Graham Stack in Berlin -

The fallout continues after the September 17 arrest of Vladimir Yevtushenkov, owner of Russia's largest mobile phone company MTS, with revelations that the state could demand $4bn cash from his holding company AFK Sistema, as well as the return to state ownership of oil company Bashneft.

News of the charges of larceny and receipt of stolen goods and then arrest of Russia's 15th richest man, Vladimir Yevtushenkov, devastated markets: his holding company Sistema's market capitalization plummeted by 37% on Moscow's stock exchange September 16, losing $2.8bn, while the market capitalisation of core subsidiaries like MTS and oil company Bashneft fell by 7.3% and 20.5% respectively. Yevtushenkov owns 62% of Sistema and is chairman of the board.

The arrest of Yevtushenkov took markets by complete surprise, despite Sistema's majority stake in Bashneft being frozen in July after a criminal case had been opened against the oil company's former owner, Ural Rakhimov, for having alleged stolen it from the state. Investigators opened a criminal case against Yevtushenkov at the end of August, it has now been revealed, bringing charges of larceny and receipt of stolen goods against him when he acquired the Bashneft companies from Ural Rakhimov in 2009.

In the event that Yevtushenkov is found guilty as charged, the state will have the right to confiscate Bashneft from Sistema, according to legal experts quoted by Russia business daily Vedomosti. Confiscation of assets is directly mandated under the criminal offences on which Yevtushenkov has been charged, with the assets to be transferred to the rightful owner, and where it is not possible to establish who is the rightful owner, then the assets transferred to the state.

Backdated dividends

Crucially, in the case of shares, the rightful owner can also demand compensation for dividends received from the shares for the period they were held unlawfully: Sistema received around R180bn, around $4bn, in dividend payments from Bashneft in 2009-2013, according to Vedomosti. The paper's sources said Sistema's president, Mikhail Shamolin, spoke to investors last week of the possibility that the concern might have to return dividends.

The implications of Yevtushenkov's arrest for Sistema are difficult to calculate, say analysts: losing Bashneft and simultaneously divulging $4bn in cash might cripple it, forcing Yevtushenkov to seek a buyer for MTS. "You could say that we have woken in a new country where it seems apparent there is a group of people close to power that can take control of any asset they cast an eye on," a top businessman told Vedomosti, adding that Yevtushenkov is likely to be brought to trial, since the criminal procedures against him are already at an advanced stage.

Yevtushenkov is one of the 27 members of the board of the Russian union of entrepreneurs and industrialists (RSPP), Russia's leading business lobby. Head of the RSPP Aleksandr Shokhin said that the association was considering appealing to the Kremlin regarding the Yevtushenkov case.

Minority shareholders in Sistema are not at risk of confiscation of their shares and dividends, legal experts told Vedomosti.

Sources close to the investigation told business daily Kommersant that other top managers at Sistema were under investigation, possibly including Sistema deputy chairman Aleksandr Goncharuk and vice president Sergei Drozdov.

Terrorism and contract killings

Prior to their controversial privatization, the Bashneft subsidiaries belonged to the republic of Bashkiria, a subject of the Russian Federation. The republic's property ministry has also filed a civil law suit against Ural Rakhimov, the son of the former long-serving president of the republic, Murzata Rakhimov, who left office in 2010, alongside criminal charges brought against Ural Rakhimov in April.

The case brought against Rakhimov, and now also against Yevtushenkov, originated in a case against Bashkiria's former representative in Russia's upper house of parliament, Igor Izmestev, on charges of organizing contract killings and terrorism, for which Izmestev received a life sentence in 2010. Izmsestev is now the main prosecution witness against Rakhimov and Yevtushenkov, ready to testify that the privatization of Bashkiria's oil industry, which resulted in its ownership passing to Ural Rakhimov, the president's son, was illegal, and that Yevtushenkov was aware of this when negotiating to buy the assets in 2008-09. Therefore, the deal closed in 2009 whereby Sistema acquired the assets for $2.5bn was receipt of stolen goods.

According to sources cited by business daily Kommersant, Izmestev testified that his organized crime group acted on behalf of Ural Rakhimov, potentially allowing Russian law enforcement to pursue extradition of Ural Rakhimov from Austria on terrorism and murder charges.  

The Rakhimov family argue that Izmestev may testify against them in order to reduce his sentence. Izmestev was first arrested in 2007, and was neither a participant in the privatization, nor in the talks on sale of the assets, by the time of which he was already a fugitive from the law, according to the Rakhimov family.

Another source quoted by Kommersant pointed out that Ural Rakhimov has not yet been found guilty of acquiring Bashneft shares illegally. An inspection by Russia's state audit chamber in 2003 found that the state had lost around $100m from the privatization, but a criminal investigation opened at the time into the case was later closed.