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Russia ordered to pay $50 billion over Yukos

Published:Wednesday | July 30, 2014 | 7:00 AM

Russia was ordered Monday to pay more than US$50 billion for expropriating what was once the country's largest oil producer, Yukos, in a court ruling that adds economic and diplomatic pressure on the country at a time of increasing isolation.

The Permanent Court for Arbitration, a body that rules on global corporate disputes, said Monday the Russian government owes the money - a huge sum, even for such an oil-rich nation - to the former majority shareholders in Yukos Oil Co.

With its economy grinding to a halt and new sanctions from Western powers hanging over the country, Moscow vowed to fight the decision. That raises the prospect of a new round of legal battles as the shareholders seek to enforce the decision by seizing Russian state-owned assets in 150 countries around the world.

They can attempt to seize any assets used for commercial purposes. That means that while embassies are safe, planes, art, commercial property, gas pipelines and oil rigs are not.

"It's the end of the beginning," said Tim Osborne, executive director of GML, formerly Group Menatep Limited, whose subsidiaries brought the suit to the court based in The Hague, Netherlands.

Yukos bankrupt

The court said Russia had used tax claims to take control of Yukos in 2003 and silence its CEO, Mikhail Khodorkovsky, an opponent of President Vladimir Putin. Khodorkovsky was arrested at gunpoint as he boarded a plane in Siberia that year and spent more than a decade in prison as Yukos' main assets were sold to a state-owned company. Yukos ultimately went bankrupt.

The case, one of the largest commercial arbitration awards in history, adds to Russia's economic problems just as the US and European Union are debating further sanctions against the country because of its support for rebels in eastern Ukraine. Though the country has ample reserves, thanks to its oil and gas revenue, uncertainty over the impact of the sanctions has seen economic growth forecasts for this year plummet to almost zero and investors are pulling money out of the country at almost twice the pace as last year.

The court's three-member panel, chaired by Yves Fortier, Canada's former permanent representative to the United Nations, determined Russia was not acting in good faith to collect taxes when it levied massive claims against Yukos, even though some of the company's tax arrangements might have been questionable.

The State launched "a full assault on Yukos and its beneficial owners in order to bankrupt Yukos and appropriate its assets while, at the same time, removing Mr Khodorkovsky from the political arena," the court said.

Energy industry retake

The Yukos takeover was the beginning of a process in which Russia, under Putin, retook control of the country's energy industry. Yukos' main assets were sold at auction to a shell company. Just days later that company was bought up by state-owned Rosneft, making it the largest oil producer in Russia.

In the ruling, dated July 18 and announced Monday, the court described the seizure of the assets as "devious and calculated".

Russia was ordered to pay the judgment within 180 days or begin paying interest. If Russia declines to pay, shareholders can attempt to seize Russian assets abroad.

"We're over the first and most important hurdle," Osborne said. "It's now a question of enforcing it."

- AP