How Putin’s foe ended up in Ireland trying to unfreeze €100m

In the early 2000s, Mikhail Khodorkovsky (born 1963), was the billionaire chief executive of a massive Russian oil company who had ambitious plans not just for his company but, he says, for Russia.

Yukos was considered the best company in Russia “and I was rated as the best manager in the country”, he told the District Court in Dublin, by way of affidavit, in a case heard this week.

There was a plan to merge Yukos with another large Russian oil company, Sibneft, and to float on the New York Stock Exchange. The merger with Sibneft “was a prerequisite for a future merger with American oil companies ExxonMobil or ChevronTexaco with which Yukos was engaged in advanced negotiations”.

Khodorkovsky, the majority shareholder in Yukos, was a shareholder in a Gibraltar company called GML which by way of companies in the Isle of Man and Cyprus, held shares in Yukos. Dividends paid by Yukos flowed through this structure to GML, and from their to its shareholders.

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According to Khodorkovsky, dividends and other payments made by Yukos flowed into this structure in 2003. As part of a share buyback, GML received $2.9 billion in early 2003, $1 billion of which was paid out as a dividend to its shareholders. In December 2003, a further GML dividend of $1 billion was paid.

These dividend payments went to trusts linked to seven individuals and into funds controlled by the trusts, some of which ended up domiciled in Ireland, according to Khodorkovsky in his affidavit.

The affidavit was part of an application, heard by Judge Timothy Lucey, for the unfreezing of funds domiciled in Ireland worth approximately €100 million. The funds were first frozen by way of an ex parte (one side only) application heard by the District Court in March 2011, under the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010. The court order, which lasted for 28 days, followed an application from the Garda Bureau of Fraud Investigation (GBFI), which was investigating suspected money laundering.

Repeated successful requests for new 28 orders means the money is still frozen, 5½ years later. Khodorkovsky says the money came from the dividends which flowed from Yukos via GML.

In 2011, as part of changes to the administration of these funds, management was taken over by an Irish-resident entity, which acted as administrator and custodian. A sum of €100 million was to be invested in a particular fund and, as part of the associated regulatory process he, Khodorkovsky, was named as the ultimate beneficiary.

Open Russia

Back in the late 1990s, Yukos, Russia’s first privatised oil company, was “highly profitable”, Khodorkovsky told Judge Lucey. Khodorkovsky became active in providing financial support for political opposition parties. He founded Open Russia, a non-profit organisation for promoting civil society. “I came into direct conflict with President

Vladimir Putin

. ”

In 2003, his business partner Platon Lebedev was arrested for allegedly illegally acquiring a stake in a fertiliser business. “This was widely regarded as a personal threat to me not to engage in politics or further confrontation with President Putin. However, I refused to resile from my position and shortly later, in October 2003, I was arrested on charges of fraud and tax evasion.”

The assets of Yukos were seized by the state. Khodorkovsky was convicted of tax evasion and fraud in 2005. Five years later, while still in jail, he was convicted of the theft of oil from Yukos. “The amounts alleged to have been embezzled were equivalent to the entire annual production of Yukos over the six-year period,” Khodorkovsky said. The value was “circa $25 billion”.

As his counsel Remy Farrell SC said to the court, if the second set of charges were correct, then there could have been no profits to tax. Yet it was the alleged evasion of those tax charges that led to the first set of convictions. The Russian court was told PWC, auditors to Yukos, never noticed the $25 billion theft.

In 2013, following negotiations with the German government, acting on behalf of the EU, Khodorkovsky had the remaining part of his sentence pardoned by Putin, and immediately left the country. He now lives in London, where he has relaunched Open Russia, and from where he acts as Putin’s foremost global critic.

From the evidence heard in court this week, it appears clear that the Irish-resident entity in charge of the €100 million in 2011 decided, when it was told that Khodorkovsky, then in jail, was the beneficial owner of the funds, it had a legal obligation to make a potential money laundering report to the GBFI.

That body then secured a freezing order, and continues to urge the courts not to release the funds despite Khodorkovsky supplying rafts of material in support of his claim that the money comes from Yukos dividends.

The GBFI says it is conducting a continuing investigation into possible money laundering. As explained to the court by Michael McDowell SC, for the Garda Siochána, money laundering requires that funds are the proceeds of crime and in this case the “predicate acts” are the acts alleged in the two Russian convictions.

He said the investigation was into possible money laundering by Khodorkovsky and Lebedev and entities over which they might have control. Officers had travelled to Moscow and spent four days with the prosecuting authorities there.

The convictions of Khodorkovsky and Lebedev have been criticised around the western world. Khodorkovsky’s pardon was welcomed by, amongst others, Ireland’s Minister for Foreign Affairs.

The parliamentary assembly of the Council of Europe has adopted a report that says the convictions were politically motivated, and the European Court of Human Rights has found the Russian authorities guilty of multiple breaches of Khodorkovsky’s human rights.

Numerous European courts have refused to extradite former Yukos executives to Russia on the basis that they would not receive a fair trial. A Russian/Spanish former Yukos executive has claimed he was tortured. The Russian authorities say he suffered a shattered jaw and broken hip when he fell out of a third floor window while in custody.

A jailed former Yukos counsel, who refused to give evidence against Khodorkovsky, was denied access to medical treatment despite being terminally ill from AIDS. This was despite orders from the European Court of Human Rights that he be given medical treatment.

A number of European jurisdictions have refused mutual legal aid requests from Russia in relation to the Yukos case.

McDowell said there was nothing before the court to show that the gardaí were operating in anything other than good faith. He said Ireland had agreements with Russia, including extradition agreements. “In principle, you cannot say this is a Russian conviction. It stands for nothing.”

Judge Lucey said that the freezing orders were the result of 10-minute ex parte applications to the District Court. It could not have been the intention of the Oireachtas that the law would be used to freeze €100 million for 5½ years.

Farrell said that no-one in their right minds believed that Ireland would ever bring money laundering charges against Khodorkovsky. If Ireland did so, it would be the “pariah of Europe”.

McDowell said the legal position was that the court could not unfreeze the funds unless Khodorkovsky could show that there was no Garda investigation, or that it was not reasonable that it suspected possible money laundering.

Judge Lucey said it was easy to keep “the pot boiling” and say there was a continuing investigation. The phrase reasonable to suspect was “all wishy washy stuff”. He queried whether it was the case that someone had made a money laundering report, no-one had called a halt since, “and now it has ended up in court sixteen”.

He reserved his decision.