From Russia to the EU by Burson-Marsteller EMEA

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Un ion

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Ru ss ian To

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Ch ri st Fe m der as at ion

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Partnership for modernisation

onable Questi

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HEALTH WARNING The Partnership for Modernisation focuses on reform and competitiveness, yet Russia remains a dangerous place in which to invest. While the current government of President Medvedev and Vladimir Putin speaks repeatedly about modernization, it has a poor record in implementing modernization objectives: Russia’s education system lies in ruins; foreign investors are fleeing the country and respect for the rule of law is arbitrary. The judicial, social and economic pillars on which a modern Russia should stand are inexistent. Moreover, corruption is omnipresent. According to Transparency International’s Corruption Perception Index, Russia is far more corrupt than the other BRIC states of Brazil, India and China. Compared to these countries, Russia also rates poorly on the Heritage Foundation’s Index of Economic Freedom. From IKEA to Royal Dutch Shell to Yukos, many, mainly foreign, companies that invested in Russia have experienced rule of law violations, when trying to defend their legitimate business undertakings. The most prominent cases are set out in this paper. Today the Russian Federation’s economy is almost solely based on the export of oil and gas by companies which are controlled by the Russian Government. Russia’s manufacturing industry has fallen victim to the lack of innovation and corruption while development of cutting edge technologies is absent. So this paper is designed to show that despite the objectives of the EU-Russia Partnership for Modernisation to promote technological cooperation and increase foreign investment, doing business in today’s Russia remains a high-risk venture.

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RISK FACTORS ASSOCIATED WITH DOING BUSINESS IN RUSSIA On the heels of the $2.2 billion Rusal IPO on the Hong Kong Stock Exchange in January 2010, Russian firms are planning another $20 billion of stock sales in the next 12 to 18 months. In a Wall Street Journal analysis1, the performance of 19 Russian IPOs or follow-up offerings over $500 million since 2005 would be -7.2% if one purchased a 1% stake in each and reinvested the dividends. Russian offerings typically only provide shareholders with minority stakes, which prevents foreign investors from impacting corporate governance and transparency issues. Overall, Russian capital raisings have had a poor track record, falling behind the RTS index by 16% on average.

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Restricting shareholder ownership and keeping a tight rein over state-owned companies and companies run by political associates demand a high cost on the Russian economy. It is estimated that since 2000 when Putin came to power, $200 billion to $300 billion a year has been skimmed from the economy through corrupt actions.2 Foreign direct investment or capitalization by foreign investors would help Russian firms increase transparency and corporate governance rules and in the process make the firms more attractive to a larger pool of investors. The arrest, conviction and mistreatment of Mikhail Khodorkovsky, former CEO of Yukos the largest publicly owned Russian oil company to be expropriated by the state, raised concerns about due process and the rule of law, including property rights, judicial independence and the lack of a predictable tax regime. Add a conflicting, self-dealing and rapidly changing legal and regulatory structure, and Russia stands out as one of the most dangerous and unpredictable places to do business. Among BRIC countries, Russia ranks lowest in Heritage Foundation’s Index of Economic Freedom and is lower than world and regional averages.3 The report noted an overdependence on oil and gas for development, a sector that is notoriously volatile increasing a country’s risk profile. Additionally the report notes:

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State involvement in economic activity remains extensive. Non-tariff barriers significantly increase the cost of trade. Monetary stability is weak, and prices are heavily controlled and influenced by the government. Deterrents to foreign investment include bureaucratic inconsistency, corruption, and restrictions in lucrative sectors like energy. Corruption weakens the rule of law and increases the fragility of property rights.4

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1 Denning, Liam, “The Pitfalls of Buying a Stake in the Russian Dream,” Wall Street Journal, March 5, 2010. http://online.wsj.com/article/SB10001424052748704187204575101591978296022.html? 2 Matthews, Owen and Anna Nemtsova, “Moscow’s Phony Liberal,” BusinessWeek, February 26, 2010. http://www.newsweek.com/id/234264/page/1 3 Heritage Foundation’s Index of Economic Freedom: Ranking the Countries. http://www.heritage.org/index/ranking.aspx 4 Heritage Foundation’s Index of Economic Freedom: Russia. http://www.heritage.org/index/Country/Russia

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An academic paper5 found that judicial independence is a precondition for economic growth. The study analyzed both de jure (matter of law) judicial independence and de facto (matter of fact) judicial independence and found that de facto judicial independence positively influences real GDP growth per capita in a sample of 62 countries. In this study, Russia ranked very highly at 7th in the de jure index, but held the second lowest, ranking 60th. This reflects both the passage of the Criminal Procedure Code in 2001 and pervasive corruption and government influence in the private sector despite existing laws, a factor that’s also reflected in Russia’s low ranking in the Index of Economic Freedom. The results in this study corresponds to the US State Department’s most recent Human Rights Report6 for Russia that “corruption in law enforcement remained a serious problem, and many observers, including some judges and law enforcement personnel, asserted that the executive branch influenced judicial decisions in some high-profile cases.” In addition to the lack of judicial independence, the Russian police force functions as an extension of the state, harassing citizens, expropriating businesses and skirting the rule of law. The police are feared and distrusted by two-thirds of the country, but there is little recourse for those who have been aggrieved. As corruption spreads from the top down, police officers offer protection to the highest bidder. The police are at the direction of the Federal Security Service (FSB), KGB’s successor and a segment of the government comprised of a ruling political elite that is above reproach. Although kidnappings by police have escalated, it often goes unreported and the victim just pays the ransom demand. In the latest corruption indexes by Transparency International and the Heritage Foundation, Russia ranks in the bottom quintile, barely above governments such as Zimbabwe and Venezuela.7 These indexes consistently report Russia as moving towards a repressive government and an economy that is detrimental to foreign investment and international capital markets participation. According to a 2005 study8, while low levels of corruption appear to have slightly beneficial effects for economic growth, whether because corruption promotes economic activity otherwise hindered by government regulations or that the increased resources required to combat low levels of corruption are not adequate tradeoffs, corruption at such high levels is detrimental for economic growth. The recent World Economic Forum’s Global Competitiveness Report9 noted,

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Russia falls 12 places this year to 63rd, the only BRIC economy to see a decline in performance. Russia’s main strengths are its large market size and reasonable macroeconomic stability (although this has been partly the result of windfall oil revenues and might not prove sustainable in the longer term). However, to improve its competitiveness further, the country must tackle a number of structural weaknesses. Of major concern are a perceived lack of governmental efficiency (110th), little judicial independence in meting out justice (116th), a lack of property rights (119th), and more general concerns about governmental favoritism in its dealings with the private sector. Private institutions also got poor marks, with corporate ethics in the country placing Russia 110th overall on this indicator. The drop in overall rank is mainly attributable to a weaker assessment of the functioning of factor markets, with, in particular, goods markets (ranked 108th) and financial markets (ranked 119th) getting poor marks.

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In 2009, Russia was the BRIC country to see the largest drop in GDP with a 10% decrease. Brazil suffered a smaller decline, while India and China’s GDPs grew by 6.5% and 8.3% respectively. China’s enviable foreign reserves and its move up the value chain through its higher innovation rating (up two to 26th) and higher overall rating at 29th. India improved one spot to 49th with advanced rankings in complex business and innovation categories, however, its infrastructure, low education rate and low penetration rates for technology, prevent it from advancing further. Brazil gained eight places to surpass Russia for the first time at 56th. Brazil’s large and dynamic domestic market and sophisticated business sector makes it a competitive country to do business. Among industry analysts, Russia is known to have investment challenges, including bureaucratic inconsistency, corruption and restrictions on lucrative sectors like energy. Corruption weakens the rule of law and decreases market efficiency. In 2010, Konstantin Sonin, a professor at the New Economic School in Moscow,10 wrote that Russian economic development policy falls short because even government officials recognize that corruption prevents them from implementing sound economic recommendations in the face of a global financial crisis. Providing the example of the sale of fourth-generation radio networks in Russia, Professor Sonin writes, “After all, everybody knows that participants reach secret agreements beforehand, eliminating the competitive aspect of the bidding.” The case for avoiding investment in Russia must be seriously considered given the evidence provided above and in the “Legal Matters” section starting on page 11. Russia’s industries and companies are in a period of greater government influence in order to maintain a bureaucracy that funnels $200 billion to 300 billion a year out of the Russian economy into the private coffers of Kremlin associates. Measures that would help increase transparency and corporate governance such as increasing foreign ownership of state companies and encouraging outside auditors and oversight are at odds with the Russian government’s aim at enriching itself and associates at the expense of the Russian people. Russia brings to the global economic community advantages of a highly educated work force, a population that would benefit from more jobs, and revenue from commodities that can buffer extreme market movements. But the arbitrary nature of government intervention keeps the risk and cost of doing business in Russia high and reduces global confidence in its companies, management and infrastructure.

Historical and Market Data Transparency International’s Corruption Perception Index Heritage Foundation’s Index of Economic Freedom Political Rights Index by Freedom House

Underwriting Committee for Russian Economic Freedom Institute of Modern Russia

5 Feld, Lars and Stefan Voigt, “Economic Growth and Judicial Independence: Cross Country Evidence Using a New Set of Indicators,” April 2003. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=395403 6 US State Department, “2009 Human Rights Report: Russia,” March 11, 2010. http://www.state.gov/g/drl/rls/hrrpt/2009/eur/136054.htm 7 Russia ranks 146th out of 180 countries in Transparency International’s 2009 Corruption Perception Index. In Heritage Foundation’s 2010 Index Economic Freedom, Russia ranks 143rd out of 179 countries. 8 Mendez, Fabio and Facundo Sepulveda, “Corruption, growth and political regimes: cross country evidence,” April 5, 2005. http://econrsss.anu.edu.au/~facundo/corruption%20EJPE%20final.pdf 9 World Economic Forum, “The Global Competitiveness Report 2009-2010: Country Profile Highlights” http://www.weforum.org/en/initiatives/gcp/Global%20Competitiveness%20Report/index.htm 10 Sonin, Konstantin, “Sell 4G in Closed-Bid Auction,” The Moscow Times, September 9, 2010. http://www.themoscowtimes.com/opinion/article/sell-4g-in-closed-bid-auction/415321.html

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Legal Matters Russia entered the Council of Europe in 1996 and ratified the European Convention in May 1998. The European Court of Human Rights (ECHR), established by the Convention, has become an agent for affecting change in societies where there is a weak tradition of human rights or ineffectual courts and rule of law. In 2009, the ECHR reached its 50th anniversary and despite only joining the Convention in 1998, Russian applications constituted 18% of all applications since 1959. In 2009 Russians filed more complaints with the ECHR than people from any of the other 46 member countries that make up the Council of Europe with 13,666 applications.11 Most of the complaints are not heard by the Court, but of the 862 considered, almost all have gone against Russia. Russia’s judicial branch is not independent and often bends to the will of the executive branch in cases concerning local elections and charges against journalists. Additionally, despite changes to the Criminal Procedural Code in 2002, the Russian judicial system strongly prejudicial against defendants and provides few avenues for average citizens to resolves issues with powerful opponents such as the state or police. The institutional reasoning behind Russia’s political system was discussed by the Foreign Affairs Committee of the House of Representatives. An expert on the US-Russian relationship described the situation as:

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By any measure, Russia is more liberal than the Soviet Union, but it is also totally lawless and the absence of secure rights is not an accident. It exists because it's necessary to assure the power of a kleptocratic elite which puts its interests ahead of those of the nation. This creates a parallel with what existed under the Soviet Union. Like the Soviet authorities, the present Russian leaders use a supposed foreign menace to divert the attention of the population from their “right-less” situation.12

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12 Testimony of David Satter, Senior Fellow of the Hudson Institute, before a Joint Hearing of the Europe Subcommittee and the Terrorism, Nonproliferation and Trade Subcommittee of the House Foreign Affairs Committee, April 27, 2010.

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Selected Cases of Rule of Law Violations in Russia Abitare February 2005 U.S. businessman Frank Neuman, who owned a furniture chain, Abitare, was denied entry to Russia; shortly thereafter armed gangs forcibly closed his stores; business is re-registered to new owners upon forced "sale."

BP Plc 2004 to present BP Plc has faced numerous regulatory and legal issues in Moscow since forming its joint venture with Russian oil company TNK, including back tax claims, espionage allegations, immigration disputes and licensing fights. In March 2008, armed police raided the Moscow offices of BP and its local joint venture, TNK-BP in an attempt to persuade TNK-BP's Russian shareholders to sell their 50% stake in the company. The Kremlin has ratcheted up pressure on foreign energy companies in recent years as part of its effort to consolidate control over the country's largest and most important hydrocarbon deposits. Robert Dudley, BP’s current CEO and former CEO of TNK-BP after it was formed in 2003, left Russia in July 2008 citing “sustained harassment” amid court battles and labor and tax inspections.

Carrefour October 2009 Citing an absence of growth prospects in the short- and medium-term, the world’s second largest retailer after Wal-Mart withdraws from Russia, just months after opening its first store in June 2009.

ConocoPhillips July 2010 ConocoPhillips, one of the largest oil and gas companies, sells its entire 20% stake in Lukoil, Russia’s largest state-owned oil and gas companies. ConocoPhillips’s entry into Russia in 2004 was widely seen as a signal that western companies can do business in Russia. ConocoPhillips invested over $7.5 billion since 2004, but under Prime Minister Vladimir Putin, Russia continues to exercise increasing controls over strategic state assets such as the oil and gas sector.

DeBeers January 2009 De Beers, the world’s largest diamond company, withdrew from a mining joint venture after talks with the Federal Anti-Monopoly Service.

Hermitage Capital 2005 to present In 2007, Russia's Interior Ministry raided the corporate offices of Hermitage Capital Management, one of the largest portfolio investors in Russia, and stole documents that allowed them to install new executives. The new executives forged contracts that allowed them to create nearly $1 billion in liabilities, which cleared the way for them to apply for the $230 million in fraudulent tax refunds. In July 2009, a U.S. judge ordered that attorneys for Hermitage may subpoena JP Morgan Chase Bank and Citibank NA for testimony and records relating to wire transfers that Hermitage said will aid its four pending cases in Russia. Hermitage contends in court documents that other Western investors in Russia had colluded with the authorities to steal the money through the tax refunds and then launder it through New York banks. Russian authorities had stopped Hermitage's chief executive, William Browder, at a Moscow airport in 2005 and deported him on national security grounds.

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Sergei Magnitsky, a lawyer for Hermitage who helped expose the $230 million tax fraud carried out by Russian officials, was accused of corruption himself and jailed. In November 2009, Magnitsky died in a prison medical isolation unit warning the prison staff that someone was trying to murder him. Subsequent events indicate that he accurately foretold his fate.

Hewlett-Packard April 2010 In April, it emerged that US and German authorities were investigating whether HP employees in a German subsidiary had engaged in a bribery scheme involving a 35 million euro ($44.5 million) contract to provide IT equipment to the Chief Public Prosecutor's Office of the Russian Federation.The bribery investigation has broadened to include more deals dating back to 2000 and more transactions than the one with the Russian prosecutor's office.

IKEA June 2009 In 2004, building licenses and construction permits were disputed by the Moscow authorities, delaying opening of stores and increasing project costs; IKEA's Russia head said that he feared for his life after refusing to pay bribes to local authorities. In June 2009, IKEA declared a moratorium on investment in Russia.

Mechel July 2010 One of Russia’s largest steel companies, Mechel lost almost $6 billion in market capitalism as Prime Minister Putin admonished its CEO Igor Zyuzin at an industry conference. By selling steel to overseas firms at half the price of Russian buyers, Zyuzin was effectively denying Putin his cut of the company’s profits through taxes. With memory of corporate raiding and expropriation fresh on investors’ minds, Mechel’s shares (traded on the New York Stock Exchange as American depository receipts) suffered as investors factored in the political risk in their valuation of the company.

Microsoft September 2010 After a New York Times article, Microsoft made the decision to stop helping Russian authorities use claims of software piracy to harass and silence dissenters. To counter the Kremlin’s intimidation strategy, Microsoft announced that it is barring its lawyers from taking part in such cases and will provide a blanket software license to advocacy groups and news media outlets in Russia, undercutting the Kremlin’s tactic.

Motorola 2006 Between March and April 2006, Motorola shipped 167,500 mobile phones to Moscow. Upon leaving customs they were immediately seized by Moscow Interior Ministry officials as "contraband." In another incident that year, RussGPS, a small high tech company supplying the Russian military, persuaded the Interior Ministry to bring a claim for patent infringements against Motorola in Russia, circumventing the normal procedure of protecting intellectual property via courts.

Open Society Institute/George Soros November 2003 George Soros' Open Society Institute’s Moscow office was raided at midnight by private security forces. The cause of the raid was not clear, but suspicion is that it was retaliation for Soros' criticism of the arrest of Mr. Khodorkovsky.

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Peter Hambro Mining 2006 Oleg Mitvol, Deputy Head of Rosprirodnadzor, asserted breaches of license agreement against Peter Hambro Mining and threatened asset seizure and penalties, effectively wiping £300 million from the market capitalization of the company.

PriceWaterhouse Coopers 2007 Russia’s Interior Ministry raided the firm’s offices allegedly in connection with the YUKOS affair; the Interior Ministry opened a tax evasion case against PwC, widely seen as a deliberate effort to discourage PwC from supporting the defense of the new charges brought against Mikhail Khodorkovsky. Ultimately in June 2007, PwC announced the withdrawal of all of its YUKOS audited financial statements. Two days after PwC announced its withdrawal of the YUKOS audited financial statements, the General Procurator’s Office advised PwC that it found no evidence of wrongdoing by PwC in its audits of YUKOS. Less than two weeks later, an appellate court overturned a lower court’s judgment against PwC for tax evasion and returned the matter to the lower court for reconsideration on nearly the entire assessment.

RIGroup July 2008 Janna Bullock formed RIGroup, a New York-based real estate company, in 1998. Three years later, Ms. Bullock expanded into Russia, acquiring tracts around Moscow to develop malls and homes, and eventually formed a partnership with a government corporation managed by the Moscow finance department where her husband Aleksei Kuznetsov served as director from 2000 to July 2008. At the market’s peak, RIGroup was worth $2 billion. Mr. Kuznetsov was pressured to resign in July 2008 by senior government officials. At the same time, federal auditors began an investigation into Ms. Bullock’s company. After Mr. Kuznetsov’s resignation, RIGroup was taken over by rival company ORSI, which has close Kremlin connections, including a 25 percent stake held by Putin’s former judo coach. The company is now in bankruptcy.

Royal Dutch Shell 2006 Gazprom, the Russian energy monopoly, seized control of the world's largest combined oil and natural gas development after a highly publicized campaign of pressure on its foreign operator, Royal Dutch Shell. Before the seizure, Shell came under pressure for alleged cost overruns, delays and environmental violations at its Sakhalin-2 project. Shell was forced to sell half its stake in the Sakhalin-2 project to Gazprom for $7.45 billion, far below its value and the Shell investment. Relations between Shell and the Russian government have thawed, with Putin welcoming Shell to participate in two upcoming natural gas projects in Russia in June 2009. Shell partnered with Russian gas giant OAO Gazprom to launch Russia's first liquefied natural-gas plant in February 2009.

Starbucks 2002 to 2005 Starbucks trademark was appropriated by Russian squatter, delaying market entry by three years and after extensive legal fights. Starbucks prevailed in Russian court; the victory was seen as a sign that Moscow may realize that defending intellectual property rights must be recognized. Starbucks opened its first store in Russia in September 2007.

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YUKOS/Mikhail Khodorkovsky 2003 to present A circle of businessmen and politicians, headed by then-President Putin himself, initiated legal proceedings against the oil mogul Mikhail Khodorkovsky and his partner Platon Lebedev based upon alleged illegality in connection with Group Menatep Limited’s acquisition of assets during privatization and the subsequent alleged abuse of these entities and tax evasion. Lebedev and Khodorkovsky were arrested and convicted in a show trial. YUKOS was systematically dismantled through, first, a sham tax auction wherein its largest asset was auctioned off at a fraction of its market value to an ad-hoc shell company which promptly transferred its assets to state-owned Rosneft. Second, there was a contrived bankruptcy wherein YUKOS’s remaining assets were sold at deflated prices to, among others, Rosneft and state-dominated Gazprom. Since then, YUKOS former shareholders have filed claims for damages worth more than $100 billion as a result of the Russian government's expropriation of their investments. Meanwhile, U.S. shareholders have lost from $4 billion to $6 billion as a result of the Russian government's attack on YUKOS and Khodorkovsky. Today, Khodorkovsky and Lebedev are on trial on criminal charges, inter alia, of embezzling all of the oil produced by the YUKOS production subsidiaries and money laundering that widely regarded as baseless. Many in business and academia have come out against Khodorkovsky’s trial and point out the political nature of his persecution. Speaking at the public hearings in the Sakharov Centre in Moscow in October 2009, Yevgeny Yasin, Director of Research at the Higher School of Economics noted, “As an economist I can assure you that everything that is happening at the Khodkorkovsky-Lebedev trial is utter nonsense. I have the feeling that there is a certain agreement whereby Putin retains control of YUKOS and Khodorkovsky and President Dmitry Medvedev must not enter that territory.” And Kenneth Roth, head of Human Rights Watch said, “Impressions amount that doing business in Russia is insecure. There is no independent judiciary, no rule of law, no respect of the fundamental rights and freedoms. All see the examples like the Khodorkovsky case and think: how can I do business in Russia, when authorities can seize my assets, put me in prison or apply force, if I get in their way.”

Zoloto Resources 2008 Zoloto Resources, a Canadian gold exploration company stopped investing in Russia after the strategic deposit legislation designed to protect domestic producers became law.

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Special Note Regarding Forward-Looking Statements Some of this prospectus may contain forward-looking statements that reflect our current views with respect to, among other things, future events. For the most part, words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of those words or other comparable words all relate to our hope and firm belief that free markets, free people and free ideas will take root and blossom in Russia. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved given the ruthless actions of the self-dealing regime. Nevertheless, respected lawmakers, jurists and elected leaders throughout the world have uniformly concluded that the fate of a free and economically healthy Russia in large part hinges on respect for human rights, property rights and the release of political prisoners such as Mikhail Khodorkovsky. Our data, estimates and forecasts are based upon information obtained from such sources including:

EUROPE Parliamentary Assembly of the Council of Europe A comprehensive study of the original Khodorkovsky-Lebedev proceedings in the November 2004 report of the Parliamentary Assembly of the Council of Europe concluded that “the circumstances of the arrest and prosecution of leading YUKOS executives suggest that the interest of the State’s action in these cases goes beyond the mere pursuit of criminal justice, to include such elements as to weaken an outspoken political opponent, to intimidate other wealthy individuals and to regain control of strategic economic assets.” In June 2009, a report of the Parliamentary Assembly of the Council of Europe examined “politically-motivated abuses of the criminal justice system in Council of Europe member states”, with a heavy emphasis on Russia and the Khodorkovsky case in particular. Sabine Leutheusser-Schnarrenberger, a former German minister of justice who as rapporteur led the research and writing for this report, highlighted the YUKOS affair as “emblematic” of the risks faced by investors who come up against state authorities. The report describes the new charges against Khodorkovsky as “bizarre” and “contradictory,” and asserts that Russian authorities are waging an “unrelenting campaign” against YUKOS and its executives. The report also describes many of the inconsistencies in the prosecutors’ arguments as “perplexing.”

The European Parliament In 2008, Mr Hans-Gert Pöttering, former President of the European Parliament, expressed his concern over the second trial of Mikhail Khodorkovsky:

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I would also like to take this opportunity to strongly appeal to the authorities of the Russian Federation, particularly in this time when the negotiations on the Partnership and Cooperation Agreement have been resumed with the European Union, to take seriously their commitment to respect the law in their country. The fate of political prisoners is indeed of highest importance for the European Union.

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In April 2009, the European Parliament Foreign Affairs Committee adopted its 2008 Annual Report on Human Rights in the World. The Committee strongly criticized the Russian government and expressed concern about the wider negative impact of the mistreatment of Khodorkovsky, Lebedev and Vasily Alexanyan; and the lack of an independent judiciary in Russia. In the report, the Committee said it: “regrets that the European Union has not succeeded in bringing about any change of policy in Russia, particularly with regard to impunity and the independence of the judiciary, the treatment of human rights defenders and political prisoners including Mikhail Khodorkovsky” and “expresses further concern, in line with the Amnesty International Report of 2008, as to the ongoing failure of the Office of the Prosecutor to respect the right of Mikhail Khodorkovsky and his associate Platon Lebedev to a fair trial in accordance with international standards, and deeply regrets the treatment of former YUKOS vice-president Vasily Aleksanian, whose refusal to provide false testimony against Mikhail Khodorkovsky led the Russian authorities to allow his medical condition to deteriorate to a terminal state.”

GERMANY German Chancellor & German Parliament On March 8, 2008, German Chancellor Angela Merkel stated that Germany “would welcome” the release of Khodorkovsky from prison. Chancellor Merkel again expressed concerns about Khodorkovsky during President Medvedev’s visit to Berlin on June 5, 2008. In July 2009, the German Bundestag approved a resolution calling for constitutional reform in Russia. The cross-party resolution cites several trials of concern, including that of Khodorkovsky. The resolution notes that there is fear that Khodorkovsky's trial was "a means to pursue political goals" and that it represents a test case for President Medvedev's commitment to the credibility of Russian justice. Commenting on the trial in July 2009, MP Markus Meckel, SPD Foreign Affairs Spokesman, said: “The second trial currently underway is all the more a test case to see whether the Russian justice system will make the grade. There are many signs to indicate that the new trial is also politically motivated. The charges seem absurd alone from the supposed amount of embezzled crude oil, which was enough that if it were filled into train cars and lined up, the line would circle the earth three times."

German Industry Association On March 4, 2008, Frankfurter Allgemeine Zeitung quoted Klaus Mangold, chair of the Committee on Eastern European Economic Relations of the German Industry Association, who appealed to President Medvedev to ease Khodorkovsky’s conditions of incarceration, stating “this would be a visible and significant sign for the handling of human rights.”

ITALY Italian Parliament On April 28, 2009, the International Christian Democrat Party voted unanimously in favor of a motion asking President Medvedev to assure a just and fair trial for Khodorkovsky. President Pier Ferdinando Casini addressed Italian Prime Minister Silvio Berlusconi and Foreign Affairs Minister Franco Frattini on the Khodorkovsky case in an open letter. The Italian parliament subsequently voted by a wide margin in favor of a motion urging the Italian Government "to activate all diplomatic channels, together with other European partners, to guarantee the respect for human rights and the right of defense for Mikhail Khodorkovsky and Platon Lebedev and for all Russian citizens.”

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SPAIN Spanish Congress of Deputies On March 1, 2005, the Committee of Foreign Affairs of the Spanish Congress of Deputies passed a motion supporting the release of Mikhail Khodorkovsky (file number 161/1408), published in the "BOCG. Congreso de los Diputados" Series D, Volume 325 1st February 2006, to call upon Russian authorities to respect Resolutions 1418 (2005) and 1692 (2005) of the Parliamentary Assembly of Council of Europe in relation to Khodorkovsky and other YUKOS executives, in reference to infringements of the rule of law; and to request the immediate transfer of Khodorkovsky to a detention center with conditions of incarceration to which he is legally entitled as is any prisoner, and which is in proximity to his immediate family.

FRANCE Hervé Mariton, Deputy of the French National Assembly Hervé Mariton, Deputy of the French National Assembly and Head of the France-Russia parliament group, observed the current trial in April 2009; in an interview with Journal du Dimanche, Mariton said there was a feeling of “quiet oppression” in the courtroom. He also concluded that Khodorkovsky has “no possibility to defend himself correctly” and that the way he is being treated is “arbitrary and inhuman.” Mariton said, “this trial seems Kafkaian, Khodorkovsky never had a chance to defend himself in a fair trial; his rights as a human are not respected.”

Leading French Philosopher André Glucksmann In an article published October 26, 2007 in Le Monde, under the headline “Sakharov and Khodorkovsky: The Same Battle,” French philosopher André Glucksmann, citing Elena Bonner and Anna Politkovskaya, described Khodorkovsky’s ongoing imprisonment as retribution for his expression of political values inconsistent with those of the regime.

UNITED STATES US Congress In November 2005, then-Senator Barack Obama with then-Senator Joe Biden and Senator John McCain co-sponsored Senate Resolution 322, stating that “the trial, sentencing, and imprisonment of Mikhail Khodorkovsky and Platon Lebedev have raised troubling questions about the impartiality and integrity of the judicial system in Russia.” In June 2009, key members of the US House and Senate introduced two resolutions 588 and 189 condemning the current trial of Khodorkovsky and Lebedev. US Reps. James McGovern (D-MA), chairman of the Tom Lantos Human Rights Commission, and Robert Wexler (D-FL.), chairman of the Foreign Affairs Subcommittee on Europe, introduced a resolution in the US House of Representatives stating that the trial constitutes a politically-motivated case of selective arrest and prosecution that serves as a test of the rule of law and independence of Russia’s judicial system. In April 2010, Rep. Elton Gallegly (R-Ca.) stated before a Joint Hearing of the Europe Subcommittee and the Terrorism, Nonproliferation and Trade Subcommittee of the House Foreign Affairs Committee that the most notable impediment to improved U.S. Russian trade is “the failure of Russian authorities to adequately enforce intellectual property rights.”

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The US Helsinki Commission, also known as the Commission on Security and Cooperation in Europe, and the Tom Lantos Human Rights Commission, introduced bills in the Senate and the House of Representatives on September 29, 2010 that would freeze assets of and block visas to individuals responsible for the 2009 death of Russian anti-corruption lawyer Sergei Magnitsky and a related $234 million tax fraud scheme against Hermitage Capital. Senator Benjamin L. Cardin (D-MD) and U.S. Representative James P. McGovern (D-MA) sponsored the bill in their respective legislative chambers.

US State Department On February 5, 2007, when the new allegations against Khodorkovsky and Lebedev emerged, the US State Department issued the following comment:

“

As we have commented in connection with the original trial, the continued prosecution of Mikhail Khodorkovsky and the dismantlement of YUKOS raise serious questions about the rule of law in Russia. Khodorkovsky and his associate, Platon Lebedev, would have been eligible to apply for parole this year, having served half of their terms. These new charges would likely preclude their early release. Many of the actions in the case against Khodorkovsky and YUKOS have raised serious concerns about the independence of courts, sanctity of contracts and property rights, and the lack of a predictable tax regime. The conduct of Russian authorities in the Khodorkovsky YUKOS affair has eroded Russia’s reputation and confidence in Russian legal and judicial institutions. Such actions as this and other cases raise questions about Russia’s commitment to the responsibilities which all democratic, free market economies countries embrace.

“

MBK bro

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WWW.KHODORKOVSKYCENTER.COM

MBK bro

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