The Yukos Case: An Old Russian Wrong Keeps Haunting President Putin

It is not everyday that a single legal dispute becomes a turning point in a country’s history, or perhaps a determining factor in how a regime transforms itself into an authoritarian kleptocracy. Yet one event in Russia during the early 2000s fell into this category: the dispute between the Russian state and Yukos, an oil and gas company. The case marked the rise of the newly elected Russian President Vladimir Putin’s regime, and heralded much of what would become the hallmark of Putin’s rule.

The Yukos example became a by-word for what happens to those who dare to challenge Putin’s regime. Not long after his ascendancy to power in December 1999, Putin introduced a new set of rules for oligarchs, the handful of super-rich born from the ashes of the Soviet Union who made their fortunes during former President Boris Yeltsin’s dodgy privatisation reforms of the 1990s.

Putin’s message quickly became curt and clear: as long as the oligarch’s interests remain subjugated to those of the regime, their fortunes would remain untouched, and they would be allowed to continue to accumulate wealth. But those who oppose Putin or his political priorities would be destroyed. 

Mikhail Khodorkovsky, the oligarch who controlled Yukos and who was once Russia’s richest man, fell into the second category: he did not quite abide by the new Kremlin rules, openly criticised Putin and began funding opposition parties. Retribution was swift. Arrested at an airport in Siberia in 2003, Khodorkovsky received a nine-year jail term on charges of embezzlement and tax fraud. Following the conclusion of his first Kafkaesque trial, Yukos was broken up and its main assets were acquired by a shady Russian company, Baikalfinansgrup, and later absorbed by a state-owned enterprise, Rosneft. What did remain of Yukos as an entity was ultimately forced into bankruptcy in 2006. This signified not only a turning point in Russia’s brief dalliance with the market economy; the destruction of Yukos also dashed any hope that the Putin regime may promote democratisation or transparency in Russia. 

Since then, Yukos’ shareholders have been embroiled in a 15-year legal battle against the Russian state. They claimed that the breakup of Yukos violated the Energy Charter Treaty that Russia signed in 1994, but Moscow never ratified. Recently, they scored a great victory: the Hague District Court had reinstated an order from an international arbitration panel, which ruled that Russia should pay $50 billion in compensation to former Yukos shareholders. Despite this, it is highly unlikely that Yukos shareholders will ever receive their compensation from the Russian state. They had, in fact, already won $2.6 billion in damages at the European Court of Human Rights (ECHR) – a victory which Russia has not respected.

In 2015, the Russian Constitutional Court was granted a mandate to nullify international judgments if it rules these in contradiction to the Constitution of the Russian Federation. In essence, Russia has seized for itself the powers to refuse international court rulings whenever these are deemed inconvenient. 

Russia’s assault on legality continues. In January 2020, Putin proposed new constitutional amendments, which would pave a way for him to remain in power after 2024. More recently, members of the Russian parliament voted to pass a proposal which would allow him to remove the current provisions and run for another two terms after this date. But these proposed reforms – which will be subject to the approval of Russian voters in a referendum next month – further enshrine the idea that Russia can veto the implementation of international rulings in its domestic legislation. This principle is held dear by Putin.

The proposed amendments aim to formalise Russia’s avoidance of international obligations. This goes much further than upholding property rights; it also gives Russia powers to ignore future rulings by the ECHR, where Russia tops the league with the highest number of suits filed against the state. 

As party to the Vienna Convention on the Law of Treaties, the Russian government cannot shirk its legal obligation to implement decisions made by international adjudicating bodies or tribunals. Yet, given its track record of systematic violation of international law in Georgia and Ukraine, as well as the destruction of the legal protection of Russia’s own citizens, Putin’s dismissal of the Yukos ruling was expected. 

Still, Yukos’ shareholders, who still hope to find justice abroad, have done us all a favour: they have reminded us of how distant Russia remains from being a proper law-and-order state.

The views expressed in this Commentary are the author’s, and do not represent those of RUSI or any other institution.