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Russia ordered to pay $50 billion over Yukos

Published on NewsOK Modified: July 28, 2014 at 3:05 pm •  Published: July 28, 2014

LONDON (AP) — Russian President Vladimir Putin's government must pay $50 billion for using tax claims to destroy Yukos, once the country's largest oil producer, and its Kremlin-critical CEO, an international court has ruled.

Monday's verdict by the Permanent Court for Arbitration increases the economic and diplomatic isolation of Russia at a time when it faces new, potentially painful sanctions from Western powers.

The court, a body that rules on corporate disputes, said the Russian government owes the money — a huge sum, even for such an oil-rich nation— to the former majority shareholders in Yukos Oil Co.

Moscow vowed to fight the decision, raising the prospect of a new round of legal battles as the shareholders seek to enforce the decision by seizing Russian state-owned assets in 150 countries around the world.

They can attempt to seize any assets used for commercial purposes. That means that while embassies are safe, planes, art, commercial property, gas pipelines and oil rigs are not.

"It's the end of the beginning," said Tim Osborne, executive director of GML, formerly Group Menatep Ltd., whose subsidiaries brought the suit to the court based in The Hague, Netherlands.

The court said Russia had used tax claims to take control of Yukos in 2003 and silence its CEO, Mikhail Khodorkovsky, an opponent of Putin who had begun to use his vast wealth to fund opposition parties challenging Putin's power. Khodorkovsky was arrested at gunpoint as he boarded a plane in Siberia that year and spent more than a decade in prison as Yukos' main assets were sold to a state-owned company. Yukos ultimately went bankrupt.

Monday's ruling, one of the largest commercial arbitration awards in history, adds to Russia's economic problems just as the U.S. and European Union are debating further sanctions against the country because of its support for rebels in eastern Ukraine. Though the country has ample reserves, uncertainty over the impact of the sanctions has seen economic growth forecasts plummet and investors are pulling money out of the country at almost twice the pace as last year.

The court's three-member panel, chaired by Yves Fortier, Canada's former permanent representative to the United Nations, determined Russia was not acting in good faith to collect taxes when it leveled massive claims against Yukos, even though some of the company's tax arrangements might have been questionable.

The state launched "a full assault on Yukos and its beneficial owners in order to bankrupt Yukos and appropriate its assets while, at the same time, removing Mr. Khodorkovsky from the political arena," the court said.

The blunt verdict accusing the Kremlin of giving the go-ahead to crush one of the nation's biggest companies contrasts sharply with earlier cautious rulings from other international courts, which were carefully phrased to avoid blaming the Russian leadership for destroying Yukos.

The dismantling of Yukos and the arrest of Khodorkovsky were a defining moment in Putin's rule.

It was then that his government began to take back control of the country's energy industry and sought to re-assert itself internationally as a force to be reckoned with rather than a crumbling post-communist shell. Putin most recently went on to assert Russia's claims over Crimea, annexing the peninsula on the Black Sea in March, and to offer support to rebels in Ukraine's east.

But the wake-up call for the West began in the early 2000s, when Putin forged a deal with Russian businessmen who had created empires by snapping up the jewels of the Soviet state in oil, gas and chemicals. The Kremlin offered its protection for the oligarchs' often murky deals. In exchange, the tycoons pledged to not meddle in government policy. Khodorkovsky was the only man who broke this rule.

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