shortly thereafter on tax charges. The state took further actions against Yukos, leading to a collapse of the company's share price and the evaporation of much of Khodorkovsky's wealth. He was found guilty and sentenced to nine years in prison in May 2005. While still serving his sentence, Khodorkovsky and his business partner Platon Lebedev were further charged and found guilty of embezzlement and money laundering in December 2010, extending his prison sentence to 2014. Khodorkovsky was pardoned by Vladimir Putin, President of Russia, and released from jail on 20 December 2013.

There is widespread concern internationally that the trials and sentencing were politically motivated.[2][3] The trial process has received criticism from abroad for its lack of due process. Khodorkovsky has lodged several applications to the European Court of Human Rights, seeking redress for alleged violations by Russia of his human rights. In response to his first application, which concerned events from 2003 to 2005, the court found that several violations were committed by the Russian authorities in their treatment of Khodorkovsky.[4] In particular, the court ruled that Khodorkovsky's arrest was "unlawful as it had been made with a purpose different from the one expressed."[5] Despite these findings, the court ultimately ruled that the trial was not politically motivated,[6][7][8] but rather "that the charges against him were grounded in 'reasonable suspicion'".[7]
He was considered to be a prisoner of conscience by Amnesty International.[3]

Early years and entrepreneurship in Soviet Union

Early life

Khodorkovsky was born in Moscow, where he grew up in an ordinary Soviet family with a two-room apartment, his parents being engineers who "spent their entire careers at a measuring-instruments factory".[9] His father is Jewish and his mother is Russian. The young Khodorkovsky was ambitious. He received excellent grades. He became deputy head of Komsomol (the Communist Youth League) at his university, the Mendeleev Moscow Institute of Chemistry and Technology, where he graduated in chemical engineering in 1986.[10] The Komsomol involvement was one of the ways to get into the ranks of communist apparatchiks and to achieve the highest possible living standard.[11]After perestroika started, Khodorkovsky used his connections within the communist structures to gain a foothold in the developing free market. He used the help of some powerful people to start his business activities under the cover of Komsomol. Friendship with another Komsomol leader, Alexey Golubovich, helped him greatly in his further success, since Golubovich's parents held top positions in the State Bank of the USSR.[11]

Café and trading

With partners from Komsomol, and technically operating under its authority, Khodorkovsky opened his first business in 1986, a private café; an enterprise made possible by the Soviet leader Mikhail Gorbachev's programme of perestroika and glasnost. In 1987 they opened a "Center for Scientific and Technical Creativity of the Youth" (which eventually allowed him to found the bank Menatep[12]). In addition to importing and reselling computers, the "scientific" center was involved in trading a wide range of other products. In 1995 Menatep acquired a major Russian oil producer, Yukos, which had debts exceeding $3.5 billion, for $300 million.[13][14] Some authors (e.g. the French commentator Jacques Sapir) attribute the relative low price of the purchase to the shadow arrangements with the Yeltsin government.[15]By 1998, he had built an import-export business with an annual turnover of 80 million rubles (about $10 million USD). In 1992 he 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.

Banking

Khodorkovsky and his partners obtained a banking license 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 successful import-export operations. The government granted Bank Menatep the right to manage funds allocated for the victims of the Chernobyl nuclear accident. In a prophetic statement of the time, Khodorkovsky is quoted as saying:[11]
"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" —Khodorkovsky lets out a big, broad laugh at the memory— "I did not remember this! I was too young! And I went for it."

Political ambitions

Khodorkovsky also became a philanthropist, whose efforts include the provision of internet-training centres for teachers, a forum for the discussion by journalists of reform and democracy, and the establishment of foundations which finance archaeological digs, cultural exchanges, summer camps for children and a boarding school for orphans.[16][17] Khodorkovsky's critics saw this as political posturing, in light of his funding of several political parties ahead of the elections for the State Duma to be held in late 2003. He is openly critical of what he refers to as 'managed democracy' within Russia. Careful normally not to criticise the elected leadership, he says the military and security services exercise too much authority. 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."[18]
Khordorkovsky promoted social programs through Yukos in regions where the company operated. One such program that was popular in Angarsk, "New Civilization", promoted student government for 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.[19]

Relationship with Vladimir Putin

In February 2003, at a televised meeting at the Kremlin, Khodorkovsky argued with Putin about corruption. He implied that major government officials were accepting millions in bribes. Putin privately told Lord John Browne, the former head of BP, "I have eaten more dirt than I need to from that man."[14]In early 2012, prior to the Russian presidential election, the writer and activist Masha Gessen wrote that Khodorkovsky and Putin had both underestimated each other. "During his eight years in confinement, Khodorkovsky has become Russia’s most trusted public figure and Putin’s biggest political liability. As long as Putin rules Russia and Khodorkovsky continues to act like Khodorkovsky, Khodorkovsky will remain in prison—and Putin will remain terrified of him".[9]

Merging 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 negotiating with ExxonMobil and ChevronTexaco about them taking 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.[citation needed]

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. However, the merger was recalled by the shareholders of Sibneft after the arrest of Khodorkovsky. In a Foreign Affairs article, – which deals only with the years 1998 to 1999 - Wolosky detailed how “Khodorkovsky’s Yukos managed to siphon off some $800 million during a span of approximately 36 weeks,” in 1999 through transfer pricing – forcing Yukos’ Russian subsidiaries to sell oil at a fraction of world market prices to the holding company.

Wolosky also described how Khodorkovsky had engaged in massive asset stripping of Yukos subsidiaries following the 1998 financial crisis: “After three international banks acquired approximately 30 percent of Yukos following a default on a loan to an affiliated bank, Khodorkovsky sought to turn Yukos into an empty shell. He forced it to convey its most significant asset – its controlling position in oil production subsidiaries – to unknown offshore entities. At the same time, he attempted the mother of all share dilutions: by transferring a massive number of new shares to offshore entities he is believed to control.”[20]Not content with this, according to Wolosky, Khodorkovsky and his colleagues “loot(ed) their companies even more directly – by stealing valuable assets, including wells, equipment, and anything else that can be found on an oil field.” “From 1997 to 1998, Yukos made the oil production companies it controls part with assets having a book value of some $3.5 billion,” the U.S. White House official wrote.

But even this theft on a grand scale was not the worst of Khodorkovsky’s offences, according to Wolosky. Wolosky suggested Khodorkovsky had been complicit in two contract killings in the course of 1998 to 1999 alone. “In June 1998, the mayor of Nefteyugansk was murdered. That spring, he had led a very public crusade and hunger strike against Yukos, protesting the enormous wage and tax arrears that he argued were impoverishing the region. (…) The mayor had previously sent a secret cable to Prime Minister Sergei Kiriyenko requesting his assistance in the showdown. But the mayor was found dead before Kiriyenko could answer.”[20]

Prosecution

In early July 2003, Platon Lebedev, Khodorkovsky's partner and fourth largest shareholder in Yukos, was arrested on suspicion of illegally acquiring a stake in a state-owned fertilizer firm, Apatit, in 1994. The arrest was followed by investigations into taxation returns filed by Yukos, and a delay to the antitrust commission's approval for its merger with Sibneft.[21][22]Khodorkovsky was himself arrested in October 2003, charged with fraud and tax evasion. The Russian Prosecutor General's Office said that Khodorkovsky and his associates cost the state more than $1 billion in lost revenues.[citation needed]

Subsequent to Khodorkovsky's arrest, Leonid Nevzlin gained a controlling stake in Yukos when Khodorkovsky handed him a 60% share in the holding company that controlled the firm.[23] Nevzlin is himself now wanted in Russia and has since fled to Israel.[citation needed]On 31 March 2009, a new trial of Khodorkovsky and Lebedev began in Moscow on fresh charges of embezzlement and money laundering. The two men face up to 22 more years in prison.[24] Khodorkovsky refused to enter a plea, stating that he did not understand the charges.[25]

According to the sentence in the second trial,[26] the companies that extracted oil (such as Yuganskneftegaz and Tomskneft, in which Yukos held major stake, but did not have 100% ownership), would sell all their oil to different shell companies below market rates, and the shell companies would re-sell it to the eventual buyer at market rates. Shell companies, unlike oil-extracting companies, would be owned 100% by Khodorkovsky, Lebedev et al. Those shell companies had very few employees, conducted no other activity than reselling the oil, and some of them had offices in office buildings owned by Yukos. As a result, Khodorkovsky and Lebedev were convicted of embezzlement from the oil companies and some of the oil companies' minority shareholders acted as witnesses for the prosecution during the trial.

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