Yukos vs. the Kremlin. How Offshore Structures Saved Billions from State Plunder

 

On October 17, 2025, the Dutch Supreme Court issued a ruling that closed one of the longest and most spectacular disputes in the history of international investment law. Dismissing Russia’s final appeals, the court definitively upheld an arbitration award of more than sixty-five billion dollars—the largest compensation in the history of international arbitration. After a twenty-year legal battle that began with the arrest of Russia’s richest man on an airport tarmac in Novosibirsk, the former shareholders of the Yukos oil concern had finally won. The judgment is fully enforceable against Russian state assets worldwide, and the Kremlin has exhausted all possibilities of appeal.

 

Tim Osborne, the chief executive of GML, which represents the Yukos shareholders, summed up the significance of the verdict: “Today’s final and historic ruling by the Dutch Supreme Court is not only a victory for shareholders but also a confirmation of the fundamental principle of justice—no state, not even Russia, stands above the law.”

It was the conclusion of a legal saga that revealed something rarely discussed in the context of offshore structures and so-called tax havens: they can constitute a last line of defense against unlawful state action, a final bastion protecting private property from what an international arbitration tribunal called a “relentless campaign of destruction” waged by a government against its own citizen.

 

An Oil Empire and Its Multi-Layered Protection

At the height of its power—in the early twenty-first century—Yukos was Russia’s largest private oil producer, valued at more than twenty billion dollars. The company operated as a vertically integrated oil-and-gas concern, controlling everything from extraction to refining and distribution. Mikhail Khodorkovsky, who had built his fortune in the chaos of Russian privatization in the nineteen-nineties, understood perfectly that in a country where law often gives way to politics, formal ownership is not sufficient guarantee of security.

That’s why, long before his conflict with the Kremlin, he constructed what would prove to be his insurance policy—a multi-layered offshore structure that ultimately saved the shareholders’ ability to seek redress. At the top of the ownership pyramid stood Group Menatep Limited, registered in Gibraltar, which at the end of 2002 directly owned two-point-six per cent of Yukos shares but simultaneously controlled, directly or indirectly, other companies in the group that together held a majority stake in the operating businesses in Russia. The remaining shares in Yukos belonged to Veteran Petroleum Trust (ten per cent), holders of A.D.R.s on American markets (nearly thirteen per cent), and other shareholders (more than thirteen per cent).

Below the Gibraltar parent company, Menatep, functioned Yukos Universal Limited, an entity registered on the Isle of Man. This Manx company, in turn, owned the Cypriot Hulley Enterprises Limited, which itself controlled more than fifty-seven per cent of the Russian concern’s shares. Additionally, the structure included Menatep Asset Management Limited, which handled asset management for the entire group. Each of these layers was carefully placed in a different jurisdiction, with specific legal and business justification.

The Russian operating concern itself had an impressive vertical structure. In the upstream segment, responsible for extraction, three subsidiaries played key roles. The largest of them, Yuganskneftegaz, was the true jewel in Yukos’s crown—it controlled, among other things, the enormous, then underdeveloped Priobskoye field on the banks of the Ob River. It was precisely this field, exploited using Western extraction techniques, that was the main engine of Yukos’s production growth in the years 2000-2003. They were supplemented by Samaraneftegaz and Tomskneft, both wholly owned by the concern.

In the downstream segment, encompassing refining and processing, Yukos controlled five major refineries on Russian territory. The refineries in Angarsk, Kuibyshev, and Novokuibyshevsk were wholly owned by the concern; the Achinsk refinery was seventy-six-per-cent owned; and in Syzran, Yukos held a minority stake. This vertical integration—from oil fields to gas stations—was crucial to the business’s profitability and served as a model for the entire Russian oil industry.

Particularly significant for later events, Khodorkovsky had even foreseen the scenario of his own imprisonment. When, in 2002, Yukos was preparing to enter American capital markets and had to disclose details of its ownership structure, it emerged that Group Menatep shares were held by eight trusts managed by two trust companies registered in the British Channel Islands—Jersey and Guernsey. The principal one was Pulmus Trust, created in June, 2002, whose beneficiary was Khodorkovsky himself.

The remaining shares were formally held by companies acting as trustees: Pavo Nominees Ltd., Pictor Nominees Ltd., Auriga Nominees Ltd., Draco Nominees Ltd., Mensa Nominees Ltd., Tucana Nominees Ltd., and Carina Nominees Ltd.—all registered in the British Virgin Islands. This entire offshore architecture was managed by Rysaffe Trust Limited, later associated with Saffery Champness Management International Limited, a renowned firm providing trust and wealth-structure management services.

The trust structure contained a clause providing for the automatic transfer of voting rights to Khodorkovsky’s business partner, Leonid Nevzlin, “in the event of Mikhail Khodorkovsky’s inability to act as beneficiary, resulting from, among other things, imprisonment, kidnapping, or influence on his decisions contrary to his free will.” This clause, which might have seemed like hyperbole worthy of a spy thriller, proved prophetic. When, in October, 2003, F.S.B. special forces arrested Khodorkovsky on the tarmac at Novosibirsk airport while his private jet was refuelling, the protective mechanism activated automatically. Nevzlin, by then safely in Israel, took control of the trusts and could continue managing the structure’s legal defense.

Completing the whole was the Luxembourg Yukos Capital SARL, created on January 31, 2003, as a financial company servicing the entire group. This entity served as the concern’s internal bank, borrowing funds from Brittany Assets Ltd., another Yukos group company, and transferring them onward to the Russian operating company for investment and operational purposes. This financial multi-layering was typical of large international concerns, but in Yukos’s case it proved to have additional protective significance.

This wasn’t happenstance or tax greed—it was a deliberate system of protection against a scenario that seemed, to many, like paranoid fantasy. Khodorkovsky, schooled in the brutal world of Russian capitalism in the nineteen-nineties, knew that in Russia private property is secure only as long as the authorities decide it should be. The offshore structure was an insurance policy in case the authorities decided that Yukos and its owner had become a problem.

 

Why Gibraltar and the Isle of Man?

The choice of Gibraltar as the seat of Group Menatep Limited, the highest entity in Yukos’s ownership structure, and the Isle of Man for Yukos Universal Limited was no accident. These two British territories represent a fascinating paradox of contemporary international law—they are legal relics of the Middle Ages that, in the era of globalization, have become among the most sophisticated jurisdictions for international corporate structures.

Gibraltar, seized by Anglo-Dutch forces in 1704 during the War of the Spanish Succession and formally ceded to Great Britain under the Treaty of Utrecht in 1713, exists in a peculiar legal state. It is a British Overseas Territory without being part of the United Kingdom. It has its own parliament, its own legal system based on common law, its own currency (the Gibraltar pound, exchangeable one-to-one with the British pound), and even its own telephone country code (+350). Yet defense and foreign affairs remain the responsibility of the British Crown, which gives structures registered there a unique combination—full internal autonomy combined with the protective umbrella of one of the world’s most respected legal systems.

The Isle of Man presents an even more unusual case. It’s a Crown Dependency—not part of the United Kingdom, nor one of its overseas territories. The island maintains that its parliament, Tynwald, is the oldest continuously operating legislative body in the world, with roots allegedly reaching back to 979, though historical documentation supports a much later date. Formally, it is the property of the British Crown—the monarch bears the title “Lord of Mann”—but in practice the Isle of Man has absolute autonomy in internal affairs, including its own tax system, its own corporate law, and full control over its finances.

What makes these jurisdictions particularly valuable for offshore structures is not just tax considerations, though those are significant. Both territories, though geographically small and relatively isolated, have developed extraordinarily sophisticated judicial systems. The Gibraltar judiciary, though local, applies English common law and can appeal to the Judicial Committee of the Privy Council in London as the final appellate instance. This system ensures that judgments issued in Gibraltar enjoy the same international recognition as those from London or New York. Similarly, the Isle of Man, whose highest court is the Isle of Man High Court, can also appeal to the Privy Council, ensuring consistency with British legal tradition while maintaining local specificity.

This combination of medieval political status with ultramodern legal and financial infrastructure creates what might be called a medieval “fortress” for international corporate structures. Gibraltar and the Isle of Man are not tax havens in the pejorative sense—they don’t offer complete anonymity, don’t hide beneficial owners from O.E.C.D. law enforcement, don’t serve money laundering. On the contrary, both territories have rigorous anti-money-laundering provisions, have signed tax-information-exchange agreements with dozens of countries, and regularly undergo assessments by international organizations like the Financial Action Task Force.

What they offer is stability and predictability in an unpredictable world. When Khodorkovsky was building his offshore structure before his conflict with the Kremlin, he couldn’t foresee that he would be arrested at an airport and imprisoned in a penal colony for a decade. He could, however, foresee that in Russia law is fragile, that private property depends on political will, that courts can be subordinated to state interests. That’s why he needed a jurisdiction where these threats don’t exist—where a company registered today will be protected by the same law in ten, twenty, thirty years, regardless of political changes.

Gibraltar and the Isle of Man provide precisely that stability. Their legal status hasn’t fundamentally changed in centuries. Gibraltar has remained British since 1713, through all the wars, revolutions, and political transformations of the past three centuries. The Isle of Man has maintained its autonomy continuously since 1765, when the feudal rights of the Dukes of Atholl were purchased by the British Crown. This institutional longevity is invaluable for long-term corporate-structure planning.

Equally important is the question of professional infrastructure. Both territories, despite their small size, have developed a specialized ecosystem of lawyers, accountants, corporate and trust administrators who service international structures.

Interestingly, both territories, though formally independent in internal affairs, fall under the ultimate sovereignty of the British Crown in matters of defense and foreign relations. This dual status means that structures registered there can benefit from the diplomatic protection of Great Britain, one of the five permanent members of the U.N. Security Council, while simultaneously enjoying legal and tax autonomy unavailable in the United Kingdom itself. It’s the best of both worlds—the protection of a powerful state without its fiscal and regulatory burdens.

 

When the State Becomes a Predator

The conflict between Khodorkovsky and Putin was deeply political in character. The oligarch financed opposition parties, publicly criticized corruption in the highest circles of power, and—perhaps most important—began to be perceived as the President’s potential political rival. The Kremlin decided not only to eliminate Khodorkovsky but also to destroy Yukos and seize its assets. What followed was a masterfully arranged operation that used the appearance of legality to realize purely political goals.

Russian tax authorities suddenly “discovered” that Yukos had been evading taxation for years, using tax breaks available in special economic zones—the same breaks legally used by hundreds of other Russian companies, and the same ones the government actively promoted as a tool of regional development. The retroactively assessed tax liability exceeded thirty billion dollars—a sum that no company, even one as profitable as Yukos, could pay in a lump sum. Simultaneously, all the company’s assets were frozen, making it impossible both to pay the alleged tax arrears and to function normally. It was a classic double bind—the company was punished for not paying a debt whose payment had been made impossible by the same authorities demanding the debt.

The finale was a staged bankruptcy and auctions during which Yukos’s most valuable assets went to the state-owned company Rosneft for a fraction of their real value. Yuganskneftegaz itself—the crown jewel, whose value was estimated at fifteen to twenty billion dollars—was sold in an auction in December, 2004, for nine billion, and the buyer turned out to be the previously unknown Baikalfinansgroup, which a few days later resold the assets to Rosneft. The entire operation bore the hallmarks of theatre of the absurd, where the appearance of legality barely masked state plunder.

Khodorkovsky ended up in a penal colony in Krasnokamsk, where he spent the next ten years under conditions that systematically worsened as he refused political capitulation. For observers in Russia and around the world, the case was closed—another oligarch had been “tamed” by the Kremlin, and his empire was forfeit. It was a warning to others: don’t stand out, don’t question authority. But that was only half the story.

 

The Treaty That Changed Everything

The true power of Yukos’s offshore structure wasn’t the multi-layered corporate structure itself or jurisdictional diversification. The key turned out to be the Energy Charter Treaty, an international agreement regulating investments in the energy sector, which Russia signed in 1994 during the Yeltsin era of openness to the West but never ratified. It would seem that the lack of ratification deprived the treaty of legal force, but its Article 45 provided something that proved fundamentally significant—provisional application of the treaty’s provisions until final ratification or explicit refusal to be bound by it.

This provisional-application mechanism gave the Cypriot and Manx companies something priceless—the status of foreign investors protected by international law, despite the fact that Russian citizens exercised actual control. It was a legal transformation that turned what was de facto a domestic dispute between an oligarch and his government into an international investment case protected by treaty. The difference was fundamental—Russian domestic courts were completely subordinated to the Kremlin’s will, which wasn’t even hidden from cameras when a judge read a verdict prepared by the prosecutor’s office before the evidentiary proceedings had concluded. International arbitration, however, offered a chance for fair consideration of the case before an independent tribunal.

The Energy Charter Treaty provided three key elements of protection. First, it prohibited unlawful expropriation of foreign investments without adequate and prompt compensation. Second, it imposed on the state an obligation of fair and equitable treatment of foreign investors. Third—and this was most important—it gave investors the right to bring a case against the state to international arbitration, completely bypassing domestic courts. It was an escape route from a system in which the verdict was predetermined before the trial even began. It was a gateway to justice.

 

The Battle in The Hague

In February, 2005, while Khodorkovsky was already in a penal colony and Yukos was undergoing state-controlled bankruptcy, three Cypriot and Manx companies filed arbitration claims against the Russian Federation in the Permanent Court of Arbitration in The Hague. They demanded compensation for the unlawful destruction of their investment in Yukos. The Kremlin initially dismissed these proceedings, considering them a desperate attempt to generate international pressure without real chances of success. Russian officials publicly mocked the “fleeing oligarchs” who were trying to challenge the sovereign decisions of the Russian state in “some Western courts.” This assessment would prove catastrophically wrong.

Russia immediately challenged the tribunal’s jurisdiction, advancing two fundamental arguments that at first glance seemed strong. First, it claimed that the Energy Charter Treaty didn’t apply, since international arbitration is contrary to the Russian Constitution, and therefore covered by the reservation in the article on provisional application. Second, it argued that the plaintiffs were in essence Russian citizens hiding behind the corporate veil of offshore companies, and therefore couldn’t be treated as foreign investors entitled to treaty protection. This was the classic doctrine of “piercing the corporate veil”—looking through the formal ownership structure to the real beneficiaries.

The arbitration tribunal considered these arguments in extensive rulings issued in 2009 and rejected them in their entirety. In detailed reasoning running to hundreds of pages, it found that Russia was indeed bound by the provisions of the Energy Charter Treaty on the basis of provisional application, and the constitutional reservation couldn’t be interpreted so broadly as to deprive the treaty of any content—otherwise, any state could free itself from any international obligation by declaring it “contrary to the constitution.”

As for the second objection, the tribunal noted that the Cypriot and Manx companies existed in reality; they weren’t fictitious entities without substance. They conducted actual business, employed workers, had bank accounts, filed financial reports, paid taxes in their jurisdictions. They had been shareholders of Yukos long before the dispute began; they weren’t created ad hoc for procedural purposes. In international investment law, formal corporate status counts, not the nationality of ultimate beneficiaries—otherwise treaty protection would be illusory, since any state could void it with the argument that “these are actually our citizens.” This jurisdictional victory was the foundation of everything that followed.

 

The Verdict That Shook the World

The merits phase lasted another five years. The tribunal analyzed tens of thousands of pages of documents, heard tax, legal, and economic experts from both sides, studied in detail the practices of Russian tax authorities in other cases, compared the treatment of Yukos with other companies using the same tax breaks. In July, 2014, it announced a verdict that entered the history of international investment law and which the Kremlin tried unsuccessfully to challenge for the next decade, until its final defeat in October, 2025.

The tribunal found, without a shadow of doubt, that Russia’s actions constituted unlawful expropriation dressed up in the formula of tax-obligation enforcement to give it an appearance of legality. In the reasoning, we read formulations rarely encountered in the dry language of international arbitration—formulations that sounded like an indictment in a criminal trial: Russian courts bent to the will of Russian executive authorities to bring Yukos to bankruptcy, assign its assets to a state-controlled company, and imprison the man who was becoming a political competitor. The tribunal unequivocally stated that the main goal of the Russian Federation was not the collection of tax arrears but, rather, bringing Yukos to insolvency and appropriating its valuable assets. It was calling things by their names—the plunder of private property by a state conducted under the guise of rule of law.

The compensation awarded by the tribunal exceeded fifty billion dollars, becoming the largest arbitration award in history. Significantly, the tribunal reduced this amount by twenty-five per cent, recognizing that Yukos’s shareholders themselves had partly contributed to the problem by abusing low-tax special zones and improperly using the tax treaty between Cyprus and Russia. This was an important qualification—even in the moment of its triumph, Yukos’s offshore structure wasn’t deemed fully “clean” from a tax-law perspective. The tribunal made clear that while the expropriation was unlawful, Yukos’s earlier tax practices also left much to be desired.

 

The Worldwide Hunt for Russian Assets

The Kremlin refused to voluntarily execute the judgment, which surprised no one. Putin publicly stated that Russia wouldn’t recognize the “politically motivated decision of a Dutch tribunal,” which was ironic given the tribunal’s finding that it was precisely Russia’s actions toward Yukos that were politically motivated.

In France and Belgium, Russian real estate was seized for the case, including representative buildings in the centers of Paris and Brussels. In Paris, bank accounts in approximately forty financial institutions were blocked, paralyzing part of Russian financial operations in Western Europe. In Great Britain and the United States, orders were issued freezing all Russian assets that could be linked to state activity. Even seemingly trivial assets, like the rights to Russian alcohol brands (including Stolichnaya and Moskovskaya), were auctioned off, bringing in millions of euros. Every element of Russia’s economic presence abroad became a potential target of enforcement.

Yukos shareholders are now targeting state-owned enterprises such as Gazprom and Rosneft, which conduct extensive international operations. Joint ventures with foreign partners, through which Russian state capital is present in projects from Vietnam to Venezuela, became threatened with the possibility of seizure. Assets of Russian sovereign wealth funds in developed jurisdictions came under pressure. The scale of financial threat—exceeding sixty-five billion dollars after adding interest accrued over more than a decade—created real risk for all international business transactions with Russian state entities.

Russia has tried to defend itself with the argument of state immunity—the classic doctrine of international law, according to which states are protected from lawsuits and enforcement in the courts of other states. It’s a basic principle of sovereignty, without which the international legal order would be difficult to maintain. However, courts in successive jurisdictions have consistently rejected these arguments, pointing out that Russia waived immunity by agreeing to international arbitration in the Energy Charter Treaty. Each of Russia’s procedural defeats opened another door for Yukos shareholders.

The breakthrough came with the British Supreme Court’s ruling in 2025, which definitively rejected Russia’s appeal and, indirectly, Russian arguments regarding state immunity, holding that consent to arbitration equals waiver of immunity also in the enforcement phase. The British judgment was particularly painful for the Kremlin, since it was issued by a court in a country that for decades had been a bastion of the state-immunity doctrine. Shortly thereafter, on October 17, 2025, the Dutch Supreme Court issued its final ruling, closing all Russian appellate possibilities. The judgment of more than sixty-five billion dollars—with interest accrued over more than a decade—became final and enforceable in dozens of countries around the world. Russia had exhausted all legal avenues, all instances, all possibilities of appeal.

 

Lessons for Contemporary Law

The Yukos story provides several fundamental lessons about the role of offshore structures in protecting assets from unlawful state action. The first lesson concerns foresight. Offshore structures must be built well in advance, before any conflict with authorities appears. Khodorkovsky established his multi-layered corporate architecture years before his arrest, when it seemed his relations with the Kremlin were stable, and he himself was regularly seen at official meetings with Putin. Had he tried to move assets abroad only after persecution began, such action would have been easily challenged as action to the detriment of creditors, aimed at avoiding liability, and would probably also have been physically prevented by asset freezing.

The second lesson is the significance of economic substance. Yukos’s Cypriot and Manx companies weren’t shell companies without economic content; they weren’t mailbox companies with an address in a corporate office and nothing more. They had real headquarters, employed workers, conducted actual business operations related to investment management. They had bank accounts, paid taxes in their jurisdictions, filed financial statements audited by reputable accounting firms. This substance was crucial to convincing the arbitration tribunal that we weren’t dealing with pure legal manipulation but with real economic entities. Without this substance, the entire structure could have been deemed fictitious and “pierced” with an argument of abuse of law.

The third lesson concerns strategic choice of jurisdiction. Gibraltar and the Isle of Man weren’t chosen randomly or solely for tax reasons, as I described in detail above.

The fourth lesson is the significance of international investment treaties. Without the Energy Charter Treaty, the entire offshore structure would have been useless—Russian courts would have submitted to the Kremlin’s will anyway, and foreign shareholders would have had no access to an independent dispute-resolution forum. It was precisely the investment treaty that transformed a domestic dispute into an international case, giving shareholders access to justice. This lesson has particular significance today, when many countries are considering denouncing international investment treaties, arguing that they limit state sovereignty in regulating the economy.

 

The Polish Perspective: Structure as Protection

For Polish entrepreneurs and investors, the Yukos case carries a particularly important message. Poland is a country with a relatively stable rule of law and predictable legal system, yet our companies increasingly invest in regions where democratic standards and protection of private property are uncertain. Whether it’s investments in Central Asia, where the legacy of post-Soviet legal culture combines with authoritarian rule; in Africa, where military coups and sudden political changes are still common; or in the Middle East, where politics and business are inextricably intertwined—everywhere the legal system is weak or subordinated to political interests, appropriate international structuring of business can be not an expression of aggressive tax planning but elementary investment security.

Poland is party to dozens of bilateral treaties on the protection and promotion of investments, which offer similar protection mechanisms as the Energy Charter Treaty in the Yukos case. A Polish investor conducting business in Kazakhstan, Vietnam, or Egypt can benefit from treaty protection through appropriate structuring of his investment. This doesn’t necessarily mean aggressive tax optimization—it can simply be prudent hedging against political risk and arbitrary actions by authorities in the country of investment. If a Polish entrepreneur investing capital in a country with an uncertain legal environment were expropriated without compensation or subjected to discriminatory tax treatment, a properly constructed structure using a jurisdiction covered by a bilateral investment treaty would give him access to international arbitration.

Particularly interesting is the question of applying Polish controlled-foreign-company (CFC.) provisions to structures serving asset protection. Articles 30f of the Personal Income Tax Act and 24a of the Corporate Income Tax Act provide for taxation of passive income of foreign companies controlled by Polish residents. Would such a protective structure, as in Yukos’s case, be subject to taxation under C.F.C. provisions?

The answer isn’t obvious, and in the practice of Polish tax authorities it hasn’t yet been fully tested. On the one hand, C.F.C. provisions are constructed very broadly and could potentially also cover income from companies serving mainly to protect assets from political risk. The letter of the law doesn’t distinguish between a company serving aggressive tax optimization and a company serving as a protection mechanism against illegal actions by authorities in the country of investment. On the other hand, the real economic function of such structures goes beyond classic tax avoidance—it’s about protection from confiscation or unlawful expropriation. Polish tax authorities should in such cases take into account the actual purpose and real risk that the structure is meant to counter, applying the principle of proportionality and considering the taxpayer’s interest in securing his assets.

In my practice as a strategic business adviser, I’ve repeatedly encountered the dilemma of clients planning investments in countries with high political risk. On the one hand, an offshore structure using a jurisdiction covered by a bilateral investment treaty provides real protection. On the other hand, the risk of qualifying such a company as a foreign controlled entity and taxing its income in Poland can significantly reduce the economic viability of the entire undertaking. In my view, Polish tax authorities should consider introducing an exclusion from C.F.C. provisions for companies serving to protect investments in high-risk countries, on condition of demonstrating real economic substance and real political risk. This would be consistent with the spirit of C.F.C. provisions, which are meant to prevent artificial shifting of income to tax havens, not to punish reasonable investment hedging against lawlessness.

 

The Dangerous Waters of Treaty Shopping

The Yukos case also shows the limits of permissible international structures. While the arbitration tribunal recognized that shareholders had a right to treaty protection, it simultaneously reduced compensation by a quarter, recognizing partial responsibility of the investors themselves. The tribunal explicitly stated that Yukos “abused low-tax regions and improperly used the tax treaty between Cyprus and Russia.” It’s a warning that even the most sophisticated offshore structures can encounter legal resistance if their main purpose is aggressive tax avoidance without economic justification.

Contemporary international tax law takes an increasingly critical approach to pure “treaty shopping”—that is, choosing jurisdictions solely to access favorable tax treaties without real business activity in that jurisdiction. B.E.P.S. provisions promoted by the O.E.C.D., the M.L.I. mechanism modifying hundreds of tax treaties, new Principal Purpose Test clauses being introduced into international agreements—all these instruments aim to limit the possibility of treaty abuse. If the Yukos case were playing out today, under the current legal situation, shareholders would probably have to demonstrate even stronger economic substance of their Cypriot and Manx companies to convince the tribunal of the structure’s authenticity.

 

When Offshore Becomes a Shield, Not a Sword

The Yukos story is fundamentally different from the cases of Apple, Google, or Amazon described in the context of aggressive tax optimization. These corporations’ offshore structures served mainly to minimize tax burdens in countries where business was actually conducted and revenues generated. It was classic gaming of loopholes and inconsistencies between different tax systems—completely legal from a formal standpoint but ethically questionable and socially controversial. When Amazon sells books to Polish customers, generating revenues in Poland but paying taxes in Luxembourg thanks to complicated licensing arrangements, society rightly feels cheated.

Yukos’s structures served a different function. It wasn’t about avoiding Russian taxes—indeed, Russia ultimately used tax charges as a pretext for destroying the company, which shows the irony of the situation. It was about protection from arbitrary and unlawful state action, which decided to appropriate private assets worth tens of billions of dollars. Yukos paid taxes in Russia—substantial taxes—using the same legal breaks and special zones used by hundreds of other companies. The problem wasn’t that Yukos didn’t pay taxes but that its owner became politically inconvenient. In this context, offshore structures became the last line of defense of property rights against authoritarian power.

This distinction has fundamental significance for the moral and legal assessment of offshore structures. When they serve solely to reduce tax burdens in countries with stable rule of law, where there’s no risk of unlawful expropriation but only a desire to reduce the state’s share of profits—they’re a controversial tool, often balancing on the edge of what’s socially acceptable. Taxes are the price we pay for civilized society, and deliberate avoidance—though legal—undermines the social contract. But when offshore structures serve to protect against a predatory state that violates its own law and international obligations, they become a legal instrument for defending property rights, a final bastion of Latin legal order against the barbarism of Byzantine power.