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. Last Updated: 07/27/2016

Kudrin Tells Businesses to Pay Taxes

ReutersFinance Minister Alexei Kudrin
While the Yukos affair has damaged the Russian economy, businesses should not kid themselves that there is a lawful way to avoid paying taxes, Finance Minister Alexei Kudrin told business leaders Wednesday, the day after Mikhail Khodorkovsky and Platon Lebedev were handed nine-year prison sentences.

Click here to see photo essay "From the Reading of the Verdict"

Kudrin's comments were the first by a government official in the aftermath of Tuesday's verdict. Reactions to the sentences ranged from condemnation by a visiting U.S. congressman to accusations of leniency by nationalist politicians to predictions by some analysts that Khodorkovsky could be a political force to be reckoned with after his release.

"I wouldn't want a repetition of what happened to Yukos," Kudrin told reporters at a conference organized by the Russian Union of Industrialists and Entrepreneurs. "Yukos was a very serious lesson for the whole country. ... It caused an ebbing of trust in the Russian economy. It will take some time to re-establish that trust."

But he added that although the government was working to make tax inspections less onerous, tax avoidance -- even through lawful means -- would not be tolerated.

"The attitude today is: If you avoid taxes 'honestly,' using loopholes in the law, then this is a proper way," Kudrin said. "But 'honest' avoidance is impossible."

The Finance Ministry directly oversees the Federal Tax Service, and Kudrin has generally been wary of weighing in on the Yukos case, leaving it to other government officials to comment.

The ministry was named as a defendant in a lawsuit filed by Yukos last week, in which the oil company sought to overturn the forced sale of Yuganskneftegaz, its former main production unit, and demands a total of 324 billion rubles ($11.5 billion) in damages.

The Finance Ministry acts as the government's treasury and is thus cited in any civil case filed against the state, the ministry's press office said Wednesday.

Leonid Nevzlin, a shareholder in Yukos' holding company, Group Menatep, threatened on Tuesday to sue Kudrin personally over the damage caused to Yukos, claiming the minister guided tax service officials in their campaign against the company. Nevzlin provided no evidence for the claim.

"Our lawyers are still looking into [suing Kudrin]," said Eric Wolf, Nevzlin's spokesman, by telephone on Wednesday from Israel, where Nevzlin now lives. "We will analyze everything Kudrin has said, both recently and in the distant past."

Gennady Yezhov, Kudrin's spokesman, said the Federal Tax Service worked independently of the Finance Ministry, and that Kudrin was not worried by the lawsuit.

"No, he did not consult his lawyers. Mr. Kudrin did not have any direct role in the Yukos case. He does not give any credence to Mr. Nevzlin's threats," Yezhov said by telephone.

The Prosecutor General's Office is investigating Nevzlin in connection with two murders and three attempted murders. Nevzlin denies all the charges against him.

The day brought mixed reaction from U.S. politicians visiting Moscow.

U.S. Commerce Secretary Carlos Gutierrez, in town on a trip to promote bilateral trade, said Wednesday that the verdict would cloud the business climate for investors in Russia.

"It creates uncertainty and investors do not like uncertainty," he said, The Associated Press reported. "Investors look for a climate where the rules are clear. ... Anything that adds to uncertainty will stand in the way of investment."

Views differed among a group of five U.S. congressmen, who were holding a joint meeting in Moscow with the Foreign Affairs Committee of the State Duma.

Representative Henry Hyde of Illinois, the Republican chairman of the House Foreign Relations Committee, avoided direct mention of the Khodorkovsky verdict during an address to the meeting. Hyde instead stressed the importance of U.S.-Russian relations, calling them "one of the most important elements on the planet."

"Russians and Americans should remember: Friends can disagree and still remain friends," Hyde said.

But Representative Tom Lantos, co-chairman of the House Russian Caucus and a vocal critic of the Kremlin, sounded a harsher note during a break in the meeting when he gave an interview to Ekho Moskvy radio. Lantos hammered Russia over what he called a retreat from democracy, citing the conduct of the Khodorkovsky trial as a key indicator of the trend.

"When an American businessman is accused of not paying taxes ... that individual continues to live at home with his family and continues to live a normal life," Lantos said. "Mr. Khodorkovsky appeared on television all over the world for the last several months as a caged animal."

Lantos co-sponsored a House resolution in early May aimed at excluding Russia from the Group of Eight industrialized nations on the grounds that the country violated a key condition of membership by "moving away from democracy."

Lantos told Ekho Moskvy that the resolution "recognizes the reality that Russia today does not have independent television, ... an independent judiciary or democratic forms of expression, like having gubernatorial elections or being able to elect independent members to the Duma."

In a news conference later Wednesday, Hyde said he did not support the resolution, calling it "the personal opinion of one of the members of our delegation."

Meanwhile, political analysts said late Tuesday that the nine-year sentence handed down to Khodorkovsky was aimed at keeping him from playing any part in the 2007 parliamentary elections and the 2008 presidential election, but also said the sentence could end up turning him into a major political figure.

Genrikh Padva, the lawyer who coordinated Khodorkovsky and Lebedev's defense team, told Ekho Moskvy radio that the team would appeal the convictions within 10 days, but said that the Moscow City Court, which is scheduled to hear the appeal, would not start hearings until the fall.

"Since sentences for these crimes typically get commuted halfway through due to good behavior, they had to give him no less than eight years," said Vladimir Pribylovsky, head of the Panorama think tank. "It is obvious he will become a political leader after he gets out."

"I think the Kremlin is intensely interested in having Khodorkovsky appeal for parole," said Stanislav Belkovsky, director at the National Strategy Institute. "And the longer the sentence, the more incentive Khodorkovsky has to beg for amnesty."

"Perhaps if he had struck a different tone in his closing statement, the sentence would have been different," said Alexei Makarkin, deputy head of the Center for Political Technologies. "But had he done that, he would have destroyed himself as a public figure."