VZCZCXYZ0000
PP RUEHWEB

DE RUEHMO #0081 0111620
ZNR UUUUU ZZH
P 111620Z JAN 07
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 6308
INFO RUEHFT/AMCONSUL FRANKFURT PRIORITY 3097
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY

UNCLAS MOSCOW 000081 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EUR/RUS, EB/ESC/IEC, EB/CBA 
FRANKFURT FOR SUSAN STANLEY, BILL COTTER 
TREASURY FOR BAKER/GAERTNER 
NSC FOR TOM GRAHAM AND TRACY MCKIBBEN 
USDOC FOR 4231/IEP/EUR/JBROUGHER 
DOE FOR HARBERT/EKIMOFF/PISCITELLI 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EINV RS
SUBJECT: RUSSIA ENERGY: PRICEWATERHOUSECOOPERS' TAX CASE 
UPDATE 
 
REF: (05) MOSCOW 13123 
 
This message is sensitive but unclassified, and not for 
internet distribution. 
 
¶1.  (SBU) The Moscow Arbitration Court judge in the 
PriceWaterhouseCoopers (PWC) Yukos case reftel has twice in 
two days delayed a ruling on PWC's request for extension.  At 
a January 10 hearing, the judge postponed by one day a 
decision on the extension, as well as a request for 
arbitration by PWC.  Today, January 11, the judge delayed 
both decisions again, this time until January 17.   The 
upcoming hearing will examine charges levied December 11 by 
the Federal Tax Service (FTS) that PWC falsified its 2002 
audits of former oil giant Yukos. 
 
¶3. (SBU) PWC contacts report that on January 10, the FTS 
filed a second, related set of charges against PWC for 
improperly issuing "clean" opinions on Yukos' financial 
standing in 2003 and 2004.  According to the tax firm, PWC 
fulfilled its legal requirements as an auditor for each of 
the tax years in question, including warning the client of 
increasingly risky behavior.  In its 2002 audit of Yukos, PWC 
issued a "qualified opinion" to Yukos' management that raised 
questions about apparent "close partner" relationships with 
some of the firm's business partners. 
 
¶4. (SBU) The 2003 audit reiterated PWC's qualified opinion, 
upping the ante by noting that PWC retained "ongoing 
concerns" about Yukos' business partner relationships.  It 
was explained to us that the phrase "ongoing concerns" in tax 
accounting parlance reflects the auditor's serious doubts 
regarding the audited firm's business practices.  In its 2004 
audit, PWC issued an "adverse opinion" (the most stringent 
form of censure by an auditor) stating bluntly that Yukos' 
financial statements did not accurately reflect the financial 
state of the firm. 
 
¶5. (SBU) According to PWC, FTS prosecutors are pressing for 
the 2002 case to go to court quickly.  PWC wants to see 
evidence of "due process," including what should be a fairly 
routine granting of a 30 day extension in the case. 
 
¶6.  (SBU) Comment.  PWC representatives remain confident the 
merits of their position will win the day.  They are not 
seeking USG assistance in either of the Yukos charges that 
the FTS has filed and continue to be interested in 
maintaining a low profile regarding their situation.  That 
the judge is defacto delaying consideration of the case, 
while not actually ruling for an extension, is not a bad 
first step.  End Comment. 
RUSSELL