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Khodorkovsky fraud business empire { October 25 2003 }

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YUKOS-from Soviet bank to global Big Oil
Sat 25 October, 2003 19:04 BST

By Andrei Shukshin

MOSCOW (Reuters) - Mikhail Khodorkovsky, Russia's richest man who was charged on Saturday with fraud and tax evasion worth $1 billion (700 million pounds), started building his business empire in the waning years of the Soviet Union.

A Communist youth leader with the instincts of a capitalist shark, while still in his mid-20s he set up Bank Menatep in 1989 to make a quick fortune in a sector that fed on legal vagaries in Mikhail Gorbachev's perestroika reforms and brought huge returns for those sharp and ruthless enough to exploit them.

His key ally and mastermind of the company's most ingenious financial transactions was Platon Lebedev, has been in jail since July awaiting trial on similar charges to Khodorkovsky.

The bank profits went to acquire choice state assets cheaply in a wave of privatisation deals under President Boris Yeltsin that turned a handful of well-connected financiers into Russia's "oligarchs", super-rich businessmen with political clout.

In 1995-96, Menatep acquired from the government the bulk of what now is Russia's biggest oil company YUKOS. In retrospect, the price paid was a mere fraction of its worth.

Yet in 1998, Bank Menatep went bankrupt, as did many other commercial banks, caught in Russia's financial meltdown. Many ordinary Russians saw savings wiped out.

But the biggest players survived. YUKOS and other assets were regrouped and put under the control of management company Group Menatep Ltd, which has managed the empire ever since.

The 1998 crisis did pitch Khodorkovsky into a spat with minority shareholders, who accused him of asset stripping the company's subsidiaries. Yet several years later, he has rebuilt his reputation with investors after embracing Western methods.


Khodorkovsky was among the first among big Russian businessmen to adopt Western corporate standards. YUKOS became a beacon of transparency and a target for foreign investment.

That same policy helped turn Khodorkovsky into Russia's richest man with a personal fortune estimated at $11 billion. At the same time he started dabbling in politics and was reported to be considering the notion of running for president in 2008.

This year YUKOS engineered a merger with smaller Sibneft to become the world's fourth biggest oil major.

Things turned sour in July when prosecutors arrested his ally Lebedev as part of a multi-pronged attack on the company -- seen by many observers as part of a campaign by conservatives in the Kremlin to curb Khodorkovsky's ambitions.

Core YUKOS shareholder Vladimir Shakhnovsky was charged with tax evasion this month while prosecutors searched company premises on an almost daily basis and ordered a string of ministries to launch probes.

Khodorkovsky, who believed the attack was meant to force him to flee the country, has ignored thinly veiled warnings by prosecutors that he was the next on their list.

In an apparent move to defend its interests, YUKOS started talks with ExxonMobil to sell it a large stake in the company.

On Saturday, in the final move to secure his arrest, police snatched Khodorkovsky from his plane during a stopover in Siberia and flew him to Moscow where prosecutors charged the billionaire with "unprecedented" fraud and tax evasion.

A court ordered him kept in jail.

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