Russia is facing a global scramble to have its assets abroad confiscated after an international court ordered it to pay nearly £30bn in damages for a ruthless campaign to destroy the defunct oil giant Yukos.
State-owned property ranging from aircraft to art works loaned to foreign museums could be at risk of seizure after the Permanent Court of Arbitration in The Hague ruled that officials under President Vladimir Putin deliberately set out to bankrupt and nationalise Yukos in the middle of the last decade.
In a swingeing ruling which further isolates Mr Putin on the international stage while the European Union moves to impose further sanctions over the Ukraine crisis, the tribunal found that the Russian state launched a succession of “politically motivated attacks” on the now defunct oil company aimed at its destruction through spurious bankruptcy proceedings.
The Netherlands-based body also ruled that Moscow had subverted the courts to target Mikhail Khodorkovsky, the former majority shareholder of Yukos who was jailed for almost a decade, after it became clear he was a potential “political competitor” to Mr Putin.
In its ruling, the three-man tribunal panel said: “Russian courts bent to the will of the Russian executive authorities to bankrupt Yukos, assign its assets to a state-controlled company, and incarcerate a man who gave signs of becoming a political competitor.”
The award of $50.2bn (£29.4bn) in damages to a group of former shareholders in Yukos was the largest ever ordered by the arbitration tribunal - some 20 times bigger than its previous highest award of $2.5bn. The shareholders also won $60m (£35m) in legal costs.
Under the terms of the ruling, Moscow has until January to make payment in full, after which point interest begins accruing and the former shareholders can begin legal proceedings to enforce the judgment, including seeking the seizure of commercial assets of the Russian state held abroad.
Prominent entities either partly or wholly owned by Russia include the national airline, Aeroflot, which is 51 per cent owned by the state and Rosneft, the oil company which acquired many Yukos assets and is majority owned by the state with British oil company BP holding much of the remainder.
The shareholders said that they expected Russia to honour its obligations and pay the damages rather than risk becoming a pariah among international investors, who have already taken $75bn of capital out of the country this year.
But they warned that all options were under consideration. In theory, any asset abroad which can be proven to be an “instrumentality” of the Russian state - ie under its direct ownership or control - could be the subject of a demand for seizure based on the arbitration court’s judgment.
Speaking at a press conference in London, Tim Osborne, executive director of GML, the company that now owns the majority of Yukos shares, said: “I think it is safe to say that nobody is safe. We will look at everything. We will take a view but it will be pragmatic approach.”
Rosneft, which is now Russia’s largest oil company, said it expected no claims to be made against its assets. Shares on the Russian stock exchange fell by 2.5 per cent today.
Indeed, the shareholders - led by Israel-based Russian Leonid Nevzlin, a former business partner of Mr Khodorkovsky - took a decade to obtain the ruling and now face a new battle, possibly of similar duration, to enforce the gargantuan damages award.
Russia said it will appeal the Hague ruling, claiming it was based on “serious flaws” and “politically biased”. In a statement, the Finance Ministry said: "The Russian Federation will challenge the arbitration court's decisions in the courts of the Netherlands."
The ruling will add to the tensions between Russia and the international community in the aftermath of the downing of Malaysian Airlines flight MH17 over eastern Ukraine. Downing Street hinted that a toughened sanctions regime, targeting key sectors of the Russian economy including finance, could be in place within days.
Although the damages are only half of the $100bn sought by the shareholders, who were told Yukos bore some responsibility for its own demise, they are still substantial, even for a country of Russia’s mineral wealth and government reserves of $175bn. The award is nearly as much as Russia spent on this year’s Winter Olympics in Sochi - the most expensive Games ever.
Mr Khodorkovsky, who was released from jail in December following a surprise pardon after a decade in prison camps, said he had learned of the ruling “with a feeling of satisfaction”.
The one-time richest man in Russia, who has repeatedly insisted he will gain nothing from the proceedings, said: “It is sad that the recompense will have to come from the [Russian] state’s coffers, not from the pockets of mafiosi linked to the powers that be and those of Putin’s oligarchs.”
The takeover of Yukos, which began in 2003, is widely seen as the beginning of a more authoritarian style of rule by Mr Putin. In its ruling, the Hague court described the seizure of the oil company’s assets as “devious and calculating” and said that the “highest officials” of Rosneft had worked “in close association with Mr Putin” to achieve the Russian state’s aims.
It added: “The tribunal has concluded that the primary objective of the Russian Federation was not to collect taxes but rather to bankrupt Yukos and appropriate its valuable assets.”
Experts said that the ruling placed Russia at a crossroads in its commercial dealings with the world.
David Clark, an adviser to former Foreign Secretary Robin Cook and chairman of the Russia Foundation, said: “Vladimir Putin now has a choice: He can ignore the ruling and seek the $50bn award enforced against Russian assets abroad or he can acknowledge responsibility by paying up.”