In an appeal following arbitration proceedings in The Hague, Russia argued the case is an internal tax dispute and is not covered by an international energy investment treaty.
THE HAGUE, Netherlands (CN) — The Russian Federation faced off against former shareholders of oil giant Yukos on Friday in the latest chapter of a 15-year legal saga over the government’s taking of shares.
Before the Dutch Supreme Court, lawyers for Yukos argued that the government illegally confiscated the shareholders’ holdings in the company. Russia countered that the shares were obtained in sham auctions and by paying bribes.
Last year, the Hague Court of Appeals ordered Russia to pay $50 billion to the former shareholders. It reinstated a decision by the Permanent Court of Arbitration, an international dispute resolution body, which found in 2014 that the Russian government did not act in good faith when it brought tax fraud charges against Yukos executives in 2003. That decision had been overruled by a lower Dutch court in 2016.
“Goods obtained by corruption require no protection,” lawyer Remme Verkerk of Houthoff argued Friday on behalf of Russia.
Moscow contends that when Russia-based Yukos was privatized in the 1990s, its shares were obtained in fraudulent actions. The Russian government accused the former oil and gas executives of abusing regulations that encouraged development in remote areas of Russia to avoid paying taxes.
A month before the Dutch appeals court ruling, the European Court of Human Rights found that Russia did not give fair trials to Yukos executives Mikhail Khodorkovskiy and Platon Lebede, who each spent a decade in a Siberian prison camp for tax evasion and fraud.
Before his arrest in 2003, Khodorkovsky was the richest man in Russia and the arrest was widely seen as a political maneuver by Russian President Vladimir Putin to consolidate power.
Holding company GML, which represented the majority of Yukos shareholders, brought the case to the Permanent Court of Arbitration in 2005. It argued that Russia had violated the Energy Charter Treaty, an international investment agreement for the energy sector, by forcibly bankrupting Yukos through exorbitant tax assessments.
Russia contends that the treaty doesn’t apply to this case as it covers foreign investments.
“This is an internal tax dispute,” Russia’s Deputy Minister of Justice Mikhail Galperin said Friday.
The Yukos shareholders were all headquartered outside of Russia, though earlier in the hearing Verkerk called the entities “sham companies.”
“They aren’t even letterbox companies,” he said, “because they don’t even have letterboxes.”
Yukos’ lawyer Tobias Cohen Jehoram pushed back, saying the shareholders “are normal, legitimate holding companies.” He said Russia’s allegations that Yukos had engaged in fraud were “baseless and moreover irrelevant.”
Friday’s hearing comes days after Russian opposition leader Alexei Navalny was sentenced to nearly three years in prison for alleged parole violations. Khodorkovsky, who now lives in exile in London, said in an interview with Bloomberg this week that Putin “didn’t have a good way out of the situation.” Navalny’s arrest following his return from Germany, where he was in a coma after being poisoned by Russian security forces, has sparked widespread protests across the country.
Even if they are ultimately successful before Dutch Supreme Court, the Yukos shareholders will have a difficult time ever recovering their investment. Following the appeals court decision, GML tried to claim compensation from the Russian government in Belgium and France but has been repeatedly blocked by national authorities. A case over Russian assets in the U.S. is on hold until the Dutch case is decided.
The Netherlands high court is expected to issue a decision later this year.