Yukos Articles and Updates
29 January 2012
3 years ago on this day European Court of Human Rights declared Yukos' case admissible. The Times commented on this decision.
Yukos shareholders take case to Strasbourg
30 January 2009
Shareholders in Yukos, the collapsed Russian oil group, have won permission to bring a case for up to €32.5 billion (£29.3 billion) compensation at the European Court of Human Rights, the largest claim to be brought before the court in its 59-year history.
Once Russia’s largest oil company, Yukos was brought down by a multibillion dollar tax claim that led to its bankruptcy and asset sales at state-forced auctions, most of which were bought by state-owned groups Rosneft and Gazprom.
Mikhail Khodorkovsky, the former chief executive of Yukos and once Russia’s richest man, who had presidential ambitions, is serving a nine-year jail sentence for fraud in Siberia and faces further charges.
“The admissibility decision has been pronounced and communicated to both parties,” said a spokesman for the court in Strasbourg. “There were several complaints under different provisions of the convention [on human rights] and partial admissibility was accepted.”
The court will publish full details of the ruling in a few weeks and set a date for a public hearing, expected later this year.
Yukos shareholders argue that they were stripped of their possessions and Bruce Misamore, the company’s former chief financial officer, welcomed the move.
“The decision by the European Court of Human Rights to investigate elements of our claim is excellent news for all of Yukos Oil Company’s stakeholders,” said Mr Misamore.
“This is an important step towards the vindication of the company’s belief in the rule of law - something it never secured in Russia,” he said.
Russia’s ambassador to the Council of Europe, which oversees the court, denounced what he called the politicisation of the court, which has repeatedly ruled against Russia for human rights abuses in Chechnya and Russian prisons.
Alexander Alekseev said: “The main reason is due to the political context and a certain politicisation of the court’s work we have observed recently.”
Russia’s lower house of parliament has refused for two years to ratify a protocol of the European Convention on Human Rights that would speed up the court’s work.
Georgy Matyushkin, Russia’s envoy to the court, argued that the claim itself breached the European Convention on Human Rights, because Yukos had not exhausted all other legal means before filing the suit. “According to the case documents, the complaint was filed in spring 2004 when the Yukos case had not even been tried yet in the Moscow Arbitrary Court,” he said.
POIGNANT PEN FROM PRISON CELL OF RUSSIAN OLIGARCH YUKOS SHAREHOLDERS TAKE CASE TO STRASBURG
The Independent
25 October 2011
Eight years ago today, Mikhail Khodorkovsky was arrested on the tarmac at a Siberian airport. Since then, he has been behind bars and has undergone an extraordinary transformation from a ruthless businessman and the richest man in Russia, to a pensive prisoner smuggling out handwritten literary sketches of life behind bars.
Sentenced to eight years in jail for money laundering and fraud, Khodorkovsky would have been released today were it not for a second trial that concluded last year and extended his sentence until 2016. Khodorkovsky's son Pavel, who lives in New York, told The Independent yesterday that he believed that Prime Minister Vladimir Putin, who recently announced that he will return to the Kremlin next year, holds a personal grudge against his father.
"Until the second verdict we were looking forward to this day, the whole family couldn't wait for this day," said Pavel Khodorkovsky. "But Putin is really intent on keeping my father in jail for as long as he's in power."
Khodorkovsky is following a long tradition of Russian exiles, prisoners and camp inmates by putting pen to paper. He has written lengthy exchanges with contemporary Russian authors and has penned opinion pieces on the state of Russian politics for leading newspapers. Recently, however, his writings have taken a more colourful turn, writing a series called "Prison Folk" for the weekly magazine The New Times. His style is matter-of-fact, laced with a light irony and moments of compassion.
LIVE FOREVER, DIE YOUNG: IN MEMORY OF VASILY ALEXANYAN.
Vedomosti
by Anton Drel (lawyer and 1992 Graduate of MGU)
06 October 2011
In April of 2006, I received a phone call from a Vedomosti reporter I knew who is now happily employed at an investment company run by a former Mikhail Khodorkovsky business associate (who was lucky enough to avoid prosecution). She wondered if I was in a position to give her Vasily Alexanyan's phone number in London. You see, she was dead certain that Alexanyan had fled Russia. Well, no, I was not in a position to oblige for the simple reason that her phone call found me in the middle of having a cup of tea with Vasily at the On the Deck restaurant just outside Moscow. I was also in the middle of trying to talk Alexanyan into leaving Russia. He begged to differ and insisted that he must stay in his own country if truth was to prevail.
Vasily asked me if the threats from the General Prosecutor's Office should be taken seriously. Just two days earlier, he had become the YUKOS Executive Vice-President and now expected to be arrested any time. Any reasonable person's gut reaction would have been, "Vasily, just get the hell out of here!" Yet one had to know what Vasily was like though.
I first met him at the Moscow University two decades ago, as selection was under way of candidates to travel to Germany to attend an EU workshop on environmental law. The entire idea actually sounded funny at the time - those were the USSR days after all. A little later Vasily joined a student exchange program between Moscow State and the School of Law of the Columbia University in New York. Those were the first student exchanges that were not required to comprise straight-A students from among the communist party activists. Regrettably, the exchanges were to die a slow death eventually, for obvious reasons. Those were the best graduates of all, really, and now many of them run major Western and Russian law firms, are well-known lawyers, legal department chiefs at the nation's leading companies and some are even members of the Russian Government.
Eventually, Vasily went to Harvard. To pay his tuition fees he borrowed money from some shady characters. But even the shady characters took his word that he would pay them back. He was always a man of his word.
Alexanyan returned from the Harvard University (the world's best law school, no matter what you hear otherwise) and went neck deep in debt once again in order to repay his old student loan. He would turn down odd jobs, saying that he would only accept the highest-paying position. He lived by the 'all or nothing' mantra. Eventually, Alexanyan was hired by YUKOS, soon to become Russia's best company. Vasily worked hard and earned great money. That did not embarrass him, nor did he conceal the fact that he was paying large amounts of income tax. He loved risk, loved his liquor, and was a gambler in the broadest sense of the word. He was popular with women like no one else, and this - yet another edge he had over others - was a source of envy. He was religious, and he believed the same way he loved - with a passion. Alexanyan knew the Holy Scripture by heart, believed that one must not live by lies, must not lie to anyone, but, most importantly, not to oneself, and must never justify back-stabbing or being amoral. He sought to live every day like there was no tomorrow and one could say this about him: Live beautifully, live long... and die young.
Most importantly, Vasily was the most talented among us, the most intelligent, the best-looking, the best-read. He was fluent in several European languages, was a true friend who was always there in times of need.
When they put him away, Vasily could not believe the level at which his opponents operated. His persecutors who did not deserve to even be in the same room with him turned out to be creatures from another planet, from the stone age, uncivilized, uncouth, uneducated individuals.
Never did Vasily put any pressure on Khodorkovsky or Lebedev because of his personal grave situation; he never complained or whined. He went through his tremendous ordeal with great courage and dignity.
Vasily is survived by his parents, Uncle Zhora and Aunt Nadia. Both are wonderful individuals who should be proud of how they raised their son. He is also survived by his nine-year old son Georgy. I would like for Georgy to know that his father did not die because of hubris or greed, fake piousness that justifies dirty deeds or permissiveness. Vasily Alexanyan is a hero who gave his life for every single one of us so we can never forget the names of those who hounded him; the names that are public knowledge now.
Some seek glory, some covet riches, and some want peace. Vasily was always someone who lived for others' freedom and happiness. He lived and died for the truth!
There is something else. I have repeatedly heard - from those who dislike YUKOS but like the YUKOS affair - that former YUKOS employees, currently behind bars and complaining of being in poor health, are insincere; that they simply wish to dupe the investigators and would be in perfect health once set free. Vasily Alexanyan is the first to provide a response to those remarks. He answered with his fate, life, death.
Russia violated rights of Yukos oil company, rules European Court
The Guardian
20 September 2011
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.
By Angela Charlton
Associated Press
19 September 2011
PARIS (AP) - Russia's government, often accused of acting with impunity against its critics, is facing what may be its biggest legal challenge yet.
The European Court of Human Rights rules Tuesday on a claim by now-defunct oil giant Yukos for $98 billion in damages from the Russian government. The court has never dealt with such a costly demand since it was created half a century ago.
Yukos lawyers argue that Russia's leadership under Vladimir Putin deliberately sought to destroy Yukos, whose primary subsidiary produced as much oil annually as all of Libya -- and whose now-imprisoned CEO Mikhail Khodorkovsky was the country's richest man and considering a political challenge to Putin's reign.
The ruling by the court's nine-judge panel will be binding.
The court has repeatedly found Russia in violation of the 1950 European Convention on Human Rights; in fact, it deals with more cases involving Russia than any other country.
But it would be highly unusual for the court to grant Yukos' enormous monetary claim. The largest claim the court has ever ordered a government to pay was a fraction of that, the equivalent of (EURO)16 million ($22 million), in a 1994 case involving Stran Greek Refineries.
Even if the court simply finds that Russia's government violated Yukos' rights and awards no damages, it would be an embarrassment to the Kremlin and could hurt its efforts to win back international investors scared off by Yukos and other legal cases in recent years.
If the court finds no violation, that would deal a fierce blow to those who have been fighting to defend the company and its executives for much of the past decade -- and to whistleblowers, investors and others who accuse Russia of flouting justice.
"Obviously, we hope that the court rules in our favor when it announces its judgment on 20 September. We are confident the court will agree that the treatment of Yukos was unfair, selective and retroactive. This is the first level of success," said Claire Davidson, spokeswoman for Yukos oil company and its former managers.
It is the culmination of an eight-year battle between Yukos and Russia's government, and between Putin and Khodorkovsky, jailed since 2003.
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 it insolvent in 2006 before the company was finally liquidated a year later. Many of its assets ended up in the hands of state-run oil company Rosneft.
Khodorkovsky founded the company in the chaotic years that followed the 1991 Soviet collapse. He was convicted on charges of fraud and tax evasion -- but the Kremlin's critics call him a prisoner of Putin's regime, singled out for selective punishment because of his political ambitions, while other oligarchs toed the government line. Many leading tycoons made use of tax loopholes at the time.
Lawyers for Russia's government would not comment ahead of the ruling, which is being watched by Western diplomatic observers and human rights activists.
At the 2010 hearing in the case, lawyers for Yukos argued that Russia violated the company's right to a fair hearing and to protection of property. They also argued that the tax claims made on Yukos lacked a proper legal basis and resulted in selective and arbitrary prosecutions.
Lawyer Michael Swainston, representing the Russian government, argued at the hearing that Yukos had committed massive tax fraud and that the orders to freeze Yukos' assets had been "limited in scope."
The same court ruled earlier this year in a separate case that Russia violated Khodorkovsky's rights during his arrest in 2003 and subsequent detention, but rejected the contention that the arrest was politically motivated. That ruling dealt a setback to Khodorkovsky's supporters and partially vindicated the Kremlin.
Officials at the court stress that the earlier case may have no bearing on Tuesday's ruling, because it involved treatment of Khodorkovsky himself and not his company, which is the focus of the current case.
It's unclear whether other events since the 2010 hearing -- such as Amnesty International's declaration that Khodorkovsky is a prisoner of conscience -- would be taken into account, either.
Those representing Yukos want the Russian government 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.
Khodorkovsky himself, in an essay in the weekly Kommersant Vlast, wrote, "Those who built criminal cases against me and my colleagues simply wanted to take away for free the most prosperous oil company in the country, whose market value was around $40 billion. Everything else was a pretext, but not the genuine reason for the attack."
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Nataliya Vasilyeva in Moscow contributed to this report.
Exxonerated
Where BP failed, Exxon succeeds.
The Economist
03 Sep 2011
FOR BP it could hardly have been worse. On August 30th Exxon Mobil struck a deal with Rosneft to explore the same icy blocks of the Arctic Kara Sea that slipped from BP’s grasp when its vaunted tie-up with the Russian state-controlled oil firm collapsed in the spring. Then things did get worse: the next day, one of BP’s Moscow offices was raided by bailiffs.
The deal is a triumph for Exxon, giving it access to one of oil’s richest frontiers, with none of the nasty add-ons that tripped up BP. The British firm’s proposed link with Rosneft would have meant giving the Russian firm 5% of its shares, an arrangement that BP’s existing Russian partner, AAR, objected to. AAR took legal action and successfully blocked the deal.
Exxon, in contrast, is neither swapping shares nor violating any previous agreement. It has pledged to spend $2.2 billion exploring the potentially oil-rich Kara and $1 billion prospecting in the Black Sea. In return, it will allow Rosneft to take minority stakes in its deep-water projects in the Gulf of Mexico and onshore in Texas.
To Exxon’s great advantage, its deal is more important to Russia, which desperately needs foreign investment and expertise in its oil industry, than it is for Exxon, the world’s biggest private oil firm. Rosneft’s share price jumped 8% after the announcement. (It also jumped 8% the previous day in the local market, suggesting insider dealing.) Exxon’s shareholders were less giddy, perhaps reflecting on the pitfalls of doing business in Russia.
They have experienced them. In 2003 Exxon considered buying a large stake in Yukos, then Russia’s largest oil firm. Yet shortly after Lee Raymond, Exxon’s chief executive, flew to Moscow to negotiate the deal with Mr Putin, Yukos’s main shareholder, Mikhail Khodorkovsky, was arrested, Yukos was dismantled and its assets were swallowed by Rosneft.
That outrage could yet cast a shadow over the Exxon deal in America, where politicians continue to condemn the Kremlin over it. Indeed, this may be one reason why Igor Sechin, Mr Putin’s right-hand man, who oversaw the destruction of Yukos and the Exxon deal, has kept away from America. But American oil firms are a different matter: as Exxon has shown, so long as you sit on colossal oil reserves, they will always be happy to do business.
Russian ‘reset’ malfunction
Mr. Putin's statements are baffling, as the global economy needs consumer consumption for growth and the United States is by far the biggest consumer country. In fact, the U.S. trade deficit drives a lot of global growth. Mr. Putin spoke at his United Russia Party youth camp on Lake Seliger, while Mr. Rogozin let his hair down on a visit to Washington after a meeting with two U.S. senators. Two Senate staffers vehemently denied Mr. Rogozin's allegations in a lengthy discussion with this author.
These are no longer words alone: Russia is threatening to stop cooperating with the United States over Afghanistan, Iran, Libya and North Korea if Congress passes the Sergei Magnitsky sanctions. The toughening Russian negotiating positions and rhetoric - including Mr. Putin's outburst and Mr. Rogozin's reference to the senators as "monsters of the Cold War" - suggest the Obama "reset" policy is in deep trouble.
The State Department has placed 64 Russian officials on a visa blacklist that would prevent them from entering the United States. These officials - prosecutors and policemen - all played a role in the death of the lawyer Sergei Magnitsky, the most famous whistleblower in post-communist Russian history.
The Foreign Ministry in Moscow loudly protested that the United States is being tough on Russia. But the imposition of sanctions looks more like the State Department's pre-emptive way to prevent the Senate's Sergei Magnitsky Rule of Law Accountability Act of 2011 (S. 1039) from passing.
Russia has threatened to "respond asymmetrically" against the Obama administration's "reset" policy if the bill becomes law. In a tit for tat, the Russian foreign ministry reportedly is drawing up a list of U.S. officials who will be banned from Russia and prevented from banking there. While this may be of little concern to Washington, Russian threats to curb cooperation on Afghanistan, Iran, Libya and North Korea are taken more seriously.
To reiterate, Sergei Magnitsky, a lawyer representing Hermitage Capital, which was then the largest Western hedge fund operating in Russia, was arrested on spurious tax-evasion charges. Magnitsky alleged that Russian officials swindled $230 million in tax rebates. He died before his trial in 2009 after being denied essential medical care and possibly tortured and beaten. President Dmitry Medvedev said that those who were in charge of Magnitsky committed crimes.
Russia's Courts of Last Resort
The New York Times
04 August 2011
The only problem is that the court is not in Moscow, it’s in Strasbourg — it’s the European Court of Human Rights.
Russian business also has a highly effective commercial court: The English High Court in London. The court’s commercial division is awash in Russian cases, approximately half of them emanating from disputes involving the former Soviet Union. In part, this has to do with the unique flexibility of English Common Law, under which the doctrine of freedom of contract allows foreign parties to choose England as their governing legal forum.
President Dmitri Medvedev, who has sought to draw foreign investors with the promise of greater stability and increased rule of law, should reflect on the reality that Russian businesses and the Russian state are being increasingly guided by international treaties and commercial realities. While London has become a second home for much of the Russian business community, Russian business people are also using international arbitration forums in places like the Hague, Stockholm, Vienna and Paris. International arbitration clauses, commercial contracts and bilateral investment treaties are increasingly limiting the ability of Russian oligarchs and the Russian state to ignore the rule of law.
The Russian legal system is widely seen as one in which judges act under direct government orders, setting aside legal rules for political ends. The Yukos bankruptcy case is a classic example, and by no means exceptional. Moscow’s willingness to use tax law to bludgeon businesses into making payments to the authorities — whether legally due or not — is widespread.
Thus it is not surprising that foreign investors think long and hard before investing in Russia. Nor is it surprising that opinion polls indicate that Russians have little faith in their courts. A 2004 survey by the Russian Public Opinion Foundation found that 67 percent of respondents thought that the majority of Russian judges took bribes.
Russia is still a long way from the rule of law, Justice Minister Konovalov admits
An interview with Russian Justice Minister Alexander Konovalov
WPS: What the Papers Say
27 June 2011
Alexander Vladimirovich Konovalov, Justice Minister of the Russian Federation, always stresses that he is not a politician - just a civil servant zealously upholding the law.
Question: The liberal People's Freedom Party (ParNaS) is attempting to get registered with your ministry. What are its chances?
Alexander Konovalov: Let me make this clear: I am not a politician, and I cannot assess any particular party's election prospects. We are verifying the application solely in terms of the law and only within the bounds of the Justice Ministry's authority. I shall not attempt to anticipate the results of this verification.
(...)Sometimes it seems to me that for some political forces the process of striving for registration becomes a form of liquid political capital in itself. And if we were to register such a political party and allow it to participate in elections, it would soon become apparent that the party shouldn't be there.
(…)
Question: Do you share President Medvedev's view that Mikhail Khodorkovsky does not pose a danger to society?
Alexander Konovalov: In terms of whether he would commit any crimes, he is unlikely to be dangerous. It's hard to imagine Khodorkovsky going out to commit highway robbery as soon as he is released. But given that the corporation he headed was convicted of tax fraud, that is already enough to reduce confidence in the integrity of any business he runs in the future. As for politics, I cannot judge whether he is a danger to anyone as a rival or competitor. In general, it seems to me that this whole story has been over-hyped, with a great many unqualified arguments and insinuations - especially given that the ECHR, on considering a complaint from Khodorkovsky's lawyers, concluded that the prosecution of YUKOS and expropriation of its assets could not be described as political. As a lawyer, I understand this position. And I regard that ruling as a reference point.
Question: But we have recently seen a confession from Khodorkovsky's cellmate, Alexander Kuchma, who said that certain individuals with official status literally forced him to knife Khodorkovsky and give false evidence against him. Will this be grounds for an investigation within the Federal Penitentiary Service (FSIN) system, and is Khodorkovsky now protected against such attacks?
Alexander Konovalov: Some checks should be done - I am convinced of that - primarily by criminal investigation bodies, since these revelations concern serious crimes. As for investigations within the FSIN, we shall also be looking into the veracity of Kuchma's statements and how such an incident could happen in the first place. The FSIN has already taken this information under advisement and is studying it.
Foreign firms bypass Russia due to rampant corruption
The Times
08 Mar 2011
Ikea, the world's biggest home-furnishings retailer, is just the type of investor Russia needs -- and isn't getting -- to overcome the lowest foreign investment rate among leading emerging-market economies.
ore storesThe Swedish company says it won't build more stores outside the Moscow region until local officials stop withholding permission for two outlets in the central cities of Samara and Ufa. After investing $4 billion in Russia over 10 outside the Moscow region until local officials stop withholding permission for two outlets in the central cities of Samara and Ufa. After investing $4 billion in Russia over 10 years, Ikea placed a freeze on expansion in June 2009.
The reason the stores aren't opening is that Ikea is refusing to pay bribes to safety inspectors, said Kirill Kabanov, head of the non-governmental National Anti-Corruption Committee in Moscow.
"We have a zero tolerance on corruption and we have a very clear policy, and then things must take the time they take," Ikea Russia Managing Director Per Wendschlag said in an interview. He said he had no specific complaint on the delay in permits in the two cities.
BP's Laundering Job
The Moscow Times
21 January 2011
Since the announcement of the share transaction between BP and Rosneft last week, there has been a lot of hype that BP’s investment somehow “legitimizes” the Rosneft takeover of most of Yukos’ assets as part of the Russian government’s expropriation of what was once the country’s largest private oil company.
This is an absolutely ridiculous position taken by the media and commentators.
For years, Yukos was run like any other major Western oil company, with transparent financial reporting, investor relations and corporate governance all in place. But this ended with a bogus forced bankruptcy in 2006, which followed a two-year Russian government campaign of harassment using illegal tax claims and asset freezes and the illegitimate auction in 2004 of the company’s primary asset, Yuganskneftegaz, to the previously unknown Baikal Finance Group, which state-owned Rosneft acquired just two days later. The whole transaction using Baikal Finance Group and Rosneft was sanctioned by then-President Vladimir Putin but remained questionable legally under Russian law because it used financing from a state-owned bank.
Rosneft was directly involved in the bogus bankruptcy of Yukos. In December 2005, Rosneft struck a deal with Yukos’ primary group of lending banks. If the banks forced Yukos into bankruptcy, Rosneft would then buy all the loans that the banks had outstanding to Yukos. The loans were duly purchased by Rosneft within a couple of days after the banks forced the bankruptcy.
After Yuganskneftegaz was expropriated by the government, Rosneft decided to raise capital with an initial public offering on the London Stock Exchange in 2006. Rosneft’s IPO was strongly challenged by Yukos. We argued that since 75 percent of the Rosneft offering to potential investors was stolen assets, the offering was unsafe and in breach of international financial standards.
At the time, BP was coerced by Russia into purchasing Rosneft shares in the IPO, probably as a way for BP to protect its large investments in TNK-BP. The Rosneft IPO would have been a failure without Russia coercing BP and other companies that either wanted to protect existing assets or gain favorable terms in purchasing new assets.
At that time, no one talked about “legitimization,” so why is it any different today? Today, BP is again investing in a company whose largest assets were stolen by the Russian government. Would BP and its directors be just as happy to invest in a company whose primary assets were stolen works of highly prized art? The media and commentators would hardly be claiming that such an investment “legitimized” the theft of the treasured art.
The Yuganskneftegaz cycle was repeated in 2006 when the Russian court-appointed administrator auctioned 19 lots of Yukos assets in Russia. Rosneft benefited disproportionately from these illegal auctions and won over 75 percent of the lots. Former Yukos assets now make up about three-quarters of Rosneft’s asset value.
Based on the strong evidence presented in the European Court of Human Rights, we are confident that the Russian government will be found guilty of the illegal expropriation of Yukos assets. The damage claim on behalf of Yukos stakeholders amounts to more than $100 billion. After the court decides this case, the role that Rosneft and its chairman, Igor Sechin, played in the expropriation will be visible to everyone. An ethically questionable transaction on BP’s part is therefore far from a “legitimization” of the crimes committed by the Russian government and Rosneft, but rather a desperate move by BP to access high-risk exploration prospects. Putin’s “blessing” of the transaction is outrageous and constitutes a gross abuse of power. Putin also “blessed” the acquisition of the Sibneft oil company by Yukos and then facilitated the dismantlement of the completed acquisition through fraudulent Russian court decisions.
Photographs of BP’s new CEO, Robert Dudley, smiling next to Putin and Sechin at Putin’s Novo-Ogaryovo residence Friday were shown in newspapers all over the world. But just two years ago, in 2008, BP’s Moscow offices were being raided by gun-wielding police in what was thought to be an attempt to make BP discard its Russian joint venture. Then, Dudley wasn’t smiling. He was forced to flee the country after being questioned by police over alleged tax fraud. It appears that Dudley has a very short memory.
Since the deal was announced, BP and Rosneft have both emphasized that it gives them the unique opportunity to jointly explore for offshore oil and gas, particularly in the Arctic, that was previously reserved for Russian oil companies only. Dudley said it sends a “strong signal about the possibilities of investment cooperation in Russia.”
Meanwhile, BP Russia’s president Jeremy Huck said on Ekho Moskvy: “The projects we’re planning with Rosneft are sanctioned by the Russian government. The question about where those assets are from, that’s better asked of Rosneft or the government.” That’s called burying one’s corporate head and corporate ethics in the sand.
Some say Rosneft’s actions are likely to scare off Western investors, depriving Russia of Western investment capital that it desperately needs. Shareholders and investors have no guarantee of the security of Rosneft’s ethics and ownership. Yukos has more than 55,000 shareholders, more than 50,000 of whom are Russian. They are still waiting for answers.
The truth has not changed one iota after BP’s investment in Rosneft. BP is calling its own business ethics into question. How will the international finance community now start treating BP once it has become clear that BP is participating in a form of money laundering of Rosneft’s stolen assets? Many BP shareholders have already answered this question, showing their understandble concern about Rosneft’s reputation and the fact that BP sold itself out in terms of the company’s reputation and its stated commitment to corporate governance and transparency.
Bruce Misamore is former chief financial officer of Yukos.
Yukos International Gets Access to 2006 Refinery Sale Proceeds
Bloomberg
By Martijn van der Starre
7 January 2011
The Dutch Supreme Court lifted the freeze on $1.2 billion of proceeds from the 2006 sale of a refinery by a former Dutch unit of OAO Yukos Oil Co., once Russia’s largest oil producer.
Yukos International UK BV “isn’t prohibited to dispose of the proceeds,” The Hague-based court said today in a statement on its website. It overturned prior rulings by the Court of Appeal and the District Court in Amsterdam.
OOO Promneftstroy, an investment vehicle controlled by U.S. businessman Stephen Lynch, agreed to buy the legal entity that held all Yukos International shares in 2007. That transaction was later canceled by a Dutch court, so there is no legal ground for Promneftstroy’s argument Yukos International isn’t allowed to claim the money, the Supreme Court said.
“This ruling is another positive step toward the ultimate resolution of the false ownership claims of Promneftstroy,” Bruce Misamore, Yukos Oil Co.’s former finance chief, said in an e-mailed statement after the ruling. “Yukos International UK BV directors are committed to ensuring that stakeholders damaged by the illegal expropriation of Russia’s most successful oil company can someday benefit from the distribution of funds commensurate to their investment.” ...
Russia: Laws do exist but enforcement is patchy
Financial Times
By Charles Clover
6 October 2010
Valued almost any way, Russian companies are cheap – their shares, on average, trade at about seven times earnings, compared with 13 for Brazil, 15 for China, and 20 for India.
But before running out to load up on Russian shares, one should ask why.
Brokers and analysts almost in unison say the country’s notoriously politicised and malfunctioning legal system, along with the perception that investors are vulnerable to powerful local interests are, in a sense, priced into the stock market.
Yukos Finance in Amsterdam Court of Appeal Hearing
9 September 2010
The Court of Appeal in Amsterdam today heard an appeal by the former Russian appointed state administrator of Yukos, Eduard Rebgun, against Yukos Finance BV and Yukos International. The Russian oil company Promneftstroy was also present at the hearing, as an interested party.
Rebgun was appealing against the District Court’s ruling of 31 October 2007 that the Russian bankruptcy order, in which Rebgun was appointed receiver in the bankruptcy of Yukos, was effected in a manner not in accordance with the Dutch principles of due order of process and was thus in violation of Dutch public order.
The hearing lasted 8.5 hours.
It is likely that a decision will be handed down by the three appeal judges in early 2011.
Let’s Get Privatization Right This Time Around
The Moscow Times
By Anders Aslund
18 August 2010
At a conference in Cambridge, Massachusetts, in February 1992, I and a few other advisers to Russia’s young reform government discussed how to pursue privatization in the country. The main goal of privatization was to build a market economy, and the destructive asset stripping by state enterprise managers had to be stopped.
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Ex-tax director questioned in Yukos case
Financial Times
By Catherine Belton in Moscow
12 August 2010
Russian prosecutors summoned for questioning a former tax director at PricewaterhouseCoopers just minutes after he spoke as a key witness for the defence in the second trial against Mikhail Khodorkovsky, the Yukos oil tycoon.
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