Europe court: Russia violated rights of Yukos

AP News
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Posted: Sep 20, 2011 8:56 AM
Europe court: Russia violated rights of Yukos

Russia violated the rights of the now-defunct oil behemoth Yukos, the European Court of Human Rights ruled Tuesday. But the court rejected a contention that the prosecution of Yukos was politically motivated and deferred any ruling on nearly $100 billion in damages.

Russian authorities were unfair in meting out punishment to the company over tax violations and didn't give Yukos enough time to prepare its defense, according to the ruling from the court in Strasbourg, France.

The ruling is open for a months-long appeal process available to both sides.

Yukos sought $98 billion 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 all of Libya _ was dismantled by Russian authorities after the 2003 arrest of its founder and owner, Mikhail Khodorkovsky. His supporters say then-President Vladimir Putin's Kremlin mounted an orchestrated effort to destroy a tycoon seen as a threat to Putin's rule.

Khodorkovsky offered his view on what happened in 2003 in an opinion piece published 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 $40 billion."

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 later on whether to order any damages.

Former Yukos chief executive Steven Theede said in a conference call that it is "premature" to talk about the settlement, but added that he sees nothing to justify "a position to make changes" in the sum of damages they're seeking.

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 trail. The court also found the enforcement proceedings were disproportionate, a ruling that the Russian Justice Ministry said Tuesday was based on "opinions."

The court, however, denied an allegation 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 Russian government's representative at the country's 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, however, said that they consider the ruling to be their win.

The company's former chief financial officer Bruce Misamore said the ruling about political motivation was one of "the least of the concerns," while Theede said the decision that found enforcement procedures to be disproportionate was key because "all of the factors that led to Yukos dismantle 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. But its weight on the investment climate is unlikely to be lasting, analysts say.

Chris Weafer, chief strategist at Moscow-based investment bank Troika Dialog, said in a note to investors Tuesday that a negative ruling "would be a PR nightmare rather than a financial disaster."

"The saving grace is that investors are more focused on more substantive global events, for example, Greece and the Fed meeting, so any knee-jerk negative reaction should be relatively short-lived," he said.

The court has repeatedly found Russia in violation of the 1950 European Convention on Human Rights, and deals with more cases involving Russia than any other country.

The Yukos case was unusually high-profile, and is being watched by investors hungry for profits from Russia's highly lucrative oil industry and other markets but wary of the country's legal system, as well as by Western diplomatic observers and human rights activists.

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 Yukos insolvent in 2006 before the company was finally liquidated a year later. Its most lucrative assets ended up in the hands of the state-run oil company Rosneft.

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.

Misamore said that the management is seeking only compensation, but not the assets that went on to be auctioned to state-owned energy firms.

"There hasn't been any intent to put Yukos back together again from pieces that went to Rosneft or Gazprom," he said.

Among those watching the ruling closely was Jamison Firestone, a principal of the Firestone Duncan international law firm who worked in Russia for 18 years. He supervised lawyer Sergei Magnitsky, who died in jail after accusing Interior Ministry officials of massive tax fraud; investigation of Magnitsky's death has become a litmus test of rule of law in Russia.

"It's mostly a big loss," he said. "Most of their main claims were denied."

Firestone said he was surprised that the court did not find that Yukos had been singled out: "There's no way to say that Yukos was not an exceptional raid."

Tuesday's ruling could make it harder for Yukos to fight its other legal battles, Firestone warned, and also could make other plaintiffs reconsider plans to file claims against the Russian government.

The parties now have three months to appeal the ruling to the court's Grand Chamber, whose decisions are binding on all members of the Council of Europe, the continent's human rights watchdog.

The Council of Europe monitors the execution of the court's judgments, particularly to ensure that payments awarded by the court are paid. In the past, the court's rulings have obliged governments to amend laws and practices.

The court has delayed decisions on damages in other cases in the past.

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Charlton reported from Paris.