[Joint House and Senate Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
RUSSIAN VIOLATIONS OF THE RULE OF
LAW: HOW SHOULD THE U.S. RESPOND?
THREE CASE STUDIES
=======================================================================
HEARING
BEFORE THE
COMMISSION ON SECURITY AND COOPERATION IN EUROPE
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
__________
OCTOBER 20, 2015
__________
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COMMISSION ON SECURITY AND COOPERATION IN EUROPE
LEGISLATIVE BRANCH COMMISSIONERS
HOUSE
SENATE
CHRISTOPHER H. SMITH, New Jersey, ROGER F. WICKER, Mississippi,
Chairman Co-Chairman
ALCEE L. HASTINGS, Florida BENJAMIN L. CARDIN, Maryland
ROBERT B. ADERHOLT, Alabama JOHN BOOZMAN, Arkansas
MICHAEL C. BURGESS, Texas RICHARD BURR, North Carolina
STEVE COHEN, Tennessee JEANNE SHAHEEN, New Hampshire
ALAN GRAYSON, Florida TOM UDALL, New Mexico
RANDY HULTGREN, Illinois SHELDON WHITEHOUSE, Rhode Island
JOSEPH R. PITTS, Pennsylvania
LOUISE McINTOSH SLAUGHTER,
New York
EXECUTIVE BRANCH COMMISSIONERS
Vacant, Department of State
Vacant, Department of Commerce
Vacant, Department of Defense
[ii]
RUSSIAN VIOLATIONS OF THE RULE OF LAW:
HOW SHOULD THE U.S. RESPOND?
THREE CASE STUDIES
----------
October 20, 2015
COMMISSIONERS
Page
Hon. Christopher H. Smith, Chairman, Commission on Security and
Cooperation in Europe.......................................... 1
Hon. Roger F. Wicker, Co-Chairman, Commission on Security and
Cooperation in Europe.......................................... 3
WITNESSES
Stephen Rademaker, Principle with the Podesta Group, Former
Assistant Secretary of State for the Bureau of Arms Control and
the Bureau of International Security and Nonproliferation,
Department of State............................................ 4
Tim Osborne, Executive Director of GML Ltd., Majority Owner of
Now-Liquidated Yukos Oil Company............................... 8
Alan Larson, Senior International Policy Advisor with Covington &
Burling LLP, Former Under Secretary of State for Economics and
Career Ambassador, Department of State......................... 11
Vladimir Kara-Murza, Coordinator, Open Russia Movement........... 13
APPENDICES
Prepared statement of Hon. Christopher H. Smith.................. 26
Prepared statement of Hon. Roger F. Wicker....................... 28
Prepared statement of Hon. Benjamin L. Cardin.................... 29
Prepared statement of Stephen Rademaker.......................... 30
Prepared statement of Tim Osborne................................ 34
Prepared statement of Alan Larson................................ 40
Prepared statement of Vladimir Kara-Murza........................ 45
[iii]
RUSSIAN VIOLATIONS OF THE RULE OF LAW:.
HOW SHOULD THE U.S. RESPOND?.
THREE CASE STUDIES
----------
October 20, 2015
Commission on Security and Cooperation in Europe
Washington, DC
The hearing was held at 1:59 p.m. in room 2255, Rayburn
House Office Building, Washington, DC, Hon. Christopher H.
Smith, Chairman, Commission on Security and Cooperation in
Europe, presiding.
Commissioners present: Hon. Christopher H. Smith, Chairman,
Commission on Security and Cooperation in Europe; Hon. Roger F.
Wicker, Co-Chairman, Commission on Security and Cooperation in
Europe; and Hon. Robert B. Aderholt, Commissioner, Commission
on Security and Cooperation in Europe.
Witnesses present: Stephen Rademaker, Principle with the
Podesta Group, Former Assistant Secretary of State for the
Bureau of Arms Control and the Bureau of International Security
and Nonproliferation, Department of State; Tim Osborne,
Executive Director of GML Ltd., Majority Owner of Now-
Liquidated Yukos Oil Company; Alan Larson, Senior International
Policy Advisor with Covington & Burling LLP, Former Under
Secretary of State for Economics and Career Ambassador,
Department of State; and Vladimir Kara-Murza, Coordinator, Open
Russia Movement.
HON. CHRISTOPHER H. SMITH, CHAIRMAN, COMMISSION ON SECURITY AND
COOPERATION IN EUROPE
Mr. Smith. [Sounds gavel.] Good afternoon and thank you for
being here. It's great to be joined and to be working side by
side with our very distinguished co-chair, Senator Wicker. On
behalf of both of us, I welcome you to our hearing today.
We look forward to learning from our witnesses where the
Russian Government is in respect to the rule of law, and what
you recommend our government and the OSCE should do in response
to serious breaches that they have made, particularly in recent
years. In accord with the three dimensions of security provided
by the OSCE, we will look at Russia's respect for the rule of
law and in terms of its military security, commercial and human
rights commitments.
To focus our scrutiny, we have chosen three case studies
where the question is current in U.S.-Russian relations: arms
control agreements, the Yukos litigation and instances of
abduction, unjust imprisonment and abuse of prisoners.
Forty years after the signing of the Helsinki Final Act, we
face a set of challenges with Russia, a founding member of the
organization, that mirror the concerns that gave rise to the
Helsinki Final Act. At stake is the hard-won trust between
members, now eroded to the point that armed conflict rages in
the OSCE region. The question is open whether the Act's
principles continue to bind the Russian Government with other
states in a common understanding of what the rule of law
actually entails.
In respect to military security under the 1994 Budapest
Memorandum, Russia reaffirmed its commitment to respect
Ukraine's independence, sovereignty at existing borders. Russia
also committed to refrain from the threat or use of force or
economic coercion against Ukraine. There was a quid pro quo
here. Russia did this in return for transferring Soviet-made
nuclear weapons on Ukrainian soil to Russia. Russia's
annexation of Crimea and subsequent intervention in the Donbass
region not only clearly violate this commitment, but also every
guiding principle of the 1975 Helsinki Final Act.
It appears these are not isolated instances. In recent
years, Russia appears to have violated, undermined,
disregarded, or even disavowed fundamental and binding arms
control agreements, such as the Vienna Document, and binding
international agreements including the conventional forces in
Europe, Intermediate Nuclear Forces and Open Skies Treaties.
In respect of commercial issues, the ongoing claims
regarding the Russian Government's expropriation of the Yukos
Oil Company are major tests facing the Russian Government. In
July 2015, GML Limited and other shareholders were part of a
$52 billion arbitration claim awarded by The Hague Permanent
Court of Arbitration and the European Court of Human Rights
[ECHR]. In response, the Russian Government is threatening to
withdraw from the ECHR and seize U.S. assets should American
courts freeze Russian holdings on behalf of European claimants,
while filing technical challenges that will occupy the courts
for years to come.
All of this fundamentally calls into question Russia's OSCE
commitments to develop free, competitive markets that respect
international dispute arbitration mechanisms such as that of
The Hague. I note that the U.S.-Yukos shareholders are not
covered by The Hague ruling for their estimated $6 billion in
losses. This is due to the fact that the United States has not
ratified the Energy Charter Treaty under which European
claimants won their case.
So we look forward to learning more about the continued
absence of a bilateral investment treaty with Russia and how
that has handicapped U.S. investors in Russia's energy sector,
and whether the State Department should espouse shareholder
claims with the Russian Government.
Mr. Kara-Murza, we were all relieved and delighted to learn
that you are recovering from the attempt that was made on your
life by poisoning in Russia earlier this year. Your tireless
work on behalf of democracy in Russia, and your personal
integrity and your love of your native country, is an
inspiration. It is true patriotism, a virtue sadly lacking
among nationalistic demagogues.
Sadly, the attempt on your life is not an isolated
instance. Others have been murdered, most recently Boris
Nemstov, and both your case and his remain unresolved. In other
cases, such as the abductions, unjust imprisonments and abuses
of Nadia Savchenko, Oleg Sentzov, and Eston Kohver, we are
plainly dealing with public actions by the Russian Government.
Nadia, a Ukrainian pilot and elected parliamentarian, was
abducted by Russian Government agents, imprisoned, subjected to
a humiliating show trial, and now faces 25 years in prison for
allegedly murdering Russian reporters who, in fact, were killed
long after she was in Russian custody.
Meanwhile, the Russian court has sentenced Ukrainian film
director Oleg Sentzov on charges of terrorism. Tortured during
detention, Sentzov's only transgression appears to be his
refusal to recognize Russia's annexation of the peninsula and
his efforts to help deliver food to Ukrainian soldiers trapped
on their Crimean bases by invading Russian soldiers. And the
kidnapping and subsequent espionage trial against Estonian law
enforcement officer Kohver demostrates Russia's readiness to
abuse its law and judicial system to limit individual freedom
both within and beyond its borders.
I'd like to yield to my esteemed colleague, Co-Chairman of
the Commission.
HON. ROGER F. WICKER, CO-CHAIRMAN, COMMISSION ON SECURITY AND
COOPERATION IN EUROPE
Mr. Wicker. Thank you, Mr. Chairman. Those making
scheduling decisions have not cooperated with us today. It's
not their fault but we have some unfortunate conflicts. Because
of that I'll simply subscribe to your very fine opening
statement, ask permission to insert into the record at this
point a brief statement in lieu of making it verbally, and
thank each one of these distinguished panelists for being with
us today.
Mr. Smith. Thank you so very much, Senator Wicker.
I'd like to now turn to our witnesses. We are fortunate to
have with us four distinguished witnesses, some of whom have
traveled from overseas to help us better understand what is
happening in Russia and how Congress and our government can
encourage rule of law in Russia.
We'll begin first with the Honorable Stephen Rademaker, who
has had a long career in public service, working on national
security issues in the White House, State Department and both
houses of the U.S. Congress. He has worked directly on a number
of arms control issues, including the Treaty of Non-
Proliferation of Nuclear Weapons, and led U.S. strategic
dialogues with Russia. He has testified on numerous occasions
before the House Committee on Foreign Affairs, the House Armed
Services, my subcommittee, and has spoken repeatedly about
Russia's violations of arms control treaties.
We'll then hear from Mr. Tim Osborne, who is the Director
of GML Limited, the majority owner of the now-liquidated Yukos
Oil Company. On behalf of GML shareholders, Mr. Osborne has
been at the forefront of the suit against Russian Federation
for the discriminatory expropriation of Yukos Oil Company and
its assets.
GML filed a claim under the terms of the 1994 Energy
Charter Treaty based on the Russian Federation's failure to
protect the company's investments in Russia. The Energy Charter
Treaty arbitration and the subsequent $50 billion award on
behalf of the claimants--yet to be enforced--is the largest
ever filed. Mr. Osborne has regularly given guidance to several
government inquiries focused on the Yukos affair and the
current situation in Russia. Welcome, Mr. Osborne.
We'll then hear from Ambassador Alan Larson, an economist
and decorated diplomat, having served as secretary of state for
economics, and assistant secretary of state for economic
business affairs, as well as ambassador to the OECD. He has
helped win approval of the U.S. Committee on Foreign
Investments in the U.S. for some of the highest-profile foreign
investments in the U.S., including several state-owned
companies and sovereign wealth funds. He is currently with
Covington & Burling, assisting U.S. Yukos shareholders,
pursuing compensation for their illegally expropriated shares.
He has also testified on multiple occasions for the House and
Senate.
And finally we'll hear from Mr. Vladimir Kara-Murza, who is
a coordinator of the Open Russia Movement, a platform for
democracy. He was a longtime colleague and adviser to Russian
opposition leader Boris Nemstov and deputy leader of the
People's Freedom Party, established and led by Mr. Nemstov.
Mr. Kara-Murza has been a journalist, a candidate for the
Russian parliament and a Russian presidential campaign manager.
He has also testified on the human rights situation in Russia,
both in the U.S. and in Europe, including speaking in support
of the U.S. Magnitsky Act as well as calling for similar
legislation in Europe.
We are joined by Mr. Aderholt. Any opening comments?
Mr. Aderholt. No, I'm good. Go ahead.
Mr. Smith. OK. So I'd like to now yield to Mr. Rademaker
for his opening statement.
STEPHEN RADEMAKER, PRINCIPLE WITH THE PODESTA GROUP, FORMER
ASSISTANT SECRETARY OF STATE FOR THE BUREAU OF ARMS CONTROL AND
THE BUREAU OF INTERNATIONAL SECURITY AND NONPROLIFERATION,
DEPARTMENT OF STATE
Mr. Rademaker. Thank you very much, Chairman Smith and Co-
Chairman Wicker, Mr. Aderholt. I very much appreciate the
opportunity to speak to you today on this subject. I do need to
begin with an apology. I have to leave at 3:00 to catch an
airplane. I think that was understood when I agreed to do this,
but I'll stay as long as I can and then, with apologies, leave.
As you indicated, Mr. Chairman, in your opening statement,
this panel is to look at the three dimensions of the OSCE and
Russia's compliance with the rule of law across those three
dimensions. I've been asked to focus on the security dimension
and particularly focus on Russia's compliance with five arms
control-type agreements, the Budapest Memorandum of 1994, the
Conventional Forces in Europe Treaty of 1990, the Intermediate
Range Nuclear Forces Treaty of 1987, the Open Skies Treaty of
1992, and the Vienna Document on confidence- and security-
building measures first agreed in 1990 and most recently
updated in 2011.
What I do in my prepared remarks is go through each one of
these and sort of summarize what the agreement provides for.
Then I look at how Russia has complied or failed to comply. And
then at the end of my prepared remarks I draw some overall
conclusions about what we can expect from Russia and why
they're behaving as they are. Here I just intend to summarize,
and briefly I'll run through those five agreements.
The first one is the Budapest Memorandum. And, Mr.
Chairman, you spoke pretty clearly to that. It's worth
recalling that in 1994 Ukraine was the proud owner of the
world's third-largest nuclear arsenal. They had inherited it
from the Soviet Union. And what the Budapest Memorandum was
about was persuading Ukraine to give up the world's third-
largest nuclear arsenal. As part of that they received some
security assurances from, among others, Russia. And I'll just
quote what the relevant assurance was because it's quite
remarkable in the context of what's happened over the last year
or so.
Russia, among others, pledged--and I'll just quote here--
pledged to ``reaffirm their obligation to refrain from the
threat or use of force against the territorial integrity or
political independence of Ukraine.'' Obviously the Russians
have made a mockery of that since last year. They've been
called on that by the Obama administration and by everyone
else. And it does raise questions about whether countries in
Ukraine's situation in the future, who are being asked to make
sacrifices in the nuclear proliferation area in exchange for
security assurances, whether they will take those assurances
seriously given what's happened with implementation of the
Budapest Memorandum.
The CFE Treaty was the conventional arms control agreement
applicable to Europe. It was a very important agreement. It
helped bring about the end of Cold War tensions in Europe. But
throughout the 1990s Russia became increasingly uncomfortable
with it, and in 2007 President Putin simply announced that
Russia would suspend--and that was the term he used--he would
``suspend'' Russia's implementation of the treaty.
There is no provision in the treaty for suspension of
implementation so the reaction of the other parties has been to
say that that's simply not a permissible option. But, by 2011,
it was evident that Russia was not going to come back into
compliance, so as of today the treaty remains in force among
the other parties, but Russia does not submit to inspections
and data exchanges under the treaty and we don't allow Russia
to do inspections in other countries as a corresponding
measure.
And I think the fundamental issue here is Russia simply
concluded this treaty was not serving their interests as they
were fighting wars in places like Chechnya. And there were
issues about their deployments of forces in Georgia and in
Abkhazia and South Ossetia, as well as in Moldova. So for them
the treaty became an irritant and they simply disposed of it.
The INF Treaty is a commitment by the United States and
four of the former Soviet states to not possess intermediate-
range missiles; that is, missiles with ranges between 500 and
5,500 kilometers. This is another treaty that Russia has become
increasingly unhappy with over the years, and as of last July
the Obama administration concluded that Russia was in violation
of the treaty because they were testing a missile of INF range
in violation of the treaty. It took the administration a while
to come to that conclusion. I think they were--they appeared to
be reluctant to come to that conclusion but the facts forced
them to do so. Russia claims that it's still in compliance. It
disputes the notion that it's violating that treaty, but the
position of the United States Government is that Russia is in
violation of the INF Treaty.
The Open Skies Treaty is a regime of aerial inspections
using photography and other sensors. Flights from states'
parties overfly the territory of other members. Russia complies
with the Open Skies Treaty but they have adopted a number of
measures that are inconsistent with the spirit of the Open
Skies Treaty. There's an obligation under the treaty to make
all of your national territory available for aerial observation
and they have declared a number of zones to be off limits,
including over Moscow, over Chechnya, near Abkhazia and South
Ossetia. And most recently they adopted a new set of
restrictions that makes it very hard to conduct observation in
the Kaliningrad enclave.
Finally, the Vienna Document is not a treaty; it's a
confidence- and security-building measure [CBSM], voluntary
measures that the members have agreed to take. I'll just read
what the Obama administration said about Russia's compliance
with the Vienna Document in this year's Arms Control Compliance
Report. The administration stated: ``The United States assesses
Russia's selective implementation of some provisions of the
Vienna Document and the resultant loss of transparency about
Russian military activities has limited the effectiveness of
the CBSM regime.''
So this term ``selective implementation'' is really the
term that the Obama administration has come up with to describe
what Russia is doing. I think the most vivid illustration is
that, as they conduct military exercises along the border with
Ukraine and conduct military operations along that border, it
would appear that they need to report those under the Vienna
Document transparency regime.
They've not been doing that, and they've been offering
technical arguments about why they're not required to. They
claim that the troops aren't under unitary command. And they
have similar hairsplitting explanations of why they're not
complying, which raise questions about either whether they're
being truthful about the nature of the operations or whether
they've--alternatively, perhaps, they structured the operations
in a way to evade the compliance, the reporting obligation. But
either way, they are not acting consistent with the spirit of
the Vienna Document.
I'm probably running out of time, so I'll just quickly
conclude by saying that I think the overall pattern that
emerges here is clear. Russia will comply with arms control
agreements to the extent it considers them to be in their
interests, but the moment they conclude that they're no longer
in their interest they will stop complying. And you can see the
pattern with the Budapest Memorandum. They're simply ignoring
it and acting inconsistently with it. In the case of the CFE
Treaty, they've effectively terminated it. In the case of the
INF Treaty, they continue to pay lip service to the treaty but
they are judged to be in violation of it. And then for Open
Skies and the Vienna Document, they're selectively implementing
them in a way that suits their interests.
What can we do about this? You know, I address that in my
prepared remarks. The bottom line is I think it's a difficult
problem. I don't think we're going to be able to reason with
the Russians about this. The things they are doing are
strengthening support for the NATO alliance in Central and
Western Europe. They're reviving the interest of some of the
countries that are not currently in NATO. Countries along
Russia's borders are more interested in joining NATO after
observing what the Russians are doing.
So, taking the Russians at their word about what they're
most concerned about, the policies they're following seem to be
backfiring. But explaining that to the Russians, in my personal
experience, is not a very productive way to go. They don't like
being lectured by foreigners about what's in their national
interest. They think they're the best judge of their national
interests. So I'm not optimistic that we can reason with them
about what they're doing here.
We can try and sanction them. In fact, arguably that's what
we're doing over Ukraine. We're sanctioning them to try and
come back into compliance with the Budapest Memorandum. You
know, I guess I'd say the sanctions so far obviously have not
reversed their policy, and personally I have a hard time
imagining some combination of additional economic sanctions
that we could apply on Russia that would yield a different
outcome. I'm interested to hear suggestions of what might work,
but personally I'm skeptical that there is some formula out
there of additional economic sanctions that would persuade
Russia to change course.
So the final option is one that Fred Ikle, who was
something of a scholar about arms control compliance, suggested
in really kind of the seminal article in 1961 on what to do
when arms control treaties are violated. He made the
observation that, ``political sanctions are likely to be less
effective than an increased defense effort,'' in response to
arms control violations. So I think that observation is true,
but I guess the Russians seem to be calculating that there's
not the will in the United States and among other NATO members
to respond to what they're doing through an increased defense
effort at this point.
So if we have no good options for persuading the Russians
to change course, I think we're just going to have to be
patient and deal with them as they are in the meantime. I'm
confident that, in the long term, Russia will realize that it's
not in their national interest to have a confrontational policy
or policy of intimidation toward their neighbors in Europe, but
they don't seem to have recognized that today, and I think we
just need to wait until they come around.
Mr. Aderholt. Thank you for your--for your testimony.
As you can probably hear from the buzzer, we have been
called for votes. So we're going to do a short recess here and
allow Congressman Smith and myself to now go cast our votes. So
we'll just take a short recess for a few minutes and pick back
up probably after--I think there's three more votes.
Mr. Smith. I expect members will be returning between 2:30
and 2:35.
[Recess.]
Mr. Smith. The Commission will resume its hearing. And
again, I want to apologize to all of you, including our
witnesses, for that break. We don't expect another vote until
about six o'clock. So unless we get a fire drill, we'll be OK.
So, had you finished or----
Mr. Rademaker. Yes, Mr. Chairman, I concluded my remarks.
Mr. Smith. Thank you very much. Mr. Osborne?
TIM OSBORNE, EXECUTIVE DIRECTOR OF GML LTD., MAJORITY OWNER OF
NOW-LIQUIDATED YUKOS OIL COMPANY
Mr. Osborne. Thank you. Mr. Chairman, thank you for
inviting me to today to testify concerning the economic
dimension of the Helsinki process, specifically the Russian
Government's failure to uphold the rule of law in the Yukos
case. My name is Tim Osborne. I'm a director of GML Limited,
the indirect majority shareholder of the former Yukos Oil
Company.
The Russian Federation's actions with regard to Yukos are a
case study on Russia's behavior and a cautionary tale on the
risks of investing in the Russian market. I've been involved in
two separate legal processes surrounding the Yukos case in
which Russia has clearly demonstrated its attitude to its
international legal obligations and the rule of law. Today I
will address the following key points: Russia's violations of
its international legal obligations in the Yukos affair; the
importance of rule-of-law mechanisms, specifically the Energy
Charter Treaty and the New York Convention; and GML's ongoing
enforcement and collection actions in the United States and
globally.
GML Limited, through its wholly owned subsidiaries and
Veteran Petroleum Limited, a pension fund for Yukos employees,
owned approximately 70 percent of Yukos. When Yukos was
nationalized in 2004, through spurious tax claims and rigged
auctions, we tried very hard to talk to the Russian Federation
to reach a reasonable compromise, and have tried many times
since. These approaches are mainly ignored but otherwise
completely rejected.
Consequently, in 2005, Hulley, Yukos Universal, and Veteran
filed suit and began arbitrations under the Energy Charter
Treaty at the Permanent Court of Arbitration in The Hague. The
Energy Charter Treaty is a multilateral investment treaty
reached in 1994 to promote investment in the energy sector of
the former Eastern Bloc nations and included a dispute
resolution mechanism for disputes between investors and host
countries.
In July 2014, the independent arbitration panel concluded
that the Russian Federation had, in violation of the Energy
Charter Treaty, expropriated Yukos and without paying any
compensation. The tribunal awarded damages to Hulley, Yukos
Universal, and Veteran in excess of $50 billion. This is the
largest amount of damages ever awarded in a commercial
arbitration and would not have been possible without the use of
the Energy Charter Treaty.
Russia has applied to the court in The Hague to have the
award set aside. This is not an appeal but a limited right to
have certain aspects of the award reviewed by the court. In
particular, Russia has the right to ask the court to consider
in full whether there was, in fact, a binding arbitration
agreement. In my view, the application to set the award aside
has little chance of success and is nothing more than a further
delaying tactic. The Russian Federation's strategy throughout
the arbitration process was primarily to delay matters as much
as possible.
Another important rule-of-law element to this case is that
there is a mechanism to allow collection of the awards. The New
York Convention is a multinational treaty signed by over 150
countries, including Russia. It provides a framework for the
recognition and enforcement of arbitration awards. In order to
enforce an award it must first be recognized or confirmed by
the local court.
Once recognition is complete, then the award becomes a
binding ruling of the local court and is enforceable as such.
Enforcement is effected by identifying and claiming relevant
assets belonging to the defendant's sovereign government.
Enforcement usually is not possible against diplomatic,
noncommercial assets of a sovereign state used for sovereign
purposes, e.g., embassy buildings.
Enforcement and collection of the awards is not simply
theoretical. It is happening as we speak. In the United States
we commenced our recognition action, here called confirmation,
by issuing proceedings in the district court in Washington. The
court gave permission for the papers to be served on the
Russian Federation. Russia has appointed a leading U.S. law
firm to represent it, and the Russian Federation's deadline for
filing its opposition brief was yesterday. They filed late last
night, and it's a voluminous filing which we have not yet read,
but it will give you some indication if I tell you it took six
hours for them to upload the papers.
We've commenced similar processes in the United Kingdom,
France, Belgium, and Germany. In France and in Belgium the
awards have been recognized already. Exequaturs have been
issued, and these permit immediate enforcement against Russian
Federation assets in each jurisdiction. With regard to real
estate, a notary has been appointed by the Belgian court to
sell the properties, and in France the same should happen in
December. In both France and Belgium we've frozen bank accounts
where Russian Federation money is being held.
In due course we will also look at enforcement against
assets of state-owned and/or state-controlled companies such as
Gazprom and Rosneft. The Russian Federation will no doubt argue
that such entities are separate and independent of the Russian
State and thus do not hold Russian State assets. It will be for
us to convince the court that they're agents of the state. The
Hague tribunal specifically opined that Rosneft was an agent of
the Russian Federation in the expropriation of Yukos.
Russia has threatened retaliation against nations who
enforce the awards. The Russian Ministry of Foreign Affairs
wrote to the U.S. Embassy claiming that the awards were an
unjust and politically motivated act ``incompatible with the
ideas of the rule of law, independent, impartial and
professional international justice.'' This is their position
despite the fact that Russia had participated fully in the ECT
process and had indeed appointed one of the arbitrators.
The Russian Ministry of Foreign Affairs goes on to say that
if the U.S. courts allow recognition and enforcement against
Russian property in the USA, this will be considered by the
Russian Federation as grounds--and I quote--``for taking
adequate and proportionate retaliatory steps in relation to the
USA, its citizens and legal entities.'' This is set out in the
State Department's letter of July 17th, 2015, to the United
States District Court, and a copy of that's been provided to
you.
I believe this letter succinctly sets out Russia's general
attitude to the rule of law and its attitude to international
legal obligations. Russia has communicated that same message to
the governments of France and Belgium. It hasn't said the same
to the U.K. We don't know why the U.K. has been left out yet.
The second lawsuit that I would like to bring to your
attention is a case brought before the European Court of Human
Rights by Yukos itself. The case was brought by the Yukos
management on behalf of all Yukos shareholders and complained
about the expropriation of Yukos.
On July 31st, 2015, the European Court of Human Rights
awarded damages of approximately 1.9 billion euros--roughly
$2.2 billion dollars--again the largest award ever made by the
European Court of Human Rights. The Russian Federation was
ordered to agree to a distribution plan for compensation
payable to shareholders with the Committee of Ministers by June
15th, 2015. Despite prompts from the Committee of Ministers,
Russia has stated that it is not developing any plans to
compensate Yukos shareholders and that further actions in
relation to the European Court of Human Rights' decision will
be based on, quote, ``national interests.''
In closing, I'd like to leave you with these four thoughts:
It is clear that the Russian Federation is not honoring its
obligations and commitments under the rule of law or in a
manner consistent with the Helsinki process. Russia's tendency,
more often than not, has been to ignore, delay, obstruct or
retaliate when faced with its international law
responsibilities. Russia's general prevarication on all matters
related to Yukos, its threats to the U.S., French, and Belgian
Governments and the claims that it can ignore its international
obligations if that best suits its national interest
demonstrate unequivocally that Russia cannot be trusted in
international matters, and that even when it has signed up to
international obligations, it will ignore them if it is what it
thinks serves it best.
I don't have any solutions. We are very pleased we're in a
legal process that we can rely on courts where the judges
follow the law and not the direction from their political
masters. We will continue with that process, I suspect, for
many years. I hope my testimony has shed more light on Russia's
behavior and demonstrated the need to encourage Russia to
adhere fully to the rule of law. I appreciate the opportunity
to share my views and thank you for your time. I'm happy to
answer any questions.
Mr. Smith. Thank you so very much, Mr. Osborne. I'd like to
now yield the floor to Ambassador Larson.
Amb. Larson. I'd like to submit my prepared statement for
the record and summarize it briefly now. My name is Alan
Larson.
Mr. Smith. Without objection, so ordered.
ALAN LARSON, SENIOR INTERNATIONAL POLICY ADVISOR WITH COVINGTON
& BURLING LLP, FORMER UNDER SECRETARY OF STATE FOR ECONOMICS
AND CAREER AMBASSADOR, DEPARTMENT OF STATE
Amb. Larson. Thank you. I'm senior international policy
adviser at Covington & Burling LLP. I also serve as chairman of
the board of directors of the U.S. chapter of Transparency
International.
Earlier in my career I was a career foreign service officer
and served as undersecretary of state for economic affairs
during the administrations of Bill Clinton and George W. Bush.
My testimony has been informed by those experiences but the
views I'm expressing today are my own.
The Helsinki framework is grounded in the realization that
lasting security, meaningful economic cooperation, and respect
for human rights are interlocking goals. They all rest on a
common foundation: respect for the rule of law and for
international agreements.
In 2012, I testified before the Senate Finance Committee
and urged Congress, immediately and unconditionally, to extend
permanent normal trade relations [PNTR] to Russia. I said then,
and believe now, that it was a good thing for Russia to join
the World Trade Organization. By doing so, it began to apply
the rule of law in its trading relationships with the United
States and other WTO members.
At the same time, I noted that there was more work to do
and that it was important for Russia to apply the rule of law
to other aspects of the economy, notably investment protection
and the control of corruption. I was very grateful that when
Congress ultimately enacted PNTR, it included Section 202,
which contained what I have referred to as the rule of law for
business agenda.
In this section of the PNTR legislation, Congress called on
the administration to take a number of steps and to report
annually on the progress achieved, including engaging Russia on
corruption and advocating for U.S. investors in Yukos Oil
Company. My firm represents the American investors in Yukos Oil
Company. We believe that they suffered a loss of some $14
billion when Yukos was dismantled. As you said, the United
States is not a member or signatory of the energy charter
treaty; however, the United States did negotiate a bilateral
investment treaty with Russia in 1992. Unfortunately, Russia
did not ratify that treaty. And so the American investors do
not have a direct means of investor-state dispute settlement.
Mr. Chairman, the reports of the administration on Section
202 in the last few years have not been encouraging. Russia has
backtracked on its anticorruption efforts. There's no
indication that Russia is ready to compensate American
investors in Yukos Oil Company. This is especially
disappointing since three separate
investor-state dispute settlement panels have each ruled
unanimously that Russia expropriated Yukos and owes
compensation to foreign investors in the company.
More generally, the Russian federation has not adhered to
the Helsinki framework. In 2014, Russia's occupation of Crimea
was a clear violation of the commitments Russia made in the
Budapest Agreement of 1994. Russia has continued to intervene
in eastern Ukraine, in violation of the Minsk Agreement of
2014. Russia also has failed to comply with the human rights
and humanitarian dimensions of the Helsinki framework. Russian
authorities have cracked down on civil society and government
critics, while curtailing freedom of expression.
The destruction of Malaysia Airlines Flight 17 is another
very, very troubling example of Russia's failure to respect the
rule of law. The United States and the European Union, among
others, have responded to Russia's conduct in Ukraine by
imposing sanctions.
It's important for the United States to hold Russia to
account. But to be effective in calling other countries to
account, we must maintain the highest standards of our own
compliance with Helsinki.
In my written testimony, I've drawn attention to some
recommendations of Transparency International USA in respect of
increased transparency on the financing of election activities,
as well as targeted provisions related to beneficial ownership
and undisclosed self dealing. I believe that action on these
recommendations would further strengthen the platform the
United States is on when it seeks to hold Russia accountable.
In summary, Mr. Chairman, I recommend that Congress and the
administration take the following steps: First, recognize that
respect for the rule of law is a strategic objective that lies
at the heart of the security, economic and commercial, and
human rights dimensions of the Helsinki framework. Two, ensure
that Russia is held accountable for its actions in Ukraine,
including its occupation of Crimea and its interference in
eastern Ukraine. Three, press Russia to implement the rule of
law for business agenda that Congress included in Section 202
of the Russia PNTR legislation. Four, make clear that American
shareholders in Yukos Oil Company must be fully compensated.
Five, seriously engage Russia on the anticorruption agenda.
Six, urge Russia strongly to open up more political space for
civil society to operate in Russia. Seven, maintain a common
line with the European Union and others on sanctions policy
related to Ukraine. And eight, demonstrate that the United
States itself is seriously committed to lead by example. And in
this regard, give due consideration to the recommendations that
Transparency International USA has called for and which are
included in my testimony.
I wanted to conclude by thanking you for the opportunity to
testify. I believe that Russia's non-compliance with the
Helsinki framework is a very serious foreign policy challenge
that demands a thoughtful, a firm, a bipartisan, and a
sustained response. I would be pleased to address any questions
or comments you may have.
Mr. Smith. Thank you, Mr. Ambassador. And I'd like to now
yield the floor to Mr. Kara-Murza.
VLADIMIR KARA-MURZA, COORDINATOR, OPEN RUSSIA MOVEMENT
Mr. Kara-Murza. Thank you very much, Mr. Chairman. And
thank you for holding this important and timely hearing and for
your invitation to testify. It is an honor to appear before the
Commission. This year marks the 40th anniversary of the
Helsinki Final Act. And while many things have changed since
its signing, one unfortunate fact remains the same. Just as the
Soviet Union did in 1975, the Russian Federation today, after a
brief democratic interlude of the 1990s, treats the human
rights commitments undertaken under the Helsinki process as a
dead letter.
Freedom of expression, which is guaranteed under the
Copenhagen document and other OSCE statutes has been an early
target of Vladimir Putin's regime. One after another,
independent television networks were shut down or taken over by
the state. Today, the Kremlin fully controls the national
airwaves, which it has turned into transmitters for its
propaganda, whether it is to rail against Ukraine and the
United States, or to vilify Mr. Putin's opponents at home,
denouncing them as, quote, ``traitors,'' end of quote. One of
the main targets of this campaign by the state media was
opposition leader Boris Nemtsov, who was murdered in February
of this year, 200 yards away from the Kremlin.
The right to free and fair elections is another OSCE
principle that remains out of reach for Russian citizens today.
In fact, the last Russian election that was recognized by the
OSCE as conforming to basic democratic standards was held more
than fifteen years ago, in March 2000. Every vote since then
has fallen far short of the principles outlined in the
Copenhagen document that requires member states to, and I
quote, ``enable political parties to compete with each other on
a basis of equal treatment before the law and by the
authorities,'' end of quote. This is from paragraph 7.6 of the
Copenhagen document.
In reality, opponents of Mr. Putin's regime have received
anything but equal treatment at the ballot--if, indeed, they
were allowed on the ballot at all. In many cases, opposition
candidates and parties are simply prevented from running, both
at the national and at the local level, leaving Russian voters
with no real choice. According to the OSCE monitoring mission,
the last election for the state Duma, which was held in
December 2011, was marred by, and I quote, ``the lack of
independence of the election administration, the partiality of
most media, and the undue interference of state authorities at
different levels,'' end of quote. It was evidence of widespread
fraud in that vote that led to the largest pro-
democracy protests under Mr. Putin's rule, when more than
100,000 people went to the streets of Moscow to demand free and
fair elections.
Another disturbing feature of today's Russia is reminiscent
of the Soviet era. According to Memorial, Russia's most
respected human rights organization, there are currently fifty
political prisoners in the Russian Federation. This is using
the definition of the Council of Europe, that is, prisoners
whose, and I quote, ``detention is the result of proceedings
which were clearly unfair, and this appears to be connected
with political motives of the authorities,'' end of quote.
These prisoners include opposition activists jailed under the
infamous Bolotnaya case for protesting against Mr. Putin's
inauguration in May 2012, the brother of anticorruption
campaigner Alexei Navalny, and Alexei Pichugin, the remaining
hostage of the Yukos case.
This list is not limited to just Russian citizens. As you
mentioned in your open statement, Mr. Chairman, last year, two
foreigners--Ukrainian military pilot Nadiya Savchenko and
Estonian security officer Eston Kohver--were abducted on the
territories of their respective countries and put on trial in
Russia. Kohver was released last month in a Cold War-style
prisoner exchange across the bridge. Savchenko's trial is still
underway. And as you also mentioned, another Ukrainian
prisoner, the filmmaker Oleg Sentsov, was recently sentenced to
20 years in jail on the charges of, quote, ``terrorism,'' end
of quote, for protesting against the Kremlin's annexation of
his native Crimea.
Needless to say, Mr. Chairman, it is a task for Russian
citizens to improve the situation with rule of law in our
country. But, contrary to the oft-rehearsed claims by Kremlin
officials, human rights, and I quote, ``are matters of direct
and legitimate concern to all participating states and do not
belong exclusively to the internal affair of the state
concerned,'' end of quote, as is explicitly stated in the OSCE
document adopted, of all places, in Moscow. It is important
that fellow member states, including the U.S., remain focused
on Russia's OSCE commitments, especially as we approach the
parliamentary elections scheduled for September the 18 of this
coming year. It is important that you speak out when you
encounter violations of these commitments.
Above all, Mr. Chairman, it is important that you remain
true to your values. Nearly three years ago, Congress
overwhelmingly passed, and President Obama signed, the Sergei
Magnitsky Rule of Law Accountability Act, of which I believe
you were a co-sponsor. And in my view, this is one of the most
principled and honorable pieces of legislation ever adopted.
This law is designed to end the impunity for those who continue
to abuse the rights of Russian citizens by denying these people
the privilege of traveling to and owning assets in the United
States--a privilege many of them so greatly enjoy.
Unfortunately, implementation of this law remains timid, with
only low-level abusers targeted so far. Implementing the
Magnitsky Act to its full extent and going after high-profile
violators would send a strong message to the Kremlin that the
U.S. means what it says, and that human rights will not be
treated as an afterthought but as an essential part of
international relations.
Thank you very much, and I look forward any questions you
may have.
Mr. Smith. Thank you so very much for your testimony and
for your bearing up under such incredible pressure. And again,
we're so grateful to God that you have survived an attempt on
your life.
Let me just ask you--my first trip to the Soviet Union at
the time was in 1982 on behalf of Soviet Jewish refuseniks. A
few years later got into Perm camp and, many of us thought that
glasnost and perestroika would really yield to a robust
democracy. How far down the pegs, in your opinion, has Russia
descended? Remember when we were talking about a peace dividend
after the breakup of the Soviet Union, which never really
happened? And we've seen that on a whole host of fronts--the
old KGB went into a--many of those people went into trafficking
and a whole bunch of nefarious affairs. But it is as if the old
Soviet Union, especially with Russia as its core, is being
reconstituted, and the same old means of repression are
manifesting themselves. And your insight as to how bad has it
gotten, compared to where it once was?
Mr. Kara-Murza. Well, thank you for the question, Mr.
Chairman. Well, we did have many problems in the 1990s, to be
sure, but in the 1990s we had real competitive elections, we
had a real parliament with a genuine opposition, and we had
pluralism in the media with robust and independent television
stations, for example. This is what Mr. Putin inherited when he
assumed power almost 16 years ago.
Today, as I mentioned in my statement, we have none of
that. We have a rubber-stamp parliament that approves every
single repressive measure coming from the Kremlin. The
opposition is being, in many cases, banned from running in
elections. When it is allowed, it's harassed and not allowed to
campaign. Most of the media--especially electronic media,
television networks--have become propaganda outlets for the
regime. We have no working judicial system. The courts have
become obedient tools for the Kremlin in its political
repressions. Among other things, I mentioned the number of
political prisoners we have today.
So it really is very bad. But what gives me hope as I
travel around Russia and the regions as we--you know, what we
do at Open Russia is to try to build the widest possible
platform for democracy and civil society activists. And I see
many people outside of Moscow and St. Petersburg also, who want
a normal, democratic, rule-of-law based, European future for
our country.
And this is why, despite the fact that the last few months
have been especially bad and especially dark, especially since
Boris Nemtsov was murdered--the leader of the Russian
opposition--I still remain optimistic in the long term that we
have a future based on justice and freedom and the rule of law,
that we're not destined to remain under the system we have now.
And you know, Soviet dissidents used to have this saying, night
is darkest before the dawn. And it's certainly very dark now,
but I'm still hopeful for the future.
And actually, while there are very many things--and it's
very important that you bring up this issue--very many things
that are similar so the Soviet regime's practices--censorship,
political prisoners, the absence of free elections and so
forth--there is one important difference in the nature of the
regimes. And that is that while they harassed and imprisoned
dissidents, Brezhnev, Suslov, Andropov and the like did not
hold bank accounts in the West. They did not send their kids to
study in the West. They did not buy yachts and villas in the
West.
The leaders of the current regime do all that. They want to
rule over Russia in the manner of, you know, Zimbabwe or
Belarus, but they themselves want to enjoy all the privileges
and the perks that the free world has to offer. And this is why
I think the Magnitsky Act and the Magnitsky-type sanctions are
so important, because they strike at the very heart of this
rotten system. And it ends this double standard. It ends this
impunity. And I think it's very important that you continue on
this path of sanctioning--not sanctions against Russia as a
country, but sanctions--personal, targeted sanctions against
those human rights abusers and those corrupt officials who take
advantage of our country and rob it of its future.
Mr. Smith. And it is your testimony that the administration
has been, quote, ``timid,'' in implementing Magnitsky?
Mr. Kara-Murza. I believe so, because if you look at all
the names they've added over the past three years, they've been
mostly low level--not mostly, all of them have been low-level
abusers--you know, fall guys, essentially. I'm not saying these
people aren't responsible. Of course they should be targeted
also. But there shouldn't be this glass ceiling, as it were, in
the implementation of the Magnitsky Act. It should be applied
to all the abusers, regardless of their rank, regardless of
their position.
And there was actually a case in this country--outside of
the Magnitsky Act--it was a separate case. In fact, the co-
chairman of this Commission, Senator Wicker, last year
requested that the FBI open an investigation under the anti-
money laundering legislation, the Foreign Corrupt Practices
Act, into a person called Mikhail Lesin, who was head of
Gazprom-Media at the time, the largest state propaganda outlet
of Mr. Putin in Russia today. And it was found that he
purchased luxury real estate in California. And so Senator
Wicker requested that the FBI open an investigation. They did
open an investigation last December. And a few days after they
opened the investigation, Mr. Lesin had to step down from his
post.
This is just to illustrate that this process is effective.
These personally targeted sanctions are effective. And it's my
sincere hope that the U.S. administration is not timid, but is
bold and committed about going forward with these sanctions
against these abusers and human rights violators.
This is a pro-Russian measure. When the Kremlin says it's
an anti-Russian measure, they're wrong, as they are on so many
things. And these measures are actually popular with the
Russian people, as several opinion polls have showed, because
the Russian people understand this this is not against the
country. This is against the bad guys. And I hope you'll
continue with this work.
Mr. Smith. Let me ask you, Mr. Osborne, are there other
cases where Russia either lost their decision, as they lost in
your case? And have they paid?
Mr. Osborne. There have been two other cases on the Yukos
facts, brought--one under the U.K.-Russia bilateral investment
treaty, and one by Spanish investors under the Spanish-Russia
bilateral investment treaty. Both of those decisions were
exactly the same as ours, that Russia had expropriated the
assets illegally and should pay compensation. The RosInvestCo
case collapsed because the award of damages was not sufficient
to warrant the investors moving forward to the appeals in
Sweden. The Spanish investors are currently litigating in
Sweden on the appeal and the jurisdictional decision. So that's
ongoing. So Russia hasn't paid anybody, anywhere, at the
moment.
Mr. Smith. You mentioned that they did a filing last night,
and it's voluminous.
Mr. Osborne. It's voluminous, and in the United States. And
they're arguing, basically, that there's no jurisdiction for
the U.S. court, and that at any rate it holds sovereign
immunity. So then New York convention does not apply because of
certain specific arguments, which I haven't yet had a chance to
look at.
Mr. Smith. Again, what has been the timeline? How many
years to date? And how many more years do you think, especially
with their ability to try to run out the clock somehow?
Mr. Osborne. Well, we started this case in 2005. And we got
the final arbitration award in July of 2014. So that was about
nine years. We now have--because we're just assuming Russia is
never going to pay--so we have to collect. That could easily
last another nine or ten years, but it's incremental. We can go
country to country, asset to asset. So we will start, I
believe, collecting assets in France and Belgium next year.
It'll take longer in the U.K. and the U.S. because under the
common law regime you have to complete recognition before you
move to enforcement.
But we will keep going. We are determined to enforce this
award. We believe in the award. We believe in the rights of the
shareholders to collect under this award. The expropriation was
illegal. And as I said before, we are very pleased that we have
access to courts where the rule of law does apply and there's a
separation of power between the court and the politicians, so
that we can rely on the judges to reach the right decisions,
and they will just apply the law as they interpret it. That's
all we've ever asked for.
Mr. Smith. And Mr. Larson, in your testimony you said there
is no indication that Russia is convinced that compensation for
American investors is a priority. For the U.S. government,
there is certainly more than the administration can and should
do to advance the rule of law for the business agenda that
Congress mandated in Section 202.
Could you elaborate on that? I mean, what haven't we done?
Is it not part of--I mean, I know they were working on issues
related to Iran, a flawed agreement from my point of view. But
Lavrov and John Kerry saw each other frequently, or at least
they were in the same floor--[laughs]--if not in the same room.
Is it just that it's just out of sight, out of mind, they never
raised this? Are there others that ought to be raising it?
Amb. Larson. Thank you for the question, Mr. Chairman. I'd
make two or three observations. First of all, as Mr. Osborne
has just said, this is going to be a long-term effort under the
best of circumstances, especially since the U.S. shareholders
who accounted for, collectively, 12 percent of the company, and
some 14 billion [dollars] in losses, you know, are very
significant. I mean, this is one of the largest expropriations
that Americans have been the victim of. It's just that it's
been a very dispersed group of shareholders, rather than one
large shareholder.
Second, I would put the focus personally on Russia's lack
of response more than the administration's lack of effort. I
think the administration has taken steps to bring this to the
attention of the Russians. I think the Russian reaction, so far
as I can understand it, has been similar to what Mr. Osborne
has seen in the efforts that he's been making. It's just simple
resistance.
But the third point I'd make is this: I don't think that
Russia can hope to rejoin the world economy--cannot hope to be
a normal country in the international sense. Russian citizens
want to live in a normal country.Russian citizens, I think,
want to live as a normal country within a global economic
framework. When that time comes, it's very important that
Americans and American shareholders have a seat at the table,
and that's the effort that we're engaged in.
Mr. Smith. Do you think that Russia's pivot towards China,
both militarily as well as economically, accounts for their
being less responsive to rule of law issues? Because certainly
China has not shown itself to care all that much about human
rights in general, and rule of law in particular. I mean, I can
foresee--and I've chaired 55 hearings on human rights in China,
can't even get a visa to go there anymore--and what has struck
me is how gullible we in the West have seemed to be with China
in thinking they'll follow the rule of law, and contract law,
copyrights and the like. And I think at the day of their
choosing, that can quickly go away. And so I'm just wondering
what your thoughts are--all of you, if you would--this pivot to
China by Moscow?
Amb. Larson. I do----
Mr. Smith. Certainly on the West for----
Amb. Larson. ----definitely. I agree with your basic
orientation, which is that having stepped away from an
international framework of rule of law and the global
institutions, there has been a tendency to strike separate
deals to try to recreate some of the economic relationships
that were so important during the Soviet era. I think this is a
losing proposition from the standpoint of an international
economic strategy. And I don't think that the framework that
might be created among the BRICS, the so-called BRICS, is a
framework that is going to bring prosperity to Russia.
One of the things that the United States has done very
well, in my opinion, since World War II has been to create on a
bipartisan basis an international economic framework, the
Bretton Woods institutions, World Bank and IMF, the World Trade
Organization, and just a framework of international economic
law that has permitted lots and lots of countries to become
more prosperous. Russia looked as if, in the 1990s, it was on
an effort, on a pathway designed to become a bigger part of
that international economic framework. They've taken a detour.
I think they need to get back on that path if they're going to
be successful as an economic country.
Mr. Smith. Yes, Mr. Osborne.
Mr. Osborne. I think it's interesting that they've turned
to China, because one of the things that Mr. Putin fell out
with Mr. Khodorkovsky about was his desire to build a pipeline
to China to deliver oil and gas. I think on the whole--the
whole thing with China is more a sort of paper threat than a
real problem, because it doesn't have the ability to deliver
its oil and gas, which are its principle exports, anywhere but
to Europe, because that's where the pipelines are. So I think
it's sort of trying to show it's got alternatives, but I don't
think it has, realistically.
Mr. Smith. Yes.
Mr. Kara-Murza. I would just add, Mr. Chairman, that in my
view--and I'm the only Russian on this panel--in my view this
so-called pivot to China goes directly against our country's
long-term national interests, because--frankly, the Chinese
authorities, I think, see us as a potential source of territory
in the future, quite frankly, and historically and
civilizationally I think Russia is a European country where, in
general terms, we're part of the Western world. And I think
that's where our rightful place is in, too.
You know, this regime that we have in the Kremlin right now
may try to, you know, pretend otherwise, and take some steps to
show that it thinks otherwise, but I think, first of all, it's
not going to work in the long term because our future is
European, I'm convinced of that. And I think, frankly, it's
against Russian national interest to try to even do that. But
you know, they don't often think about Russian national
interests, especially long-term ones.
Mr. Smith. Let me ask you, has the Orthodox Church shown
itself to be helpful to political dissidents? We know that
during Soviet times it was the church itself, except for some
collaborators, that was targeted for destruction and
desecration, and many of its priest, the metropolitans were
slaughtered. I remember visiting museums on atheism in
Leningrad. One of them was in----
Mr. Kara-Murza. It was in a cathedral, right.
Mr. Smith. ----Kazan Cathedral. I couldn't believe how--I
mean, all the three major religions of the world were
desecrated inside of that building, as jokes and folly and
young people were being marched through. But the church now has
regained a great deal of--particularly the Orthodox Church--a
great deal of credibility and stature. And I'm wondering if it
would be helpful on human right cases and also on rule of law
issues?
Mr. Kara-Murza. I think in this question it would be right
to make a distinction between the church as a whole--including
the believers, you know, the clergy--and the top hierarchy.
Because I think if we take the top hierarchy, the
metropolitans, the patriarch, they have been generally very
loyal to this regime, and supporting it in many cases.
Although, when we did have the mass protests, pro-democracy
protests back in December 2011, the patriarch made a statement
where he said that we have our parishioners on both sides of
this, both in the protests and in the Kremlin, essentially. I
think that would be the right position for the church hierarchy
to take. Unfortunately, too often the top leadership of the
church has taken a pro-regime position.
However, if you take clergy--I mean, there are several
well-known clergymen who have been vocal on human rights
issues. And one example that springs to mind is Father Georgy
Edelstein, whose--actually, whose son is the speaker of the
Knesset now, Yuli Edelstein in Israel. But he's a Russian
Orthodox priest in the Kostroma region, it's a few hours' drive
away from Moscow. He's actually a member of the Moscow Helsinki
group. He's been vocal on human rights issues for many years.
And of course, if you just take ordinary churchgoers--the
patriarch was right in 2011. You have people on both sides of
the divide. So I think we have to distinguish the bureaucracy,
if I may be permitted that word--the top bureaucracy of the
church structure, and the church generally as a whole. I think
they show two different stories on this front.
Mr. Smith. Great. We know that Russia is violating basic
rules of Interpol, and often putting people on the list who are
exposing--as in the Magnitsky case itself. What would be your
advice as to how we can--our Parliamentary Assembly has, for at
least the last five years, included language in our declaration
that we do at the end of our Parliamentary Assembly in the
summer months, in July, a strong exhortation not to abuse
Interpol. And I worry about, Mr. Osborne, people like you--can
you travel back to Moscow without fear? I know you're going
back, Vladimir. And we are concerned, and the Commission will
follow you very closely because we're very concerned about your
welfare. So----
Mr. Osborne. Well, I wouldn't go to Moscow. I think I'd
probably have no trouble getting in, but the return trip might
be a little more complex. I think--my sense of Interpol is that
they don't exercise their discretion to refuse red notices that
are clearly political. They take Russia's word for it. And
that's the ridiculous thing. You can't get anywhere with
Interpol. Now, I gather they may have been moving a little bit
more towards doing the right thing, but for years you couldn't
get them to look at an individual case and say, yes, that's
political, we're going to scrap the red notice. And that's
where it's got to change, because I don't think we'll change
Russia.
Mr. Smith. Thank you.
Mr. Kara-Murza. Mr. Chairman, first of all, I would just
like to take this opportunity to express my gratitude for the
concern and the statement you put out after what happened to
me. I'm really grateful for it, and grateful to be here.
On your Interpol question, I think it's been a long-
standing and, frankly, unacceptable practice that Interpol
accepts at face value the politically motivated requests that
the Kremlin regime puts in. Although Interpol's own
constitution, in chapter three, specifically prohibits it from
engaging in political cases, in practice it has been doing so.
We've seen several people connected with the Yukos case put on
Interpol notices. We've seen Interpol notices against Bill
Browder, for instance, who is the chief campaigner for the
Magnitsky Act. We've seen notices against the late Boris
Berezovsky, who was clearly persecuted for political reasons by
the Kremlin, and so on.
In some cases, it's possible to fight off these politically
motivated notices. Like Mr. Browder has managed to fight it
off. We actually have a member of the audience here today, Mr.
Pavel Ivlev, a former legal advisor to Yukos. He was in there
for 10 years. He just fought it off. He just took his name off
the Interpol list. But it's a cumbersome and lengthy process.
And it shouldn't, frankly, take 10 years to take off somebody
from an international wanted list, to take off somebody who's
been prosecuted for political reasons by an authoritarian
regime in the Kremlin. And it's not like that's a secret, you
know? Everybody understands it.
So I think those member states of Interpol that are
democracies, that are based on rule of law, like the United
States, could initiate, maybe internally, a process of
reforming the organization to strengthen the transparency, to
strengthen the overview, the oversight of these cases. And it's
not just the Kremlin regime that abuses it. I think there have
been cases from Belarus, from Iran, from other authoritarian
states that have been using this international clout, frankly,
that Interpol notice gives, and using it also for their
domestic propaganda purposes.
You know, you would never hear on the state television news
in Russia that somebody managed to remove their name from the
list, but whenever there is a notice issued, that's front-page
news. So they also use it for domestic propaganda. And I think,
frankly, it's an unacceptable situation and it's high time
democratic member states of Interpol did something about it.
Amb. Larson. I have nothing really to add. I've seen the
same problem that we've just heard described as well.
Mr. Smith. Let me ask you, Mr. Osborne--are there
sufficient numbers of assets, Russian assets that courts are
able to seize to bring at least some closure, some coverage for
those people who have lost so much? Do they have that much
abroad?
Mr. Osborne. Absolutely. I mean, we might have trouble
finding $50 billion if we're unable to pierce the corporate
veil of companies such as Rosneft and Gazprom. But we can
certainly find double-digit billions of dollars in assets.
We've got 150 countries to go to. We're only in five so far. We
know where there are assets, and we have it--I wouldn't say
well planned, but we have it planned. And we're quite confident
that we can make sure that this is well-worthwhile.
Mr. Smith. Has the U.S. Government shown support for that
approach? Or are they fearful of--I'm talking about the
administration--of a retaliatory action by the Russians?
Mr. Osborne. Well, I'm going to see the State Department
tomorrow, and that will be the first time I've seen them since
that letter arrived. But I think the fact that they immediately
sent it on to the court and have it put on the court's docket
indicates that they were less than impressed by it. I think the
U.S. administration has been generally supportive in terms of
listening to me and what it said over the years. We've never
asked them for anything because, as I said before, we're
comfortable with this being a legal process. We have faith in
the court of this country in the same way that we have faith in
the courts of the countries of the U.K. and Western Europe.
So we keep the administration informed, we keep people on
the Hill informed, because we want people to know what's going
and have the right facts at their disposal. And the only thing
that we can really ask from the political side is for an
assistance in trying to reach a settlement with the Russian
Federation so we can stop all this process. But, as I said in
my testimony, we've tried endlessly to talk to them. And
usually we're just completely ignored. But if they do deign to
give us any response, then it's just an outright refusal to
discuss it.
Mr. Smith. Ambassador Larson, is there--and please answer
anything along those lines--is there anything besides espousal
by the State Department that could be done?
Amb. Larson. We have certainly made the case that American
investors, the 20,000 of them that suffered losses from the
expropriation of Yukos Oil Company, need their government to
advocate on their behalf, need to press the case with the
Russian authorities, that the U.S. investors simply cannot be
left off. There is a legal process underway that other
investors can benefit from. The U.S. investors are in a very
similar situation, except for the fact that Russia didn't
ratify the bid and we cannot go to court to pursue it in that
way.
So I think we have to have at the end of the day the U.S.
Government prepared to basically say, this is an obligation
that you owe to the United States. And the United States will
take care of making the payments available to the 20,000-plus
claimants. At this stage, I think it's more a case of just
making that case very strongly, very effectively, and very
politically. And I think that we have had a very good hearing,
frankly, from the U.S. Government, including top officials
responsible for Russia and top officials responsible for
economics.
So I think that just as Mr. Osborne is confident that there
are assets there and there are ways to play this legal process
out, I'm confident that at the end of the day Russia will see
the light and will realize that U.S. investors have to be
compensated. It'll be a long, hard road, though, I predict.
Mr. Smith. Can I just ask you, have other multinational
corporations and U.S. corporations--has the Chamber of
Commerce, have they learned the lesson from what has been done
to Yukos, for example, and has it had a chilling effect on
investments? Are they aware of it, the way they perhaps should
be, doing due diligence about risks when one invests in Russia?
Mr. Osborne. I don't have the numbers, but my understanding
is there's been a significant drop off in investment in Russia
over the last years, and will continue to be so. And one of the
things--our efforts are having an effect in Russia because
there's been a refusal to loan works of art for exhibitions in
non-Russian countries. Gazprom in its latest bond offering was
required----
Mr. Smith. Out of fear of possible----
Mr. Osborne. Yes. Their fear that I'll turn up with a trap
and take them away.
Mr. Smith. With a court order.
Mr. Osborne. Yeah. But more importantly, Gazprom in its
latest bond offering has had to include a disclosure that the
assets in Europe could be at risk because of our litigation
efforts. And that's got to have not been popular to have to
include that.
Mr. Smith. And they should take notice that not only are
you not going away, you're accelerating your efforts--I mean, I
would ask all of you, is there need for additional legislation?
Secondly, we will do within the Commission a second hearing. We
will ask the administration to come--let me know how your
meeting goes, if you would--and pose true questions to them
about where they are in terms of advocating, where they think
we should go. So that'll be our second hearing that we'll
follow up on from this hearing.
But is there a need for legislation, executive orders, for
example, that the administration could better implement Section
202? I'm just thinking out loud now. Or any other provision of
law that if another step were taken, I think--and I know,
Vladimir, your suggestion that more upper-level people be
included on the list of--you know, I was the sponsor of the
Belarus Democracy Act. And if you look at that list--and
Lukashenko was easier because he is not as powerful, certainly,
as Vladimir Putin--but that list is a really good list of
people that are barred from coming here, visa denial, and doing
business here. And so that is room for followup as well, to
take a good, long look at that list again.
Yes, Ambassador.
Amb. Larson. Mr. Chairman, I would give the following
response to your question. I think that there is a need for a
persistent, sustained effort. And that was sort of my last
point. I did give eight specific recommendations. I'm not going
to read those, but I encourage you to look at them. I think
really pushing on Section 202 is important. I'm not saying that
the administration is not pursuing it, but I'm just saying that
I think it's helpful to them to see that there's strong
interest and strong pressure from the Congress coming to this.
And I think Russia will notice the strong pressure from the
Congress.
I think there are some of the things that I alluded to in
terms of the Transparency International issues that actually
play into some of the points that have just been brought up. We
have been pushing for more clarity on beneficial ownership in
terms of some of the property interests, because sometimes
people do try to hide their assets in the United States. And I
think there are ways where important tweaks in our law would
bring greater clarity and ensure that there's no impunity.
I think that's part of what Transparency International USA
has been pushing for, is ensuring that there's no impunity and
that it's not easy for--and not just in Russia, but other high-
level people to travel to the United States and to hide assets
in the United States that they clearly have taken from their
own people. So I think those are important things to do. But
the overarching thing is to stay the course and be prepared to
stick it out.
Mr. Osborne. Yes. In terms of what more can be done, I
mean, I will report to you and let you know what happens at my
meeting with State, because I would expect them to be
thoroughly offended by that letter that they received from the
Russian Federation. And I'd like to know what response they are
making to it. And if they're not planning to make one, perhaps
they should be encouraged to make one, because otherwise if you
don't do anything about a bullying letter, it looks like you're
accepting it.
Mr. Smith. Yes, is there anything you'd like to add before
we--I just want to note that Cliff Stearns and Don Bonker, two
former colleagues, are here. Don Bonker, back in the 1980s when
he chaired the Human Rights Committee for Foreign Affairs
Committee, which I now chair, he marked up a resolution that I
had on behalf of Yuli Kosharovsky, the leading Hebrew teacher
in Moscow, who was just totally mistreated by the KGB. And that
goes back to the early 1980s. And Cliff Stearns--I served with
Cliff on the Foreign Affairs Committee. And he wrote landmark
legislation--the millennium health care legislation, that
continues to provide benefits to our nation's veterans. And
other things too that both of these gentlemen have done. But
it's an honor to be with them as well today.
Is there anything you would like to add before we conclude?
And we will do a second hearing. I look forward to hearing back
from you, Mr. Osborne--and again, if there's any ideas--and
thank you for these specific ones, Mr. Ambassador; your eight
points are excellent and well laid out--that we need to do, we
stand ready to do it, and to try to mobilize other members of
the House and Senate to do likewise, as well as the
administration.
Anything? Thank you. The hearing's adjourned.
[Whereupon, at 3:44 p.m., the hearing was adjourned.]
A P P E N D I X
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Prepared Statements
----------
Prepared Statement of Hon. Christopher H. Smith, Chairman, Commission
on Security and Cooperation in Europe
Good afternoon. I would like to start today's hearing by welcoming
our witnesses, the Honorable Stephen Rademaker, Mr. Tim Osborne, the
Honorable Alan Larson, and Mr. Vladimir Kara-Murza. I thank you all for
your willingness to share your views on Russia and the Rule of Law. I
am also very interested in hearing your thoughts on possible steps the
United States and the Organization for Security and Cooperation in
Europe (OSCE) might take to encourage Russia to abide by the military
security, commercial, and human rights commitments that correspond to
the three dimensions of security established by the OSCE.
To frame how important today's discussion is, it is important to
note that 40 years after the signing of the Helsinki Final Act, we face
a set of challenges with a founding member of the organization that not
only mirror the concerns that gave rise to the Helsinki Final Act, but
in many ways directly undermine the principles espoused therein. These
include the territorial integrity of States, respect for fundamental
freedoms, and fulfillment in good faith of obligations under
international law. At stake are not only the intervening years of hard
won trust between members--now eroded to the point that armed conflict
rages in the OSCE region--but whether the principles themselves
continue to resonate today and bind members to a common understanding
of what the rule of law entails.
Mr. Rademaker, in 1994, in return for transferring Soviet-made
nuclear weapons on Ukrainian soil to Russia, Russia reaffirmed through
the Budapest Memorandum its commitments to respect Ukraine's
independence, sovereignty, and existing borders. Russia also committed
to refrain from the threat or use of force against the territorial
integrity or political independence of Ukraine, and from economic
coercion against Ukraine. Twenty years later, Russia's annexation of
Crimea and subsequent intervention in the Donbas region not only
clearly violate this commitment, but also every guiding principle of
the 1975 Helsinki Final Act. This is not an isolated instance of
Russian contempt for its OSCE and international security obligations.
Under the 1990 Vienna Document, Russia's buildup of an estimated 40,000
troops next to the Ukrainian border, along with associated combat
vehicle movements, as well as ongoing military exercises, should be
subject to advance notice and OSCE member state inspections. No such
notice or observation access has been forthcoming. On the treaty front,
in March of this year, Russia officially abandoned the Conventional
Forces in Europe (CFE) Treaty, an agreement it openly flouted since
2007. Repeated cancellations of planned U.S. and European overflights
of the same Russian-Ukrainian border regions run contrary to Russia's
Open Skies commitments. Finally, according to the State Department's
2015 Arms Control Report, Russian testing of cruise missile technology
over the past few years directly violates the bedrock 1987 Intermediate
Nuclear Forces Treaty, posing a potentially strategic security threat
to the United States.
Mr. Osborne, as the Executive Director of GML Ltd.--the majority
owner of the now liquidated Yukos Oil Company, in July 2014, you and
your shareholders are part of a $52 billion arbitration claim awarded
by the Hague Permanent Court of Arbitration and the European Court of
Human Rights (ECHR). Both courts found that the Russian Federation had
violated international law, specifically the Energy Charter Treaty, by
abusing its system of taxation to force Yukos out of business and
illegally expropriating your, as well as U.S. citizens', investments.
Russia has since failed to make the January 15, 2015, payment deadline,
forcing European claimants to apply to both U.S. and European national
courts to seize Russian assets located in the territory of their
respective states as part of payment of the award. In the meantime,
Russia has not stood still, threatening to withdraw from the ECHR,
seize U.S. assets should American courts freeze Russian holdings on
behalf of European claimants, while filing technical challenges that
will occupy the courts for years to come. All of this fundamentally
calls into question Russia's OSCE commitment to develop free,
competitive markets that respect international arbitration of disputes,
such as that of the Hague.
Mr. Larson, it is important to note that neither the Hague nor the
ECHR rulings directly support the interests of U.S. shareholders. Due
to the U.S. decision not to ratify the Energy Charter Treaty in the
unrealized hope that Russia would eventually ratify a bilateral
investment treaty between our two countries, they are now unable to
seek similar restitution for an estimated $6 billion in losses. You
have personally testified that the absence of protections that such a
treaty would have provided has been a serious shortcoming for U.S.
investors in Russia's energy sector, and that Russia's actions on Yukos
violated international law. Left now largely dependent on a petition to
the U.S. Department of State to espouse shareholder claims with the
Russian Government--a dubious proposition indeed considering the
current state of the bilateral relationship--what lessons does the
Yukos case hold for both U.S. foreign policy makers and U.S. investors
when it comes to future commercial engagement with Russia? What can the
OSCE offer in terms of seeking recourse for our constituents?
Mr. Kara-Murza, I am happy to see that you have recovered from your
illness earlier this year. It troubles me greatly to think that its
cause was both directly related to your tireless work on behalf of
democracy in Russia as well as symptomatic of Russian Government
lawlessness, or at a minimum failure to ensure equal access before the
law for all people. I continue to follow with both great interest and
great sadness the case of your colleague Boris Nemtsov, whose unsolved
murder is impossible to comport with Russian Government claims of
support for human rights and fundamental freedoms. In fact, what is
more readily apparent to the Commission is that Russia's courts are
more interested in maintaining the government's ability to rule by
abuse of the law, rather than serving as guardian to the rule of law.
How else to explain the case of Ukrainian pilot and Parliamentarian
Nadiya Savchenko, who in 2014 was abducted in eastern Ukraine by
Russia-backed separatists and smuggled to Russia against her will.
Currently being tried on charges of illegally crossing the border and
the murder of Russian reporters who in fact were killed after she was
placed in Russian custody, Savchenko faces 25 years in prison. In
August 2015, a Russian court sentenced Oleg Sentsov, a Ukrainian film
director and political activist from Crimea to 20 years in prison over
accusations that he planned terrorist acts in opposition of Russia's
annexation of the peninsula. Tortured during detention, Sentsov's only
transgressions appear to be his refusal to recognize Russia's
annexation of the peninsula and his effort to help deliver food to
Ukrainian soldiers trapped on their Crimean bases by invading Russian
soldiers. Finally, the case of Estonian law enforcement officer Eston
Kover, who was investigating organized crime smuggling with ties to
Russian security services when he was abducted by the same security
forces at gunpoint, taken across the border to Russia, and charged with
espionage. Convicted in August 2015 and sentenced to 15 years in
prison, only to be released in September as part of a spy exchange with
Estonia, Kover's case bookends Russia's abuse of its own law
enforcement and judicial system to limit individual freedoms both
within and beyond its borders.
To all our witness, I thank you for your time today. I look forward
to your testimony and the discussion that follows.
Prepared Statement of Hon. Roger F. Wicker, Co-Chairman, Commission on
Security and Cooperation in Europe
Thank you, Mr. Chairman, for your leadership and for calling a
hearing on this worrying trajectory in terms of Russia's commitment to
the OSCE's core principles. I also want to welcome our witnesses, and I
look forward to hearing their insights on how we can encourage Russia
to respect the rule of law, both internationally and at home.
When it comes to the American people and our own national security,
my first concern is Russia's increasingly dismissive attitude towards
its international security obligations. I'm sure our NATO colleagues in
Europe feel the same. As the saying goes, it takes much longer to build
something than destroy it, and it appears to me that a European
security structure hammered out over more than a quarter of a century
is in danger of collapsing in a period of less than two years.
Russia's illegal annexation of Crimea and its ongoing military
presence in eastern Ukraine is a direct assault on pretty much each of
the ten Helsinki Final Act principles. While clearly foremost in our
minds, this violation of the Budapest Memorandum is hardly an isolated
instance of Russian disregard for its OSCE and international security
obligations. Per the 1990 Vienna Document, Russia's ongoing buildup of
an estimated 40,000 troops next to the Ukrainian border, along with
associated combat vehicle movements and ongoing military exercises,
should be subject to advance notice and OSCE member state inspections.
No such notice or observation access has been forthcoming. On the
treaty front, in March of this year, Russia officially abandoned the
Conventional Forces in Europe (CFE) Treaty, an agreement it has openly
flouted since 2007. Repeated cancellations of planned U.S. and European
overflights of the same Russian-Ukrainian border regions run contrary
to Russia's Open Skies commitments. Finally, according to the State
Department's 2015 Arms Control Report, Russian testing of cruise
missile technology over the past few years directly violates the
bedrock 1987 Intermediate Nuclear Forces Treaty, which from where I sit
poses a potentially strategic security threat to the United States.
Two weeks ago we held an Armed Services Committee hearing examining
Russia's military actions in Syria. While that is not our focus today,
I do think it is important to note that several of our witnesses then
suggested that Russia decided to enter Syria militarily based in part
on their perception of flagging U.S. leadership--that we no longer
cared strongly enough to push back, whether it be in Afghanistan, the
Middle East, or Europe. While one can argue national interests and
legal obligations in a place like Syria, when it comes to our own
security and that of our European allies, as well as the legal
agreements we have signed our names upon, there can be no ambiguity.
Instead of standing behind a line and waiting for it to be crossed, we
need stand in front, so that Russia understands that when it comes to
our collective security and our principles, we will not be pushed back.
Prepared Statement of Hon. Benjamin L. Cardin, Ranking Member,
Commission on Security and Cooperation in Europe
I welcome today's Helsinki Commission hearing on the rule of law in
Russia.
For understandable reasons, U.S. policymakers have been focused on
Russia's aggression against Ukraine and its violation of key principles
of the Helsinki Final Act, including the principles of sovereign
equality, refraining from the threat or use of force, the inviolability
of frontiers, and the territorial integrity of States. But as was so
clear during the OSCE's annual human rights review meeting just a few
weeks ago, Russia's external aggression is directly related to its
internal oppression of its own citizens. One may rightly ask: would a
Russia with a robust democracy, strong and healthy civil society, free
and independent press threaten its neighbors as Vladimir Putin's
authoritarian regime has? I don't think it would.
Five years ago, the Helsinki Commission heard from Boris Nemstov in
the Capitol when we screened the film ``Justice for Sergei.'' Our focus
then was the tragic fate of anticorruption whistleblower Sergei
Magnitsky. But as Boris Nemtsov noted to us then, Sergei's case was not
unique: more than 100 journalists had been killed in Russia in the
previous decade. As Mr. Nemstov summed it up: ``If you are for Putin
and for his policy, you are OK, you are in the safe position. If you
are against him, you are an enemy.'' Earlier this year Boris Nemtsov,
who valued truth and freedom more than his own personal safety, was
gunned down just outside the Kremlin, silencing a brave advocate for
the rule of law and accountability in Russia and an outspoken Russian
critic of Putin's war against Ukraine.
Russia's increasingly repressive government has eroded the
democratic institutions that ensure a government's accountability to
its people. A free and independent media is virtually nonexistent and
the remaining state-controlled media is used to propagandize
disinformation, fear, bigotry and aggression. Genuine political
pluralism remains elusive, evidenced most recently in the September 13
local and regional elections. Golos, an independent election monitoring
organization, was raided before the elections and unreasonable barriers
were created for the participation of parties and candidates in the
elections. The Russian Federation continues the criminal prosecution of
those who criticize the regime or run afoul of its ideology and
Russia's political prisoners range from performance artists and to
managers of tech companies.
Moscow has waged a war against civil society and built a template
of repression that is being modeled around the globe. And it has done
all this using the trappings of a law-based state. But it is a
deception that is easily recognized. Twenty-five years ago, in the
OSCE's transformative agreement on democracy, the rule of law, and
human rights, OSCE participating States recognized that the rule of law
``does not mean merely a formal legality . . . but justice based on the
recognition and full acceptance of the supreme value of the human
personality and guaranteed by institutions providing a framework for
its fullest expression.''
So I really welcome this Helsinki Commission effort today to peel
back the formal trappings of the legal framework put in place by Moscow
and examine the real state of the rule of law in Russia.
Prepared Statement of Stephen Rademaker, Principal with the Podesta
Group, Former Assistant Secretary of State for the Bureau of Arms
Control and the Bureau of International Security and Nonproliferation,
Department of State
Chairman Smith, Co-Chairman Wicker, other members of the
Commission, I thank you for inviting me to testify at your hearing this
afternoon on Russian adherence to the rule of law across the three
dimensions of the OSCE.
I understand that my co-panelists will speak to the economic and
human rights dimensions, and you would like me to focus on the security
dimension. I have been asked in particular to address Russia's
adherence to its obligations under various arms control and confidence-
building arrangements, including the Budapest Memorandum of 1994, the
Conventional Armed Forces in Europe (CFE) Treaty of 1990, the
Intermediate-Range Nuclear Forces (INF) Treaty of 1987, the Open Skies
Treaty of 1992, and the Vienna Document on Confidence- and Security-
Building Measures, originally adopted in 1990 and updated most recently
in 2011.
I will briefly review the obligations arising under each of these
agreements and discuss the degree to which Russia is currently living
up to its obligations. I will then draw some overall conclusions about
Russia's approach to these agreements, and the implications for U.S.
policy.
Budapest Memorandum
The Budapest Memorandum was the agreement reached in 1994 between
the United States, United Kingdom, Russia, and Ukraine, which persuaded
Ukraine to (1) give up the nuclear weapons it inherited from the Soviet
Union (which at that point gave Ukraine the third largest nuclear
arsenal in the world) and (2) adhere to the Nuclear Nonproliferation
Treaty as a non-nuclear weapon state. The memorandum did this by, among
other things, providing security assurances to Ukraine. The memorandum
specifically stated that Russia and the other signatories ``reaffirm
their obligation to refrain from the threat our use of force against
the territorial integrity or political independence of Ukraine.''
This guarantee was blatantly violated by Russia when it occupied
and declared it was annexing the Crimea in March of 2014. That
violation was compounded when Russian-backed separatists seized control
of the Donetsk and Luhansk regions of Eastern Ukraine beginning in
August 2014--a creeping occupation of Ukrainian territory that
continues to play out today.
The Obama Administration has rightly characterized Russia's actions
in the Crimea and in Eastern Ukraine as aggression and a violation of
the most basic principles of international law set forth in the Charter
of the United Nations. The Obama Administration has also made clear
that Russia's actions violate the security assurances provided by
Russia to Ukraine under the Budapest Memorandum. Many experts have
pointed out that beyond the legal issues raised by Russia's violation
of these assurances, it is likely that in the future, countries in the
position of Ukraine in 1994 will be less willing to make
nonproliferation commitments in exchange for security assurances.
CFE Treaty
The CFE Treaty was concluded in 1990, and included as states
parties all members of NATO and the Warsaw Pact. For all of these
states parties, it imposed strict limits on the amounts of specified
military hardware (called ``Treaty-Limited Equipment'' or ``TLE'') that
they could deploy in specified areas in the treaty's area of
application, which stretches from the Atlantic Ocean to the Ural
Mountains. Following the treaty's entry into force, over 52,000 pieces
of TLE were destroyed or converted by the United States, Russia, and
other parties to the treaty.
Underlying the treaty was the belief that the imbalance in
conventional armed forces in Europe (which favored the Soviet Union and
the Warsaw Pact during the Cold War) had created instability and fear
on the Continent, and led NATO to rely increasingly on its nuclear
deterrent. The concept of the treaty was that if this conventional
imbalance could be eliminated, stability could be restored, and
reliance on nuclear weapons diminished.
In July 2007, however, President Putin ordered a ``suspension'' of
Russian implementation of the treaty. The other states parties have not
recognized this suspension as a legally permissible step, and therefore
all of the other parties have continued to observe the treaty as
between them. In 2011, however, the United States and its NATO allies
(plus Georgia and Moldova) bowed to reality and accepted that Russia
was not going to permit verification inspections under the treaty to
take place on Russian territory. Accordingly, they ceased requesting
inspections on Russian territory, and declared that they would cease
implementation of their obligations to Russia.
Russia's intervention in Ukraine has compounded its non-compliance
with the CFE Treaty. It is today stationing military forces on the
territory of another CFE state party (Ukraine) without that state
party's consent, in violation of Article IV, paragraph 5 of the treaty.
The United States has tried hard since 2007 to persuade Russia to
return to compliance with the treaty, but to no avail. The basic
problem is that Russia concluded more than a decade ago that the CFE
Treaty was no longer serving its interest. Among other things, Moscow
chafed at the treaty's so-called Flank Limits, which they believed
constrained their ability to carry out military operations on Russia's
periphery, for example, in Chechnya. Moscow was also unhappy that
Georgia and Moldova were using the treaty to pressure Russia to
withdraw unwelcome Russian forces from their territory. Following
Russia's intervention in Ukraine, it has become even more unlikely that
Moscow will reconsider its view that the CFE treaty is contrary to its
interest.
INF Treaty
The INF Treaty was concluded in 1987, and committed the United
States and the Soviet Union to neither possess, produce, nor flight-
test ground-launched missiles with maximum ranges between 500 and 5500
kilometers. Pursuant to the treaty, by May of 1991, the United States
eliminated approximately 800 INF-range missiles and the Soviet Union
eliminated approximately 1800 such missiles.
Negotiated at the height of the Cold War, the INF Treaty
contributed to security in the European theater, and was profoundly
reassuring to the populations of some of our key NATO allies. It was in
many ways a vindication of President Reagan's policy of promoting
``peace through strength.''
The Obama Administration announced in July of 2014 that it had
``determined that the Russian Federation is in violation of its
obligations under the INF Treaty not to possess, produce, or flight-
test a ground-launched cruise missile (GLCM) with a range capability of
500 km to 5,500 km, or to possess or produce launchers of such
missiles.'' The Obama Administration reaffirmed in its annual arms
control compliance report in May of this year that ``the Russian
Federation continued to be in violation of its obligations under the
INF Treaty.''
The Obama Administration has not clearly explained the nature of
the Russian violation. However, press reporting indicates that it
involves the flight-testing of a ground-launched missile to ranges that
are prohibited under the treaty. Further, while the Administration only
formally determined last year that Russia was violating the treaty, it
appears that the Administration first came to suspect that Russia was
violating the treaty in 2011, and the first test of this missile may
have taken place several years earlier.
As with the CFE Treaty, Russia has long been unhappy living under
the restrictions of the INF Treaty. The basic Russian complaint is that
the treaty applies only to the United States and four successor states
to the Soviet Union (including Russia), and therefore leaves every
other country in the world free to produce and deploy INF-range
missiles. Increasingly other countries are doing precisely that,
including many countries located within striking distance of Russia,
such as China, Iran, North Korea and Pakistan.
It is a sad irony, of course, that missile technology proliferation
from Russia contributed significantly to the missile programs of Iran
and North Korea, and that North Korea in turn contributed to Pakistan's
missile program. So in fact, Russia's complaint is in significant part
of its own making.
As early as 2005, Russian Defense Minister Sergei Ivanov raised
with Secretary of Defense Donald Rumsfeld the possibility of Russian
withdrawal from the treaty. President Putin has since complained
publicly about the unfairness of the treaty to Russia, and I know from
my own conversations with Russian officials during my time in
government that they would like to get out from under it.
Certainly this underlying unhappiness with the treaty helps explain
why Russia has been willing to violate it. But in discussing how to
respond to this violation, we need to recognize that Moscow would
welcome an outcome similar to the one they have come to on the CFE
Treaty, and in fact it would simplify matters for them if we would
terminate the treaty this time rather than obliging them to do so.
Open Skies Treaty
The Open Skies Treaty was signed in 1992, and created a regime for
the conduct of observation flights over the territory of other states
parties. These flights use photography and other sensors to collect
information about activities on the ground in the countries being
overflown. The collection of this information is intended as a
confidence-building measure among the parties. There are today 34
states parties to the treaty, including the United States and Russia.
Russia has continued to implement the Open Skies Treaty, but there
are a number of concerns about Russia's compliance with the treaty. For
example, contrary to the treaty's requirement that states parties make
their entire national territory available for observation, Russia has
declared several portions of its territory to be off-limits to
overflights, including areas over Chechnya, Moscow, and adjacent to
Russia's borders with Abkhazia and South Ossetia. In addition, Russia
last year imposed practical restrictions that prevent full observation
of the Kaliningrad enclave. Further, since Malaysian Airlines flight 17
was shot down over Ukraine last July, Russia has said that it cannot
guarantee the safety of observation aircraft flying near Russia's
border with Eastern Ukraine--ostensibly, according to Russia, due to
the threat from Ukrainian air defenses. As a consequence, it has been
impossible to conduct observation flights near Russia's border with
Eastern Ukraine since that time.
Despite these problems, it should be noted that observation flights
have continued over Russia, including the first-ever ``Extraordinary
Observation Flight,'' requested by Ukraine pursuant to the treaty
shortly after Russia's intervention in the Crimea, and carried out
using a U.S. aircraft.
Overall, therefore, it has to be acknowledged that Russia continues
to observe the Open Skies Treaty, though not always in the full spirit
of transparency that the treaty was intended to promote.
Vienna Document
The Vienna Document on Confidence- and Security-Building Measures
was first adopted under the auspices of the OSCE in 1990, and updated
in 1992, 1994, 1999, and most recently in 2011. It is not a treaty, but
rather an agreed set of transparency measures that all members of the
OSCE have agreed to implement in order to increase confidence within
the OSCE region. Among these measures are data exchanges, inspections,
and notifications of certain military activities.
In this year's annual arms control compliance report, the Obama
Administration drew the following conclusion about Russia's compliance
with the Vienna Document:
The United States assesses Russia's selective implementation of
some provisions of the Vienna Document and the resultant loss
of transparency about Russian military activities has limited
the effectiveness of the CSBM regime.
The report goes on to explain that Russia has not reported on its
military deployments near Russia's border with Ukraine, which appear to
exceed the personnel and/or equipment levels that require notification
under the Vienna Document. Russia has asserted that a number of its
military activities did not have to be notified because they were
multiple activities under separate command, when to all appearances
they were large-scale activities under unitary command. This has given
rise to suspicions that, at best, Russia was structuring its activities
to evade Vienna Document reporting requirements, or, at worst,
misrepresenting those activities in order to justify not reporting
them.
Further, Russia has defied efforts by other parties to the Vienna
Document to invoke the agreement's mechanism for consultations in the
event of unusual military activities. When this mechanism has been
invoked with respect to Russia's activities involving Ukraine, Russia
has either failed to provide responsive replies to requests for an
explanation of the activities, or, in some cases, boycotted meetings
called to discuss the activities.
Russia has also failed to report information on its military forces
deployed in the Abkhazia and South Ossetia regions of Georgia.
To be sure, Russia continues to permit other Vienna Document
inspections and evaluations to take place on its territory, and
continues to participate in data exchanges. But its selective
implementation of the Vienna Document is contrary to the spirit of the
agreement, and has diminished rather than enhanced confidence among
members of the OSCE.
Concluding Observations
A clear pattern emerges when one looks at Russia's implementation
of its arms control obligations overall. Moscow will comply with such
agreements so long as it judges them to be in Russia's interest. But
should Moscow conclude such agreements have ceased to serve its
interest, it will ignore them (Budapest Memorandum), effectively
terminate them (CFE Treaty), violate them while continuing to pay them
lip service (INF Treaty), or selectively implement them (Open Skies
Treaty and Vienna Document).
Such actions are, of course, destructive to the sense of confidence
and security that CSBMs are intended to promote. But Russia believes
that this is how great powers are entitled to act, and today Moscow
insists on acting and being respected as a great power.
I do not see a simple solution to this problem. It is tempting to
point out to the Russians that their actions are reviving enthusiasm
for the NATO alliance in Central and Western Europe, and underscoring
to Russia's immediate neighbors who are not already NATO members the
advantages of joining the alliance. In other words, Russia's actions
are provoking precisely the response that they say they most want to
avoid.
I do not think, however, that this is a problem that can be
resolved through dialogue and reason. In my experience, there is
nothing that infuriates Russian officials more than to be lectured
about what is in their national interest. They find such conversations
condescending, and are firmly of the view that they are the best judges
of Russia's true interests.
Another option is to try to pressure Russia to behave better. That
is what we are doing today with our policy of applying economic
sanctions in response to Russia's military intervention in Ukraine. One
could describe that as a policy of pressuring Russia to begin
respecting its obligations under the Budapest Memorandum. So far,
however, that policy has not succeeded in persuading Russia to change
course in Ukraine, and given our experience to this point, it is hard
to imagine some combination of additional economic sanctions that could
achieve a different outcome.
In 1961, Fred Ikle wrote what has become the definitive article
about how to deal with arms control violations. He observed that in
responding to such violations, ``Political sanctions are likely to be
less effective than an increased defense effort.'' I think this is true
with respect to the cases outlined above, though I also suspect that
Russia does not believe we and our allies are prepared to substantially
increase our defense spending in the current environment.
In the long term, I am confident that Russia will discover that its
true national interest lie in cooperating with the other members of the
OSCE rather than seeking to intimidate them. Until that time comes,
however, we must be clear-eyed about the challenges we face. We have to
deal with Russia as it is, rather than how we wish it to be.
I thank you for holding this hearing, and I look forward to
responding to your questions.
With wide-ranging experience working on national security issues in the
White House, the State Department, and the US Senate and House of
Representatives, Stephen Rademaker advises the Podesta Group's
international clients. Among his accomplishments in public service, he
had lead responsibility, as a House staffer, for drafting the
legislation that created the US Department of Homeland Security.
Serving as an Assistant Secretary of State from 2002 through 2006,
Stephen headed at various times three bureaus of the State Department,
including the Bureau of Arms Control and the Bureau of International
Security and Nonproliferation. He directed the Proliferation Security
Initiative, as well as nonproliferation policy toward Iran and North
Korea, and led strategic dialogues with Russia, China, India and
Pakistan. He also headed US delegations to the 2005 Review Conference
of the Parties to the Treaty on Nonproliferation of Nuclear Weapons, as
well as many other international conferences.
Stephen concluded his career on Capitol Hill in 2007, serving as Senior
Counsel and Policy Director for National Security Affairs for then-
Senate Majority Leader Bill Frist (R-TN). In this role, Stephen helped
manage all aspects of the legislative process relating to foreign
policy, defense, intelligence and national security. He earlier served
as Chief Counsel for the House Select Committee on Homeland Security of
the US House of Representatives and as Deputy Staff Director and Chief
Counsel of the House Committee on International Relations.
During President George H. W. Bush's administration, Stephen served as
General Counsel of the Peace Corps, Associate Counsel to the President
in the Office of White House Counsel, and as Deputy Legal Adviser to
the National Security Council. After leaving government in 2007,
Stephen continued to serve as the US representative on the United
Nations Secretary-General's Advisory Board on Disarmament Matters, and
he was subsequently appointed by House Republican Leader John Boehner
(R-OH) to the US Commission on the Prevention of Weapons of Mass
Destruction Proliferation and Terrorism. Stephen received the Officer's
Cross of the Order of Merit from the government of Poland in 2009. He
has a bachelor's, a Juris Doctor and a master's in foreign affairs from
the University of Virginia.
Prepared Statement of Tim Osborne, Executive Director of GML Ltd.,
Majority Owner of Now-Liquidated Yukos Oil Company
Mr. Chairman, Commission Members, ladies and gentlemen, good
afternoon.
My name is Tim Osborne, Director of GML Limited, a global holding
corporation and the indirect majority shareholder of the former Yukos
Oil Company (``Yukos'').
I have been asked to testify today concerning the economic
dimension and commercial aspect of the Helsinki Process--specifically
the Russian Government's failure to uphold the rule of law in the Yukos
case.
The Russian Federation's actions with regards to Yukos and GML's
investment in Yukos have served as both a case study on Russia's
behaviour and a cautionary tale on the risks of investing in the
Russian market. Today, I will address how the rule of law is central to
exposing Russia's violations, seeking legal remedies in response, and
ultimately, obtaining fair treatment and justice. I have been involved
in two separate legal processes surrounding the Yukos case in which
Russia has clearly demonstrated its attitude to its international legal
obligations and the rule of law.
GML AND THE YUKOS AFFAIR
I am a director of GML Limited, which through its wholly-owned
subsidiaries Hulley Enterprises Limited (``Hulley'') and Yukos
Universal Limited (``Yukos Universal''), together with Veteran
Petroleum Limited (a pension fund for Yukos employees) (``Veteran'')
owned approximately 70% of Yukos. When Yukos was ``nationalised'' in
2004 through a combination of spurious tax claims, government sponsored
asset freezing and rigged auctions, we tried very hard to talk to the
Russian Federation to obtain an understanding of their concerns and
objectives and to attempt to reach a reasonable compromise. These
approaches were completely rejected and consequently in 2005 Hulley,
Yukos Universal and Veteran commenced arbitrations under the Energy
Charter Treaty. The arbitrations were administered by the Permanent
Court of Arbitration based in the Peace Palace in The Hague. The Energy
Charter Treaty is a landmark multi-lateral investment treaty reached in
1994 in the aftermath of the Cold War to promote investment in the
energy sector of the former eastern bloc and provide a dispute
resolution mechanism to facilitate the resolution of disputes between
investors and host countries.
Rule of Law Mechanisms and the Energy Charter Treaty
As a result of Hulley, Yukos Universal and Veteran's recourse to
protections provided by the Energy Charter Treaty and rule of law
process, they were able to obtain justice and the right to
compensation. The arbitrations initiated by Hulley, Yukos Universal and
Veteran led over a 9 year period to Final Awards (which were unanimous
decisions) issued in July 2014 by the independent Arbitral Tribunal in
their favour which concluded that the Russian Federation had, in
contravention of the Energy Charter Treaty, expropriated Yukos without
compensation. The Tribunal awarded damages to Hulley, Yukos Universal
and Veteran in a total amount exceeding $50 billion plus costs (the
``Awards''). The Tribunal gave Russia a six month interest free period
during which the Awards could be paid. No payment was received and
interest has been accruing on the Awards since mid-January 2015.
The arbitration award in excess of $50 billion is the largest
amount of damages ever awarded in a commercial arbitration and would
not have been possible without recourse to the Energy Charter Treaty.
Because the United States is not a signatory to the Energy Charter
Treaty and does not have a Bilateral Investment Treaty with Russia,
U.S. shareholders, who also collectively lost billions of dollars, are
without a similar rule of law mechanism that can help them to obtain
compensation in the Yukos case.
Appeals, Enforcement and Collection
Hulley, Yukos Universal and Veteran remain on solid footing due to
the rule of law as they proceed to the next stage of their case, after
winning the historic Awards. As the seat of the arbitration was The
Netherlands, Russia has the right to apply to the courts in The Hague
to have the Awards set aside. This is not an appeal but is a limited
right to have certain aspects of the Awards reviewed by the court,
although the bar to setting aside the Awards is high. They do however
have the right to have the question as to whether or not there was a
binding arbitration agreement reviewed de novo and this is part of
their application. The exchange of pleadings in the application to set
aside the Awards is almost complete and a hearing is scheduled for 9th
February 2016.
It is fair to say that the Russian Federation has ``thrown the
kitchen sink'' at the Awards finding, in its view, many instances where
the Tribunal (comprising three esteemed arbitrators, including one, an
American citizen, appointed by the Russian Federation) found wrongly
(although unanimously) in favour of Hulley, Yukos Universal and
Veteran. In my view the application to set the Awards aside is nothing
more than a further delaying tactic. The Russian Federation's strategy
throughout the arbitration process was primarily to delay matters as
much as possible.
Enforcement--The New York Convention and Rule of Law
Another important rule of law element to this case, as with any
other international arbitration case, is that there is actually a
mechanism to allow collection of the Awards. Hulley, Yukos Universal
and Veteran are entitled to enforce the Awards pursuant to the New York
Convention. The New York Convention is a multi-national treaty (signed
by over 150 countries, including all major states) which provides a
framework for the recognition and enforcement of foreign arbitral
awards in member states whether awards are made against persons,
corporate entities or sovereign states. The New York Convention is
implemented by each member state in its own domestic legislation.
In order to enforce an award, it must first be recognised (in the
US the term used is ``confirmed'') by the local court. Once the
recognition process is complete, then that effectively converts the
arbitral award into a binding ruling of the local court and is thus
enforceable as such. The enforcing party is then at liberty to attach
assets of the relevant debtor in the relevant country and, with the
assistance of the court, such assets will be transferred or sold and
the proceeds of sale transferred to the claimant in partial settlement
of the debt. With respect to enforcement against a sovereign state the
general rule is that usually enforcement is only possible against
assets which are used by that state for commercial purposes.
Enforcement is usually not possible against assets of a sovereign state
which are used for sovereign purposes (i.e. diplomatic assets such as
embassy buildings).
U.S. Actions and Global Enforcement
Enforcement and collection of the Awards is not simply
theoretical--it is happening as we speak and there is a process for
doing so.
All countries have slightly different processes for implementation
of the New York Convention. For instance, in the United States, we
commenced our recognition action by issuing proceedings in the District
Court in Washington. The court gave permission for our recognition
action to proceed and agreed for the papers to be served on the Russian
Federation. The papers were then transferred to a section in the State
Department which processes these types of actions. They transferred the
papers to the United States Embassy in Moscow and the Embassy served
the papers on the Russian Federation. Russia has appointed a leading
firm of United States lawyers to represent it and the Russian
Federation's deadline to file its detailed brief opposing confirmation
was yesterday. I have not as yet seen their filing. We are assuming
that it will be next year at the earliest before the case is in court
and then there are rights of appeal etc. before we get to enforcement.
We have commenced similar processes in the United Kingdom, France,
Belgium and Germany. The proceedings in the United Kingdom are roughly
at the same stage as in the United States and we expect a hearing at
first instance next year.
Germany is slightly behind and we are awaiting confirmation that
the papers have been served on the Russian Federation by the German
Embassy in Moscow.
Enforcement and Initial Success
In France and in Belgium the Awards have been recognised.
Exequaturs have been issued and these permit immediate enforcement
against Russian Federation assets in each jurisdiction. With regard to
real estate, notaries have been appointed by the courts to sell the
properties. In both France and Belgium we have frozen bank accounts
belonging to the Russian Federation (and have unfrozen accounts when it
has been demonstrated to us that those accounts were used for
diplomatic purposes). Russia has appealed against the Exequaturs and
has commenced proceedings in both France and Belgium to suspend
enforcement proceedings.
Future Enforcement--Russian State Owned/Controlled Enterprises
In due course, we will also look at enforcement against assets in
the hands of state-owned and/or state-controlled entities such as
Gazprom and Rosneft but that will require us to negotiate a further
obstacle as the Russian Federation will, no doubt, argue that such
entities are separate and independent of the Russian state and do not
hold Russian state assets. It will be for us to convince the court
otherwise. In the Awards the Tribunal expresses its view that Rosneft
which was, and still is, a state-owned company, was a co-conspirator
alongside the Russian Federation in the expropriation of Yukos by
facilitating the bankruptcy of Yukos in the Moscow courts and then
taking over the majority of the strategic Yukos assets at the rigged
bankruptcy auctions.
Russian Retaliation
One very interesting development is that on receipt of the papers
from the US Embassy in Moscow, the Russian Ministry of Foreign Affairs
wrote to the Embassy claiming that the Awards were ``an unjust and
politically motivated act . . . incompatible with the ideas of the rule
of law, independent, impartial and professional international
justice''. This notwithstanding the fact that Russia had participated
fully in the ECT process including in two very lengthy hearings,
submitted voluminous pleadings and had appointed one of the
arbitrators. Even more interesting, the Russian Ministry of Foreign
Affairs goes on to say that if the US courts allow recognition and
enforcement against Russian property in the USA, this will be
considered by the Russian Federation as grounds ``for taking adequate
and proportionate retaliatory steps in relation to the USA, its
citizens and legal entities'', i.e. that Russia will inter alia
confiscate assets of the US, US companies and/or US citizens as a tit
for tat measure, notwithstanding that the US government, and/or the US
companies and/or the US citizens have no connection with the
arbitrations or the Awards. This is set out in the State Department's
letter of July 17th 2015 to the United States District Court, which is
on the court docket and is attached to this submission for your ease of
reference. I believe this letter succinctly sets out Russia's general
attitude to the rule of law and its attitude to its international legal
obligations.
Russia has communicated the same message to the governments of
France and Belgium.
YUKOS AND THE EUROPEAN COURT OF HUMAN RIGHTS
The second law suit that I would like to bring to your attention is
a case brought before the European Court of Human Rights (``ECtHR'') by
Yukos itself. This case was brought by the Yukos management on behalf
of all Yukos shareholders and complained about the expropriation
without compensation of Yukos and the way the Russian Federation had
treated Yukos generally. The ECtHR takes a much different approach to
these types of questions than international arbitration tribunals. The
tribunal which rendered our Awards (and two other arbitration tribunals
which rendered awards in other Yukos related cases) concluded that
Russia's attack on Yukos was not a genuine attempt to collect taxes but
looking at the total picture was clearly an expropriation under the
guise of taxation.
The ECtHR, which starts from the premise that governments can be
trusted and tell the truth (the so called ``margin of appreciation'')
and which hears no oral testimony, looked at each action of the Russian
Government separately and whilst it concluded on that approach that
Russia was entitled to take many of the actions that it did take,
nevertheless, it did conclude that Russia had breached Yukos' rights in
a number of instances. On July 31st 2015, the ECtHR awarded damages of
approximately =1.9 billion (which equates to roughly $2.2 billion).
Such damages are to be distributed to the former shareholders of Yukos.
This is the largest award of damages ever made by the ECtHR. The
Russian Federation was ordered to agree a distribution plan with the
Committee of Ministers (which is responsible for the implementation of
ECtHR decisions) within six months of the ECtHR's decision becoming
final. That decision became final on December 15th 2014 (when the Grand
Chamber of the ECtHR declined to hear any appeal of the case) and
consequently Russia was supposed to have agreed a distribution plan
with the Committee of Ministers by June 15th 2015.
Russia's Failure to Meet Obligations
Prior to their June 2015 meeting, Hulley and Yukos Universal (as
shareholders of Yukos) reminded the Secretariat of the Committee of
Ministers of Russia's obligations under the ECtHR's decision and even
provided a draft distribution plan just to prove how simple this would
be. Notwithstanding, Russia had not even discussed this with the
Secretariat to the Council of Ministers by the next Committee of
Ministers meetings after the June 15th 2015 deadline (i.e. the
September meeting) the Committee of Ministers made it very clear that
they expected the Russian Federation to have a distribution plan in
place by their March 2016 meeting. Immediately after that ``decision''
by the Committee of Ministers, Russia stated that it was not developing
any plans to compensate Yukos' shareholders and that further actions in
relation to the ECtHR's decision would be based on ``national
interests''. I attach copies of press articles from 25th September 2015
which record the Russian Justice Ministry's comments.
Russia is also reinterpreting its own laws to convince itself (if
no-one else) that it is entitled to ignore decisions of the ECtHR.
Article 15.4 of the Russian Constitution states:
``Universally recognized principles and norms of international
law as well as international agreements of the Russian
Federation should be an integral part of its legal system. If
an international agreement of the Russian Federation
establishes rules, which differ from those stipulated by law,
then the rules of the international agreement shall be
applied.''
This effectively means that in a conflict of laws between Russian
law and international law, international law prevails. However, the
Russian Federation, with the help of its Constitutional Court, is using
the phrase ``those stipulated by law'' to claim that there is a
distinction between laws and the Constitution itself and that the
Constitution is above the law (rather than forming part of it), thus
enabling the Russian State to prioritise its national interests over
international commitments.
CONCLUSION
Mr. Chairman and Members of the Commission, I believe it is clear
that the Russian Federation is not honouring its obligations and
commitments under the rule of law or in a manner consistent with the
Helsinki process. Russia's tendency, more often than not, has been to
ignore, delay, obstruct or retaliate when faced with its international
law responsibilities.
I think Russia's general prevarication on all matters related to
Yukos, its threats to the US, French and Belgian governments (including
potential tit for tat confiscations) and the claims that it can ignore
its international obligations if that best serves its national
interests demonstrate unequivocally that Russia cannot be trusted in
international matters and that even when it has signed up to
international obligations, it will ignore them if that is what it
thinks serves it best.
I hope that my testimony has shed more light on Russia's behaviour
and demonstrated the need to encourage Russia to respect and adhere to
the rule of law. I encourage the Commission to do so.
I appreciate the opportunity to share my views and I thank you for
your time.
Tim Osborne is the senior partner of Wiggin Osborne Fullerlove, an
English law firm specialising in international tax issues. He gained
his LLB in 1972 from University College, London and was articled at
Lovell White & King (now Lovells) from 1974, qualifying as a solicitor
in 1976 and practising with the same firm until 1978. Mr Osborne was
made a partner at, then, Wiggin & Co in 1979, Managing Partner in 1984
and Senior Partner in 2001. He has been the Senior Partner at Wiggin
Osborne Fullerlove since its demerger in 2003.
Mr Osborne is a member of the independent Board of Directors of GML
Ltd. (formerly Group Menatep). He was appointed in March 2004, with two
other independent directors, to conduct the day to day operations for
Group Menatep following the detainment of Director Platon Lebedev in
July 2003 and the subsequent death, in a helicopter crash in February
2004, of Mr Lebedev's successor, Mr Stephen Curtis.
GML Ltd. is a diversified financial holding company, established in
1997 by Mikhail Khodorkovsky, which owned strategic stakes in a number
of Russian companies, including Yukos Oil Company, as well as a number
of financial portfolio investments on stock markets in Russia and
internationally. It is incorporated and existing in accordance with the
laws of Gibraltar. GML Ltd. was the majority owner of the, now
liquidated, Yukos Oil Company, holding approximately 60 percent of
Yukos equity capital through wholly owned subsidiaries.
As a director of GML Ltd. Mr Osborne is responsible for stewardship
of the company in keeping with internationally recognised standards of
corporate governance and, more recently, in protecting the company's
remaining assets. Mr Osborne is primarily concerned with pursuing
compensation for GML Ltd. for the discriminatory expropriation of Yukos
Oil Company and that company's assets by the Government of the Russian
Federation.
To that end, GML has filed a claim against the Russian Federation
under the terms of the 1994 Energy Charter Treaty, based on the Russian
Federation's failure to protect the company's investments in Russia,
and the expropriation of Yukos Oil Company and its assets, specifically
Yuganskneftegaz, Yukos' main production asset. The Energy Charter
treaty arbitration is the largest arbitration ever filed.
Mr Osborne has been widely quoted in the international media and
has given evidence to several governmental and parliamentary inquiries
focused on ``the Yukos Affair'' and the current situation in Russia.
State Department Letter Dated July 17, 2015
Angela D. Caesar, Clerk of Court
United States District Court for the District of Columbia
333 Constitution Avenue, N.W.
Washington, D.C. 20001
July 17, 2015
re: Hulley Enterprises Ltd., Yukos Universal Ltd., and Veteran
Petroleum Ltd. v. Russian Federation, et al., Case No. 1:14-cv-01996-
ABJ
Dear Ms. Caesar:
I am writing regarding the Court's request for transmittal of
summons, notice of suit, petition to confirm arbitration awards and
declaration to the Ministry of Foreign Affairs ofthe Russian Federation
pursuant to 28 U.S.C. Section 1 1608(a)(4) as service upon the Russian
Federation as a defendant in the above referenced case. I previously
notified you on July 8, 2015 that service had been effected upon the
Russian Federation by the U.S. Embassy in Moscow.
Subsequently, the U.S. Embassy in Moscow received a reply from the
Russian Ministry of Foreign Affairs in the form of a diplomatic note
dated July 15, 2015. I am including a copy ofthe original diplomatic
note in Russian. The U.S. Embassy prepared an informal translation of
the note:
The Ministry of Foreign Affairs of the Russian Federation
presents its compliments to the Embassy of the United States of
America in the Russian Federation and, referring to Embassy's
Note CON 2015-021 of June 18, 2015 has the honor of advising as
follows.
The awards of the Hague International Court of Arbitration of
July 18, 2014, regarding the claims of Hulley Enterprises LTD,
Yukos Universal LTD, and Veteran Petroleum LTD against the
Russian Federation constitute an unjust and politically
motivated act rendered in overt violation of applicable legal
provisions and are incompatible with the ideas of the rule of
law, independent, impartial and professional international
justice.
In this regard the Russian Federation initiated proceedings in
the competent court of The Hague with a view to reverse the
above awards.
The Hague arbitration tribunal had no jurisdiction to consider
the dispute related to decisions taken on the basis of an
international agreement to which the Russian Federation is not
a party. Moreover, that international agreement does not apply
to the above dispute.
Investigating the case, the arbitrators committed numerous
gross violations, including denial of the fundamental right to
appropriate legal procedure.
In view of the foregoing, the Ministry believes that
recognition and enforcement of these awards in the United
States would not comply with the letter and spirit of the New
York Convention on the Recognition and Enforcement of Foreign
Arbitral Awards of 1958, and could seriously undermine the
credibility of a reputable American court.
The Ministry also considers it appropriate to emphasize that
if, in spite of the aspects outlined above, the legal
proceedings initiated in the Federal Court for the District of
Columbia over recognition and enforcement in the United States
of The Hague arbitration awards are supported by U.S.
government authorities, US-Russia bilateral relations will once
again suffer a heavy blow.
Any attempt to use injunctive remedies or execution measures
against Russian property in the USA will be considered by the
Russian Federation as grounds for taking adequate and
proportionate retaliatory steps in relation to the USA, its
citizens, and legal entities.
The Ministry would be grateful if you would bring the contents
of this note to the attention of the competent American court.
The Ministry avails itself of this opportunity to extend to
the Embassy renewed assurances of its highest consideration.
Should you have any questions regarding this matter, please do not
hesitate to contact me at (202) 485-6224.
Sincerely,
Daniel Klimow
Attorney Adviser
Office of Legal Affairs
Articles From the Russian Press Dated September 25, 2015
Sputnik News
Russian Justice Ministry Not Making Plans for Yukos Ex-Shareholders'
Reimbursement
25 September 2015
The Russian Justice Ministry is not developing any sort of plans to
reimburse former Yukos shareholders and any action will be done taking
into consideration Russia's national interests, the Justice Ministry's
press service said Friday.
``The Russian Justice Ministry's further actions in regard to the
case of `Yukos vs Russia' will be done on the basis of Russian
legislative demands, the legal positions of the Russian Constitutional
Court, and taking into consideration the necessity of upholding
national interests,'' the press service told RIA Novosti.
In July 2014, Europe's top human rights court ruled that Russia
must pay about $2 billion to shareholders of the country's now-defunct
energy company Yukos, declared bankrupt in 2006 and absorbed into
state-owned Rosneft.
On Thursday, the European Council Committee of Ministers called on
Russia to provide a plan on reimbursing former Yukos oil company
shareholders in line with the European Court of Human Rights' ruling.
The Russian Justice Ministry refused to follow ECHR ruling because
compliance would put the ministry in breach of Russia's constitution.
The ministry appealed against the ruling, arguing that it was neither
fair nor impartial.
Prime News
Russian ministry says develops no plans to redeem Yukos shareholders
25 September 2015
Russia's Justice Ministry is not developing any plans to compensate
defunct Yukos oil company's owners, further actions under the case will
be made basing on national interests, a representative for the ministry
told PRIME on Friday.
The Permanent Court of Arbitration in Hague ruled in July 2014 that
Russia must pay U.S. $50 billion compensation to former owners of Yukos
for the company's bankruptcy ruling and asset nationalization. Apart
from the Hague trial, in 2014, the European Court of Human Rights ruled
that the Russian government redeem 1.86 billion euros in losses of
former owners of Yukos.
On Thursday, the Council of Europe urged Russia to present a plan
of compensations under the European Court of Human Rights' decision.
Prepared Statement of Alan Larson, Senior International Policy Advisor
with Covington & Burling LLP, Former Under Secretary of State for
Economics and Career Ambassador, Department of State
Chairman Smith, Co-chairman Wicker, distinguished members of the
Commission. Thank you for the opportunity to testify before the
Commission on Security and Cooperation in Europe. Today we will be
discussing a serious international problem, Russia's failure to respect
the rule of law and the commitments it has made during the past twenty-
five years.
My name is Alan Larson. I am Senior International Policy Advisor at
Covington & Burling LLP. I also serve as the Chairman of the Board of
Directors of Transparency International-USA, an anti-corruption NGO.
Formerly I was a career Foreign Service Officer and served as Under
Secretary of State for Economic Affairs during the administrations of
Bill Clinton and George W. Bush. My testimony has been informed by
experiences in each of these roles, but my testimony today reflects my
own views and does not necessarily reflect the views of any of the
organizations with which I am or have been affiliated.
The Coherence of the Helsinki Framework
The Helsinki framework is an important and creative response to the
end of the Cold War. I have been privileged to play a small role in
implementing parts of the international economic dimension of the
Helsinki framework during the past two and a half decades. During my
assignment as the U.S. Ambassador to the Organization for Economic
Cooperation and Development (OECD) from 1990-1993, I helped stimulate
the creation of OECD technical assistance programs for the formerly
Communist countries of Poland, Hungary and Czechoslovakia. As part of
this effort, the OECD developed a pathway to the accession of these
countries into membership in this club of market-oriented Western
democracies. Today Poland, Hungary, the Czech Republic, the Slovak
Republic, Estonia, and Slovenia are OECD members.
As Under Secretary of State and Assistant Secretary of State from
1996-2004, I worked with Russian economic policy leaders on a range of
international economic policy issues, including trade, debt and
finance. As a member of the U.S. team in charge of preparation for
meetings of G-8 Leaders, I worked closely with representatives of
Russia on issues of central importance to the international agendas of
President Bill Clinton and George W. Bush. These efforts were part of a
broader U.S. strategy of drawing Russia and other countries of the
former East Bloc into international institutions that undergird
security, prosperity and individual rights.
The Helsinki framework is grounded in the realization that lasting
security, meaningful economic cooperation, and respect for human rights
all rest on a common foundation--strong respect for the rule of law and
international agreements. A stable security system in Europe depends on
collective adherence to the 10 principles guiding relations between
states: beginning with sovereign equality, refraining from the use of
force and the inviolability of borders including with ``the fulfillment
in good faith of obligations under international law.'' In short, when
relations between governments in Europe are governed by the rule of law
and respect to international agreements, security is enhanced. When
these principles are trampled on, confidence, predictability and
security are eroded.
Respect for human rights is equally important to the Helsinki
framework. In democratic societies, the rule of law also must govern
relationships between governments and their citizens. When governments
violate their own peoples' legal and human rights, those same
governments are far more likely to ignore the rule of law in their
dealings with other countries and those countries' citizens.
The economic dimension of the Helsinki framework is the dimension
to which I have devoted a great portion of my career. Strong economic
cooperation among states can stimulate shared benefits and constructive
interdependence that, in turn, foster security and political security;
at the same time, governments' commitment to multilateral security
arrangements is a necessary condition for economic cooperation to fully
flower. In a similar fashion, when governments respect the rights of
their people, enterprise and economic initiative flourishes; at the
same time, strong economic performance can help generate resources that
allow governments to fully carry out their human development
obligations. The respect for the rule of law lies at the center of the
relationships that make durable and meaningful economic development
possible.
The three dimensions of the Helsinki framework form a coherent and
interlocking whole. When all three dimensions are respected, the
aspirations of the peoples of Europe for security, prosperity and
freedom can be met. When one or more dimensions of the Helsinki
framework are ignored, the entire framework becomes unstable.
A Closer Look at the Economic Dimension of the Helsinki Framework
I would like to focus on the economic and business dimension of the
Helsinki framework. In 2012 I testified before the Senate Finance
Committee on the topic of Permanent Normal Trade Relations (PNTR)
between the United States and Russia. I urged Congress immediately and
unconditionally to extend PNTR to Russia. I said then and I continue to
believe that it was a good thing for Russia to join the World Trade
Organization. By doing so and by applying rule of law disciplines to
its trading relationship with the United States and other WTO members,
Russia could take an important step toward meeting the terms of the
Helsinki framework.
At the same time, however, I noted that Russia needed to do more in
the economic sector. Russia needed to apply the rule of law to other
aspects of the economy. In this regard, I suggested that it was useful
to think of a ``rule of law triangle'' for business. One side of the
triangle was rule of law disciplines for trade, which would be strongly
promoted by WTO accession. The rule of law triangle for business would
not be complete or stable, however, unless Russia also took action to
shore up the other two sides of the triangle--investment protection and
action to combat corruption. Russia had failed to ratify a bilateral
investment treaty between the United States and Russia. Worse yet,
Russia had engaged in the uncompensated expropriation of billions of
dollars of U.S. investments in Yukos Oil Company. American investors--
who owned about 12 percent of Yukos at the time of the expropriation--
have claims worth over $14 billion, and they are entitled to
compensation under international law even though they have no option
for bringing claims directly against the Russian Federation.
In addition to the lack of investor protection, the rule of law
environment for business was severely hampered by rampant corruption in
the Russian customs administration, tax administration and judiciary.
Corruption damaged the interests of U.S. and Russian business alike.
Trade and investments rules will not supply a stable framework for
business unless they are supported by strong rules to combat
corruption.
I was grateful that when Congress ultimately enacted PNTR, it
included Section 202, which contained what I have referred to as a rule
of law for business agenda. In this section, Congress called on the
Administration to take a number of steps and report annually on the
progress achieved. The report is due this December. Congress required
the State Department and the U.S. Trade Representative annually to
submit a report:
(1) on the measures taken by the Trade Representative and the
Secretary and the results achieved during the year preceding the
submission of the report with respect to promoting the rule of law in
the Russian Federation, including with respect to--
(A) strengthening formal protections for United States
investors in the Russian Federation, including through the
negotiation of a new bilateral investment treaty;
(B) advocating for United States investors in the Russian
Federation, including by promoting the claims of United States
investors in Yukos Oil Company;
(C) encouraging all countries that are parties to the
Convention on Combating Bribery of Foreign Public Officials in
International Business Transactions of the Organisation for
Economic Co-operation and Development, done at Paris December
17, 1997 (commonly referred to as the ``OECD Anti-Bribery
Convention''), including the Russian Federation, to fully
implement their commitments under the Convention to prevent
overseas business bribery by the nationals of those countries;
(D) promoting a customs administration, tax administration, and
judiciary in the Russia Federation that are free of corruption;
and
(E) increasing cooperation between the United States and the
Russian Federation to expand the capacity for civil society
organizations to monitor, investigate, and report on suspected
instances of corruption; and
(2) that discloses the status of any pending petition for espousal
filed with the Secretary by a United States investor in the Russian
Federation.
As one might expect, the Administration's reports to date have not
been encouraging. There appears to have been no progress on a new
bilateral investment treaty. Russia has backtracked on its anti-
corruption efforts. And, while the State Department reports that it has
raised the Yukos matter with senior Russian officials, there is no
indication that Russia is convinced that compensation for American
investors is a priority for the U.S. government. There is certainly
more that the Administration can and should do to advance the rule of
law for business agenda that Congress mandated in Section 202.
Assessing Russia's Adherence to the Helsinki Framework
I am concerned that the Russian Federation has not adhered to the
Helsinki framework, especially in recent years.
In 2014, Russia's occupation of Crimea was a clear violation of
commitments Russia made in the Budapest agreement of 1994. Russia has
continued to intervene in Eastern Ukraine, in violation of the Minsk
agreement of 2014. These actions follow after Russia's occupation in
2008 of the regions of Abkhazia and South Ossetia in Georgia.
In addition, Russia has failed to comply with the human rights and
humanitarian dimensions of the Helsinki framework. Since the passage of
the PNTR legislation in 2012, Russian authorities have cracked down on
civil society and government critics while curtailing freedom of
expression.
The destruction of Malaysia Airlines Flight 17 is yet another
deeply troubling example of Russia's failure to respect the rule of
law. Last week it was widely reported in the press that an
international investigation determined that the civilian airliner was
downed by a Russian-made surface-to-air missile, fired from territory
controlled by Russian-backed separatists, killing 298 people. Russia's
provision of such weapons to Ukrainian separatists is a clear violation
of Russia's obligations to respect the sovereignty of Ukraine. It is
also a violation of basic human rights principles, including those that
are at the core of the Helsinki framework.
Let me focus most intensely on Russia's troubling failure to comply
with the economic dimension of the Helsinki framework. I am very
disappointed that Russia has so far refused to comply with the rulings
of three separate investor-state dispute settlement panels that found
that Russia expropriated Yukos Oil Company and owes compensation to
foreign investors.
A tribunal convened pursuant to the Energy Charter Treaty
unanimously decided in July 2014 that Russia expropriated Yukos and
awarded majority investors over $50 billion in damages. That decision
was joined by Stephen Schwebel, Russia's appointed arbitrator, who
previously served as Deputy Legal Advisor at the State Department and
as President of the International Court of Justice.
In July 2012, an international tribunal established under
the Spain-Russia bilateral investment treaty found unanimously that
Russia expropriated Yukos and the Russian Government owed compensation
to a group of minority Spanish investors. In Quasar de Valores, et al.
v. The Russian Federation, the tribunal concluded that Russia's actions
were deliberately calculated to nationalize Yukos's assets and amounted
to an expropriation for which compensation is due.
In yet another unanimous decision involving minority
shareholders, the arbitrators in RoslnvestCo UK Ltd. v. The Russian
Federation likewise concluded that Russia had expropriated Yukos and
that compensation was due.
The ruling in the Energy Charter Treaty case is especially
instructive. The tribunal expressly rejected Russia's claim that its
actions against Yukos were a legitimate use of the tax authority,
instead concluding that ``the primary objective of the Russian
Federation was not to collect taxes but rather to bankrupt Yukos and
appropriate its valuable assets.'' The tribunal was particularly
critical of Russia's disregard for the rule of law, noting that ``. . .
Russian courts bent to the will of Russian executive authorities to
bankrupt Yukos, assign its assets to a State-controlled company, and
incarcerate a man who gave signs of becoming a political competitor.''
It ultimately concluded that ``the measures that [Russia] has taken in
respect of Yukos . . . have had an effect `equivalent to
nationalization or expropriation' '' and valued Yukos at approximately
$95 billion.
Russia's actions against Yukos not only violated its obligations
under a range of investment treaties, but also constituted a violation
of Russia's human rights obligations. The European Court of Human
Rights in July 2014 awarded Yukos over $2.5 billion in compensation,
concluding that Russia's enforcement actions and penalties against
Yukos violated Russia's obligations under the European Convention on
Human Rights. This award was in addition to the separate award to Yukos
founder Mikhail Khordorkovsky for his treatment at the hands of the
Russian authorities.
The Response to Russia's Disregard for the Rule of Law
The United States and the European Union, among others, have
responded to Russia's conduct toward Ukraine by imposing targeted
sanctions. These sanctions focus on Russia's financial, energy, and
defense sectors, and also include restrictions relating to Crimea's
tourism, transport, telecommunications, and energy sectors. The United
States and European Union have ratcheted up sanctions several times.
Sanctions, together with low oil and gas prices, are imposing a heavy
price on the Russian economy. The restoration of a normal economic
relationship between Russia and other OSCE members requires
accountability and reversal of measures Russia has taken in respect of
Crimea and Eastern Ukraine.
The United States and the European Union must press Russia at the
highest level to implement the specific rule of law framework for
business contained in Section 202 of the PNTR legislation, and to
comply with all its commitments under the Helsinki framework.
The rule of law for business agenda contained in Section 202
correctly focused also on pressing Russia to tackle some of the most
damaging forms of corruption. I see corruption as government officials'
abuse of entrusted authority for the pursuit of private gain.
Corruption is antithetical to the rule of law essential for business to
flourish, and Russia's economy will not achieve its full potential so
long as the problem remains unaddressed. Yet Russia has not made
material progress to reduce corruption in its customs administration,
tax administration, and judiciary, or to expand the capacity for civil
society organizations to monitor, investigate, and report on suspected
instances of corruption. Further, Russia had not taken concrete steps
to outline a plan for the compensation of Yukos shareholders.
Practicing What We Preach
To be effective in calling other countries to accountability, the
United States must maintain the highest standards in complying with the
Helsinki framework. I am proud of the high standards that the United
States has maintained in each of the three dimensions.
We can always do better, however. As Chairman of the Board of
Directors of Transparency International-USA, I devote considerable
attention to ways the United States can do better in maintaining high
standards of integrity, accountability, and transparency in our
domestic processes, including our domestic political processes. The
strong commitment of the United States to openness and integrity makes
people in other countries very attentive to instances where they think
we fall short of the standards we call on others to meet. In this
regard, I would note in particular that other countries give
considerable attention to U.S. elections. They are especially attentive
to the 2016 elections, and many thoughtful international observers, and
U.S. citizens express concern about a lack of transparency in which
U.S. political campaigns and the independent organizations that engage
in electoral advocacy are financed. It is important for the United
States to demonstrate that we are committed to clean elections, without
corruption or the perception of corruption. In this regard, I would
urge the Commission to examine closely the TI-USA statement on
Elections, Electoral Spending and Corruption. This statement is by no
means the final word on the subject, but we believe it provides
sensible and balanced recommendations that could be supported by
citizens and officials across the political spectrum. By taking action
in support of these recommendations, I believe Congress and the
Commission would strengthen the hand of the United States in dealing
with the violations of other countries of the Helsinki framework.
In my view, it is also important for the United States to show that
there will be no impunity for corrupt officials, whether those
officials are U.S. or foreign. In this regard, TI-USA has called on the
Commission and Congress to address the recommendations of TI-USA with
respect to beneficial ownership, including the High Level Principles of
Beneficial Ownership Transparency, so we can help ensure that
foreigners are not able to hide the fruits of corrupt activities in the
United States. In addition, TI-USA has called on Congress to make a
targeted amendment to U.S. law to prevent ``undisclosed self-dealing,''
an issue that is described in a TI-USA paper titled ``Undisclosed Self-
Dealing by Public Officials and the Need for a Legislative Response to
Skilling v. United States.'' Actions such as these would put Congress
and the United States on the strongest possible platform when we point
to the shortcomings of other nations in adhering to the Helsinki
framework.
U.S. Response to Russia's Non-compliance with the Helsinki Framework
In summary, Mr. Chairman, I recommend that the Congress and the
Administration take the following steps:
1. Recognize that fostering respect for the rule of law in all
areas--security, economic, human rights--is a strategic
objective. The different facets of the problems we face in our
relationship with Russia have a common root. The United States
should continue to work with other OSCE countries to push
Russia to respect the rule of law and meet its international
obligations.
2. Ensure Russia is held accountable for its actions in
Ukraine, including its occupation of Crimea and interference
Eastern Ukraine.
3. Press Russia to implement the rule of law for business
agenda contained in Section 202 of the Russia PNTR legislation.
4. Make absolutely clear to Moscow that American shareholders
in Yukos must be fairly compensated.
5. Seriously engage Russia on the anti-corruption agenda,
bilaterally and in the OECD and OSCE.
6. Urge Russia to open up political space for civil society to
operate in Russia.
7. Maintain a common line with the EU and others on sanctions
policy related to Ukraine.
8. Demonstrate by example that the United States is seriously
committed to doing its very best to fully comply with and, as
possible, go above and beyond the Helsinki standard. In this
regard, take actions Transparency International-USA has called
for in respect of (a) Elections, Electoral Spending and
Corruption, (b) beneficial ownership and (c) undisclosed self-
dealing.
Thank you for the opportunity to testify. I would be pleased to
address any questions or comments from the Commission.
Alan Larson provides clients with strategic advice, counseling and
representation at the intersection of international business and public
policy. A Ph.D. economist, decorated diplomat and non-lawyer, Mr.
Larson advises clients on high stakes international challenges. His
troubleshooting takes him to all parts of the world. His practice
encompasses international investment and acquisitions; sanctions and
trade compliance; international energy transactions, international
aviation and international trade. He has helped win approval of the
U.S. Committee on Foreign Investment in the U.S. (CFIUS) for some of
the highest profile foreign investments in the United States, including
several by state-owned companies and sovereign wealth funds. Mr. Larson
helps Covington's management team formulate and implement its
international strategy. He is a member of the Board of Counselors of
McLarty Associates. He is Chairman of Transparency International/USA
and a Board Member of Helping Children Worldwide. He previously served
in the State Department two top economic policy jobs, as Under
Secretary of State for Economics and Assistant Secretary of State for
Economic and Business Affairs, as well as Ambassador to OECD. He is a
Career Ambassador, the State Department's highest honor.
Prepared Statement of Vladimir Kara-Murza, Coordinator, Open Russia
Movement
Chairman Smith, Co-Chairman Wicker, esteemed Members of the
Commission, thank you for holding this important and timely hearing and
for the invitation to testify.
This year marks the 40th anniversary of the Helsinki Final Act.
Many things have changed since its signing, but one unfortunate fact
remains the same: just as the Soviet Union in 1975, the Russian
Federation today--after a brief democratic interlude in the 1990s--
treats the human rights commitments undertaken under the Helsinki
process as a dead letter.
The freedom of expression, guaranteed under the Copenhagen Document
and other OSCE statutes, has been an early target of Vladimir Putin's
regime. One after another, independent television networks were shut
down or taken over by the state. Today, the Kremlin fully controls the
national airwaves, which it has turned into transmitters for its
propaganda--whether it is to rail against Ukraine and the United States
or to vilify Mr. Putin's opponents at home, denouncing them as
``traitors.'' One of the main targets of this campaign by the state
media was opposition leader Boris Nemtsov, who was murdered in February
two hundred yards away from the Kremlin.
The right to free and fair elections is another OSCE principle that
remains out of reach for Russian citizens. In fact, the last Russian
election recognized by the OSCE as conforming to basic democratic
standards was held more than fifteen years ago, in March 2000. Every
vote since then has fallen far short of the principles outlined in the
Copenhagen Document that requires member states to ``enable [political
parties] to compete with each other on a basis of equal treatment
before the law and by the authorities'' (Paragraph 7.6). Opponents of
Mr. Putin's regime have received anything but equal treatment at the
ballot--if, indeed, they were allowed on the ballot at all. In many
cases, opposition candidates and parties are simply prevented from
running, both at the national and at the local level, leaving Russian
voters with no real choice. According to the OSCE monitoring mission,
the last election for the State Duma in December 2011 was marred by
``the lack of independence of the election administration, the
partiality of most media, and the undue interference of state
authorities at different levels.'' Evidence of widespread fraud in that
vote led to the largest pro-democracy protests under Mr. Putin's rule,
when more than 100,000 people went to the streets of Moscow to demand
free and fair elections.
Another disturbing feature of today's Russia is reminiscent of the
Soviet era. According to Memorial, Russia's most respected human rights
organization, there are currently fifty political prisoners in the
Russian Federation, as defined by the Council of Europe--that is,
prisoners whose ``detention is the result of proceedings which were
clearly unfair, and this appears to be connected with political motives
of the authorities.'' These prisoners include opposition activists
jailed under the infamous ``Bolotnaya case'' for protesting against Mr.
Putin's inauguration in May 2012; the brother of anticorruption
campaigner Alexei Navalny; and Alexei Pichugin, the remaining hostage
of the ``Yukos case.''
This list is not limited to Russian citizens. Last year, two
foreigners--Ukrainian military pilot Nadiya Savchenko and Estonian
security officer Eston Kohver--were seized on the territories of their
respective countries and put on trial in Russia. Kohver was released
last month in a cold war-style prisoner exchange. Savchenko's trial is
still underway. Another Ukrainian prisoner, the filmmaker Oleg Sentsov,
was recently sentenced to twenty years on ``terrorism'' charges for
protesting against the Kremlin's annexation of his native Crimea.
It is a task for Russian citizens to improve the situation with the
rule of law in our country. But, contrary to the oft-rehearsed claims
by Kremlin officials, human rights ``are matters of direct and
legitimate concern to all participating States and do not belong
exclusively to the internal affairs of the State concerned,'' as is
explicitly stated in the OSCE document adopted, of all places, in
Moscow. It is important that fellow member states, including the U.S.,
remain focused on Russia's OSCE commitments, especially as we approach
the parliamentary elections scheduled for September 18, 2016. It is
important that you speak out when you see violations of these
commitments.
Above all, it is important that you remain true to your values.
Nearly three years ago, Congress overwhelmingly passed, and President
Obama signed the Sergei Magnitsky Rule of Law Accountability Act, one
of the most principled and honorable pieces of legislation ever
adopted. It is designed to end the impunity for those who abuse the
rights of Russian citizens by denying these people the privilege of
traveling to and owning assets in the United States--a privilege many
of them so greatly enjoy. Unfortunately, implementation of this law
remains timid, with only low-level abusers targeted so far.
Implementing the Magnitsky Act to its full extent and going after high-
profile violators would send a strong message to the Kremlin that the
U.S. means what it says, and that human rights will not be treated as
an afterthought, but as an essential part of international relations.
Vladimir V. Kara-Murza is the coordinator of Open Russia, a platform
for democracy activists founded by former political prisoner Mikhail
Khodorkovsky. He was a longtime colleague and advisor to Russian
opposition leader Boris Nemtsov, and is the deputy leader of the
People's Freedom Party (PARNAS), established and led by Nemtsov. Kara-
Murza was a candidate for the Russian parliament in 2003, and has
served as campaign chairman for presidential candidate Vladimir
Bukovsky (2007-08). He is a senior advisor at the Institute of Modern
Russia, and was previously a correspondent for RTVi, Novye Izvestia and
Kommersant, and editor-in-chief of the Russian Investment Review. Kara-
Murza has testified on Russian affairs before several parliaments, and
has published op-eds in the Financial Times, The Washington Post, The
Wall Street Journal, the National Post, and World Affairs. He is the
author of Reform or Revolution (Moscow 2011), and a contributor to
Russia's Choices: The Duma Elections and After (London 2003), Russian
Liberalism: Ideas and People (Moscow 2007), and Why Europe Needs a
Magnitsky Law (London 2013). In 2005, he produced They Chose Freedom, a
documentary film on Soviet dissidents. Vladimir Kara-Murza holds an
M.A. (Cantab.) in History from Cambridge.
[all]
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