Russia Is Fighting A $50 Billion Payout In A U.S. Court

The Russian government is waking up to the reality of having to hand over $50 billion worth of assets to the former shareholders of oil giant Yukos, according to details that emerged in a U.S. court this week.

Russia has found itself on the defensive following a journey through the international courts that has, up to this point, ruled in favor of the shareholders, who claim they suffered an “unlawful expropriation of their investment.”

The long-running dispute dates back to the early years of Vladimir Putin’s presidency, and his battles with Russia’s then-richest man Mikhail Khodorkovsky over his biggest asset, Yukos Oil. In August 2006, a Russian court declared Yukos bankrupt following a three-year battle over an unpaid tax bill. State-backed Rosneft, Yukos’ biggest creditor, took control, marking the start of a global courtroom melodrama that has now arrived in the U.S.

Now, following a series of rulings that have gone both ways, in February the Hague Court of Appeal in the Netherlands reinstated a 2014 decision to award former shareholders $50 billion, overturning a decision in 2016 from the Hague district court (in favor of Russia) to set the awards aside.

On Monday, the Russian Federation filed a request to the U.S. District Court for the District of Columbia to extend the stay of related litigation filed in America, and to protect their assets, until their latest appeal has been heard by a Dutch court.

Washington, D.C., has become an unlikely new front for this quintessentially Russian dispute because the Yukos shareholders are applying to resume enforcement of the ruling in the U.S. following the The Hague Court of Appeal’s decision in February. If successful, the former shareholders of Yukos can resume efforts to seize Russian state assets in the U.S. to help satisfy the $50 billion award.

In May, the former shareholders celebrated their first victory in the grab for the $50 billion (which is now reported to have climbed to $57 billion after additional penalty fees) after winning a court battle for the trademark rights to two well-known vodka brands—Stolichnaya and Moskovskaya—from the Russian government.

Tim Osborne, chief executive of GML Limited, the former shareholders’ new holding company, said: “As long as the Russian Federation defies the international courts that have found it liable, we will seize Russian state assets in accordance with the law. The attachment of the trademarks in The Netherlands is just the start.”

In court this week Russia is fighting the potential loss of more assets, demanding that the seizures stop at least until “the ultimate outcome of the Dutch proceedings” is determined. Describing the current legal position as “unknown and uncertain,” Russia says the February 2020 Dutch judgment relies on “multiple unprecedented legal conclusions” and is subject to review by the Dutch Supreme Court.

A spokesperson for GML, the former Yukos majority shareholders, would only tell Forbes, “We are preparing our response, and will submit it to the court on 8 July.”

Russia has repeatedly disputed the authority of international courts over its domestic industries. In 2017 Russia’s Constitutional Court rejected a separate decision from the European Court of Human Rights (the ECHR) over a €1.866 billion ($2.9 billion) compensation payment for former Yukos management, claiming the case violates the Russian Constitution and cannot be enforced. Putin has repeatedly proposed amending the constitution to give Russian law precedence over international obligations.

The Russian Embassy in London has not replied to a request for comment.

Putin’s War

The battle is the latest, and potentially final, chapter in the dispute between Putin and Khodorkovsky, who took control of Yukos in 1996 for a sum said to be just over $300 million. Yukos’ journey to becoming a state asset began after the controversial tycoon was accused of tax evasion and theft and was jailed in 2004.

The dispute between Putin and Khodorkovsky began in 2003, after Khodorkovsky famously argued with Putin at a televised meeting at the Kremlin, implying that major government officials were accepting millions in bribes.

Having been arrested on the tarmac of an airport runway, Khodorkovsky was accused of tax evasion, embezzlement and fraud. In 2004 he appeared in court and in 2005 was found guilty on six of seven charges and was sentenced to eight years in jail. In December 2010, just before he was due to be released, Khodorkovsky was convicted of embezzling more than 200 million tons of oil and laundering the proceeds, adding to his sentence.

However, The Hague ruled in 2014 that “Russian courts bent to the will of Russian executive authorities to bankrupt Yukos, assign its assets to a state-controlled company [Rosneft] and incarcerate a man [Mikhail Khodorkovsky] who gave signs of becoming a political competitor.” Although of no known financial benefit to Khodorkovsky, the ruling has thrust Putin’s war for Yukos and Russian oil onto a global stage. 

Putin Vs. Oligarchs—The Final Chapter?

Since 2005, the fight over Yukos has been led by Khodorkovsky’s onetime partner Leonid Nevzlin, who said in February, following the ruling, “We are ready for war . . . We can now begin a full-scale seizure of assets that are recognized as the property of the Russian state.”

Nevzlin has the most to gain, since he owns about 70% of GML, according to Reuters. (According to the former Yukos majority shareholders, Khodorkovsky relinquished his shares in 2005 in an alleged effort to save the company from being taken over.)  After The Hague’s original decision in 2014, Nevzlin told Russia’s opposition TV channel, Dozhd, “My attitude [toward the ruling] is complete satisfaction.” He added, “Fifty billion dollars isn’t so much money for Russia that it can’t pay.”

This week, in the D.C. court, the Russian government argued that the “risk” that Russian assets seized by the former Yukos shareholders never being returned to the government if the Dutch Supreme Court overturns the $50 billion award is “exacerbated” by what they describe as “the Russian Oligarchs’ money-laundering activities,” seeming to suggest that the former Yukos shareholders are well versed in hiding assets once they have acquired them, making them impossible to be reclaimed.

Politically speaking, Putin is widely considered to have won his battle with Khodorkovsky, Russia’s richest tycoon back in the early 2000s. When Khodorkovsky was released from prison in December 2013, as the 2014 Sochi Olympics approached and a deeper controversy in Ukraine loomed large, the former billionaire was largely considered a spent force.

However, in this very Russian game of thrones, circumstances have changed. Putin is facing a period of public unpopularity over his handling of the coronavirus pandemic, which has also forced his attempt to change Russia’s constitution, allowing him another two terms in office, to be delayed.

Khodorkovsky, on the other hand, has emerged as a public figure popular with much of Russia’s opposition to Putin.

Khodorkovsky, who claimed in a recent documentary to have a net worth of around $400 million, has become an active participant in the global debate on Russia. According to documents posted by the site foreignlobby.com, Khodorkovsky has hired Anna Veduta, a former aide to Russian opposition politician Alexei Navalny, as a U.S. lobbyist.

In an effort to keep U.S. lawmakers up to date on Russia, Veduta told foreignlobby.com: “In my new role the goal is informing the American public about the autocratic and corrupt Putin regime’s actions at home and abroad (including human rights violations). Efforts to share information in the U.S. that involve contact with state officials require registration—especially when any Russian-speaking person in Washington, D.C., is viewed as a potential spy.”

Khodorkovsky remains a thorn in Putin’s side.  Putin’s legacy as the man who beat the billionaires has at least one final chapter—with $50 billion on the line.