European Court Awards US$50bn to Former Yukos Shareholders

A European court has ruled that Russia owes former shareholders of the now-defunct oil giant Yukos compensation of more than US$50bn for the government’s seizure of the company.

The Permanent Court of Arbitration in The Hague, the Netherlands described Russia’s actions under president Vladimir Putin as “a devious and calculated expropriation” of assets to destroy the firm. Russia’s finance ministry responded by calling the ruling “seriously flawed” and “politically biased” and vowed to appeal.

Formerly Russia’s largest oil company, the demise of Yukos resulted from massive back-tax claims starting in 2004, and its main assets were sold off to state-controlled Russian companies to meet the payments.

While Russian officials insisted that the company was guilty of tax evasion, the destruction of Yukos was widely viewed as the Kremlin’s effort to crush Mikhail Khodorkovsky, its politically ambitious chief executive officer (CEO) and main shareholder. Khodorkovsky served more than 10 years in jail on fraud and tax evasion charges, although his imprisonment was regarded by many as politically motivated. He was eventually released last December after Putin issued a pardon.

Although the US$50bn-plus award is the largest ever rendered by the court, the figure is only half the compensation amount sought by Yukos shareholders, who based their claim on a valuation of just over $100 billion for the company.

They now face the potentially more difficult task of how to collect, as plaintiffs in past similar cases have encountered mixed results attempting to seize Russian assets overseas.

The amount was decided by the court’s panel of three arbiters, two members of which were appointed by each side in the case, while the third was appointed by the Dutch court. It based its compensation figure on Yukos’ valuation in 2003 when the government began taking steps to take control of it.

“It is the tribunal’s view that Yukos was the object of a series of politically-motivated attacks by the Russian authorities that eventually led to its destruction,” the ruling stated.

The company’s former management has filed a separate expropriation claim on behalf of minority shareholders worth up to US$38bn in the European Court of Human Rights in Strasbourg. A ruling in that case could come as early as this week.

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