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Muddy waters in the #Yukos case




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mikhail-khodorkovsky-i12Rarely does a normally tedious international arbitration case rise to cult status and become shorthand for the ills of an entire country. But such was the destiny of the Yukos case, which involved the alleged illegal, politically motivated appropriation of Russia’s largest oil company by the Russian state and the subsequent jailing of its owner and chairman, Mikhail Khodorkovsky (pictured), writes Henry St George.

Since its start in 2005, the legal drama has captured and polarized legal experts, political watchers and the general public alike, who have pored over the byzantine set of rules and incidents that led to a court in the Hague to award the company’s shareholders a record-breaking $50 billion in 2014.

Labeled by many in the West as political victims of the Putin regime, former Yukos shareholders launched a slew of suits, trying to recover their lost assets by asking courts in several jurisdictions to freeze Russian assets. But this feeding frenzy didn’t last long. Earlier this year, a Dutch court delivered a surprising reversal of fortunes when it quashed the 2014 award, overturning the decision over procedural grounds. The Permanent Court of Arbitration ruled that it lacked jurisdiction to hear the case because it was brought under the Energy Charter Treaty, which has never been ratified by Russia.

And in late November, the Appeals Court of Paris dealt another blow to Yukos shareholders after it decided to unfreeze several assets of the Russian state that had been put aside as part of the $50 billion award. With the suit falling apart, hopes are rising that the 22-yearlong saga will finally come to an end, silencing the noise and misinformation that has accompanied Khodorkovsky and his clique. 

Beyond its procedural aspects, which are mainly of interest to a select class of legal insiders, what is most perplexing about the Yukos case is the overnight metamorphosis of one of Russia’s most fearsome oligarchs and powerbrokers into a human rights champion of a stature not seen since the days of Andrei Sakharov and Alexandr Solzhenitsyn. 

This is not cheap hyperbole – many hoped Khodorkovsky would win the Nobel Peace Prize in 2011 for his courageous opposition to lawlessness and corruption in Russia. But what is the Yukos founder, if not a product of those very same conditions? His rise to greatness was littered with corruption accusations, venal behavior and even murder. And while he is now bemoaning Russia’s failed transition to democracy from the comfort of his London home, the stark disconnect between his words and his past actions is just too great to simply sweep under the rug.

It’s worth remembering that before Khodorkovsky was sent to prison for fraud, embezzlement and money laundering, thus being anointed by Western groups as a “prisoner of conscience”, he was the embodiment of the corrupt Russian state of the early 1990s. A former member of the Komsomol (the All-Union Leninist Young Communist League), the future Yukos founder rose to prominence after his Bank Menatep propped up the cash-strapped government of Boris Yeltsin, thereby landing a front-row seat during the privatization of state-owned assets. Menatep went on to buy Yukos, one of the biggest oil companies, for a pitiful $300. As the New York Times documented in 1996, “Foreign investors were barred from bidding for the most desirable assets, and the same banks that were assigned by the Government to organize the auctions ended up winning them, and usually at only a fraction over the minimum bid.”


With Yukos in the bag, Khodorkovsky’s stature and influence in Russian state affairs began to grow. As early as 1999, Khodorkovsky was being investigated by Russian securities regulators for using offshore entities to illegally evade paying taxes in the country. U.S authorities also caught on to the web of corruption that was spun by Yukos and started investigating the company for money laundering to the tune of $10 billion – the biggest such case in American history. At the time, the case raised questions about Western institutions’  susceptibility to the enablement of corrupt activities: a senior Vice President of the Bank of New York used by Khodorkovsky for his dealings was married to the vice chairman of Yukos. 

But perhaps the most egregious string of accusations that should have dampened the West’s sanctification of Khodorkovsky is the trail of dead bodies left behind by individuals associated with Yukos. The mayor of Siberian oil capital Nefteyugansk, Vladimir Petukhov, was executed mob-style in 1998 by a local criminal syndicate with ties to Alexei Pichugin, the company’s chief security officer, and Leonid Nevzelin, a major Yukos shareholder. Pichugin was also charged and convicted for asking an associate, Sergei Gorin, to set up a failed contract killing of Olga Kostina, an employee of Group Menatep. The prosecution found Pichugin had Gorin and his wife killed, after the latter threatened to expose the plot to the authorities. 

A separate court case found that Pichugin was acting on the orders of Nevzelin, and in 2015, Khodorkovsky was also connected to the killings. On top of that, the Yukos owner was charged with the attempted killing of businessman Yevgeny Rybin in 1999. It seems that Petukhov was targeted because he had been trying to recover unpaid taxes Yukos owed the state.

Not even company employees were safe. Stephen Curtis, a millionaire British lawyer who created the complex tax haven structure meant to shield Yukos’ assets from the taxman, died in a freak helicopter accident. At the time of his death, Curtis was the only director of the company that controlled 50% of Yukos and was entrusted with managing Khodorkovsky’s assets while the latter was serving his 9-year sentence for fraud and embezzlement. 

While it is not for us to dispense justice – we can leave that to the courts - the circumstances surrounding Yukos’ rise and fall fail the stink test. With so many lives destroyed by the savage Russian capitalism of the 1990s at the hand of a motley group of self-serving oligarchs, the elevation of Khodorkovsky to his current victim status should therefore be taken with a grain of salt. After all, he who lives by the sword, dies by the sword.

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