Yukos's major failure: USA waves its problems aside

YUKOS has been smashed

The US Federal Bankruptcy Court has turned down the suit of the disgraced Russian oil company against Russia. YUKOS is now expected to appeal to European courts. It should be added here that Russia’s stands in Europe are stronger than in the US.

Bankruptcy Judge Letitia Clark decided YUKOS has not enough property in the US to grant it the US jurisdiction in the case. What is more, the judge said other parties concerned, the RF Government namely, must be also involved into consideration of the case. The Russian authorities do not recognize YUKOS’s jurisdiction in Houston. When hearing of the case began in Houston, the Russian authorities claimed that decisions of the Texas court were invalid on Russia’s territory.

A group of YUKOS top-managers appealed to the Houston Bankruptcy Court December 15, 2004, four days before an auction for selling YUKOS's key oil producing arm, Yuganskneftegas, for the debts of the associated company. YUKOS representatives sought protection of the US in connection with the Chapter 11 bankruptcy law. The Chapter 11 provides for step-wise reorganization of a company and rescheduling of its debts.

YUKOS demanded to ban any operations with YUKOS assets, Yuganskneftegas in particular. The oil company also wanted the US Court to make Russia start proceedings of arbitration, so that YUKOS had a chance to demand payment of damages at the rate of billions of dollars. YUKOS alleged the Russian authorities caused the damage when they reduced the company's market value.

At first, YUKOS was rather successful at the US Court: Judge Clark issued a temporary decision to ban operations with YUKOS assets under arrest. Still, the decision could not stop the Russian authorities from selling Yuganskneftegas, but it made getting credit for the purchase rather problematic. A conglomerate of western banks with Deutsche Bank at head was to give the credit. Members of the conglomerate risked losing their US-based assets in case Judge Clark's decision was not observed. Then, shareholders of the Russian oil company Mikhail Brudno and Vladimir Dubov, who are on the Interpol wanted list, had an opportunity to meet US President Bush. YUKOS representatives appeared before the US Senate. As a result, US senators demanded that non-democratic Russia could no longer be part of G-8 and could not be allowed to the WTO.

President Bush was rather harsh speaking about Russia's wrong policy shortly before the Bush-Putin summit in Bratislava. But none of the two presidents touched upon the YUKOS problem during the summit. Judge Clark put an end to the performance in Houston several hours after the summit was over.

There is no political ground for the judge's decision; the court decision is absolutely logical and transparent. It was already Deutsche Bank that emphasized that YUKOS had little jurisdiction and thus could not initiate bankruptcy proceedings. Lawyers of the German bank insisted that relations between YUKOS and Texas were insignificant.

On the contrary, YUKOS lawyers said some YUKOS USA Inc. registered a day before hearings at the Houston Court had big bank deposits.

However, they presented no documents to prove any connection between YUKOS USA Inc. and Russia's YUKOS. What is more, Deutsche Bank lawyers managed to prove that official representatives of YUKOS forged the dates in financial documents to have a better chance to be a success at the US court.

The failure at the US Court obviously gives YUKOS no chance of using the US as a legal basis for attacking Russia. Still, the oil company will retain its unofficial support in the USA, as there are so many people in America who believe Russia is the evil that must be eliminated.

The US Department of State provides financial support to the Open Russia foundation established by YUKOS. This financing is appropriated for a wide network of youth, sports and pubic political organizations all over Russia.

The Moskovskiye Novosti newspaper reports that YUKOS management is going to proceed further than the Houston Court. Stephen Theede from YUKOS management recently said the company was ready to appeal to the European Human Rights Court.

But Deutsche Bank may be a strong opponent to YUKOS even in Europe as the bank is an expert in European court proceedings. In any case, the decision of the Texas court gives YUKOS a chance to expect the favor of European arbitration courts and hope for an appeal against all decisions of the Russian fiscal services. However, this tactics is hardly to be a success.

Economics Department