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Russia Widens Probe Into PwC's Dealings With Yukos

by Tatiana Smolenskaya, Tax-News.com, Moscow

24 October 2007


A Russian court has granted a request by the federal tax service to widen the legal probe into audit firm PricewaterhouseCooper's dealings with the defunct oil company Yukos.

According to the Interfax news agency, the tax service secured permission for its request that PwC hand over information relating to the registration of foreign companies, the creation of trust agreements and option schemes to control foreign companies, and the “siphoning of assets out of Russia via oil trading firms".

The panel of three judges in the ninth arbitration appeal court in Moscow rejected arguments by PwC's team of lawyers that the request is unrelated to the case in question, which dealt with supposed irregularities in PwC's audits of Yukos. Quoted by the Financial Times, one defence lawyer branded the court's decision "absurd".

"This is not a hearing about PwC in general," he added, suggesting perhaps that there are political motivations for the trial, as the government prepares fresh money laundering charges against former Yukos chief executive Mikhail Khodorkovsky, who is serving an eight-year prison term.

Once Russia's largest privately-owned oil company, Yukos was eventually brought down and declared bankrupt last year after being saddled with tens of billions in claims for back taxes. Many observers of the case hold the view that the arrest and subsequent imprisonment of Khodorkovsky, ostensibly on charges of tax evasion and fraud, was punishment for funding opposition parties rather than for any fiscal crimes.

PwC was dragged into the ongoing Yukos saga earlier this year after it was fined 16.8 million rubles (US$647,000) in March because of supposed irregularities in its audits of the company between 2002 and 2004, when, according to the authorities, it completed two separate audit reports - one intended for the oil firm's shareholders, and another allegedly for internal use, warning of illegal actions undertaken by Yukos - charges that PwC vehemently denies.

Later in the year PwC announced the withdrawal of its audits of the oil firm Yukos, after apparently learning that the bankrupt company had withheld certain information that it said should have come to light earlier.


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