Kremlin owes shareholders of dismantled oil giant Yukos US$50 billion, Dutch court finds

A Dutch court on Tuesday upheld an appeal by shareholders of the dismantled oil giant Yukos in a landmark ruling, boosting their fight in a US$50 billion case for compensation. The ruling overturns a lower Dutch court’s decision in favour of Russia, which had contested an original decision by The Hague-based Permanent Court of Arbitration that awarded shareholders billions of dollars after Yukos was dismantled in the mid-2000s. “The appeal court in The Hague decided today that a previous ruling in favour of the Russian Federation was incorrect,” the court said in a statement, adding an original US$50 billion award by the PCA – an international arbitral tribunal – “is in force again”. Russia said it would appeal. The long-awaited ruling comes almost 14 years after the once powerful company filed for bankruptcy and follows a controversial 2014 ruling that ordered Russia to pay out billions of dollars in compensation to its former shareholders. The PCA that year ruled that Russia had forced Yukos into bankruptcy with excessive tax claims and then sold its assets to state-owned companies. It based its ruling on the provisions of a multilateral 1994 accord, the Energy Charter Treaty, which aimed to promote energy security. It then ordered Moscow to pay more than US$50 billion to the former shareholders – a record award for the arbitration tribunal. Yukos shareholders awarded US$51 billion from Russia by Hague court In a shock turnaround a local Dutch court in 2016 annulled the PCA’s decision, saying it was “not competent” to rule in the case, based on the treaty. But appeals judges disagreed with the lower court’s findings, saying “Russia was under an obligation to enforce the treaty unless it was in breach of Russia law ... This court finds that there was no breach of Russian law.” Yukos’ main shareholder GML hailed the ruling. “This is a victory for the rule of law. The independent courts of a democracy have shown their integrity and served justice. a Brutal kleptocracy has been held to account,” chief executive Tim Osborne said in a statement. Tuesday’s decision however may not be the end of the saga: the parties may still fight the decision at the Dutch Supreme Court, officials said. Moscow “will continue to defend its legitimate interests and, in an appeal, contest the verdict”, Russia’s justice ministry said in a statement. Yukos, once Russia’s biggest post-Soviet oil company, was broken up after its former owner, Kremlin critic and ex-tycoon Mikhail Khodorkovsky, was arrested in 2003. His arrest came after Russian President Vladimir Putin had warned the nation’s growing class of oligarchs against meddling in politics. Russian oil still looks good to energy bosses at St Petersburg investment show Yukos was sold in opaque auctions to state companies led by Rosneft between 2004 and 2006. State-owned Rosneft was then small, but has since become a leading player among the world’s biggest listed oil companies by production volume. The claimants have since sought to win compensation for what they say are their losses caused by the break-up of Yukos. The question “relates to the circumstances of the Yukos takeover by the Russian oligarchs during its privatisation in 1995 and 1996”, Russian government lawyer Andrea Pinna said ahead of the ruling. As the former Soviet Union crumbled in the early 1990s, unscrupulous businessmen amassed immense fortunes and influential empires by scooping up former Soviet assets – particularly in raw materials – at bargain-basement prices. “Russia considers that the acquisition of Yukos was only possible through corruption and other illegal acts,” Pinna said. This was “not a political case but purely a legal one in which US$50 billion is at stake,” the lawyer insisted. But Emmanuel Gaillard, representing former shareholders, said “Russia is making considerable diplomatic efforts to try and discredit the players in this case”. “Their strategy is to distort everything, to complicate everything, to make people forget about the greatest expropriation of the 21st century,” Gaillard said. Khodorkovsky, who is no longer a stakeholder, spent a decade in prison on charges of tax evasion, fraud and embezzlement which he and his supporters say were trumped up in revenge for his political ambitions. He was suddenly pardoned by Putin in 2013 and flown out of the country. His business partner Platon Lebedev spent more than 10 years in jail for fraud, tax evasion and money laundering after a trial denounced by human rights activists.