44 percent of oil giant's stock seized by Russia

Jailed executive and allies owned impounded shares

October 31, 2003|By Douglas Birch | Douglas Birch,SUN FOREIGN STAFF

MOSCOW - Russian prosecutors seized control of a large block of stock in the country's largest oil company yesterday, less than a week after jailing its chief executive, actions that critics called a blow against private property and the rule of law.

A spokesman for Yukos Oil Co. said in a statement that investigators from the prosecutor general's office impounded shares representing 44 percent of the company. The seized shares were owned by chief executive officer Mikhail B. Khodorkovsky and several of his allies.

Khodorkovsky, Russia's richest person, was arrested at gunpoint Saturday. The 40-year-old billionaire is accused of tax evasion and fraud, and is being held in a Moscow prison.

Prosecutors said they took control of the stock based on laws allowing the government to seize assets if there are reasons to believe they were received "as a result of criminal activity.

Russian President Vladimir V. Putin, since his election 3 1/2 years ago, had repeatedly pledged not to seek to undo the sale of former state assets, including Yukos, which businessmen bought for bargain prices in the 1990s, allowing their new owners to become major forces in the Russian economy.

The struggle for control of the world's fourth-largest oil company is far more than a dispute between zealous prosecutors and corporate officials accused of wrongdoing. The prosecutors' investigations seemed to be part of a Kremlin power struggle between aides linked to intelligence agencies and the military, and holdovers from the government of former President Boris N. Yeltsin - a conflict being fought mostly in the shadows.

Some investment analysts here said the seizure of the Yukos stock may have been triggered by the Yukos board's announcement that it would pay stockholders $2 billion in dividends, the largest portion of which would go to Khodorkovsky. Authorities may have feared that the dividends would go to offshore banks, and that the company would appoint a new board of directors with foreigners who would be beyond the reach of Russian law enforcement.

Aleksei Melnikov, a member of parliament from the liberal Yabloko faction, said authorities were trampling on private property rights by seizing the stock, a state action unprecedented since the collapse of the Soviet Union.

"We've demonstrated to the whole world that property in this country is not respected," Melnikov said. "One of the biggest companies in this country is practically being killed."

Yevgeny Yasin, a minister of economics under Yeltsin, predicted on the Ekho Moskvy radio station that the stock will wind up in the pockets of government officials who organized the Yukos investigation.

Pavel Borodin, a Putin supporter, longtime Kremlin insider and chairman of the Great Russia party, praised the seizure. "It is high time we stopped the outflow of everything from this country, starting with oil and going all the way to diamonds," he told Ekho Moskvy.

Also yesterday, Russia's Ministry of Natural Resources launched an investigation of Yukos' environmental practices in eight Russian regions. Such enforcement efforts are rare; Putin abolished the country's environmental protection agency a few months after his election.

In Moscow, officials with the pro-Kremlin United Russia Party said that Vladimir Dubov, a parliament deputy and major Yukos shareholder, had been kicked off the party's ballot in the coming elections. Dubov's offices were searched last month by prosecutors.

News of the stock seizure came late in the afternoon, shortly before Putin convened a meeting of Russian and foreign investors in the Kremlin in what, perhaps, was a pre-emptive effort to reassure jittery financial markets.

After the meeting, Putin blandly told the state-controlled ITAR-Tass news service that the session was devoted to "the development of the Russian stock market." As reported by Tass, he did not mention Yukos. "Of course, we don't consider the work on creating conditions for investment activity completed," Putin said.

Despite widespread skepticism, Putin has repeatedly claimed that he has had no influence over prosecutors in the Yukos case.

Khodorkovsky, like Russia's other oligarchs, made the bulk of his fortune buying state assets at give-away prices. But the executive, said to be worth $8 billion, became one of the first of Russia's industrial titans to have his company pay dividends, open its books to Western-style audits and reinvest profits.

He dared to challenge the Kremlin this year by pouring campaign contributions into opposition parties, including Yabloko, giving speeches and criticizing Putin.

Putin and Khodorkovsky exchanged sharp words at a conference in February, and their relations became increasingly tense. In July, prosecutors began searching files and computers in Yukos offices, the homes of shareholders and even a Yukos-supported orphanage. Two of Khodorkovsky's business associates have been jailed in investigations into charges ranging from embezzlement to murder.

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