US Investors Sue Russian Government Over Yukos Affair

by Mike Godfrey, Tax-News.com, Moscow

26 October 2005

A group of investors in US-listed shares of the embattled oil company Yukos, have filed a lawsuit in a Washington DC court accusing the Russian government, amongst other parties in a wide-ranging lawsuit, of illegally seizing the company's assets without compensating its investors.

The group of 12 mainly US citizens, holders of American Depository Receipts in Yukos, claim to have lost millions of dollars as a result of the "de facto re-nationalisation" of the company, parts of which were auctioned off last year after it was landed with a US$28 billion back tax bill.

According to a statement released by Washington-based law firm Covington and Burling, which is representing the plaintiffs, defendants in the lawsuit have been named as the Russian Federation, the state-controlled firms Gazprom, Gazpromneft, Rosneft and Rosneftgaz and top officials of the companies. They have each been accused of playing a part in violating US securities law by "falsely assuring" the public that the Putin administration did not intend to re-nationalise Yukos.

Viktor Khristenko, Russian Industry and Energy Minister, was expected to be served with the lawsuit whilst on an official visit to the United States this week, although a ministerial aide was reported as saying yesterday that Mr Khristenko has "not received any documents from any lawyers representing anyone's interests."

However, seemingly aware of the lawsuit, Khristenko stated in a speech on Monday that Russia’s current economic policy had nothing to do with "re-nationalization."

"One should not draw rushed conclusions from any developments, even such scandalous ones," he added, referring to the Yukos debacle.

With little precedent in place, it is doubtful whether a lawsuit brought against a foreign government in a US court will succeed. Nonetheless, the action is likely to place the spotlight back upon the shady dealings of the Russian government in the oil sector - and its commitment to free market economics generally - at a time when it is attempting to rebuild bridges with foreign investors.

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