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. Last Updated: 07/27/2016

Prosecutors Slam Kasyanov on Yukos

Prosecutors lashed out at Prime Minister Mikhail Kasyanov on Monday for criticizing their investigation of core Yukos shareholder Platon Lebedev and widened their politically charged probe to include a new charge of tax evasion.

In a sign that the divide among the political elite is deepening in a vicious war that has pitted conservative Kremlin hawks against the country's biggest oil company, prosecutors accused Kasyanov of trying to pressure the courts.

"Such comments by the prime minister, to put it mildly, are inappropriate. They can be seen as an attempt to pressure the courts," Prosecutor General's Office spokeswoman Natalya Vishnyakova said at a news conference Monday.

"Each branch of power should mind its own business," she said. "We're not just talking about a bucket of potatoes" but losses to the state in the hundreds of millions of dollars.

Kasyanov has publicly spoken out against jailing those found guilty of economic crimes. After the Moscow City Court on Wednesday refused to release Lebedev on bail, he said the case was ruining Russia's investment climate. Then on Friday, he said he thought the stand-off would be over soon.

"I don't believe the situation should or could take a negative turn," he said in televised remarks before leaving for a summer vacation at Lake Baikal. He is due to return to work Aug. 8.

Kasyanov's open siding with Yukos is a sign that the struggle between Yukos and the prosecutors is only part of a bigger battle for economic leverage and power between the old elite that obtained power and vast wealth under President Boris Yeltsin and the siloviki, the former KGB men who rode President Vladimir Putin's coattails to the Kremlin, analysts said. Kasyanov, who has been a key government player since the early 1990s, is seen as a member of the old Yeltsin elite, also known as the Family.

Since it began, the standoff has sent the Russian stock market plunging 13 percent. It also has sparked a new wave of capital flight amid fears of a new destabilizing carve-up of property rights.

Lilia Shevtsova, a senior associate at the Carnegie Moscow Center, said Monday that a solution to the crisis still looks far from view even though business leaders have warned that Putin, by allowing the campaign to continue, risks undermining the economic stability that has been the hallmark of his term so far.

"The president is not ready to rein in the power structures yet," she said.

She said there are three reasons why Putin considers it worth pursuing the attack despite its potential impact on investor confidence and the risk of renewed capital flight. "He does not think that this attack is creating problems for Russia's stability. He can see the opinion polls that indicate the majority of the population are opposed to oligarchs," she said. "Second, he has been persuaded that this involves more than just economic crimes. And, third, he sees the political ambitions of the old oligarchs as more dangerous for his own position than anything else."

Putin so far has kept largely mum on the crisis. He has said, somewhat ambiguously, that he is against using "arm-twisting and jail cells" to solve economic crimes but added that the crimes must be fought.

Union of Right Forces Boris leader Boris Nemtsov on Monday called for a "rapid compromise" to prevent the Yukos crisis from undermining Russia's economic growth. "It is critically essential for the authorities and business to reach a rapid compromise," Nemtsov said on Ekho Moskvy radio. "We can never have economic growth against the backdrop of a conflict between business and the Kremlin."

The Union of Right Forces party, or SPS, receives funding from Khodorkovsky.

Putin has lashed out at big business for attempting to block the passage of Kremlin reforms through its lobbying in the State Duma. Khodorkovsky, however, has been openly trying to lock in a loyal Duma faction that includes SPS.

On Monday, the Financial Times quoted Nemtsov as saying that Yukos and the Kremlin were ready to negotiate a truce.

On Ekho Moskvy, Nemtsov called for a compromise agreement under which the authorities would stop using force to deal with business and, in return, big business would agree to drop its political ambitions. He also suggested increasing the tax burden on raw material processors such as Yukos.

The Kremlin has long been mulling plans to do this, but Putin has complained that even less controversial tax reforms have been given short shrift in the Duma because of the lobbying activities of big business.

The Kremlin also is believed to be looking for ways to close tax loopholes.

On Monday, prosecutors said they were investigating Lebedev, as head of Group Menatep, the holding company that controls the assets of core Yukos shareholders, on a new charge of being behind an illegal tax evasion scheme using a domestic offshore tax zone in the town of Lesnoi in the Sverdlovsk region.

Irina Alyoshina, a prosecutor's office deputy department head, told reporters that the heads of four Menatep-affiliated companies struck an agreement with the Lesnoi administration in 1999 that granted them tax breaks worth 9 billion rubles ($300 million). She said the agreement was against the law because tax benefits could only be granted if the companies registered in the tax zone conducted 80 percent of their operations there, which, she said, was not the case.

Prosecutors later contacted by telephone would not disclose the names of the companies involved nor spell out whether the new charge was aimed at Lebedev or Group Menatep as a whole.

Pavel Kushnir, an oil and gas analyst at United Financial Group, said he thought the tax charge would have little impact on the operations of Yukos. He said Yukos has pushed down its tax payments mainly via an agreement with authorities in the republic of Mordovia under which Yukos trading arm Yukos-M paid a profit tax of just 7 percent instead of the normal 24 percent. This has allowed Yukos to optimize its overall profit tax payments down to an average 10 percent to 13 percent over the last year and the first quarter of 2003, Kushnir said.

The Audit Chamber investigated this tax arrangement last year and did not find anything illegal. Nevertheless, the chamber recommended that the Finance Ministry ban all such agreements from July 1, 2004, Kushnir said.

Menatep spokesmen Yury Kotler and Alexander Simanov would not comment Monday on Menatep's tax arrangements in Lesnoi, but they both described the prosecutors' allegations as "ridiculous."

Alyoshina also said Monday that prosecutors feared Lebedev would flee the country if he was freed on bail before his case could be brought to court. She said prosecutors had evidence that Lebedev had transferred a "huge sum of money" onto a bank card recently. She also said Lebedev has three foreign passports -- one stamped with a valid foreign visa -- and access to three Menatep-owned private jets at Vnukovo Airport.

Simanov acknowledged that Lebedev has a six-month British visa but derided the other comments as factually wrong. "Menatep only has one private jet and it's not at Vnukovo," he said. "All their information is incorrect. Any person that has to leave the state has to go through passport control. Any plane has to get permission before it takes off. It's a question of whether they trust the nation's border guard service. This has nothing to do with Lebedev."

Lebedev has been held at Lefortovo prison for almost four weeks on embezzlement charges and two other charges related to the 1994 privatization of a fertilizer producer.