JAWS dropped in July when a group of Yukos shareholders won a $50 billion arbitration award--20 times the previous record--against Russia for expropriating the oil company in 2004. The Kremlin had until November 11th to appeal against the ruling, by a tribunal in The Hague, and did indeed do so. It continues to maintain that it was not bound by the energy treaty under which the claim was brought, because it had signed but not ratified it. Though Russia's chances of getting the ruling reversed seem slim, the appeal process could grind on for 10 years.
Even so, GML, a holding company representing Russian shareholders of Yukos (except its founder, Mikhail Khodorkovsky, who gave up his interest in the firm), can start chasing Russia's assets in other countries by applying to their courts. It plans to start later this month in Britain, America, Germany, France and the Netherlands.
The first targets will be "low-hanging fruit", such as state-owned art and buildings that are not used for strictly diplomatic purposes, says Tim Osborne, GML's executive director. Embassies, warships and other non-commercial sovereign assets are off-limits--though what is commercial and what is diplomatic can be a legal grey area.
The juicier fruit will be harder to reach: payments to or from Russia that are routed through Western financial centres, and the foreign assets of firms that are owned or controlled by the state, such as Rosneft, the oil giant that subsumed Yukos, and Gazprom, another energy giant. The asset-hunters will have to convince the courts that these entities are alter egos of the government. It may help that both companies are among the targets of Western sanctions against Russia, and that the arbitration panel viewed Rosneft as an agent of the state in the expropriation.
Such games of cat and mouse require formidable investigative firepower. GML has already spent $250m on lawyers and sleuths and is prepared to spend "as much again" in the asset-chasing phase, says Mr Osborne. He is confident the exercise will prove profitable, though the investors may recover far less than the full award.
Even if assets prove difficult to freeze or seize, those pursuing them can make a real nuisance of themselves, if they have deep pockets and determination. Witness the discomfort Argentina has suffered, including having to be careful where it lands the presidential plane, because of hedge funds chasing full payment on its defaulted sovereign bonds.
GML will also be aware of a successful precedent in Russia, albeit on a smaller scale. Franz Sedelmayer, a German businessman, won in arbitration after his security company was nationalised in 1994. He subsequently brought 140 cases against the Kremlin in Germany, France and Sweden. His attempts to seize Lufthansa's payments for flying over Russian territory, and Russian VAT refunds to Germany, both failed. But he has secured payment from the sale of flats and former trade-mission buildings in Sweden and Germany. In one case, Russia was forced to bid in an auction to hold on to its buildings.
The trick, says Mr Sedelmayer, is to find properties used for both diplomatic and commercial purposes and to persuade courts to waive immunity on account of mixed use. Twenty years on, he is close to receiving the last of the EUR6m ($7.5m) he is owed. But GML "is in for quite a ride", he says. "Moscow has long had a won't-pay-anybody attitude. They like to take stuff for free. Their strategy is to appeal at every stage, and when the process is exhausted, to bring a new suit on the same grounds to take us back to square one. It's a circus."
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