$50 Billion Yukos Ruling Could Change Russian History

The ruling handed down today by the Arbitration Tribunal of The Hague awarding $50 billion in damages to Yukos shareholders for the expropriation of company represents one of the most important judicial events in recent history.

The tribunal’s ruling not only represents one of the largest ever against a sovereign, but the decision also cuts to the core of the corrupt structure of the current administration in the Kremlin, where the instruments of state power were manipulated as part of a “devious and calculated expropriation,” featuring not only a merciless persecution of the shareholders but also a rigged auction to place the prized assets of Russia’s most successful company in the hands of Rosneft.

At the very center of President Vladimir Putin’s state the Tribunal has found a terrible criminal act upon which much of the state’s power and influence was corruptly built.  This ruling has the potential to serve as precedent for many other cases of abuses of state power by Russia (from unlawful arrests to corporate raids to shutting off gas supply, etc.). I would say that the ruling resembles the beginning of the end of Russian impunity.

Russia will of course appeal this decision, and if they lose, we can assume that they will fight tooth and nail to avoid having to pay the damages. Nevertheless, this is the kind of decision that has the potential to change the direction of Russian history. Coming on the heels of the contentious events surrounding the shooting down of Malaysian Airlines flight MH17 by the Kremlin’s sponsored rebels in Eastern Ukraine, the Yukos ruling creates a further separation between Putin’s desired legacy as a leader who brought stability and growth to Russia and the destructive tendencies of a criminal government.

Given the present political environment with regard to Russia and its reckless conflict in Ukraine, this judgment is likely to have more sovereigns willing to assist it than any other in history. If they fail to recognise the ruling (which is likely), than conceivably the Yukos shareholders could have legitimate grounds to seize Rosneft’s oil shipments to Europe, as well as the seizure of other Russian owned assets abroad. Such a development could radically reduce Russia’s export markets for oil and fundamental change the country’s engagement with international markets.

For the shareholders of Yukos (disclaimer: I formerly advised parties to this dispute), the decision represents the culmination of a decade-long struggle to achieve justice in perilously difficult circumstances. In order to achieve recognition of the Tribunal’s jurisdiction, the claimants pursued the matter under Russia’s obligations of the Energy Charter Treaty (ECT) which had been signed in 1994 by 50 countries, including Russia. This legal challenge led Russia to unilaterally withdraw from the ECT in the summer of 2009 in an attempt to sow confusion over this long awaited verdict, but apparently the tactic was not successful.

The Tribunal’s award will cast many parties in a shameful light, including Western companies such as British Petroleum (BP) who knowingly acquired stakes in Rosneft despite the allegations that the majority of that company’s value was obtained through theft. Now these allegations are finally as confirmed facts, and any and every party that helped Russia launder these stolen assets through the London IPO or equity deals will have to face this reality.

In a statement published to his website, Mikhail Khodorkovsky – who is not a party to this dispute – said that the evidence on the matter was clear: “It is the first independent tribunal to have considered the YUKOS case in its entirety, to have examined the evidence and to have heard witness testimony. The findings were predictable for any unbiased observer of the disgraceful Basmannyi travesty of justice: from beginning to end, the YUKOS case has been an instance of unabashed plundering of a successful company by a mafia with links to the State.”

Now as we await the next ruling on a parallel case between Yukos shareholders and Russia in the European Court of Human Rights, the pressure will continue to build upon the architects of this expropriation in Moscow.