European court to rule on Yukos vs. Russia

AP News
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Posted: Sep 19, 2011 3:09 PM
European court to rule on Yukos vs. Russia

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 euro16 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.