Russian prosecutors freeze Khodorkovsky's Yukos shares

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The Independent Online

The Russian authorities dramatically raised the stakes in their campaign against the country's richest oligarch last night, freezing his controlling holding in Russia's biggest oil company, Yukos.

Shares in the company, which had already lost one-third of its $35bn (£20.6bn) market value since the arrest and imprisonment of Mikhail Khodorkovskylast weekend, plummeted, as did other shares on the Russian stock exchange.

The finance minister, Aleksei Kudrin, admitted that the so-called Yukos affair was having an adverse effect on the Russian economy, but appealed to investors to recognise the sound fundamentals of the Russian economy before doing anything precipitate. He said that President Putin, whom he has worked with for more than 10 years, wanted to make Russia internationally competitive and friendly to attracting business. He insisted that Mr Putin would do nothing that would undermine that. Mr Kudrin, looking weary, was called out of the room at one point to take a call from the President.

The finance minister stressed that Mr Khodorkovsky's holding in Yukos, which was made up of shares held in companies registered in Cyprus, Gibraltar and the Isle of Man, had been frozen, not confiscated, and that this was entirely normal in such cases. He said that it should not impede the functioning of Yukos and its managers, who should continue to work normally.

Yukos, however appeared to view its troubles in a different and more malign light. Shortly before the announcement about the freezing of Mr Khodorkovsky's assets, a senior company executive had gone on the record to defend the transparency of its operations and the integrity of its imprisoned chief executive. Mr Khodorkovsky faces charges of large-scale tax evasion and embezzlement that carry a minimum sentence of 10 years in prison and could cost him his estimated $8bn dollar fortune and the dissolution of Russia's biggest oil company.

Speaking in Moscow yesterday, the executive described the charges as "absolutely baseless" and expressed confidence that "in an open and free court", Mr Khodorkovsky would be able to exonerate himself. He also said that at least some of the evidence cited by the office of the prosecutor general would be inadmissible. Electronic documents found on computers confiscated last week from a public relations company were referred to by the prosecutor's office the previous day as providing evidence of a massive tax evasion scam. The Yukos executive, Hugo Erikssen, director of the company's international information department, said, however, that electronic data was not considered evidence under Russian law.

Mr Erikssen, who was appointed in 1999 to bring the company's image and reputation up to international standards, portrayed Mr Khodorkovsky's arrest as part of a much larger political battle inside the Russian administration geared at next month's parliamentary elections. It was, he said, a reflection of "an invisible clash of two ways in which Russian can be developed". The first being the free-market, capitalist way favoured by Mr Khodorkovsky and exemplified in his company, Yukos, which would lead to Russia's full integration in the world economy. The second was the "statist" way that had its roots in the communist party ideology of the past, where big companies were seen as a challenge that was difficult for governments to deal with.

Mr Erikssen stressed the vast investment of resources and energy Mr Khodorkovsky had placed in Yukos and the scale of his achievement in turning around what had been an insolvent company, with workers owed millions of roubles in wages, before he took over in 1996. Through Mr Khodorkovsky's efforts, he said, Yukos had survived the collapse of oil prices through the late Nineties and the economic crash of 1998.

During the day President Putin met investment bankers to reassure them the government was not pursuing a campaign against business.