arbitrations pursuant to the rules of the united nations commission on international trade law hulley

826 Pages·2015·4.76 MB·English

ARBITRATIONS PURSUANT TO THE RULES OF
THE UNITED NATIONS COMMISSION ON INTERNATIONAL TRADE LAW

PCA CASES NOS. AA 226, AA 227, AA 228

HULLEY ENTERPRISES LIMITED
YUKOS UNIVERSAL LIMITED
VETERAN PETROLEUM LIMITED
Claimants,
—v.—

THE RUSSIAN FEDERATION

Respondent.

RESPONDENT’S COUNTER-MEMORIAL
(Resubmitted on July 29, 2011)
TABLE OF CONTENTS
Page
I. INTRODUCTION .................................................................................................................. 1
II. STATEMENT OF FACTS ................................................................................................... 14
A. The Oligarchs’ Fraudulent Acquisition Of Yukos .............................................. 14
B. The Oligarchs’ Fraudulent Consolidation Of Ownership And Control
Of Yukos Through Menatep’s Abuse Of Basic Corporate Laws And
Principles Of Proper Corporate Governance ...................................................... 23
C. The Oligarchs Also Committed Fraud And Other Illegal Acts In
Acquiring Their Shareholdings In Other Companies ........................................ 38
D. The Oligarchs’ Fraudulent Pattern Of Siphoning Off Revenue And
Profits From Yukos And Other Illegally Acquired Companies ....................... 39
1. Jurby Lake .................................................................................................... 39
2. Avisma and Apatit ..................................................................................... 46
E. The Oligarchs’ Illegal Activity Was Not Confined to Financial Crimes,
But Also Extended to Attempted Murder and Murder ..................................... 48
F. The Oligarchs’ Fraudulent Internationalization Of Their Yukos
Holdings Through Sham Companies -- Including Claimants -- In
Various Tax Havens ................................................................................................ 50
G. The Oligarchs’ Creation of Claimants To Fraudulently Evade
Hundreds Of Millions Of Dollars in Russian Taxes By Perverting And
Misapplying The 1998 Russia-Cyprus Tax Treaty ............................................. 52
1. The Creation, Ownership, And Control Of Claimants And
Their Parent Company, GML, Pursuant To The Tax Evasion
Scheme Designed By The Oligarchs To Abuse The Russia-
Cyprus Tax Treaty ...................................................................................... 55
a) GML ................................................................................................. 57
b) YUL .................................................................................................. 63
c) Hulley .............................................................................................. 65
d) VPL ................................................................................................... 66
2. Claimants’ Fraudulent Abuse Of And Their Fraudulent
Representations That They Satisfied The Requirements Of The
Russia-Cyprus Tax Treaty ......................................................................... 67
a) The Russia-Cyprus Tax Treaty’s Requirements Relating
To Dividend Income And Claimants’ Fraudulent
Representations That They Met Those Requirements .............. 68
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b) Claimants Perverted The Russia-Cyprus Tax Treaty To
Evade Russian Taxes On Dividend Income ............................... 71
c) Even If Claimants Were Relying On The Treaty For A
Proper Purpose, They Were Not The Beneficial Owners
Of The Russian Income For Which They Claimed
Benefits Under the Russia-Cyprus Tax Treaty........................... 72
d) All Of The Russian Dividend Income From Yukos
Shares For Which Claimants Claimed Russia-Cyprus
Tax Treaty Benefits Was Attributable To Claimants’
Russian Permanent Establishment .............................................. 81
3. Claimants’ Abuse Of The Russia-Cyprus Tax Treaty Resulted
In Massive Losses For The Russian Treasury ......................................... 84
4. Hulley’s Failure To Account For Profits From Sales Of
Securities ...................................................................................................... 85
5. Claimants’ Misconduct Constituted Crimes Under The Laws Of
Russia And Cyprus .................................................................................... 86
a) Russian Criminal Law ................................................................... 86
b) Cypriot Criminal Law ................................................................... 88
H. Yukos’ Russian Tax Evasion Scheme ................................................................... 90
1. The Structure Of The Yukos Tax Evasion Scheme ................................. 92
a) The Trading Shells Were “On Paper” Fictions .......................... 94
b) The Trading Shells Engaged In Systematic Non-Arm’s
Length Pricing ................................................................................ 99
c) The Trading Shells Made Insignificant Investments (If
Any) In The Low-Tax Regions Where They Purported
To Operate ..................................................................................... 102
d) The Trading Shells’ Profits Were Repatriated To Yukos
By Artificial Means That Concealed Their Origin ................... 106
(1) The “Donations” To The Fund ...................................... 106
(2) The “Promissory Notes” ................................................. 107
(3) The Use Of Cypriot Shell Companies To Divert
The Trading Shells’ Profits Outside Russia ................. 109
2. The Yukos Tax Evasion Scheme Violated Russian Law ..................... 116
a) The Early Development Of Russia’s Anti-Avoidance
Doctrines........................................................................................ 116
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b) The Tax Authorities Started Applying Russia’s Anti-
Avoidance Doctrines Against The Yukos Group As
Early As In 1999—The Business-Oil/Lesnoy Trading
Shells Case ..................................................................................... 118
c) In The Meantime, The Russian Constitutional Court
Formalized The “Bad-Faith Taxpayer” Doctrine..................... 123
d) The “Bad-Faith Taxpayer” Doctrine Was Applied
Against The Yukos Group Before The Issue Of The
December 2003 Tax Audit Report—The Sibirskaya Case ...... 124
e) Other Pre-2004 Rulings Condemning Abuses Of The
Low-Tax Region Program ........................................................... 125
f) Lukoil’s Abandonment Of Similar Abuses As Of
December 31, 2001 ........................................................................ 126
g) Cancellation Of Plans To List Yukos Shares On The New
York Stock Exchange For Fear Of Disclosure Of The
“Tax Optimization” Scheme ....................................................... 128
h) The 2002 Audit Of Yukos ............................................................ 129
i) The Criminal Investigations Of Messrs. Lebedev And
Khodorkovsky .............................................................................. 131
j) The Criminal Tax Investigation Of The Lesnoy Shells ........... 131
k) Apatit ............................................................................................. 133
l) The Arrests And Criminal Convictions Of Messrs.
Khodorkovsky and Lebedev ...................................................... 134
m) The Russian Federation Did Not Seek the Break-up of
the Yukos-Sibneft Merger ........................................................... 136
(1) The Break-up of the Merger Was the Result of
Actions Taken By the Sibneft Group in Its Own
Self-Interest, and the Russian Federation Did Not
Interfere With the Merger............................................... 137
(2) The Judicial Decisions Concerning the Merger
Were Correctly Decided ................................................. 139
(a) Moscow Proceedings .......................................... 140
(b) Far East Proceedings ........................................... 143
(c) Claimants’ Attack on the Russian Judicial
Proceedings Is Unavailing ................................. 143
(3) The Unwinding of the Merger Was Not Part of a
Plan for Gazprom to Acquire Sibneft ........................... 146
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(4) Claimants Realized a Substantial Gain from the
Unwinding of the Merger ............................................... 146
n) Yukos Paid The Largest Dividend In Its History To
Siphon Off From Russia, And Secure With Claimants,
Their Affiliates, And/Or The Oligarchs, An Amount Of
Approximately US$ 1.4 Billion ................................................... 147
o) The December 29, 2003 Tax Audit Report And The April
14, 2004 Tax Assessment For The Year 2000 ............................ 149
p) Early 2004: What Yukos Did Vs. What It Could Have
Done ............................................................................................... 153
I. The Russian Tax Authorities’ Enforcement Of Yukos’ Tax Payment
Obligations And Yukos’ Continued And Unjustified Refusals To Pay
What It Owed, Leading Ultimately To Its Self-Inflicted Insolvency ............. 157
1. Yukos Had Ample Time To Pay The 2000 Tax Assessment, But
Resisted Payment ...................................................................................... 157
2. Yukos’ Asset Dissipation And Stated Refusal To Pay The 2000
Tax Assessment Prompted The April Injunction, Which Did
Not Prevent Yukos From Paying Its Overdue Taxes .......................... 158
3. Yukos Failed To Pay The 2000 Tax Assessment Due On April
16, 2004, Even Though It Had The Ability To Do So ........................... 162
4. Yukos’ Continued Failure To Pay Its Overdue Taxes For Year
2000, While Proceeding With Further Asset Dissipation,
Caused The Authorities To Commence Enforcement
Proceedings And Adopt Enforcement Measures ................................. 164
a) Yukos Willfully Resisted Payment Of Its Overdue Taxes ...... 164
b) Due To Yukos’ Willful Delinquency, The Authorities
Commenced Enforcement Proceedings For Tax Year
2000 And Adopted Enforcement Measures Securing
Collection....................................................................................... 168
c) The Cash Freeze Orders Were Appropriate And Did
Not Prevent Yukos From Paying Its Overdue Taxes .............. 169
d) The Seizures Of Yukos’ Shareholdings Were
Appropriate And Did Not Prevent Yukos From Paying
Its Overdue Taxes ........................................................................ 172
5. Yukos Resisted Payment Of Its Overdue Taxes For Years 2001-
2003, Thereby Prompting Further Enforcement Proceedings
And Measures ........................................................................................... 177
6. Yukos Misled The Russian Authorities By Offering Tainted
Assets .......................................................................................................... 184
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a) Yukos’ Tainted Offers Of The Sibneft Shares Were
Properly Rejected ......................................................................... 185
b) Yukos’ Requests For Deferred Payments Were Properly
Rejected .......................................................................................... 191
c) The “Settlement” Offers Submitted By Mr. Chrétien
Were Properly Rejected ............................................................... 192
d) Yukos’ Other “Settlement” Offers ............................................. 193
7. Yukos’ Management Falsely Blamed Yukos’ Self-Inflicted
Insolvency On The Russian Authorities And Resisted Filing For
Bankruptcy In Russia, Which Would Have Suspended The Tax
Enforcement Measures ............................................................................ 194
J. The YNG Auction, Which Was Conducted In Accordance With
Russian Law To Help Satisfy Yukos’ Tax Liabilities, But Which The
Oligarchs Sabotaged, Causing Yukos To Suffer Yet Another Self-
Inflicted Wound .................................................................................................... 198
1. The YNG Auction Was Prompted By Yukos’ Failure To
Discharge Its Tax Liabilities And Was Organized So As To
Maximize Participation And Proceeds .................................................. 199
a) The Auction Procedures Were Fair And Were Aimed At
Maximizing Participation And Proceeds .................................. 201
b) The Auction Starting Price Was Fair ......................................... 206
2. Claimants Themselves, Through The Yukos Managers They
Installed, Sabotaged The YNG Auction ................................................ 219
a) Yukos’ Campaign Of Intimidation Deterred Potential
Bidders ........................................................................................... 220
b) Yukos’ Spurious Bankruptcy Filing In The United States
Prevented All But One Party From Bidding ............................ 222
3. The Outcome Of The YNG Auction Reflected Yukos’ Sabotage,
Even Though The Russian Authorities Conducted The Auction
In Accordance With Russian Law And International Practice .......... 229
a) The Auction ................................................................................... 229
b) Yukos Made Good On Its Threat Of Litigation ...................... 232
c) The Auction Purchase Price Was Fair ....................................... 234
d) The Conduct Of The Auction Does Not Demonstrate
Conspiratorial Conduct ............................................................... 237
K. Yukos Management’s Stripping of Assets Into Dutch Stichting
Structures to Frustrate The Collection of Yukos’ Tax Liabilities .................... 243
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L. The Yukos Bankruptcy Was The Result Of Yukos’ Illegal,
Obstructionist and Self-Defeating Misconduct ................................................. 249
1. Yukos’ Management And Controlling Shareholders Forced
Yukos Into Bankruptcy ............................................................................ 249
a) The Oligarchs and Yukos’ Management Caused The
Insolvency Of Yukos .................................................................... 250
b) The Oligarchs Caused Yukos To Fail To Repay The
Syndicate And Frustrated The Syndicate’s Efforts To
Collect Against Yukos’ Foreign Assets ..................................... 254
2. Claimants Have Failed To Prove That The SocGen Syndicate
Petitioned For Yukos’ Bankruptcy Acting As A “Cover” For
Rosneft ........................................................................................................ 257
a) The Motives Of The SocGen Syndicate In Petitioning For
Yukos’ Bankruptcy Are Factually And Legally
Irrelevant ....................................................................................... 260
b) Claimants’ Conspiracy Theory Regarding The
Assignment Agreement And The Commencement Of
Yukos’ Bankruptcy Proceedings Is Fanciful ............................. 261
(1) Rosneft Did Not Fear To “Appear As The
Instigator Of Yukos’ Bankruptcy”................................. 261
(2) The Assignment Of The SocGen Syndicate’s
Claim Was Lawful And Had A Bona Fide
Business Purpose ............................................................. 262
c) The Syndicate’s Bankruptcy Filing Was In Compliance
With Russian Law And International Practice ........................ 267
3. Once The Bankruptcy Proceedings Were In Place, The
Oligarchs Continued To Shield Yukos’ Foreign Assets From
The Bankruptcy Creditors And Attempted To Further Pillage
Yukos’ Bankruptcy Estate By Filing Sham Bankruptcy Claims ......... 267
a) The Oligarchs Successfully Implemented Their Plan To
Shield Yukos’ Foreign Assets From The Bankruptcy
Creditors ........................................................................................ 269
b) The Oligarchs, Through Claimants, Attempted To
Further Pillage Yukos’ Bankruptcy Estate By Filing
Sham Bankruptcy Claims ............................................................ 272
c) The Claims From The Federal Tax Service And YNG
Included In The Bankruptcy Register Originated From
The Oligarchs’ Own Misconduct ............................................... 274
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4. The Oligarchs, Through Claimants, Further Attempted To
Secure Their Interests -- Not The Interests Of Yukos’ Creditors -
- By Proposing An Untenable Rehabilitation Plan, Which The
Creditors Reasonably Rejected ............................................................... 275
a) The Preparation Of The First Meeting Of Yukos’
Creditors Was Proper .................................................................. 277
b) Yukos’ Proposed Rehabilitation Plan Furthered The
Interests Of The Oligarchs Over Those Of The
Bankruptcy Creditors And Was Not A Viable
Alternative To The Liquidation Of Yukos ................................ 283
c) The Creditors Rightly Voted For, And The Moscow
Arbitrazh Court Rightly Approved Of, The Liquidation
Of Yukos, In Accordance With Russian Law And
International Practice ................................................................... 286
5. Claimants Have Failed To Establish That The Bankruptcy
Auctions Were Held Contrary To Russian Law Or International
Practice, Or That They Produced Unfair Results ................................. 288
a) The Bankruptcy Auctions Were An Open And
Competitive Process, Conducted In Accordance With
Russian Law And International Practice .................................. 291
b) Despite The Campaign Of Intimidation Unleashed By
The Oligarchs, The Bankruptcy Auctions Produced Very
Large Proceeds, Exceeding Fair Market Value
Appraisals And Estimates, Including By Yukos’ Own
Management And Expert ............................................................ 297
c) Rosneft Won Most (Not All) Of The Bankruptcy
Auctions Not Because Of State Prerogatives Or State
Intervention ................................................................................... 300
6. Yukos Was Liquidated Because The Bankruptcy Estate Was
Not Sufficient To Satisfy All Of Yukos’ Liabilities .............................. 302
M. The Searches And Seizures, Criminal Investigations And Criminal
Prosecution Of Former Yukos Managers Were Prompted By Yukos’
Underlying Criminal Behavior, And Proceeded In Accordance With
Russian Law ........................................................................................................... 305
1. Yukos Carried Out A Campaign Of Obstruction Aimed At
Thwarting The Authorities’ Attempts To Gather Evidence ............... 306
2. The Searches And Seizures Were Intended To Gather Evidence,
Not “Destroy” Yukos ............................................................................... 310
a) The Timing Of The Searches Was Not Dictated By Other
Events ............................................................................................. 310
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b) There Was Nothing Improper In The Actions Of The
Russian Authorities When They Conducted Searches
And Seizures ................................................................................. 311
c) The Searches And Seizures Caused No Unnecessary
Disturbance To Yukos ................................................................. 314
d) The Searches Respected The Advocate’s Privilege When
Applicable ..................................................................................... 316
3. Claimants’ Allegations Of Violations Of Due Process In The
Criminal Trial Of Messrs. Khodorkovsky And Lebedev Are
Unjustified ................................................................................................. 317
a) Svetlana Bakhmina ...................................................................... 317
b) Use of Metal/Glass “Cages” ...................................................... 318
c) Location Of Messrs. Khodorkovsky’s And Lebedev’s
Imprisonment ............................................................................... 319
N. PwC Withdrew Its Audit Opinions Following Confirmation That
Yukos’ Senior Management Had For Years Lied To PwC’s Audit
Team, Not Because Of Any Purported “Harassment” By The Russian
Federation .............................................................................................................. 319
1. Yukos’ Senior Management Deceived And Misled PwC’s Audit
Team ........................................................................................................... 322
a) For Years Prior To The Withdrawal Of Its Audit
Opinions, PwC Was Rightfully Concerned About The
Trustworthiness Of Yukos’ Senior Management .................... 322
b) In 2007, PwC Received Confirmation That Yukos’ Senior
Management Had Lied To PwC’s Audit Team And
Concealed Material Information ................................................ 326
(1) Misrepresentations Concerning BBS............................. 327
(2) Misrepresentations Concerning The Payments To
Messrs. Muravlenko, Golubev, Ivanenko, And
Kazakov ............................................................................ 328
(3) Misrepresentations Concerning Yukos’ Control
Over The Russian Trading Companies ........................ 329
(4) Misrepresentations Concerning Yukos’
Transactions With Bank Menatep ................................. 330
2. PwC’s Decision To Withdraw Its Audit Opinions Was Based
On A Principled Application Of The Governing Auditing
Standards, Following A Lengthy Deliberative Process
Involving Senior Professionals Throughout
PricewaterhouseCoopers’ Global Organization................................... 333
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a) PwC’s Withdrawal Of Its Audit Opinions Was Based On
The Governing Auditing Standards .......................................... 334
b) PwC Engaged In A Lengthy Deliberative Process,
Involving Senior Professionals Throughout
PricewaterhouseCoopers’ Global Organization, Before
Deciding To Withdraw Its Audit Opinions .............................. 338
c) PwC’s Withdrawal Of Its Audit Opinions Was Not The
Result Of Russian Harassment ................................................... 340
III. THE IMPLAUSIBILITY AND FALSITY OF CLAIMANTS’ CONSPIRACY
THEORY ............................................................................................................................. 343
A. The Leutheusser-Schnarrenberger Report and the Council of Europe
Resolution............................................................................................................... 359
B. Non-Russian Court Decisions ............................................................................. 363
C. Other Statements ................................................................................................... 368
D. Statements by Former Russian Officials ............................................................ 370
IV. PRELIMINARY OBJECTIONS ........................................................................................ 378
A. The Tribunal Lacks Jurisdiction Pursuant To Art. 26(3)(b)(i) ECT Over
The Present Dispute .............................................................................................. 378
1. Yukos Shareholders, Including Claimants, Are Pursuing The
Same Claims For Recovery Of Losses Arising From Yukos’
Demise Before The ECHR ....................................................................... 378
2. The ECHR Claims And The ECT Claims Share the “Same
Fundamental Basis” ................................................................................. 380
B. The Tribunal Lacks Jurisdiction Over Claimants’ Claims Or They Are
Inadmissible Or They Must Be Dismissed On The Merits Pursuant To
Article 21(1) ECT ................................................................................................... 384
1. Article 21 ECT Must Be Interpreted In Accordance With
Articles 31 And 32 VCLT ......................................................................... 386
2. Article 21(1) ECT Applies To Any Executive Or Judicial Act
Apparently Implementing Tax Legislation .......................................... 392
3. Claimants’ Claims Are Almost Entirely Claims “With Respect
To Taxation Measures” ............................................................................ 401
4. Article 21(5) ECT Applies To Article 13 ECT Claims Based On
“Taxes,” Not Article 13 ECT Claims Based On Other “Taxation
Measures” .................................................................................................. 407
C. The Tribunal Lacks Jurisdiction Or The Claims Are Inadmissible
Because Of Claimants’ Illegal Conduct And Illegal Conduct
Attributable To Them ........................................................................................... 413
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