Lawyers, Guns, & Rubles
What's John Pappalardo, a Boston lawyer, doing in a squalid Moscow courtroom for the Russian trial of the century?
In November 2003, John Pappalardo checked his voice mail as he was en route to London and heard a frightening message. "You cannot enter Russia anymore," warned the female voice in a thick Russian accent. "If you enter Russia, you will have a serious problem over there." It was an unnerving moment for Pappalardo, considering that the Russian capital was his next stop. The former US attorney for Massachusetts and his Washington, D.C., law partner, Sanford Saunders, were scheduled to visit a jailed billionaire oil tycoon, public enemy number one of Russian president Vladimir Putin. It was a case of Russia's wealthiest man against its most powerful. Overnight, the law partners went from the comfort of mahogany conference rooms to the shadowy cloak-and-dagger drama of geopolitics. If the story were a novel, it would be a cross between John Grisham and Tom Clancy.
In a shaking voice, the woman said that Russian officials had put the two lawyers on a blacklist. "Please do not go," she implored. The woman had been preparing visas for Pappalardo and Saunders so they could visit their client, who had been arrested two weeks earlier.
Papparlardo, a burly, square-jawed ex-jock, weighed his options. Just one month before, police had ransacked the Moscow office of the lead Russian defense lawyer on this case. Computers full of evidence and defense strategy were seized - even a mainframe computer so large that Russian police had to remove a wall to carry it out. Clearly this was no ordinary accusation of tax evasion; Pappalardo and Saunders had entered an international chess game of diplomacy and politics. Calls volleyed between the US and Russian embassies until, finally, a chagrined ambassador personally invited Pappalardo and Saunders to Russia. "He told us our visas were valid, and we were welcome to come," Pappalardo says now. "It's the type of case that comes along very rarely. Under the guise of criminal law, I'm involved in a geopolitical case with governments and individuals. It's tremendously chilling and intriguing and very difficult."
"Quixotic" might be a better term for squaring off against the Russian government. Despite the dubious welcome, Pappalardo and Saunders have since traveled often to Moscow and have visited courts in Switzerland and Lichtenstein and interviewed witnesses in Israel and London. It's been an intercontinental legal whirlwind, but on a recent Moscow trip, Pappalardo showed no signs of buckling. "This is not a real case," Pappalardo said. "It's a political prosecution. I'm on a mission to get the truth out."
The case is a complicated mix, with elements of Soviet-style repression and selective justice, but at its heart is a question: Will Russia be a thriving new democracy where progress is powered by businesses built on questionably acquired wealth, or will it be an authoritarian state where the Kremlin decides how to progress and which businesses are allowed to flourish? And though Pappalardo had defended federal judges, a congressman, and wealthy American businessmen, nothing had prepared him for the storm swirling around the 41-year-old oilman and his powerful adversary, Putin. How big is this case? The Monday after his client's weekend arrest, the Moscow stock market lost more than 10 percent of its value - a signal of the fears that a state takeover of private companies was underway. Now, from his hard wooden bench in the Meshchansky District Court in Moscow, Pappalardo has a front-row seat to this pivotal moment in Russian history.
It's December 2004, and Mikhail B. Khodorkovsky sits in a courtroom cage. Clean-shaven, with closely cropped silver-and-black hair and rimless glasses, he is attired casually in jeans and a turtleneck, jacket and loafers. Armed guards surround him, as if he were Hannibal Lecter. This was Russia's richest man, and his controversial trial for tax evasion is lumbering into its second year. Across the muddy floor is Khodorkovsky's troika of lawyers. In the center sits Pappalardo.
The Khodorkovsky affair has been billed as the Russian trial of the century. But it doesn't look that way. The dank courtroom is cramped, with just a half-dozen spectators, including a Russian reporter who has fallen asleep with his pen poised over an empty notebook. At the front of the room sits a trio of pale, black-robed women, judges who are somehow expressionless and dour at the same time. Even the guards - who moments before had put on an impressive show of intimidation as they led a handcuffed Khodorkovsky and his codefendant, Platon Lebedev, from a police van to the courtroom cell - have quickly fallen prey to the lethargy that has settled over the proceedings. On one side of the cage, one guard begins to nod off, his eyes closed and his shoulders rising and falling in the unmistakable rhythm of heavy slumber. On the other side of the cage, another guard leans forward with his elbows on his knees, his gun poking out from its holster, as he fiddles with the buttons on his cellphone.
As his defense lawyers rebut the charges of embezzlement, fraud, and tax evasion, Khodorkovsky alternates between taking notes and reading a novel, extending his arms between the cell's bars so he can hold his book with less discomfort. Lebedev works a crossword, occasionally looking up to chuckle at the prosecutors, two stern, crew-cut, middleaged men in cheap teal-blue uniforms. The American lawyers call them "The Polyesters."
The proceedings plod on in Russian, as defense lawyers read long passages from stacks of trial notebooks. The American lawyers - Pappalardo, from the Boston office of Greenberg Traurig, along with his colleagues Saunders and Maria Logan - are powerless in this Moscow courtroom. But they are seemingly no more or less impotent than the Russian defense team facing off against the might of the Russian Federation.
The trial may be tedious, but the events surrounding the defense of Khodorkovsky have been high drama. The American lawyers faced threats and intimidation as they blazed a trail through Europe, Russia, and the United States on behalf of Khodorkovsky, his oil company, Yukos Oil, and its London-based parent company, Group Menatep. During the trio's latest trip to Moscow in December, Khodorkovsky's trial proceeded at a snail's pace. But outside the courtroom, events surrounding Yukos changed almost by the hour, as the Russian Federation prepared to seize the company and sell it. Amid it all, Pappalardo and Saunders ducked into the American Embassy in Moscow almost daily to brief diplomats on what they had heard about Russian oil dealings and high finance.
How did a 20-year prosecutor who had turned to white-collar defense get tangled up in a case like this? In Boston, Pappalardo had defended the likes of George Cashman, former leader of the Teamsters Union Local 25, who pleaded guilty to extortion and embezzlement. But Pappalardo, 56, is no stranger to international courts. "I've been accused of taking cases that are geographically desirable," he says, laughing. "And I plead guilty." (He also says he doesn't have many clients in Boston, because "not many people here can afford my fee.")
In the mid-1980s, he investigated corruption in the diamond mines of South Africa during his tenure in the US attorney's office in Massachusetts. In another federal case in the early 1990s, Pappalardo traveled to the Irish courts to help extradite an Irish Republican Army weapons expert to the United States. On and off the clock, Pappalardo has wanderlust. He carries the wounds of vacations canoeing in the Arctic Ocean; the frostbite he suffered in his hands and feet turns a chilly December walk through Red Square into a numbing experience. To warm up, Pappalardo and Saunders duck into GUM, the department store in Red Square, to buy fur hats. When they emerge, Logan, a 30-year-old associate at Greenberg Traurig, laughs. "You look like a couple of Russian bureaucrats," she says. A native of St. Petersburg, she studied law in both Russia and the United States. She is a US resident, but she retains her Russian citizenship, her accent, and her disdain for what she says is her native country's pathological inability to follow the rule of law.
As much as Pappalardo hears the call of wild travels, he didn't seek out this case, his most exotic yet. At Khodorkovsky's request, Sarah Carey - a former law partner of Saunders's who had served on the Yukos board of directors - had assembled a short list of white-collar defense lawyers in the Washington, D.C., area in the fall of 2003. She then sought the advice of Saunders, well known for his work on behalf of energy companies. Why not us? he asked, persuading Carey and ultimately Khodorkovsky that his background in energy and Pappalardo's in both prosecution and white-collar defense were the ideal combination.
In October of that year, Pappalardo and Saunders flew to Moscow for their first and only face-to-face meeting with Khodorkovsky. Convinced he would soon be arrested, Khodorkovsky had summoned the men. He and other Russian oligarchs - billionaires who had amassed their fortunes by creating new businesses or by purchasing privatized assets at cut rates through insider deals after the breakup of the Soviet Union - were coming under increasing scrutiny from Putin. A few months earlier, Lebedev, Khodorkovsky's colleague at Yukos, then the world's fourth-largest oil company, had been arrested and charged with tax evasion. Fearing arrest, other oligarchs had already fl ed the country and sought asylum in Great Britain.
"He knew he was going to be arrested," Pappalardo says of Khodorkovsky. "But he said, 'I won't be a political refugee.' He told us this was about the future of the country where his children live. 'There are worse things than going to jail,' he said."
Khodorkovsky had crossed Putin in many ways. Since buying Yukos for a song - $350 million at a 1995 state auction arranged by his own bank - Khodorkovsky had transformed it into a company worth $40 billion by 2003. Bringing in Western accountants and advisers, Khodorkovsky turned Yukos into a Western-style business, with transparent balance sheets, international stockholders, and an appeal to Western oil companies. In particular, Yukos attracted the attention of ExxonMobil and
Many ordinary Russians detest Khodorkovsky, and they have no concern for whether he receives a fair trial. "Russians see that [Khodorkovsky and the other oligarchs] massively plundered Russian resources in the 1990s - resources which were controlled by the state but which Russian people were always told belonged to them," says Anatol Lieven, a senior associate with the Carnegie Endowment for International Peace in Washington, D.C. He notes that the media and the Russian intelligentsia are more forgiving of the oligarchs, because they place more weight on free-market reform than on the darker aspects of how the oligarchs acquired their holdings. There are some parallels, Lieven notes, between the Russian oligarchs and the American robber barons of the 19th century. "But the robber barons built a lot. Carnegie built steel mills," says Lieven. "The oligarchs simply stole into their own hands industries which were already built."
John Pappalardo doesn't look as if he's easily intimidated. But since receiving that voice-mail message a year and a half ago, he guards his safety in Russia. Solidly built - Pappalardo played football and wrestled at Bowdoin College - he operates with a no-nonsense manner and a trial lawyer's swagger. When he is not flying across the Atlantic or litigating in European courts, he lives in Hingham, where he has spent most of his life, with his wife, Karen, and 17-year-old son. In winter, he can be found at his New Hampshire ski house, tearing up the downhill slopes. He smiles more than a Russian, but still not often. He travels with great care in Moscow, always mindful of the possibility of questioning or arrest. He leaves his gold watch at home in favor of a sporty Timberland. "The Rolex is the first thing they would take if I were detained," he says. And he never takes a cab, preferring the safety of a hotel's chauffeur-driven Mercedes. When Pappalardo and Saunders are traveling in Russia, their wives insist that they call home every night.
Pappalardo - and others - repeatedly warned me not to travel by cab in Russia. But arriving at the airport for my December visit one pitch-dark afternoon, with no other way to get to central Moscow, I hopped into a taxi for the hourlong ride. With the radio alternating between Russian technopop and Michael Jackson, and with frequent interruptions from his cellphone, which rang to the tune of Donna Summer's "Hot Stuff," my Muscovite cabbie quizzed me on why a woman was traveling alone in Russia. I told him I was a journalist in the country to see Khodorkovsky in his cage and to talk with his American lawyers. He held up his cellphone and showed me the display. From the tiny screen, a photo of Mikhail Khodorkovsky behind bars smiled at me. "We Russians like bad guys like Khodorkovsky," he said in English and smiled.
"Are you writing for a newspaper?" he asked.
"For a magazine," I said.
"Forbes?" he asked, laughing. It was a joke. A sick joke. In July, Paul Klebnikov, a writer with Forbes who had recently been named editor of Forbes Russia, was murdered, shot four times from a speeding car outside his Moscow office. That brought the total to 11 journalists murdered in apparent contract killings since 2000. Two days before I had flown to Moscow, a journalist I had planned to see in Russia told me she would not be able to meet me. After returning from Kiev, where she was reporting on the "Orange Revolution" following the disputed presidential elections in Ukraine, she was attacked and beaten on the streets of Moscow and had just been released from the hospital. She and her editors never determined whether the attack was random or politically motivated.
Journalists have had it rough in Russia. So have lawyers. It was the office of Anton Drel, Khodorkovsky's lead Russian defense lawyer, that was raided in 2003 by the Russian police. At the time, Drel called the raid "a precedent-setting event, because nobody in the history of Russia or the Soviet Union has ever searched the office of a lawyer working on a felony case." Last fall, two senior lawyers for Yukos fled the country to escape criminal prosecution, and one of their colleagues, Svetlana Bakhmina, was arrested in December on charges of misappropriating Menatep assets.
Given the constraints of Russian society (a press hamstrung by Kremlin tactics) and the Russian court system (a judiciary susceptible to political pressures and outside bribes), there is little that Pappalardo and Saunders can achieve on the case in Russia. The success they have had to date on the Yukos case has all been outside that country. Pappalardo spent much of the Red Sox post-season in Europe, getting updates on his PDA from his son, Jonathan. His BlackBerry rang in London with the Red Sox victory over the Yankees. The Sox sweep of St. Louis reached Pappalardo in Geneva. "When our client calls, we go," he says. Pappalardo may charge more than $500 an hour, but the billionaire client calls the shots.
Last summer, the Greenberg Traurig lawyers had a multibillion-dollar success in a Swiss court. In April, the Russian Federation had persuaded Swiss authorities to freeze $4.9 billion worth of Menatep assets, claiming the money was related to criminal activity. Two months later, persuaded by a brief written by Pappalardo, Saunders, and their Swiss associates, the court freed the assets and even reprimanded and sanctioned the Swiss prosecutor who had frozen them.
Such international litigation is key to the solvency of the companies Khodorkovsky created. Speaking from his London office, Tim Osborne, director of Group Menatep, says, "Without a doubt, there is no chance of getting any justice within Russia. There is no rule of law. There is no independent judiciary." Group Menatep has grown into an international company that includes mineral fertilizers, financial services, telecommunications and information technology, and diversified portfolio investments, in addition to oil. "One thing we're not short on is lawyers," says Osborne. In addition to Greenberg Traurig attorneys, Menatep is also working with other US law firms and a fleet of lawyers from firms across Europe. Says Osborne, "Our best bet is probably going to be the European Court of Human Rights, but we also think there's a good chance of getting some assistance from courts in the US."
When Pappalardo, Saunders, and Logan do try to work in Moscow, all their interactions instantly take on the tone of the surreal proceedings in Khodorkovsky's trial. In December, they descended into the dark of winter to wage a fight against Putin's plans to seize and sell off the main production unit of Yukos Oil at a state sponsored auction.
Four days before the auction, slated for December 19, the lawyers got a glimmer of hope that the dismantling of Yukos might be stopped, or at least delayed. It came from Houston, of all places, and it cast a ray of Texas sunshine onto the case for the defense team. Yukos had brought a lawsuit in a Texas bankruptcy court, and the judge there ruled that the auction of the company was "inconsistent with the regular application of Russian law within Russia." The judge imposed a 10-day restraining order blocking the sale, writing, "Participants in international commerce, in Russia, in the United States, and elsewhere, need to have an expectation that when they invest in foreign enterprises they may do so without fear that their investments may be the subject of confiscatory action by agencies of the foreign government." Putin scoffed at the ruling, saying: "I am not even sure [the judge] even knows where Russia is located."
But the ruling did put other international companies on notice that if they did business with any company that acquired Yuganskneftegaz, the Yukos subsidiary, they could get swept up in long, costly litigation. Putin may have ignored the 10-day restraining order of the Houston judge, but major international banks did not. They balked at providing financing for the deal, which was splashed across the front pages of newspapers around the world for its irregularity.
On a cold Sunday morning, hours before the scheduled auction of Yuganskneftegaz, Pappalardo and Saunders held a press conference in Khodorkovsky's Moscow media center to emphasize the significance of the Texas ruling and to map out their future strategy. Pappalardo and Saunders, a poster of Khodorkovsky behind them, faced off against a skeptical European press corps. Their message was simple: What is happening to Khodorkovsky and to Yukos is unjust. "Look for claims throughout the US and Europe," Saunders asserted, staring into a bank of cameras, repeating the lawyers' resolve to take on the Russian Federation or any company from any country that conducts business that threatens the survival of Yukos.
"Including
"We don't rule out anybody as a potential defendant," said Saunders. "The Russian Federation is on the menu of potential defendants."
"Will you try to seize oil exports?" a Russian reporter asked.
"That is an option," Saunders said.
"What are the damages you'll seek?"
"When it started," he answered, "Yukos was worth $40 billion. Now its market capitalization is nonexistent."
It was a singularly American message to lay on a European press corps: We will sue anyone, anywhere. Litigators to the bone, Pappalardo and Saunders were firm in their defense. "Yukos potentially will be the first company broken up while trying to pay its taxes," Pappalardo said. "But this is not about taxes. It's about the breakup and redistribution of a company and punishing Khodorkovsky."
Cameras and reporters surrounded the lawyers as they announced their plans to try to attend the Federation's auction of Yukos that was about to get underway on the other side of Moscow. A BBC documentary film crew began to shadow the lawyers with cameras running, following behind in its white van as the procession made its way across the Moscow River. The BBC interview resumed in a basement Internet cafe next door to the grim, gray Soviet-era skyscraper where the auction was to take place.
Standing in the freezing drizzle - 10 feet from an overhang that would have sheltered everyone from the rain - a middle-aged woman draped in an ankle-length fur coat held a clipboard, surrounded by a dozen armed Russian police in camouflage uniforms and black boots. Metal barricades funneled reporters to this clerk, who examined passports and checked them against a list of international press who had been approved to witness the auction.
Maria Logan, the Greenberg Traurig associate, repeatedly approached the clerk, waving the necessary documents. "Nyet!" the clerk barked, as the policeman beside her gestured to Logan, Pappalardo, and Saunders to step outside the barricades, onto the muddy sidewalk. "It's absurd," said Logan, with rain dotting her glasses and a BBC camera in her face. "This is the country that claims we're ready for international trade? This is almost evidence that the Yukos property has been taken already."
Through the clerk, Logan summoned a press secretary and tried up until the start of the auction to get her colleagues in. "Nyet!" "Nyet!" The American legal troika hopped in the hotel Mercedes and headed for the airport.
Their presence at the auction would not have made a bit of difference. It was concluded in five minutes. The winner was a previously unknown entity, Baikal Finans Group, which the lawyers and many observers believed was a shell company created for the express purpose of disguising the buyers of Yuganskneftegaz. Few doubted that the company was a front for the Russian state itself. Indeed, shortly after the auction, it was purchased by a state-owned oil company, Rosneft, which in turn is being merged with Gazprom, a state-run gas company.
Coincidentally, the day after the auction, Freedom House, a nonpartisan US organization that monitors democracy around the world, downgraded Russia to "Not Free." It was the world's only country that fell in Freedom House's rankings last year. "Russia's step backward into the Not Free category is the culmination of a growing trend under President Vladimir Putin to concentrate political authority, harass and intimidate the media, and politicize the country's law-enforcement system," said Freedom House executive director Jennifer Windsor in a statement released with the study. On the same day, a US State Department spokesman said that the Russian government's conduct in the Yukos case "has raised serious concerns at the lack of transparency and independence of Russia's investment and tax laws and the courts. We think the case has eroded Russia's reputation as a place to do business and eroded confidence in Russia's legal and judicial institutions."
In the meantime, Khodorkovsky continues to make his daily trips from his cell in the decrepit Matrosskaya Tishina prison to his cell in the dilapidated courthouse. When his trial will end is anybody's guess. But it is likely to conclude before winter's end in a guilty verdict and a 10-to-15-year sentence. And it is sure to ignite renewed, fiery protest from his supporters within Russia and from observers without who are concerned for human rights, the rule of law, and Western investments in Russian business.
Karinna Moskalenko, one of Khodorkovsky's Russian defense lawyers, argues that it is Russia itself that is on trial in the Meshchansky District Court. Unsure whether she will have the chance to plead her case on Khodorkovsky's behalf in the courtroom, she made her case in The Wall Street Journal. "Many in the West are still unaware of the many procedural violations and human-rights abuses in connection with the case," she wrote. "What is most critical, then, is that the rest of the world maintains the closest attention to this trial and holds appropriate authorities accountable, for this is a litmus test for the future of the country."
When the verdict comes, it is also certain to add appeals to the layers of legal actions for the international phalanx of lawyers. Pappalardo and Saunders are embroiled in lawsuits in Europe and the United States on behalf of Menatep. And they are also working with exiled Russian executives in London who are fighting extradition to their homeland.
Pappalardo and Saunders are also following the trail of the true buyer of Yuganskneftegaz, a search that is leading them perilously close, they say, to some particularly ruthless players in the ever-unfolding drama of Russian politics.
"That's dangerous," Pappalardo is told.
"I know," he answers.
"Can you go back to Russia after this?"
"We have to."
Michelle Bates Deakin is a freelance writer in Arlington. Her book, Gay Marriage, Real Life, is to be published this fall by Skinner House Books. E-mail her at mbdeakin@rcn.com. 
