Russia violated rights of Yukos oil company, rules European court

Russia violated the rights of the now-defunct oil company Yukos, the European court of human rights has ruled. However, the court rejected a claim that the prosecution of Yukos was politically motivated and deferred a ruling over £64bn in claimed damages.

According to the ruling from the court in Strasbourg, Russian authorities were unfair in punishing the company over tax violations and did not give Yukos enough time to prepare its defence.

The ruling is open to an appeal process that is available to both sides.

Yukos sought £62bn ($98bn) in damages, the largest claim in the court’s 50-year history and one of Russia’s biggest legal challenges to date. The company – a major Russian taxpayer whose primary subsidiary once produced as much oil as Libya – was dismantled by Russian authorities after the 2003 arrest of its founder and owner, Mikhail Khodorkovsky. His supporters say the Kremlin mounted an orchestrated effort to destroy a tycoon who was seen as a threat to the then President Vladimir Putin’s rule.

Khodorkovsky offered his view on what happened in an opinion piece in the Kommersant Vlast magazine 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 $40bn.”

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

Former Yukos chief executive Steven Theede called it “premature” to talk about the settlement, but added that he saw nothing to justify changing the damages sought.

The court’s nine-judge panel found that Russia violated three articles of the European convention on human rights, including the right to a fair trial. The court also found the enforcement proceedings were disproportionate, a ruling that the Russian justice ministry blamed on “opinions”. The court, however, denied a claim that Russia misused legal procedures to dismantle Yukos.

Russia’s envoy to the court, Georgy Matyushkin, told the Interfax news agency he was “satisfied with the ruling overall”.

Mikhail Barshchevsky, the Kremlin representative at Russian high courts, told RIA Novosti that the Strasbourg court’s rejection of political motivation is “an indisputable victory for Russian envoys in the court”. Yukos representatives said they consider the ruling a victory.

The company’s former chief financial officer, Bruce Misamore, said the ruling about political motivation was “the least of the concerns”. Theede said the ruling that enforcement procedures were disproportionate was key because all of the factors that led to the dismantling of Yukos “were brought about by enforcement procedures”.

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.

Chris Weafer, chief strategist at Moscow-based investment bank Troika Dialog, said in a note to investors on 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 … so any knee-jerk negative reaction should be relatively short-lived,” he said.

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 watched closely not just by human rights groups and western diplomats but by investors hungry for profits from Russia’s lucrative oil industry but wary of the country’s legal system.

Russian authorities had accused Yukos of using shell companies to hide revenue from tax authorities, 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 with the state-run oil company Rosneft.

Those representing Yukos want the Russian government to pay back the taxes, fines and penalties. The bulk of the £64bn claim, however, is for a full refund of the value and the loss of subsequent profits from assets sold in the liquidation.

Misamore said the management is seeking only compensation, not the assets that went on to be auctioned off. “There hasn’t been any intent to put Yukos back together again from pieces that went to Rosneft or Gazprom,” he said.

The parties now have three months to appeal against the ruling to the court’s grand chamber, whose decisions are binding on all members of the Council of Europe, the human rights watchdog.

The council monitors the execution of the court’s judgments, particularly to ensure payments awarded by the court are paid. In the past, its rulings have obliged governments to amend laws and practices.

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