Russia ordered to pay $50B for seizing oil giant Yukos

A court in the Netherlands on Monday ordered Russia to pay more than $50 billion in compensation to the former majority shareholder of now-defunct oil producer Yukos over the expropriation of the company more than 10 years ago.

In one of the largest arbitration cases ever, a subsidiary for GML Ltd., once the biggest shareholder in Yukos Oil Co., had sought $103.5 billion from Russia.

The Russian government under President Vladimir Putin in 2003 leveled massive tax claims against Yukos, then Russia's largest oil company owned by the country's richest man, Mikhail Khodorkovsky. Russia imprisoned Khodorkovsky and seized the company's assets when it couldn't pay.

The move was widely seen as retaliation for Khodorkovsky's support for opposition political parties. Russia says it was merely seeking payment for back taxes and penalties that Yukos evaded in the period 2000-2003.

Khodorkovsky spent 10 years in prison before Putin pardoned him in December last year. Khodorkovsky has said he is not party to the case and is not interested in its outcome.

The arbitration panel in the Netherlands said it had awarded shareholders in the GML group just under half of their claim, going some way to covering the money they lost when the Kremlin seized Yukos.

"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."

But Russian Foreign Minister Sergei Lavrov said Moscow would most likely appeal the decision, so shareholders, who have battled through the courts for a decade, might have longer to wait.

"The Russian side, those agencies which represent Russia in this process, will no doubt use all available legal possibilities to defend its position," he said when news of the award leaked ahead of the official announcement.

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 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 adds to tensions between Russia and the international community at a time when relations are at their lowest ebb since the end of the Cold War. Russia faces international sanctions over its role in turmoil in eastern Ukraine and anger over the downing of a Malaysian airliner over the troubled region 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 percent of Russia's total GDP worth, or more than half of Russia's Reserve Fund, which is earmarked to cover budget holes. The ruling also hit Russian stocks; the RTS index of Russian shares was down 2.8 percent Monday.

Separately, the European Court of Human Rights (ECHR) in Strasbourg is expected on Thursday to announce a separate decision on Yukos's multi-billion-dollar claim against Russia, ruling on 'just satisfaction' or compensation, a Yukos spokeswoman said.

"It is GML's belief that the 'Yukos affair' was a major strand in the Russian government's strategy to bring Russia's natural resources under direct Kremlin control and to use those resources as a tool to reassert control over Russia's former sphere of influence," Osborne said in testimony before the U.S. Helsinki Commission in 2009. "It marked a turning point" as Russia moved away from its "commitment to the rule of law, property rights, and energy security."

GML sought relief from the Permanent Court of Arbitration in The Hague, Netherlands, under the Energy Charter Treaty, which creates the legal basis for an open international energy market. The holding company claimed that Russia violated the treaty, which requires swift and fair compensation if assets are expropriated.

GML says that even before Russia filed its tax claim against Yukos, the company had paid $15 billion in taxes for the period on total income of $29 billion. The government claimed the company owed an additional $27 billion, bringing Yukos' total tax liability for the period to $42 billion — more than the company's gross income, according to GML.

"This is not taxation," Osborne said in testimony before a U.S. House Financial Services subcommittee in 2007. "This is confiscation."

Wire services