Monday - Sep 25, 2017

Yukos shareholders awarded $50 billion in damages from Russia

Yukos shareholders awarded $50 billion in damages from Russia

In one of the largest awards ever handed out to a sovereign state, it has been announced that the former shareholders of the Yukos oil company stand to receive $50 billion in damages from Russia.

The record breaking damage decision was made by a three-person arbitration panel who sat behind closed doors at the permanent Court of Arbitration situated in The Hague in the Netherlands.

The panel ruled that the Russian state illegally impounded funds from Yukos, a Russian based petroleum company in Russia which was controlled by Russian oligarch Mikhail Khodorkovsky in partnership with a number of other prominent Russian businessmen.

Khodorkovsky and his partners acquired Yukos in the mid-1990s for a minor percentage of its commercial value following the collapse of the former Soviet Union and its wave of post-communist privatisations, building it to become Russia’s largest oil producer.

In 2003, following a highly disputed tax reassessment, the Russian government presented Yukos with a series of tax claims that amounted to US$27 billion, immediately freezing the company’s assets as they were given little or no time to pay.

The Russian court declared Yukos bankrupt, shortly after Khodorkovsky was convicted of fraud and sent to prison. He then spent just over 10 years in jail before being pardoned by Russian president Vladimir Putin late in 2013.

Mikhail Khodorkovsky, who has made his home in Geneva, Switzerland, has repeatedly stated that he has no further claim over the stake.

According to reports, the largest single beneficiary of the Russian government payout, in the event that it will actually happen, is Leonid Nevzlin, Mikhail Khodorkovsky’s former partner, who holds 70 per cent of the stock in GML, formerly the holding company in Yukos. (Leonid Nevzlin sued the Russian government for compensation.) Khodorkovsky was reported to have signed over shares in Yukos to Nevzlin, while he was on trial in Moscow for fraud and tax evasion.

With the case having already taken many years to settle, reports have it that Russia are already preparing an appeal against the ruling. In the event that the Court of Arbitration rejects their appeal and Moscow still refuses to pay, then the company shareholders still enjoy the right to pursue their claims against the Russian state property through the courts in other countries in order to satisfy the claim.

Among the other Russian citizens who fought the case for settlement are Platon Lebedev, who was also charged with fraud and tax evasion at the same time as Khodorkovsky and was pardoned earlier this year, as well as an employee pension fund reportedly owned around 10 per cent of the shares in the defunct company.

Standing to lose out in any event are the 55,000 former minority shareholders of Yukos, who did not appear in the litigation against the Russian government, although the finding in favor of the majority shareholders of Yukos, is expected to set a precedent that would help them bring new arbitration cases against Russia.

Yukos minority investors have been waiting for more than a decade to receive damages awarded to them by the European Court of Human Rights in Strasbourg in a case brought by former management of Yukos on behalf of all the company’s shareholders.

In the wake of the agreement, shares on the Russian stock exchange as well as the value of the rouble both dropped as news of the damages claim against the Russian Federation began to have its effect on the market.

The majority of the former Yukos assets are now integrated into Russian state-controlled Rosneft, the world’s biggest quoted oil producer, who are already subject to US sanctions following Russia’s alleges military and political interference in Ukraine.

Photo credit: Andyminicooper

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