Russia’s woes grow on Yukos Bankruptcy ruling
An international court in The Hague ruled this week that Russia was responsible for the bankruptcy of the now defunct oil producer Yukos, due to “devious and calculated expropriation” of shareholders, and has ‘ordered’ the Russian state to pay a whacking $50 billion in compensation. Although the ruling comes as no surprise, it is a major achievement not only for Yukos’s shareholders but also for the prevailing international order, at a time when the Kremlin’s actions have been increasingly criticised.
The compensation award set by the Permanent Court of Arbitration in The Hague is the largest ever, but it is only half of what shareholders had sought and it will almost certainly never be paid in full, with proceedings likely to drag on for years.
It was back in 2003 that the Kremlin hit Yukos with tens of billions of dollars in tax back-claims that ultimately led to the sell-off of Yukos’s assets and to its subsequent bankruptcy in 2006. The company’s then CEO Mr Khodorskovsky and his partner were jailed in 2003 on what are widely seen as trumped up charges of fraud and tax evasion, and of which they were convicted in 2005.In 2010, when the first jail sentences were coming to an end, they were brought to a second trial, this time for embezzlement and money laundering and which extended their jail time to 2006 (although this was subsequently reduced on appeal).
Yukos was the largest investor-owned oil company created after the fall of the Soviet Union, and its CEO Mr Khodorskovsky was an ambitious politician. It is widely believed that the Kremlin “hit” on Yukos was part of a plan from Mr Putin to erase private competition for the state-owned oil companies and at the same time eliminate to a potential Presidential candidate. For some time, Mr Khodorskovsky was the richest man in Russia and seen as a threat to Mr Putin’s Presidency. In 2007, upon the bankruptcy of Yukos, the state-owned company Rosneft bought the bulk of the remaining assets.
The Kremlin has already stated that the court in The Hague has no jurisdiction for such a ruling, which means that Russia is preparing to refute the charges and will never voluntarily pay the $50 billion. In fact, paying the $50 billion would be the effectively admitting the wrongdoing, something which would also make Mr Putin vulnerable as the orchestrator of the actions. For investors, however, there is still hope they can use local courts around the world to force the seizure of Russian assets and recover the $50 billion.
Yukos’s management have filed an additional expropriation claim in the European Court of Human Rights in Strasbourg on behalf of minority shareholders, valued at £22.4 billion. The ruling will be released next Thursday and could represent another blow for the embattled Kremlin.
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