European Court Delays Ruling on Yukos

European Court Delays Ruling on Yukos

Published: September 21, 2011 (Issue # 1675)

sergei porter / Vedomosti

Khodorkovsky, pictured above, remains behind bars as the European Court of Human Rights rules on the Yukos affair.

STRASBOURG — The Russian government violated the rights of Yukos, the European Court of Human Rights ruled Tuesday, but added that it was not yet ready to decide on a claim for nearly $100 billion in damages.

Russian authorities were unfair in meting out punishment to the company over tax violations and did not give the defunct oil company enough time to prepare its defense, said the court in Strasbourg, France.

The nine-judge panel found that the state violated three articles of the European Convention on Human Rights, but it rejected several other claims filed by Yukos such as a contention that the prosecution of Yukos was politically motivated. It also dismissed the state’s argument that the case should not be heard by the European court at all.

Mikhail Barshchevsky, a high court lawyer for Russia, said the Strasbourg court’s rejection of political motivation is “an indisputable victory for Russian envoys in the court,” RIA-Novosti reported.

The finding could still embarrass Russia and hurt its efforts to win back international investors scared off by Yukos and other legal cases in recent years. But its weight on the investment climate is unlikely to be lasting, analysts said.

Chris Weafer, chief strategist at Troika Dialog, said in a note to investors Tuesday that a negative ruling “would be a PR nightmare rather than a financial disaster.”

“The saving grace is that investors are more focused on more substantive global events, for example, Greece and the Fed meeting, so any knee-jerk negative reaction should be relatively short-lived,” he said.

Yukos sought $98 billion in damages, the largest claim in the court’s 50-year history and one of Russia’s biggest legal challenges to date.

The company — whose primary subsidiary once produced as much oil as all of Libya — was dismantled by authorities after the 2003 arrest of its founder and owner, Mikhail Khodorkovsky. His supporters say then-President Vladimir Putin’s Kremlin mounted an orchestrated effort to destroy the tycoon, seen as a threat to Putin’s rule.

Khodorkovsky offered his view on what happened in 2003 in an opinion piece published in Kommersant Vlast on Monday: “Those who made up criminal cases against me and my colleagues simply wanted to take for free the country’s most profitable oil company with a market value of $40 billion.”

The European court found that the question of damages “is not ready for decision” and gave both parties three months to reach a settlement. If they do not, the court will rule later on whether to order any damages.

The court has repeatedly found Russia in violation of the 1950 European Convention on Human Rights, and deals with more cases involving Russia than any other country.

The Yukos case was unusually high-profile and is being watched by investors hungry for profits from Russia’s highly lucrative oil industry and other markets but wary of the country’s legal system, as well as by Western diplomatic observers and human rights activists.

Russian authorities had accused Yukos of using shell companies to hide revenue from tax authorities, and through the courts they ultimately froze its assets, forced it to sell its shares in other companies and declared Yukos insolvent in 2006 before the company was finally liquidated a year later. Its most lucrative assets ended up in the hands of state-run Rosneft.

Those representing Yukos want the state to pay back the taxes, fines and penalties that the company was charged, arguing that they were unlawful. The bulk of the $98 billion claim, however, is for a full refund of the value and the loss of subsequent profits from assets sold in the liquidation of Yukos.

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