The Paralysis and Destruction of Yukos
Freezing of Assets
On 15 April 2004 the tax authorities requested that the Moscow City Commercial Court prohibit Yukos from disposing of its assets, as security against the reassessed tax debt. The court complied the very same day, ordering that all of Yukos’ assets be frozen.
The assets in question were at this point worth more than ten times the value of the tax debt. However, the freezing order made it impossible for Yukos to pay and started the process of commercial paralysis which would lead to its destruction.
In response, Yukos again filed an official objection, and a court hearing was finally set for 21 May 2004.
To prepare for the hearing, and as a part of the usual, expected pre-trial process, Yukos’ lawyers asked to see the evidence the tax authorities would be presenting. These requests were ignored until 17 May, four days before the trial, when the tax authorities finally relented. Yukos was told, however, that the Tax Ministry would not make the papers available outside their offices. The Yukos lawyers therefore visited the Ministry building itself.
Once there, they discovered that the material which they could inspect (and from which the evidence had in fact been selected) consisted of about 100,000 pages of documents. The documents were not in order, carried no page numbers, and were stashed in approximately 60 large cardboard crates that had previously been used to transport cucumbers. The whole mess was crammed into a small, windowless office, with boxes balanced on chairs and a single dilapidated table. The Yukos legal team could barely fit in the room. Making sense of the material was impossible.
Despite protests at this obvious disadvantage, the hearing went ahead as planned. To no one’s surprise, after cutting Yukos’ lawyers’ submissions short, the court upheld the previous decisions. The enormous tax bill remained, as did the court-imposed freezing of assets.
Throughout this period, Yukos was working to pay off the tax debt as best it could, by utilising all its available income streams. This decision was simply following best business practise: show good faith in attempting to pay the tax bill, but follow the rule of law in assuming that the business will be refunded what it has paid upon a successful hearing in court. The company made notable progress, and had almost paid off an amount equivalent to the 2000 assessment. However, events initiated by the Russian authorities again conspired against them.