PwC under scrutiny over Yukos audits

The reputation of PwC, one of the world’s biggest audit firms, is set to come under scrutiny in a Moscow court as lawyers for Mikhail Khodorkovsky and Platon Lebedev, the jailed former owners of the Yukos oil group, make a final stand against embezzlement charges.

Mr Lebedev, a co-founder of Mr Khodorkovsky’s business empire, is expected to testify on Tuesday that PwC withdrew 10 years of Yukos audits from 1996 to 2006 under pressure from the Kremlin.

This allowed prosecutors to build their case that he and Mr Khodorkovsky had embezzled 350m tonnes of oil from Yukos between 1998 and 2003.

PwC’s withdrawal of the audits in June 2007 followed a police raid on its Moscow office, a criminal investigation and court cases against the firm that threatened its licence to operate in the fast-growing market.

But PwC, which is not a party to the proceedings, denies its business faced any pressure by the time it withdrew the audits as the government had renewed its licence to operate in the country in April 2007, in spite of the ongoing court cases.

It said it stood by its initial decision to withdraw the audits because information it received from prosecutors showed that Yukos management had lied to it about four key transactions.

“If PwC had reason to doubt its ability to rely on Yukos management’s past representations, then it was quite appropriate to withdraw the audits,” said one person familiar with the matter.

The Kremlin has maintained its hardline stance towards Mr Khodorkovsky, who has been convicted of tax evasion and embezzlement.

On Monday, Vladimir Putin, prime minister, urged visiting foreign experts to leave the case to the Russian legal system.

He also suggested that Mr Khodorkovsky was linked to killings ordered by the head of security at Yukos.

Additional reporting by Neil Buckley in Sochi