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News : Global Economy Last Updated: Jul 29, 2014 - 12:06 PM

Bad week for Russia; More sanctions and $50bn Yukos bill
By Finfacts Team
Jul 29, 2014 - 5:56 AM

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The Peace Palace, The Hague

It has been a bad week so far for Russia as the US and leading European powers on Monday agreed to ramp up economic sanctions while in The Hague, the Permanent Court of Arbitration said that the Russian Federation should pay $50bn to the major shareholders of Yukos, which until 2003 was the country's biggest oil company, but was confiscated and broken up on the orders of President Putin while its assets were given to Rosneft, now the world's biggest quoted oil company.

President Barack Obama and European leaders agreed on new sanctions to take effect from this week against key sectors of Russia's economy, US and European officials disclosed, as the White House warned that Moscow is again amassing troops along the border in possible preparation for an invasion of Eastern Ukraine to help rebels of Russian origin.

"We expect the European Union to take significant additional steps this week, including in key sectors of the Russian economy," Tony Blinken, the US deputy national security adviser said. "In turn, and in full coordination with Europe, the United States will implement additional measures itself."

The new measures were agreed to during a conference call on Monday that included Obama; Angela Merkel, German chancellor; François Hollande, French president; David Cameron, British prime minister; and  Matteo Renzi, Italian prime minister

According to a draft of EU sanctions proposals given to the Financial Times, which is set to discussed on Tuesday by EU ambassadors in Brussels, the EU measures will prohibit any European from investing in or advising on a new debt or stock offering by any Russian bank that is more than 50% owned by the state. Such a restriction would cover most of Russia’s largest financial institutions.

The measures also include energy sanctions that prohibit export of 32 highly sophisticated technologies required in deep-sea drilling, Arctic exploration and shale oil projects, and an arms embargo.

Meanwhile, the Permanent Court of Arbitration in The Hague, Russia has been ordered to pay $50bn to shareholders of Yukos.

The 3-man tribunal ruled that the Russian state had sought to bankrupt Yukos, seize its assets and prevent its owner, Mikhail Khodorkovsky, from entering politics.

The permanent court of arbitration rejected Moscow's arguments that the assets seizure was driven by tax-collection motives, ruling that the state set out to bankrupt the oil firm in "a devious and calculated expropriation."

Rosneft which is 20% owned by BP can be pursued overseas for payment of the damages.

Mikhail Khodorkovsky, who was released after 10 years in prison, by Putin last December, was once Russia's richest "oligarch," one of the businessmen who made overnight fortunes during the post-Soviet, 1990s privatization era. Khodorkovsky acquired oilfields for a small fraction of their value and eventually formed Yukos. He was chief executive from 1997 to 2003.

Khodorkovsky became Russia's wealthiest man, with an estimated net worth of $15bn. However, when he supported political opponents of President Vladimir Putin, the die was cast.

Leonid Nevzlin, a former Yukos vice-president, now living in Israel, was the recipient of Khodorkovsky's stake in Yukos, which the later agreed to during his trial in 2005

Weeks before his arrest, Mikhail Khodorkovsky made the following remarks to a meeting of the US-Russia Business Council, in Washington in October 2003:

At the same time, we still have many problems left in our country. The main one of them is the problem of individual rights. Unfortunately, we are still far behind modern countries in this area. My partner, Platon Lebedev, has been in jail for three months now, despite the fact that the accusations leveled against him at the very beginning have fallen apart. Nevertheless, he is not being released from jail.

And this, unfortunately, is far from an isolated incident. We do not yet have an independent judiciary in our country. Our judiciary is in actuality dependent on the executive branch of power. This is a big problem. On the whole, the law-enforcement system is using Soviet methods in its work, methods that are no longer typical of law-enforcement systems in civilized countries.

Just as an example, the offices of the lawyer who is defending Mr. Lebedev in court were searched today. This is absolutely against the law not only in the majority of civilized countries in the world - it is also against the law in Russia. What is particularly unpleasant is that the search was conducted by workers of the Russian Procuracy, who, according to the law in our country, are responsible for oversight over compliance with the law. All of these are problems that we are going to have to deal with."

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