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PricewaterhouseCoopers Uncovers a Criminal Group

June 26, 2007 | Kommersant

More details of PricewaterhouseCoopers' withdrawal of its audit reports on YUKOS have become known to Kommersant. The Prosecutor General's Office information that was the reason for the withdrawal mainly concerns the activities of Group MENATEP, the main shareholder in YUKOS. Legal experts think that Russia is gathering information on the illegal activity of MENATEP to prepare itself for possible claims by foreign investors and creditors of YUKOS.
Kommersant has obtained letters from PricewaterhouseCoopers Audit, a Russian division of PwC, addressed to YUKOS outside manager Eduard Rebgun and chairman of the board Viktor Gerashchenko. Both letters, one of which was signed by general director of ZAO PricewaterhouseCoopers Audit Michael Kubena and the other company director Doug Miller, were dated June 15. They letters state that PwC is withdrawing its auditing reports and ask the addressees to inform all persons and regulatory agencies that may make use of the reports of their status. Under corporate legislation, a company's audit report goes to its shareholders and to tax organs. Thus the notification of the withdrawal of the report should be sent to all current YUKOS shareholders.

Miller explains that the reason for the withdrawal is information obtained by the Prosecutor General's Office about foreign companies affiliated with YUKOS in the course of its investigation of the criminal case against the former management and shareholders of the company. His letter gives a list of cases where the information provided to the auditors by the YUKOS management did not correspond to information received from the Prosecutor General's Office.

There are four such cases. The first concerns YUKOS' relationship with its main oil export traders Behles Petroleum S.A., Baltic Petroleum Trading Ltd. and South Petroleum Ltd. The Prosecutor General's Office established that the companies were controlled by Group MENATEP, the main YUKOS shareholder, while YUKOS management denied any affiliation with them during the audit.

The second case recounts the arbitration court decision in the YUKOS tax case that the activities of a number of firms that trade in oil were found to be fictive. PwC relied on statements by YUKOS executives about the nature of those companies' activities.

The third and fourth cases are directly linked to Group MENATEP. In one case, YUKOS paid the debts of companies controlled by Group MENATEP to Bank MENATEP. In the other case, Group MENATEP paid YUKOS executives. Rebgun told Kommersant that he was unsurprised by the unreliability of the information in the audit report. “It was uncovered in the course of the financial analysis of the activities of YUKOS according to data provided by its former management,” Rebgun said. “We took 2003 for analysis because the company still had a full-scale internal audit then. Bookkeeping data show that the activity of YUKOS was profitable and the shareholders decided to pay themselves dividends. But in reality, the results were negative and the loss was about 26.3 million rubles.”

Former head of the YUKOS legal department Dmitry Gololobov says that the three foreign companies mentioned in the letters from PwC date from the late 1990s and were YUKOS' first traders. “According to the prosecution's conclusion, published on the Prosecutor General's Office website, the trading scheme that the three companies took part in was at the basis of the accusations against Mikhail Khodorkovsky and Platon Lebedev,” Gololobov recalled. He added that YUKOS payments to Bank MENATEP were described in great detail in reports from the beginning of the 2000s.

Experts note that Group MENATEP is the main figure in three out of the four cases described in the letter. “It can be suggested from the information selected that the Prosecutor General's Office is preparing a strike against YUKOS foreign assets,” said lawyer Denis Uzoikin. Gololobov agrees with him. He thought that “It is clear from the character of the Prosecutor General's Office that its goal is to find and seize the remaining property of Group MENATEP abroad as allegedly attained as the result of criminal activities and money laundering.”

One of the major YUKOS shareholders, Leonid Nevzlin, links the PwC report withdrawal with upcoming suits by YUKOS shareholders “against Russia in foreign courts.” He said that “an attempt to get the auditor on its side” is being undertaken by Russia. Nevzlin said that PwC should “explain its withdrawal of its reports to society since it has caused the shareholders damages by doing so.”

Yuly Tai, a member of the Bartolius law firm, agrees that Russia is preparing for possible claims against it by YUKOS foreign investors and creditors. “They are casting doubt on the legality of the actions of Group MENATEP and cresting additional bases for the extradition of YUKOS shareholders,” the lawyer said. In addition, Tai thought it possible that Russia was preparing for the hearing of Khodorkovsky's complaint to the European Court of Human Rights. “Evidence is being collected concerning what the Prosecutor General's Office considers the illegal activities of YUKOS both domestically and abroad.”

Company: YUKOS

Full company nameYUKOS Oil Company
Country of riskRussia
IndustryOil and gas

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