Coverage of issues surrounding expropriation of business by the Russian state

Yukos Oil Company and Russian Expropriation

Yukos Oil Company was formed in 1993. Yukos had quickly become an internationally respected and highly successful company and during 1998-2005 it consistently ranked among the 10 largest companies in Russia. Yukos was also known for its high levels of transparency and corporate governance. Its market capitalisation grew from US$320 million in 1999 to US$21 billion in 2003, peaking in March 2004 at US$36 billion.

Unfortunately this success seemingly sowed the seeds of the company’s eventual downfall, and became a target of Russian expropriation. The Russian authorities decided to take control over what was now thought to be a strategic asset. They began a campaign of state expropriation, which started from accusations of tax fraud. On 25 October 2003 in Novosibirsk, the FSB commandos stormed the plane of the company’s CEO Mikhail Khodorkovsky and arrested him.

Ultimately, as a result of unjustified tax allocations, selective and unauthorized use of freezing orders, fake auctions and sale of Yuganskneftegaz, the company’s main production unit was made bankrupt in accordance with the Russian legislation. Its remaining Russian assets were sold in auctions, where the main buyer was the state company Rosneft. In the end, in October 2007, in accordance with the Russian laws, the Yukos company was dismantled and removed from the register of Russian companies.

To this day, the former directors and shareholders of the company continue to take their fight for justice outside Russia. Historic legal cases are now being fought in the European Court of Human Rights, the USA, the Netherlands, Armenia and arbitration tribunals in Europe.

The Yukos case has become the most prominent example of politically motivated state expropriation in modern Russia and it proves the fact that in Russia there is no rule of law, as the Kremlin and state-owned companies have means to influence Russian courts and in many cases control the decision making process. This case set off the massive trend of Russian expropriation as it send out a strong signal to the Russian law enforcement officers and officials that expropriation is acceptable at all levels of Russian business and you will not be punished for it. As the former directors and shareholders of Yukos continue to fight for justice in the courts, the Yukos affair remains a pivotal point in the history of Russian expropriation.