Russia ordered to pay $50 billion to Yukos shareholders

Russia has been ordered by an arbitration court in The Hague to pay shareholders of Yukos a record $50 billion in compensation over its seizure of the one-time oil giant, lawyers for the main claimant said on Monday.

The Permanent Court of Arbitration ruled that Russia forced Yukos, formerly owned by ex-tycoon and Kremlin critic Mikhail Khodorkovsky, into bankruptcy with excessive tax claims and sold its assets to state-owned businesses.

“The tribunal specifically and unanimously confirmed that the attacks by the Russian Federation on the Yukos oil company … were politically motivated,” Tim Osborne, executive director of GML Ltd, the main shareholder, told a news conference in London.

Russian foreign minister Sergei Lavrov vowed that the state would “use all of its legal options to defend its position.”

Yukos was once Russia’s biggest oil company but was broken up after Khodorkovsky was arrested in 2003, shortly after President Vladimir Putin warned Russia’s growing class of oligarchs against meddling in politics.

Khodorkovsky — who was released last year after spending spent more than a decade in prison — is no longer a shareholder and is no longer involved in the company.

The claims against Moscow were brought in 2005 by Hulley Enterprises Limited and Veteran Petroleum Limited, two subsidiaries of former majority shareholder GML Limited, both based in Cyprus.

A claim was also brought by Veteran Petroleum Ltd., the pension fund set up by GML for the benefit of former Yukos employees.

The claimants had wanted a total compensation package of $100 billion (74 billion euros), four times their total investments in the now-defunct firm, to take into account what it would be worth today, plus interest.

The arbitral tribunals at the Permanent Court of Arbitration unanimously held that the Russian Federation had effectively expropriated the claimants’ assets, according to the ruling on the PCA website.

Russia had been ordered to pay “in excess of $50 billion” after finding it had forced Yukos into bankruptcy with excessive tax claims and sold its assets to state-owned businesses, said Emmanuel Gaillard, head of Shearman & Sterling’s International Arbitration Group, which represented the claimants.

– Largest award in history –

The award was the “largest in arbitration history”, GML said in a statement.

“This is an historic award,” said Gaillard.

“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.”

Despite the award being around half of the original claim, Gaillard said that the ruling was “a great day for the rule of law”.

He also said there was “no reason to believe that Russia will not satisfy its international obligations”, pointing out that there was no chance of appeal.

Osborne said the ruling would hurt investment in Russia, already hit by sanctions over the crisis in Ukraine.

“I suspect at the moment Russia is a place where not many people are going to be investing,” Osborne told the press conference.

“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,” he said.