The Hague’s arbitration court ruled yesterday that Russia must pay a group of shareholders in oil giant Yukos $50.02 billion for expropriating its assets, a big hit for a country teetering on the brink of recession.
The arbitration panel in the Netherlands said it had awarded shareholders in the GML group just under half of their $114 billion claim, going some way to covering the money they lost when the Kremlin seized Yukos, once controlled by Mikhail Khodorkovsky, a decade ago.
“The award is a slam dunk. It is for $50 billion, and that cannot be disputed,” said Tim Osborne, director of GML. “It’s now a question of enforcing it.”
The question is whether Russia will pay that award
Russia’s Finance Ministry called the ruling “flawed”, “one-sided” and “politically biased” and said it would appeal the decision. It comes as Russia and the West are in their biggest stand-off since the Cold War over Moscow’s actions in Ukraine.
Russia argued that the court ignored tax violations by Yukos and said it was senseless and speculative to value Yukos so long after the events. Lawyers, however, said there were only limited grounds on which to appeal.
The panel of judges, which has been reviewing the case since 2005, concluded that officials under President Vladimir Putin had manipulated the legal system to bankrupt Yukos.
“Yukos was the object of a series of politically motivated attacks by the Russian authorities that eventually led to its destruction,” the court said.
“The primary objective of the Russian Federation was not to collect taxes but rather to bankrupt Yukos and appropriate its valuable assets.”
The ruling hits Russia at a time when it faces international sanctions about its role in Ukraine and anger over the downing of a Malaysian airliner over eastern Ukraine, where Moscow-backed rebels are fighting a separatist campaign. The country is also grappling with slowing economic growth.
“This decision affects the assessment of the long-term financial stability of Russia and could become the basis for arguments for revising Russia’s ratings by international rating agencies,” said Credit Suisse economist Aleksei Pogorelov.
The $50 billion represents about 2.5 per cent of Russia’s total GDP worth, or 57 per cent of Russia’s Reserve Fund, which is earmarked to cover bud-get holes.
“The question is whether Russia will pay that award, which I very much doubt,” said Jan Kleinheisterkamp, an Associate Professor of Law at the London School of Economics.
“This means that ultimately the shareholders will start to chase Russian assets abroad, which is a very tedious and usually not very fruitful business.”