Court orders Russia to pay $50bn to Yukos shareholders

BBC NEWS

A court in the Hague has awarded shareholders in the defunct Russian oil company Yukos the largest compensation package to date.

The Court of Arbitration said Russia should pay $50bn (£29.5bn) in damages.

It said Russian officials, under President Putin, had manipulated the legal system to bankrupt Yukos, and jail its boss, Mikhail Khodorkovsky for fraud and tax evasion.

Russia's Foreign Minister said Russia will appeal the decision.

Yukos was once the country's largest oil producer.

'Major step'

Foreign Minister Sergei Lavrov said: "The Russian side, those agencies which represent Russia in this process, will no doubt use all available legal possibilities to defend its position."

The claim was filed by a subsidiary for the financial holding company GML, once the biggest shareholder in Yukos Oil Co.

GML 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."

'Win time'

In addition to forcing the company into bankruptcy, Russia also sold Yukos' assets to state-owned businesses for political purposes, according to the claimant's lawyer Emmanuel Gaillard.

Mr Gaillard 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."

Dr Florian Otto from risk advisory company Maplecroft said that Russia will be hoping to win time and reduce publicity. He said: "For Russia, paying the money is out of the question, as this could be construed as an acknowledgement that the seizing of Yukos' assets was illegal - a viewpoint the Kremlin will never accept.

"The comments by Foreign Minister Lavrov indicate that the government will try to kick the problem into the long grass.

"The ruling does not come as a surprise to any of the parties involved, but the coincidental timing with the downing of flight MH17 certainly adds to the pressure Russia is currently exposed to.

"The case serves as a fresh reminder of state interference in business at a time when business confidence is already at a low point".

Lawyers said that if Russia does not voluntarily accept the ruling, it can be forcibly enforced by shareholders seizing assets abroad.

Leonid Nevzlin, former deputy chairman of Yukos told a Moscow radio station: "I think shareholders are ready for the next stage -- if Russia refuses to pay them, to search for and seize Russian assets all around the world."

Mikhail Khodorkovsky is the former head of Yukos

Illegal deals

Yukos was disbanded in 2007 after filing for bankruptcy in 2006.

The company was formerly controlled by Mikhail Khodorkovsky, who was at one point Russia's richest man. Responding to the news, Mr Khordorkovsky said it was "fantastic" that shareholders were "being given chance to recover assets".

Mr Khodorkovsky built Yukos into Russia's largest investor-owned oil company after the fall of the Soviet Union.

He was arrested in 2003 and spent ten years in jail after being convicted of fraud and tax evasion but was pardoned last December.

The state-owned Rosneft bought the bulk of Yukos assets though auctions after the company was declared bankrupt. It says all the deals were legal.

Analysis: Andrew Walker, BBC economics correspondent

The judgement is powerful ammunition for President Putin's critics.

For their case, the key words in the ruling are these: "Russian courts bent to the will of Russian executive authorities to bankrupt Yukos, assign its assets to a State-controlled company, and incarcerate a man who gave signs of becoming a political competitor".

That potential political rival - to President Putin - is Mikhail Khodorkovsky.

Though he wasn't involved this case, he was at the centre of the events that led to the downfall of Yukos.

The ruling is littered with testimony from witnesses pointing to Mr Putin's anger about Mr Khodorkovsky, particularly when the former Yukos chief raised the issue of corruption.

The court concluded that what happened to him and the company were not the result of proper legal processes.