Russia hit by $50 bn Yukos ruling amid sanctions squeeze

Yahoo – AFP, July 28, 2014

Russia hit by $50 bn Yukos ruling amid sanctions squeeze (AFP)

London (AFP) - Russia has been ordered to pay Yukos shareholders a record $50 billion in compensation over its seizure of the defunct oil giant, lawyers said on Monday, in a new blow on top of sanctions over the Ukraine crisis.

An arbitration court in The Hague ruled that Russia forced Yukos -- formerly owned by ex-tycoon Mikhail Khodorkovsky -- into bankruptcy with excessive tax claims and sold its assets to state-owned businesses led by energy giant Rosneft for political purposes.

Russia was defiant in the face of the judgement with Foreign Minister Sergei Lavrov vowing that the state would "use all of its legal options to defend its position", with the claimants who now face a further battle to claw back their cash.

Rosneft also stood by its purchases as fully lawful.

Yukos was once Russia's biggest oil company but was broken up after Khodorkovsky was arrested in 2003, shortly after President Vladimir Putin warned Russia's growing class of oligarchs against meddling in politics.

Tim Osborne, executive director of GML Ltd, the main shareholder and claimant in the case, told a news conference in London that the tribunal "unanimously confirmed that the attacks by the Russian Federation on the Yukos oil company ... were politically motivated."

The award was the "largest in arbitration history", GML said in a statement.

Osborne said the ruling would hurt investment in Russia, which is already in the spotlight over the escalating crisis in Ukraine, while companies close to Vladimir Putin's regime are braced for tougher sanctions.

"I suspect at the moment Russia is a place where not many people are going to be investing," Osborne told the press conference.

Khodorkovsky -- who is no longer a shareholder and is not a party to the legal proceedings -- praised the verdict and slammed Russian leaders.

'Historic award'

"It is fantastic that the company shareholders are being given a chance to recover their damages," said the businessman, who was released last year after more than a decade in prison.

"The Yukos case has been an instance of unabashed plundering of a successful company by a mafia with links to the state," he said in a statement on his website.

Yukos was sold off in opaque auctions to state companies led by Rosneft. The government firm was then a small player but today stands as the world's biggest stock market listed oil company by production volumes.

That process clouded the reputation of Russia as a place to do business, and investment sentiment has plunged since the annexation of Crimea, fighting in eastern Ukraine, and the uncertainty this has created.

The claimants will now try to prove in international courts that Rosneft is the "alter ego of the state", meaning that if Moscow does not pay up, then they can recoup some of the money by seizing the energy giant's international assets, their main lawyer Emmanuel Gaillard said.

"This is an historic award," Gaillard said.

"It is now judicially established that the Russian Federation's actions were not a legitimate exercise in tax collection but, rather, were aimed at destroying Yukos and illegally expropriating its assets for the benefit of State instrumentalities Rosneft and Gazprom."

Rosneft -- which is targeted by US sanctions over Russia's actions in Ukraine -- said all its dealings in respect of Yukos were "fully lawful."

It said that it "does not consider that the company could be issued any demands due to the published ruling or that the ruling could have a negative effect on the commercial activities or assets of the company."

BP link

Osborne, when asked if claimants would consider pursuing BP -- a 20-percent shareholder in Rosneft -- warned: "I think it is safe to say that nobody is safe".

The claims against Moscow were brought in 2005 by Hulley Enterprises Limited and Veteran Petroleum Limited, two subsidiaries of former majority shareholder GML Limited, both based in Cyprus.

A claim was also brought by Veteran Petroleum Ltd., the pension fund set up by GML for the benefit of former Yukos employees.

The claimants had demanded a total compensation package of $100 billion (74 billion euros), four times their total investments in the now-defunct firm, to take into account what it would be worth today, plus interest.

The arbitral tribunals at the Permanent Court of Arbitration unanimously held that the Russian Federation had effectively expropriated the claimants' assets, according to the ruling on the PCA website.

But it explained on its website that it had not awarded them the whole $50 billion because there was "some contributory fault on behalf of claimants, leading them to reduce the amount of damages awarded."

Related Article:

Europe court orders Russia to pay 1.9 bn euros over Yukos