One by one, Mikhail Khodorkovsky’s partners in Yukos Oil Co. fled Russia to escape prosecution as President Vladimir Putin’s agents hunted for their billions.
Now, more than a decade after Khodorkovsky’s arrest kicked off the country’s largest nationalization campaign since the 1917 Bolshevik Revolution, those allies say they’re on the verge of winning international court rulings that would empower them to pursue Russian state assets abroad as payback.
A tribunal of arbitrators at the Permanent Court of Arbitration in The Hague will probably issue a favorable judgment as early as this month in the $103 billion suit that Khodorkovsky’s comrades filed against Russia in 2007 for confiscating what was once the country’s largest oil producer, said Tim Osborne, who heads GML Ltd., Yukos’s former parent company. Another ruling, by the European Court of Human Rights, on a $38 billion claim that would benefit all former shareholders, may also come this year.
The amount GML is seeking is unrivaled and unlikely to be awarded in full, but there’s a good chance of winning some damages because tribunal members have a “heavily pro-claimant” record, said Gus Van Harten, an arbitration expert at York University’s Osgoode Hall Law School in Canada.
There’s “very limited room” for appeal and Russia will resist paying any damages, so any amount awarded would trigger a multiyear race to seize state property, including assets of OAO Rosneft, which acquired most of Yukos in a series of forced auctions, Van Harten said by phone from Toronto. “They’d go around Europe, the U.S., they’d probably hire a specialized firm to track Russian assets and try and get at them.”
Before his arrest on a Siberian runway in October 2003, Khodorkovsky was ranked the seventh ‘‘most-powerful’’ billionaire in the world, ahead of Carlos Slim, according to Forbes. He was convicted of tax evasion and fraud twice and served more than 10 years in prison camps before being pardoned by Putin last December, eight months before the end of his extended sentence. He’s said his prosecution was punishment for funding Putin’s political opponents, a charge Dmitry Peskov, the president’s spokesman, has repeatedly denied.
Khodorkovsky, now 51, moved to Switzerland after his release, joining more than 50 other former Yukos executives who’ve left the country since the government started legal proceedings against the company in the summer of 2003.
After his arrest, Khodorkovsky transferred his 60 percent stake in what is now GML, which in turn owned 60 percent of Yukos, to his deputy, Leonid Nevzlin, so he doesn’t stand to gain financially from any court-ordered awards, according to the former billionaire.
“I know nothing about The Hague,” Khodorkovsky said in a message via Facebook. “If these guys win something and get paid, they won’t owe me anything. I’ll just be happy for them.”
That may not mean Khodorkovsky would walk away empty-handed, according to Stanislav Belkovsky, head of the Institute for National Strategy in Moscow and a former Kremlin adviser.
“Between Putin and Khodorkovsky there is an understanding that he won’t take part directly in any legal process affecting the Kremlin’s interests,” Belkovsky said by phone from the Russian capital. “But that doesn’t mean he isn’t a beneficiary of this process. If they win something, Khodorkovsky will definitely get some of this money.”
The Hague claim falls under the Energy Charter Treaty, an international agreement that in part regulates investments in the energy industry, which Russia signed but never ratified. The court agreed to hear the case in 2009, two years after it was filed. The lead arbitrator, Canadian Yves Fortier, was on a panel that awarded Occidental Petroleum Corp. $1.77 billion in its claim against Ecuador in 2012, the biggest amount by far in an investment treaty case, said Van Harten, the law professor.
Even a partial victory for GML would mark a reversal of fortune for Putin and Rosneft Chief Executive Officer Igor Sechin. The two allies dismissed protests by the U.S. and the European Union to build Rosneft into the world’s largest publicly traded oil producer by output on the back of Yukos after hitting the company with $27 billion in tax claims. It would also add to tensions with the EU and the U.S. at a time when the conflict in Ukraine has sparked the worst standoff since the Cold War.
Russia’s Justice, Foreign and Energy ministries didn’t respond to e-mailed requests for comment on The Hague proceedings. Moscow-based Rosneft, which mentions the potential liabilities it faces from Yukos-related lawsuits in its quarterly reports, declined to comment.
Nevzlin, who inherited Khodorkovsky’s stake after he fled to Israel in 2003, now owns about 70 percent of GML, with the rest split evenly between four other Yukos partners. They are Mikhail Brudno and Vladimir Dubov, both of whom also fled to Israel, Vasily Shakhnovsky, who lives in Switzerland, and Platon Lebedev, who was sentenced alongside Khodorkovsky and was barred from leaving Russia after his release in January.
These five men, whose combined fortunes once exceeded $10 billion, remain multimillionaires even after the destruction of Yukos, thanks to the $2.7 billion in dividends Khodorkovsky paid out for 2002 and for the first nine months of 2003.
Those funds have allowed Shakhnovsky, 56, to enjoy semi-retirement in the Swiss canton of Vaud, where he’s been based after paying $1.8 million in 2003 to avoid jail on charges of tax evasion. At the time, he ran Yukos Moskva, one of the company’s largest units.
Shakhnovsky, who helped the late President Boris Yeltsin get re-elected in 1996, said the thrill of building a $40 billion-plus company in the chaos that followed the collapse of the Soviet Union in 1991 was a once-in-a-lifetime opportunity that makes other possible ventures pale by comparison.
“It’s senseless to compare anything with Yukos,” Shakhnovsky said by Skype in April. “It was a rare chance to participate in a project on such a scale.”
Asked if he’d feel a sense of justice if the tribunal rules in favor of the Yukos diaspora, Shakhnovsky, an electrical engineer by training, said, “We look forward to winning.”
Nevzlin, who invests in Israeli real estate and owns 20 percent of the newspaper Haaretz, declined to comment on Yukos litigation, as did his fellow Israeli exiles Brudno and Dubov, though the latter were keen to talk about their latest venture together: wine.
Brudno and Dubov, who’ve worked with Khodorkovsky since the late 1980s, bought 10 hectares of vineyards near the town of Zichron Yaakov, south of Haifa, in 2008 to try their luck as vintners. In an interview at the former billionaires’ Amphorae winery in February, Brudno said they produced 65,000 bottles of wine last year, with the most expensive going for $70, though they’ve yet to turn a profit.
“Oil is much easier to trade than wine, because the price of wine doesn’t have any connection to its quality,” Brudno said in Amphorae’s dining room, where wine-tasting takes place.
Still, given their Yukos experience, Brudno said the duo has no desire to go back to the business they know best -- oil.
“We already left that river and have no intention of returning,” Brudno said.
Brudno said their main business now is U.S. real estate, particularly mid-range hotels. They already own 10 and are building more in New York, Florida and Illinois.
While former Yukos shareholders have yet to win a single court case, former managers of the company have. A Dutch remnant of Yukos received $425 million from Rosneft in August 2010 after a Dutch court ordered Rosneft to repay money the unit loaned a Russian affiliate before Rosneft acquired it.
And last year, a U.S. court ordered Samaraneftegaz, a former Yukos subsidiary now owned by Rosneft, to pay $186 million to a Luxembourg unit of Yukos. Those funds and another $1.7 billion or so from the sale of other overseas assets are held by two Dutch trusts that Rosneft is seeking control over.
Such persistence has paid off for claimants frustrated by Russia’s refusal to honor court-ordered payments in the past -- while also embarrassing the Kremlin.
Noga Import & Export SA, a Geneva-based trading company, won a series of court rulings in Europe to enforce payment for goods including baby food and pesticides that it supplied to Russia in exchange for oil in 1991 and 1992. Over the course of a decade, Noga won the temporary seizure of Russian assets abroad including fighter jets at the Paris Air Show and Pushkin State Museum artworks on loan in Switzerland over what it claimed were $680 million of debt.
The Hague tribunal will probably award GML “several billion dollars,” according to Dmitry Gololobov, the former head of Yukos’s legal department who now teaches law at the University of Westminster in the U.K.
That would mean years of attempts by Russia to avoid paying and years of headlines as lawyers from both sides battle it out in country after country, according to Yaroslav Moshennikov, a partner at the DLA Piper law firm in Moscow.
“The Yukos case is boldly going where no investment treaty has ever gone,” said Van Harten, the York University professor. “This is going to be a little cottage industry for a whole bunch of lawyers for some years to come.”