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Russia Selective with Law in Trial of Richest Man
By Andrew Hurst
Reuters
Thursday, Jun 24, 2004

MOSCOW - The case of oil magnate Mikhail Khodorkovsky may be one of the closest things to a Russian show trial since the demise of the Soviet Union.

But unlike Stalin-era travesties of justice, when convictions sought to spread terror among the populace at large, authorities now want to shock and awe a small, powerful group of tycoons, analysts believe.

The law is being applied selectively to Khodorkovsky, whose oil company YUKOS has admitted to using a wide range of tactics to cut its tax bill, because it may be the most effective way to stop rampant tax evasion, legal experts say.

In the Stalin era thousands were sentenced to death in staged trials that purported to reveal Western-backed networks of espionage and sabotage. In the less dramatic 1970s and 1980s, dissidents received labor camp sentences in hearings designed to discourage malcontents and "anti-Soviet elements."

The Khodorkovsky case ends an era in which "oligarchs," who acquired state assets for a song in the 1990s, could brazenly conduct their affairs and ignore, if not challenge, state authority.

"People are upset that this is very selective," said Laura Brank, managing partner of the Moscow office of the Chadbourne and Parke legal practice.

"But if you do it to (prosecute) a businessman who has been antagonistic to the government, you send a message."

Khodorkovsky, charged with tax evasion and fraud, is thought to have upset the Kremlin by working against parliament's efforts to secure higher taxes on oil company profits. The State Duma approved tax increases weeks after his arrest last year.

The shock tactics appear to have had the desired effect.

Brank said wealthy Russian clients had taken note and were going out of their way to put their tax affairs in order.

Many business people were now scared to set up operations in offshore tax havens, like the Cayman Islands or Cyprus. "There is a desire to pay taxes and be transparent," she said.  

The Khodorkovsky affair illustrates how crudely the law is administered in present-day Russia.

UNPREDICTABLE, ERRATIC

Despite new legal codes, courts are widely seen as corrupt and judges suspected of taking bribes for favorable rulings. It all makes for unpredictable, erratic administration of the law.

But the courts are believed to be very consistent in one respect -- they will almost always do the authorities' bidding.

"The Mikhail Khodorkovsky case is a very clear example of justice bending to the will of the government," said Masha Lipman, a commentator at the Carnegie Institute in Moscow.

"You don't get justice if the state is prosecuting. It's rule of the strong rather than rule of law."

Khodorkovsky's lawyers say publicly they expect their client to be found guilty and jailed for up to 10 years.

YUKOS, the oil company in which Khodorkovsky is the main shareholder, has caved in after months of denying it had evaded taxes and has asked for time to pay a $3.4 billion back tax bill and any future claims that may be lodged.

Despite allegations of heavy-handedness in the Khodorkovsky case, lawyers and litigants see an improvement in handling commercial disputes. New appeals procedures give the opportunity to overturn biased rulings, especially in regional courts.

"I think there is progress," said the head of an international legal practice in Moscow.

"I am not saying the legal system is perfect but I don't think it has been as misused as suggested. You have to see the basis, which is a very corrupt country and corruption gets worse as the country gets wealthier."

William Browder, a Moscow-based fund manager who champions minority shareholder rights, says despite losing 42 of 47 suits he has brought to court, he sees improvement.

"The five wins have all been in the last 18 months which suggests it is possible to get justice in Russia but it's difficult," said Browder, head of Hermitage Capital Management.

"The system is more akin to a bazaar, rather than a place of justice, where the decision tends to go to the highest bidder."

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