Moscow Carnegie Center publishes article by Valery Zinchenko about effect of arrest of property in "YUKOS case". 24 June 2016

After the end of the First Cold War overcoming of economic disintegration became one of the main issues in relations between Russia and the West. Russia had already been a serious energy power then, so both sides spent a lot of time on energy safety and minimization of investments and energy trade risks. As a result, so far as in 1994 Russia signed a Treaty to the Energy Charter. Hardly anyone could presume then that twenty years later that peaceful gesture would cause material inconveniences proportionate to the victorious Sochi Olympiad budget. And those inconveniences would attract attention and strength of the world leading lawyers of our planet for many years.

Big Proceedings Mistake

Problems started in February 2005 , several months before the announcement of the verdict on the first "Khodorkovsky case" when share-holders of the YUKOS company from the isles of Cyprus and Man applied to the Permanent Court of Arbitration in The Hague in order to protect their rights infringed by expropriation by Russia of the YUKOS assets. That was, unfortunately to Russia, directly prohibited by Clause 13 of the Energy Charter.

Plaintiff's interests were represented by Shearman & Sterling, one of the world' best international legal arbitration companies, while Russia - by two renowned international companies: Cleary Gottlieb and Baker Boots. Financial markets have always been the strong point of the first one, and the second one is known for its international lobbying opportunities supported by its partner, the former State Secretary and twice the Head of the White House Office during the presidency of Reagan and Bush the Senior, James Baker.

The leadership of Russia must have expected a bright synergetic-legal effect from recruiting companies of such different specialization. Alas. On getting a lawsuit representatives of Russia immanently agreed that controversies could be settled in The Hague Tribunal. Moreover, they directly participated in the selection of arbitrators and that obviously expressed Russia's consent with the appropriate jurisdiction of the dispute.

It must have really been a big proceedings mistake. Had the defendant's lawyers not agreed to The Hague, the dispute may have happened in some other place with different result.

Only after those unambiguous actions did the Russian lawyers begin to insist that the dispute could not be resolved in The Hague Arbitration Court. And they remembered that Russia had just signed but not ratified the Energy Charter and not passed an act approving application of the treaty to the Charter. Consequently , as the lawyers claimed, The Hague Court settled by the Treaty to the Energy Charter was absolutely invalid.

 But, too late and vainly. The Court concluded that before the notification about Russia's intention not to become the party in the Treaty to the Energy Charter was sent to depositary, Russia had already been the one and,consequently, investments into the power industry made before had to be under international protection. That is why the Court in 2009 made an intermediate decision confirming jurisdiction of the dispute and went over to consideration of the case in ernest.

Who Is In The Black List

 All in all the court examination lasted almost for ten years. In summer 2014 all the claims of the three YUKOS share-holders were satisfied. The main conclusion of The Hague Tribunal (and it can be really made out of the seven-hundred-page decision) is simple: the principal goal of Russia was not to collect taxes, but to make YUKOS a bankrupt and get possession of its assets. The expropriation cost is $50 bln.

Last autumn victorious share-holders started vigorous actions in order to fulfil the Hague decisions in different countries. France was the first. In the course of realisation of the High Court of Paris decisions the French bailiffs began to carry out The Hague verdict. As a result, the accounts of the Russian companies and diplomatic representatives were frozen. Later a part of the accounts were released, but some companies' money are still under arrest, and the property of several representatives of Russia remains at risk.

In spring 2015 representatives of the YUKOS share-holders announced that alike France they had already appealed to the courts of Great Britain and the USA. Similar lawsuits are about to be brought to the courts of the Netherlands and Belgium.

It became known on the 7th of June that also in Belgium Russian establishments had received warrants for the arrest of property of the Russian Federation at their disposal. Organizations mentioned in the bailiff's list had to declare money and property of Russia in their possession within two weeks.

According to some sources, even big Russian banks registered in Belgium, organization "Eurocontrol" which regulates airspace traffic over Europe and also all Russian missions except those protected by diplomatic immunity, are on the black list.

Even Archbishoprics of Brussels and Belgium of the Russian Orthodox Church received specific letters of happiness.

Prospects Of Real Losses

Russian mass media was quick to announce the beginning of a new round in the YUKOS share-holder crisis. Emerged the sinister word "arrest". Actually, all those actions can be regarded so far only as a preparation for more vigorous movements. Arrest of property does not always necessarily mean its use for recovery of debts. Often arrests are subjected to grounded claims and called off by the court decision. Moreover, a widely-spread opinion that all Russian belongings in Europe and the US will be put under arrest is nothing but a delusion. In our case recovery can be directed only to the property which one hundred per cent belongs to Russia and is used for commercial purposes. Bailiffs may not be able to have a picnic.

Thorough work taking aim at revealing property of Russia is already under way. And it may last for a long time. But, there is hardly any country which is able to find property of Russia estimated at $50 bln. So, gathering property of Russia by small pieces all over the world is a hard task. Then, I don't think that Russia will be patiently watching teams of professionals in different countries searching for what can be arrested and subjected to recovery claims. In return, Russia may use various legal tricks in order to protect its property and withdraw it from the risk zone.

Proceeding from the policy of Russia in similar cases we may expect that representatives will be sent to each country to dispute actions of the former YUKOS share-holders to execute The Hague Arbitrary decisions. It is well-known that legal proceedings of that kind flow slowly and may last for years and even dozens of years. The YUKOS "trial of the century" in The Hague is a good example of it. This time it is important not to get into excessive proceedings self-confidence and to appoint proper lawyers.