A court in the Hague has quashed a $50 billion
judgment against the Russian state. But President Putin's enemies from the
Yukos affair aren't giving up anytime soon
In the summer of 2014, an international court of arbitration
based in the Dutch city of the Hague issued an astounding ruling. The court
ordered the government of Russia to pay $50 billion in damages to former
shareholders of the Yukos oil company, which the Russian state had forced into
bankruptcy, chopped into pieces and sold off to state-run firms in the
mid-2000s. That legal assault had amounted to expropriation, according to the
court’s decision at the time, by far the biggest the court of arbitration had
ever handed down, and a major blow to Moscow.
Russia appealed to the
District Court in the Hague — but it was clearly worried about the outcome. To
plead its case, the Kremlin hired some of the best lawyers in the world. Its
police had raided homes in Moscow looking for useful evidence. The stakes were high.
If the court had ruled against the Kremlin, bailiffs would be able to continue
seizing Russian state property, from real estate and bank accounts to works of
art, as part of a global hunt to collect the damages.
“Our arguments are
watertight,” Andrei Kondakov, the coordinator of the legal team representing
Russia, told TIME a couple of days before the ruling. “But we could lose.”
Instead, the court on Wednesday handed Russia a
remarkable win. It overturned the original ruling on a technicality, thus granting
Russia’s appeal. “We don’t have to pay a single penny to this bunch of guys,”
Kondakov told reporters after the ruling. Well, at least not until the Yukos
shareholders file another set of appeals, as they’ve already promised to do.
“The court has misapplied
the law,” Tim Osborne, the head of their legal team, said at a press
conference on Wednesday. But even as the fight over the Yukos
fortune continues in the courts, Russia can claim a powerful victory, one that
could help the state win similar challenges to its wealth — and its reputation
— around the world.
Before Wednesday’s
ruling, the Kremlin had been preparing for a much more difficult fight. In
response to the $50 billion judgment in 2014, it refused to pay the damages to
Yukos shareholders, who then retaliated by trying to seize Russian state assets
around the world. Last summer, courts in France and Belgium agreed to freeze dozens of Russian
bank accounts and properties as a means of collecting the debt. Moscow was
furious.
Anything belonging to
the state, with the exception of embassies and other diplomatic property, was
potentially subject to seizure on foreign soil. So Russia had to think twice
about sending planes to foreign air shows, for instance, or lending art to foreign
museums. Russia fought back — after the asset freezes in France and Belgium,
Moscow threatened to retaliate against any country that tried to enforce the
debt to Yukos shareholders. In November, Putin even signed a new law that would allow
his government to carry out tit-for-tat confiscations of foreign assets on
Russian soil.
But for Putin, this saga
is about much more than money. The Yukos affair is a personal
grudge, one that began soon after he came to power in 2000. In one of his first
acts as President, he set out to check the power of the billionaire class of
plutocrats that had effectively bought up control of the country’s economy
during the privatization wave in the 1990s. Putin’s arrival meant the rules of
business would change. During a series of meetings, he told the oligarchs that
they could keep the oil fields, mines and factories they had purchased from the
state on the cheap before he came to power. But they had to recognize Putin’s
authority as standing well above their own.
“He was a black box, no
one knew what was inside,” recalls Sergei Pugachev, the oligarch who helped
arrange the first meeting with Putin. The better to get his message across,
Putin decided to hold that meeting at the former dacha of the Soviet dictator
Josef Stalin. Most of them got the message, Pugachev, who now lives in exile in
London, told TIME in 2014. “‘He took us to Stalin’s dacha,’” he remembers one
of the other guests saying that day. “‘It’s enough that he let us leave.’”
At the time, the
wealthiest among the oligarchs was Mikhail Khodorkovsky, who was worth about
$15 billion. With the help of his connections in the youth league of the Soviet
Communist Party, he had started in business early, selling personal computers
before most Soviet citizens had ever heard of them. As post-Soviet Russia
transitioned to capitalism in the early 1990s, he amassed enough money to start
buying up the choicest oil fields that the nearly bankrupt Russian state could
offer. These formed the basis of the Yukos oil empire — and secured his
position as the most powerful tycoon in the country by the time Putin arrived
in the Kremlin.
When TIME interviewed him in 2014,
Khodorkovsky also recalled that first meeting with Putin, though not quite the
same way that Pugachev does. For one thing, Khodorkovsky was not intimidated.
“Maybe now [Putin] talks in the language of ultimatums. But at the time it was
all very polite,” he told me. “Still, we understood that we were dealing with
the head of the country, who has a lot more authority [in Russia] than the
American President. And we, the big businessmen, may have some powers. But
compared to those of the head of state, they are practically zero.”
Still, the head of Yukos
did not behave as modestly — or as cautiously — as the others. In the years
that followed Putin’s ascent to power, Khodorkovsky began negotiating deals
with foreign companies, including U.S. oil concerns, that would have threatened
the state’s effective monopoly on the export of oil — by far the most valuable
of Russia’s natural resources. He also began funding opposition parties and
discussing an eventual run for the presidency. Putin did not take kindly to
such ambitions.
The conflict between
them came to a head in 2003, when Russian commandos arrested Khodorkovsky on
the tarmac of a Siberian airport and took him to jail to face charges of fraud,
which he denied. His oil company was hit with so many tax claims that it was
forced to enter bankruptcy. Over the next few years, the authorities sold off
Yukos’ most valuable assets and oil fields to state-controlled firms run by
Putin’s close associates.
The question now at the
center of the lawsuits in the Hague is whether that assault on Yukos was legal.
In awarding damages of $50 billion two years ago, the tribunal ruled that the
actions of the Russian state were “equivalent to expropriation” in the Yukos
case. Kondakov, the lawyer representing the Russian state, denies that
Khodorkovsky and his firm were “singled out and targeted” by the authorities.
In the 1990s, many of
the oligarchs became vastly rich through the purchase of state assets, Kondakov
argues. “Everyone got away with those auctions, but then you were given a
chance,” he says by phone from Moscow, referring to the opportunity Putin gave
the oligarchs to start paying their taxes and falling into line. “So it’s not
about others getting away. It’s about how you behave after you’re given a
once-in-a-lifetime, unique chance to acquire a very pricey asset for a very
negligible amount of money.”
But whatever money
Khodorkovsky may have saved in the purchase of his oil wells, he paid for it
dearly in prison. At one point in 2006, his cellmate in a Siberian penal colony tried to stab him in the eye
while he was sleeping. He was often held in solitary confinement and was forced
to work sewing uniforms for the police. Only after 10 years of incarceration,
when Khodorkovsky’s mother was gravely ill, Putin agreed to grant him a pardon
— as long as he went into exile.
It did not take long for
the President to regret that unusual act of clemency. Within a year of his
release in December 2013, Khodorkovsky began openly calling for a revolution
against Putin’s rule. Using the money he had stashed in foreign banks before
his arrest, he also began to support the opposition movement in Russia
and bankroll candidates in Russian elections. With their $50 billion judgment
from the Hague, his former partners in the oil business began chasing Russian
assets around the world. “We are not hiding from anyone,” Kondakov insisted at
the time. “We are not running from any regular operation of the state.”
But the state did step
up its hunt for evidence against Khodorkovsky in Russia. A few days before
Christmas, police raided the offices of his activist
group in Moscow, as well as the homes of his spokeswoman, several of his
employees and their relatives. Investigators said the raids were linked to
another case of “illegal privatization” of assets in the 1990s, this time
involving a fertilizer and mining company.
In some cases, though,
such evidence can be useful in defending Russia against the Yukos shareholders,
says Kondakov. “Those things are done in parallel,” he says when asked about
the apartments raided in December. He was not aware of any useful material
gathered by police in those particular searches. But in fighting the
enforcement of the judgment in the Hague, Russian security services have opened
their troves of documents on Yukos to the government’s lawyers — including the
high-priced American firm White & Case. “We are thankful to both the office
of the procurator general and the Russian Investigative Committee for opening
their files, providing access for our lawyers,” Kondakov tells TIME.
Those files may yet come
in handy. After Wednesday’s ruling in the Hague, the Yukos shareholders pledged
to appeal all the way up to the Dutch Supreme Court, which may yet decide to
uphold the $50 billion in damages. Their race to grab Russian state assets would
then be back on.
Khodorkovsky will be
watching from the sidelines. Soon after his arrest in 2003, he transferred his
stake in the Yukos oil empire to his partners. So he doesn’t have much to gain,
at least financially, from the litigation in the Hague. “Even without me, no
one will give them any peace on this issue,” he told me with a smile soon after
his release. For his part, he plans to continue his crusade against Putin for
as long as it takes to unseat him. “My friends will continue their resistance,”
he wrote on Twitter after Wednesday’s
ruling, referring to the Yukos shareholders. “I’ll keep going for
regime change by other means.”
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