$50bn award levied against Russia

Court of arbitration in The Hague rules major oil company seized illegally

Yukos, set up by Mikhail Khodorkovsky, was seized by the Russian authorities in 2003, which alleged that the oil and gas company had been involved in a criminal enterprise to evade billions in taxes.

Yukos, set up by Mikhail Khodorkovsky, was seized by the Russian authorities in 2003, which alleged that the oil and gas company had been involved in a criminal enterprise to evade billions in taxes.

Tue, Jul 29, 2014, 01:00

Russia is faced with the threat that billions in assets held internationally could be seized to pay a $50 billion compensation award to punish it for illegally confiscating a major oil company, the Permanent Court of Arbitration has ordered.

Yukos, set up by Mikhail Khodorkovsky, was seized by the Russian authorities in 2003, which alleged that the oil and gas company had been involved in a criminal enterprise to evade billions in taxes.

However, The Hague-based arbitration court ruled that the seizure of Yukos’s most valuable subsidiary, Yuganskneftegaz, was a bid to bankrupt the company: “In short, it was in effect a devious and calculated expropriation,” it said.

The Hague judgment is a major embarrassment for Russian leader Vladimir Putin, but it could pose problems, too, for BP, which owns a fifth of Rosneft – the Russian state-controlled energy giant that now owns most of Yukos’s assets.

Mr Khodorkovsky was seen as a threat by the Kremlin because he had become involved politically and had begun to fund opposition parties, which led Mr Putin to target the company for destruction.

Three major shareholders in Yukos – Hulley Enterprises, Yukos Universal Limited and Veteran Petroleum – none of which involved Mr Khodorkovsky – began their battle for compensation in February 2005. Decade in jail Mr Khodorkovsky, who was released from jail last December by Mr Putin after he had served a decade in jail, said he had learned of it the Hague ruling “with a feeling of satisfaction”.

The Hague judgment cannot be appealed, while Moscow is legally required to pay compound interest on the $50 billion compensation award if it has not paid in full by January. The compensation is 20 times larger than anything that has been previously awarded in international arbitration disputes.

If Moscow refuses to pay up, the shareholders can begin a new round of legal actions to seize Russian assets abroad – such as commercial properties, art collections or aircraft – if they can be linked to the Russian state.

Moscow pulled out of the treaty that governs such disputes – the Energy Charter Treaty – in 2009, but it remains liable under international law for actions covered by it that took place before it quit. However, the Hague judgment will be enforceable in 150 states under a 1958 legal convention agreed in New York. Russian foreign minister Sergei Lavrov has already said that Moscow will keep fighting.

Saying that it is “the end of the beginning”, Tim Osborne, the executive director of GML, formerly Group Menetap Ltd, said the shareholders had tried and failed to get the Russian authorities to engage “in meaningful discussions”.

Asked if BP could face asset seizures because of its part-ownership of Rosneft, Mr Osborne said the shareholders had still to decide on their next steps. “It is safe to say that nobody is safe. We will take a view, but it will be a pragmatic approach.”