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Theater of War The Chechen conflict comes home to Moscow. [Nov. 4, 2002] |
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Russian Democracy
A foreign concept in a land that has known little but autocracy for centuries
[Mar. 27, 2000] |
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E-mail your letter to the editor
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IVAN SEKRETAREV/AP
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CHARGED: Khodorkovsky will face a trial |
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| Yukos Stock |
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A shelter in the storm |
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By PETER GUMBEL |
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Posted Sunday, November 9, 2003; 13.45GMT
While Mikhail Khodorkovsky languishes in a Moscow jail, the core of his vast fortune is also locked up. Long before he was arrested, Khodorkovsky and some of his business associates created an elaborate series of offshore holding companies designed to keep their Yukos stock holdings safe. Khodorkovsky may well have anticipated his current legal predicament, but can his complex corporate structure keep Yukos out of the Kremlin's clutches?
The trail starts in Gibraltar, where P.O. Box 246, Suite E, Regal House, Queensway, is the official address of Group Menatep Ltd. Group Menatep owns 100% of Yukos Universal Ltd., an Isle of Man company, which in turn holds 100% of Hulley Enterprises Ltd., based in Cyprus. Hulley is the official holder of 1.29 billion shares of Yukos, or 57.5% of its total. Yukos Universal holds another 3.5%. The value of the combined stake thus sheltered: $15.8 billion.
Khodorkovsky is the single-largest shareholder of Group Menatep, with a direct stake of 9.5%. But he also controls an additional 50% through a special trust, of which he is the sole beneficiary. The trust's foundation documents stipulate that "in the event of Mikhail Khodorkovsky's inability to act as beneficiary (e.g., owing to imprisonment, abduction, being influenced in taking his decisions against his free will etc.) or his death," the voting rights of the trust will be transferred to another shareholder. That's Khodorkovsky's partner Leonid Nevzlin, who fled to Israel two months ago. Last week he was granted Israeli citizenship.
Many wealthy Russians shelter their portfolios, but trust lawyers familiar with Khodorkovsky's arrangements say this construct is more byzantine than most. It's a startling piece of estate planning at a time when Western governments are separately worried about the alleged role of offshore havens in money laundering.
The structure was put together by law firm Clifford Chance and the Swiss bank UBS, which caters to private clients. The details are public because Menatep published them last year in a gesture of Western-style transparency.
Is the stock out of reach of Russian authorities? So far the answer is yes. Although prosecutors froze 42% of Yukos stock late last month, Khodorkovsky and his associates remain the legal owners. To challenge the structure, prosecutors would have to go to court in the different jurisdictions where the shell companies are based. Nevzlin can exercise voting rights and receive dividends, but cannot transfer or sell stock. Before Khodorkovsky's arrest, Yukos was in talks with ExxonMobil and ChevronTexaco about a possible deal, but they are now on hold. Though the main Yukos shareholders are in jail, in exile or under a cloud, they're getting richer: late last month, the Yukos board recommended a $2 billion dividend. Watch for a fat envelope to arrive at P.O. Box 246
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