E. ATTEMPTS TO SETTLE 1. Introduction 891. In the second half of 2004, Yukos made several proposals to the Russian authorities for the settlement of its tax debts. None of these proposals was accepted by the Russian Federation, which moved to auction off YNG in December 2004 in spite of Yukos’ protests. 892. This chapter examines the context of Yukos’ settlement offers, their content and the Russian Federation’s reaction to them, with a view to determining whether the conduct of the Russian Federation was more consistent with the goal of collecting taxes or, as Claimants argue, with the aim of leading Yukos to bankruptcy and appropriating its most valuable assets. 893. Claimants submit that, through its settlement offers, Yukos sought to initiate a dialogue with the Russian Federation that could lead to Yukos paying its tax debts while “preserv[ing] the company as a going concern.”1040 However, the settlement offers were met with a “complete lack of responsiveness” and utter inflexibility from the Russian Federation.1041 For Claimants, this reaction is “one of the strongest testaments” to the fact that Respondent was not interested in tax collection, but only the destruction of Yukos.1042 As put by Claimants’ counsel at the Hearing: the bottom line is: if the Russian Federation was interested in collecting taxes, it would have responded to Yukos; it would have worked with Yukos to try and find a way for the company to pay its alleged tax debt. And we say that this is consistent and supports the Claimants’ conclusion that this was not about paying taxes but was about the expropriation of the company.1043 894. Claimants add that the Russian Federation’s real intent with respect to Yukos is also revealed by the fact that it did settle the tax debts of other oil companies, such as Rosneft, Sibneft and TNK-BP.1044 895. Claimants also submit that, in addition to rejecting Yukos’ settlement offers, the Russian authorities actively prevented Yukos from discharging its tax liabilities by freezing and seizing 1040 Theede WS ¶ 9; see also Transcript, Day 17 at 126. 1041 Reply ¶ 321. 1042 Transcript, Day 20 at 216 (Claimants’ closing); see also Rieger WS ¶ 24. 1043 Transcript, Day 17 at 105 (Claimants’ closing). 1044 Claimants’ Skeleton Argument, 1 October 2012 ¶ 26 (hereinafter “Claimants’ Skeleton”). - 298 - Yukos’ assets (through the April 2004 injunction of the Moscow Arbitrazh Court and the bailiffs’ resolutions of June and July 2004).1045 As a result, Yukos could only pay its tax debts from the proceeds of the business operations of its subsidiaries, which did not suffice to meet Yukos’ liabilities in the short time allowed by the Russian authorities.1046 896. For its part, Respondent submits that the Russian authorities responded to each of Yukos’ offers1047 and, moreover, were entitled to reject these offers because none of them amounted to a serious proposal.1048 From Respondent’s perspective, Yukos’ settlement offers were a mere posturing exercise intended to give “an appearance of cooperation, while fostering the image— embellished by their public relations machines—that Yukos was a victim of the authorities’ conduct.”1049 Yukos’ offers were “invariably unacceptable, either because they were contrary to Russian law, or because they involved impaired assets, or because they were otherwise inadequate.”1050 897. Respondent further submits that, by the second half of 2004, “Yukos’ management faced a serious credibility problem, among other things because it had made manifestly false claims that it was unable to pay any of its tax bills.”1051 Given Yukos’ bad faith, the Russian authorities’ refusal to negotiate was reasonable.1052 Respondent concludes that Yukos caused its own demise by failing to pay its tax debts in full in the first quarter of 2004 (instead making disingenuous and inadequate settlement proposals), thereby attracting mounting interest and fines.1053 898. The Tribunal recalls that the Quasar tribunal found that the Russian Federation’s failure “even to respond” to the offers made by Yukos, “the largest private taxpayer in Russia” and a major 1045 Memorial ¶ 351. 1046 Ibid. ¶¶ 351, 353. 1047 Respondent’s Closing Slides, p. 895; see also Rejoinder ¶ 893. 1048 Counter-Memorial ¶ 419. 1049 Rejoinder ¶ 897. 1050 Counter-Memorial ¶ 419; see also Rejoinder ¶ 893. 1051 Counter-Memorial ¶ 418. 1052 Respondent’s Closing Slides, pp. 804–806. 1053 Respondent’s Post-Hearing Brief ¶¶ 220–21. - 299 - force of the national economy, raised “significant doubts as to whether the Respondent acted in good faith in attempting to resolve its tax dispute with Yukos.”1054 2. Yukos’ Settlement Offers (and the Russian Federation’s Replies) 899. To place the settlement offers in context, it is helpful to recall the dates of some key events.1055 900. The 2000 Audit Report, the first audit report to assess tax arrears against Yukos, was issued on 29 December 2003.1056 The 2000 Decision holding Yukos fiscally liable for a tax offense and concluding that an amount of approximately USD 3.48 billion was due within two days, was issued on 14 April 2004.1057 901. On 15 April 2004, the Moscow Arbitrazh Court, upon application by the Tax Ministry, issued the 2004 Injunction prohibiting Yukos “from alienation and encumbrance in any way of its assets, including shares (including prohibition from the transfer of securities to a nominee holder and in trust management), interests in the charter capital of other legal entities, securities, excluding main types of products manufactured by [it].”1058 902. In a decision dated 23 June 2004 and published on 30 June 2004, the Appeal Panel of the Moscow Arbitrazh Court reversed a 19 May 2004 ruling that had provisionally suspended the effect of the 2000 Decision.1059 903. On 29 June 2004, an appeal resolution of the Moscow Arbitrazh Court upheld a first instance decision allowing the Tax Ministry to collect “tax arrears, interest, and fines” from Yukos in an amount of USD 3.42 billion.1060 On 30 June 2004, the Moscow Arbitrazh Court issued an enforcement writ for this amount.1061 1054 Quasar ¶ 102, Exh. R-3383. 1055 For a complete narrative, see Chapter VIII.B of this Award. 1056 2000 Audit Report, Exh. C-103. 1057 2000 Decision, Exh. C-104. 1058 April 2004 Injunction, Exh. C-108. 1059 Decision of Judge Cheburashkina to Suspend the Effect of Decision No. 14-3-05/1609-1 of 14 April 2004, Exh. C-112; Moscow Arbitrazh Court, Appeal Resolution in the name of the Russian Federation, 23 June 2004, Exh. C-120. 1060 Decision of the Moscow Arbitrazh Court, 26 May 2004, Exh. C-116; Moscow Arbitrazh Court, Appeal Resolution, 29 June 2004, Exh. C-121. 1061 Enforcement Writ No. 383729, 30 June 2004, Exh. C-122. - 300 - 904. On the same day, Bailiff Solovyova issued a resolution to initiate an enforcement proceeding. The resolution granted Yukos a 5-day period for voluntary payment of the full amount due, failing which the Bailiff would consider imposing a 7 percent enforcement fee.1062 The Bailiff then issued several more resolutions, freezing cash in 16 Yukos bank accounts.1063 905. The 2001 Tax Audit, assessing USD 4.1 billion in taxes, interest and fines against Yukos, was released on 30 June 2004.1064 906. During July 2004, Bailiffs Solovyova and Borisov issued further resolutions restricting Yukos’ access to its assets and imposing the collection of a 7 percent enforcement fee. 1065 907. On 9 July 2004, the Chukotka Arbitrazh Court issued interim measure orders in proceedings between former shareholders of Sibneft and Yukos, attaching 72 percent of Sibneft’s share capital and thus shrinking Yukos’ alienable stake in Sibneft to 20 percent minus one share (the “Chukotka Injunctions”).1066 908. On 6 July 2004, Yukos began making cash payments against its tax debts from the proceeds of the business operations of its subsidiaries.1067 By 16 November 2004, Yukos had paid USD 3.47 billion—a little more than the amount of its tax liability for the year 2000.1068 909. However, Yukos’ tax liabilities increased with the 2001 Decision, the 2002 Decision and the 2003 Decision, which were issued on 2 September, 16 November and 6 December 2004, respectively, and required payment by Yukos of tax arrears, fines and interest in the amounts of USD 4.1, 6.7 and 6 billion.1069 910. YNG was auctioned on 19 December 2004.1070 1062 Resolution of the bailiff to initiate enforcement proceeding 10249/21/04, 30 June 2004, Exh. C-123. 1063 Resolutions of the bailiffs to seize monies, 30 June 2004, Exh. C-124. 1064 Repeat Field Tax Audit Report No. 30-3-14/1 (2001), 30 June 2004, Exh. R-345. 1065 Resolution to restrict the rights of the securities owner, 1 July 2004, Exh. C-125; Resolution No. 10249/21/04 to Collect an Enforcement Fee, 9 July 2004, Exh. C-132. 1066 Rulings of the Arbitrazh Court of the Chukotka Autonomous District, Case No. A80- 141/2004, 9 July 2004, Exh. R-553. 1067 Reply ¶ 320, referring to Exhs. C-212 to C-238. 1068 Memorial ¶ 358, referring to Exh. C-234. 1069 2001 Decision, Exh. C-155; 2002 Decision, Exh. C-175; 2003 Decision, Exh. C-190. 1070 Protocol of the results of the auction to sell shares in OAO Yuganskneftegaz, 19 December 2004, Exh. C-290. - 301 - 911. Between 29–30 June 2004—when one appeals decision lifted the provisional suspension of the effect of the 2000 Decision and another confirmed the Tax Ministry’s USD 3.42 billion claim against Yukos—and December 2004—when the YNG auction took place—Yukos made several proposals to the Russian authorities to settle its tax debts.