On July 28, the Arbitration Court in The Hague delivered its landmark judgment in the case brought by ex-YUKOS shareholders against the Russian government, ruling that Moscow must pay around $50 billion for expropriating its assets.
In the decision, an independent arbitral tribunal sitting in The Hague ruled unanimously that the actions of the Russian Federation were politically motivated and constituted expropriation of the majority shareholders’ investment in YUKOS.
“It is a big blow. It’s a huge number - $50 billion,” Slava Smolyaninov, chief strategist at Russia’s Uralsib Bank in Moscow, toldNew Europeon July 28. “But again this is not the final decision. Russia will appeal and they already said they would appeal so we’ll see how it goes. In any case that will probably drag for years. But this is a huge number and I don’t think that anybody took that into consideration in terms of macro-stability in Russia.”
Smolyaninov noted that $50 billion, in terms of percentage of reserves, is more than 10% of the Russian foreign reserves at the moment. “It’s a significant amount,” he said, adding that there are macro-risks that may affect investment in Russia and possibly deal a blow to the ruble. “People would perceive that there is lower support for the ruble from the government side, from the side of the Central Bank of Russia,” he said.
Chris Weafer, founding partner of Macro-Advisory, a Moscow-based business and investment consulting group,wrote in an e-mailed note to investors on July 25 that whileMonday’sdecision is only another step in a very long-drawn out process, a negative outcome will add to the already negative headlines about Russia and, very likely, further depress investment flows over the medium term.
Earlier on July 28, Russian Foreign Minister Sergei Lavrov said that Moscow could launch anappeal if theHague’s arbitration court ruled infavor ofthe YUKOS shareholders. Lavrov said legal formalities inthe case had not been completed, including theright ofappeal. “The Russian side, those agencies which represent Russia inthis process, will no doubt use all available legal possibilities todefend its position,” Lavrov said.
Commenting on the case, GML Ltd Executive Director Tim Osborne said the majority shareholders of YUKOS Oil were left without compensation for the loss of their investment when Russia illegally expropriated YUKOS. “It is a major step forward for the majority shareholders, who have been battling for over 10 years for this decision,” he said.
Emmanuel Gaillard, head of Shearman & Sterling LLP’s International Arbitration Group which represented the Claimants, said: “This is an historic award. 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.”
The proceedings were initiated in early 2005 before an independent arbitral tribunal under the auspices of the Permanent Court of Arbitration in The Hague. The Claimants are two subsidiaries of former majority shareholder GML Limited, namely Hulley Enterprises Ltd. and YUKOS Universal Ltd., as well as Veteran Petroleum Ltd., the pension fund set up by GML for the benefit of former YUKOS employees.
The Hague court 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.
Although the Russian government has repeatedly stated that the case was purely a matter of tax evasion, the destruction of YUKOS was widely viewed as the Kremlin’s effort to crush Khodorkovsky. He was arrested in 2003 and convicted of theft and tax evasion in 2005. Russian President Vladimir Putin pardoned Khodorkovsky in December after he had spent 10 years in jail. He now lives in Switzerland.
Smolyaninov reminded that the case has been dragging on for 10 years. “It’s not something that came out of the blue,” he told New Europe. “I wouldn’t go into political conclusions or especially citing specific leaders. It seems a legal case, they had a very good chance of winning, they won apparently and we shall see how this will proceed,” he added.
http://www.neurope.eu/article/eu-court-rules-russia-must-pay-yukos-50-billion