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Published On: Thu, Jul 31st, 2014

Hague arbitration panel ruled Russia has to pay Yucos shareholders for assets expropriation

The Hague arbitration court ruled Russia is to pay $50.02 billion to Yucos shareholders, and although Russian Finance Ministry seeks to appeal, there is little chance it will succeed. 

Yucos shareholders are expected to chase Russian assets abroad.

The Hague arbitration panel ruling on the Yucos case stated Russia has to pay the Yucos shareholders group $50.02 billion for their assets expropriation, a huge amount for the country struggling on the verge of recession. That was less than half of the shareholders claim amounting to $114 billion. The ruling cannot be disputed.

Russia Finance Ministry accused the court of political bias and insisted it would appeal. Russia pointed that the arbitration court ignored Yucos tax violations. But there is not much ground for appealing. The panel stated Russia’s authorities led to Yucos bankruptcy by manipulating the legal system, attacking it to lead it to destruction in order to appropriate its assets.

The decision came in a situation of a formidable standoff on account of Moscow’s actions undertaken in Ukraine, international sanctions over Russia’s role in Ukraine, and in addition over the downing of the Malaysian MH17 flight in eastern Ukraine.

The country’s economic growth is slowing down. Russia’s long-term financial stability will be affected and its ratings will be revised by rating agencies. In the wake of the decision, Russian stocks were hit, and the Russian RTS index declined by 3.1 percent in morning trade.

Now GML (Group Menatep’s successor) may have difficulty claiming the money from Russia, and that is why the outcome is doubtful. Ultimately Yucos shareholders are expected to chase Russian assets abroad, a tedious and not rewarding task.

The compensation has to be paid to GML, as Group Menatep was a company used by former Russian tycoon Khodorkovsky to control Yukos. Khodorkovsky no longer has shares in either GML, or Yucos. Former Russian President’s advisor Andrei Illarionov said non-payment would entail asset arrests globally. According to a Macro-Advisory consultancy senior partner Chris Weafer, GML may target Russia’s energy export revenues.

Kremlin’s lawyers are to work on ways of appealing the ruling. But an appeal would entail a new arbitration procedure and it would be mandatory for both parties. Prof. Russia would probably challenge the enforcement in national courts around the world, but such appealing would be a prolonged and difficulty-fraught process.

The claimed amounts will be shared by the stockholders. The largest owner, who has a stake of about 70 percent, is Russian-born. His name is Leonid Nevzlin and he escaped to Israel in order to avoid prosecution. After being jailed in 2003 and convicted two years later of tax evasion and theft, Khodorkovsky gave up his controlling interest, between 60 and 70 percent in Yukos, to Nevzlin. Khodorkovsky said he welcomed the chances for former Menatep shareholders to recover damages, but added he himself was not going to seek financial benefits. The tycoon was pardoned by President Putin in December, after 10 years in jail, and has been living in Switzerland.

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