In Russia

New Cold, April 21, 2016

Office in Moscow of former Yukos Oil company (Maxim Marmur, AFP)

Office in Moscow of former Yukos Oil company (Maxim Marmur, AFP)

A full dossier of the case of Yukos Oil Company is enclosed. The company was formed during the 1990s through the privatization/looting of state-owned enterprises in post-Soviet Union Russia. Its assets were seized by the Russian government beginning in 2003 due to financial crimes committed by company executives. The company was declared bankrupt in 2006 and its assets sold.

Russia wins Hague court appeal over $50bn Yukos judgement, April 20, 2016

A Dutch appeal court has overturned an arbitration court decision which required Russia to pay shareholders in the former Yukos oil company $50 billion, Interfax news agency reports. “We have won our appeal of the arbitration court decision to pay $50 billion,” Russia’s representative at the court hearing told Interfax.

In 2014, The Hague Arbitration Court ruled unanimously that Moscow should pay $50 billion in damages to Yukos shareholders for expropriating the oil firm’s assets. According to that decision, property owned by the Russian state could be seized anywhere in the world.

Moscow appealed the decision, claiming the judgement did not fall within the jurisdiction of the arbitration court. Lawyers representing Russia argued the arbitration court had no right to review the case because of the Energy Charter Treaty, which was used as the basis for the review of the case, has never been ratified by the Russian Parliament.

The Energy Charter Treaty establishes a multilateral system of rules governing the energy sector. Russia signed the agreement in 1994, but never ratified it. Moscow has agreed to the treaty’s provisional application, but does not recognize it above Russian law.

In addition, Moscow claims the shares belonging to Yukos’ former owners should not be considered as investments that fall under the protection of the Energy Charter.

Russia considers these share purchases were made through front companies registered in other countries in violation of Russian law. According to the Kremlin, the dispute should be resolved in a Russian court. “The fact the investments were made by Russians in Russia, this makes the Yukos dispute beyond the Energy Charter Treaty,” says the attorney representing the Russian state Jan van den Berg.

The case is part of a wider $100 billion legal battle against Russia. In January, Moscow’s lawyers overturned a ruling by the Stockholm arbitration tribunal that awarded compensation to Spanish shareholders in the defunct oil company.

A preliminary probe into the main Yukos case was opened in Russia in 2003. The oil company was accused of tax crimes and declared bankrupt by a Russian court in 2006 with its assets sold at auction as part of the liquidation process.

Mikhail Khodorkovsky following his release from prison in 2013 (Wikipedia)

Mikhail Khodorkovsky following his release from prison in 2013 (Wikipedia)

The former chairman of defunct Yukos, Mikhail Khodorkovsky, and his business partner, Platon Lebedev, were found guilty of embezzlement, tax evasion and money laundering. The businessmen were sentenced to 14 years in prison, but later released on humanitarian grounds.

“We welcome the decision of the Hague court to overturn the judgment awarding $50 billion to Yukos shareholders,” said Kremlin spokesman Dmitry Peskov. He stressed the case is far from over and work will continue to end legal proceedings in a number of countries.

Background on
Yukos 1995 privatization was illegal – Russia’s Investigative Committee, March 25, 2016

Kremlin appeals Hague court decision in Yukos case, Feb 9, 2016

Read also:
On Wikipedia, a sympathetic history of the privatization/looting of state-owned property through which Yukos Oil Company was created

New charges revealed in Yukos privatization case, by Russian Legal Information Agency (RAPSI), April 13, 2016

Legal reasons and consequences of Dutch court decision on Yukos, RAPSI, April 20, 2016

Dutch court overturns $50 billion ruling against Russia in Yukos case

By Stanley Reed,  New York Times, April 21, 2016

LONDON — In a major victory for the Russian government, a Dutch court on Wednesday overturned an award of more than $50 billion to former shareholders of the defunct oil company Yukos that Moscow was ordered to pay in 2014. The court, in The Hague, said the panel of arbiters that had made the award, the largest ever in international arbitration, had “lacked jurisdiction” to do so.

While the court ruling is a blow to the former Yukos shareholders, it is unlikely to end the dispute that began when the Russian authorities arrested Yukos’s chairman, Mikhail B. Khodorkovsky, in 2003 and sold off his company over the next several years. Former Yukos assets are an important component of Rosneft, the state-controlled entity that is now the world’s largest publicly traded oil producer.

The Yukos shareholders have been trying to recover damages from Russia in various courts around the world, claiming that Moscow expropriated Yukos’s assets for political reasons.

“We are quite taken aback by this,” Tim Osborne, a British tax lawyer and the director of GML, a company that controlled a majority of Yukos shares, said in an interview. Mr. Osborne said that GML would appeal the case in The Hague.

Paying out $50 billion would be a strain for Russia, which has fallen into recession because of low oil prices and Western sanctions. Russia had revenue of $130 billion from oil exports last year, but the plunge in prices since mid-2014 means the country might make even less from petroleum this year.

The Russian government voiced pleasure over the ruling on Wednesday. “If these men continue to try to exploit the international courts to take money from the Russian people, we will show Yukos engaged in massive tax fraud throughout its existence, and fight them in every court and every jurisdiction,” said Andrey Kondakov, director general of the International Center for Legal Protection, which the Russian government set up to fight the case.

The arbitration panel that ruled against Russia in 2014 had met in The Hague and had been chosen jointly by Yukos and the Russian Federation. That is why the appeal was heard by the Dutch district court that ruled on Wednesday. Its decision, in turn, could be appealed to higher Dutch courts.

GML is pursuing legal efforts to collect the Russian money in a half-dozen other countries: Belgium, Britain, France, Germany, India and the United States. There have not yet been rulings in those cases, and it was not immediately clear on Wednesday how the decision in The Hague might affect them.

“The arbitration tribunal was composed of three international law experts of the highest caliber, who were unanimous in their reasoning,” Emmanuel Gaillard, who leads the international arbitration practice at the law firm Shearman & Sterling in Paris and is the lead counsel for the Yukos shareholders in the proceedings, said in a statement on Wednesday. “I am confident that today’s decision will be reversed on appeal.”

But Jeff Sullivan, a partner and expert on energy arbitration at the law firm Allen & Overy in London, said Wednesday’s ruling was “a significant victory for Russia.’’

“Certainly the decision of the Dutch court will impact on the ability of Yukos shareholders to enforce the arbitration award in various countries around the world,’’ Mr. Sullivan said.

GML won the 2014 ruling under the Energy Charter Treaty, an international agreement intended to protect investors. But on Wednesday, the Dutch court said that although Russia had signed the treaty, it had not ratified it and so was not bound by it.

In the early years after the breakup of the Soviet Union in the 1990s, Yukos, under Mr. Khodorkovsky’s leadership, helped revive the flagging Russian oil industry, adopting Western technologies like water injection and fracking. But Mr. Khodorkovsky eventually fell out of favor with President Vladimir V. Putin, who is said [sic] to have bridled at Khodorkovsky’s rumored political ambitions. Mr. Khodorkovsky was arrested in 2003 at a Siberian airport and served 10 years in jail on charges of tax fraud and embezzlement before being pardoned by Mr. Putin and released in 2013.

Mr. Khodorkovsky is not a direct party to the legal dispute, having relinquished his shares. But his former partners, including Leonid B. Nevzlin, as well as a pension fund for former Yukos employees, would be beneficiaries if any awards are collected.


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