Last week we announced on this blog the live webcast of congressional hearings held on the Yukos case, featuring testimony by Tim Osborne, Anders Aslund, and others. The archived webcast can still be viewed, and now the transcripts are available for download. Tim Osborne excerpt:
Let me be clear, the Yukos case is about the improper and illegal persecution and seizure of legitimate individual corporate and private assets for the political and financial benefit of the Russian state. The past four years have seen a veritable onslaught against GML, its holdings, and its shareholders by Russian authorities, against the backdrop of a profound retreat in democratic developments in Russia. This includes the abandonment of the rule of law, collapse of an independent judiciary as well as a breakdown of corporate governance, investor protections and business transparency. Beyond the obvious problems faced by the direct targets of the Russian authorities, American minority shareholders in Yukos have lost $6 billion. The Russian government has made clear that the expropriation of their investment is acceptable and permissible collateral damage. The impact of these events on American investors is dire, and will continue to be going forward if it goes unchecked. It’s a tragic irony that I am testifying virtually on the four year anniversary of the arrest and imprisonment of Mikhail Khodorkovsky, a founding shareholder of GML and the senior executive of Yukos, and his business partner, Platon Lebedev. I would like to call your attention to four universal principles held dear to free and open markets worldwide, which as illustrated by the conduct of the Russian Government towards Yukos and GML, are being set aside in Russia to the detriment of investors and financial stakeholders in the U.S. and abroad. They are: – Transparency in capital markets; – Maximizing shareholder value; – Protecting investors; and – Adherence to the rule of law.
It is difficult to escape the impression that the current US administration has done nothing to establish appropriate legal defenses for American shareholders of Russian companies. Unfortunately, Yukos is not likely to be the single case, because a wave of renationalization is currently under way in Russia. How can this situation be remedied? To begin with, one would expect US top officials to protest against the confiscation of billions of dollars bona fide investment by American citizens. In several cases, Putin has moderated his actions after loud, public, and concerted Western protests. The easiest legal option is probably to persuade Russia to ratify the bilateral investment treaty of 1992, which should not be that difficult, but it does not appear to be on the U.S. agenda. In the longer term, adequate legal guarantees can be best accomplished through the conclusion of a bilateral free trade agreement between the United States and Russia, but that presupposes that Russia becomes a member of the World Trade Organization. During President Putin’s first term, Russia’s accession to the WTO was an important goal. In November 2006, Russia concluded a substantial bilateral protocol with the U.S. on Russia’s accession to the WTO. Unfortunately, President Putin has increasingly downplayed the significance of the WTO. Last June, he went as far as to call the WTO “obsolete;” Russia’s progress toward accession has slowed down; and German Gref, the Minister for Economic Development and Trade, who has been Russia’s foremost advocate of WTO membership, was dismissed from the government last month. Russia’s government still professes its aim to join the WTO, but its determination has waned. The absence of any legal safeguard for American investment in Russia can nothing but harm and hold them back. The Russian state officials that carried out the confiscation of Yukos have by no means been punished but have only had their appetite vetted. This is apparent from the current wave of renationalization in Russia, which further deters Americans from investment in Russia. My conclusion is that the United States has an interest in stronger mutual treaty obligations between the U.S. and Russia safeguarding investments. Also bona fide Russian businessmen have an interest in such treaty obligations. Although a WTO accession does not have direct bearing on investment, it can serve as a useful tool, providing a basis for a bilateral free trade agreement, which would contain guarantees for the protection of investment.