December 22, 2004 Interview on Canada's Report on Business Television Howard Green: It could very well win the award for the most bizarre auction in 2004: Sunday's sell off of Yukos's prized asset for more than nine billion dollars. The bidder nobody seems to know much about Baikal Finance bagged it just after ten minutes, leading many to believe the fix was in, but late today word that Russia's state oil firm, Rosneft has bought Baikal. Dan Harris practices international law with the firm Harris & Moure in Seattle and has been involved in Russian cases before. He joins us now from Seattle. Good of you to join us Dan, thank you. Dan Harris: Thank you Howard. Good to be here. Howard Green: So, first of all the news today of Rosneft, the Russian state oil company buying this mysterious company Baikal, what does that say to you? Dan Harris: I don't know. This seems to be the last in a series of rumors regarding the ownership of Baikal. I know that Rosneft is the state owned oil company, but I understand that the valuation of that company is only five to six billion dollars, so it makes me wonder where they came up with that kind of money. Howard Green: The extra money to pay for what was a nine billion dollar purchase at Sunday's auction, is that what you're getting at? Dan Harris: Exactly. Howard Green: What about that auction, the legality of it? Dan Harris: Well, it was legal under Russian law; obviously less legal under U.S. law because there is a U.S. bankruptcy court order out of Houston instructing the world not to do anything with Yukos's assets, and the auction obviously went against that order. Howard Green: How could that play out with two countries laws sort of scrapping at each other? Dan Harris: That's really the key question, and I think that's the important question because it will be determined in courts outside the U.S. and outside Russia. So various countries will have to determine which country's laws they're going to enforce: the U.S.'s or Russia's. Howard Green: Where, in your view, is the likeliest spot for this argument to take place? Dan Harris: I don't think there's any one likely spot, I think there will be a number of likely spots, and I think it will be Yukos that will pick the spots, and Yukos will do that based on where they can go after assets belonging to Baikal Finance, the company that bought Yukos's assets. And I think that they will pick a country where there are assets where they think the courts will enforce the U.S. order. Howard Green: But back to the question of the legality of it, what's everybody saying? Is there a shoe in argument on any one side here? Dan Harris: Definitely not. The reality is that Russia followed its own laws in going forward with the auction. Under Russian law they had no obligation to obey a U.S. court order. And the U.S. court also followed U.S. laws, so it's hard to say that either country has operated illegally up to this point with respect to the court decision in the U.S. and even the auction in Russia. Attach, I am not speaking at all to the events that preceded the auction in Russia, i.e.,the tax issues involving Yukos. Howard Green: But, does the auction look like it was rigged? Dan Harris: It definitely does, because you have a company, Baikal Finance, that did not exist, as near as I can tell, before the auction. Then it comes in and spends nine point some billion dollars at an auction. That's very strange. What's also very strange is that the government had instituted a minimum bid of, I believe it was, 8.6 billion at the auction, and Baikal Finance, even though it was the only bidder at the auction, bid more than the minimum, so you have to ask, why would they do that? Howard Green: Does this situation surprise you? I mean you've dealt in Russian legal circles before. Dan Harris: Unfortunately it does not. I've been involved with Russia for ten years and I always used to say that the business climate there was getting better every single month, but I stopped saying that about three or four months ago, so no, it does not surprise me. The situation there has not been good over the last six months. Howard Green: How are the effects of this being felt outside of Russia among people who do business in Russia. Dan Harris: To the extent that they were not already wary of going into Russia, they have to be wary now. If I were a business person looking at Russia, I would be saying, "if this could happen to Yukos, one of the biggest, most powerful companies in all of Russia, what could happen to me?" I think business people are going to be saying: "does Russia abide by the rule of law?" Howard Green: What about Western governments, are they confronting Vladimir Putin on this matter or are they afraid of him? Dan Harris: I think a little bit of both. I think there has been some confrontation. I know that the U.S. State Department has been somewhat critical of what has happened to Yukos. I think the next few months will really tell us what the governments are going to do because Yukos is going to be taking this matter to their front doors by bringing lawsuits in various countries. Howard Green: Just to finish up, briefly, if you were a betting man, how would you bet this plays out? Dan Harris: I would say that Yukos as it was is never going to be again. Yukos is not going to be an oil company in the future. What it is essentially going to be is a litigation machine pursuing the recovery of its assets -- which are substantial -- around the world. I have heard Yukos is going to be seeking forty billion dollars in damages from various players, including the purchaser of its assets and all those companies that do business with that purchaser. Howard Green: Pleasure speaking with you Dan, thanks for joining us. Dan Harris: Thank you for having me, Howard. Howard Green: That's Dan Harris, international lawyer with Harris & Moure, joining us from Seattle, Washington. Back to Article Summary Page If you want to learn more about how Harris & Moure can assist you with your own legal needs (be they newsworthy or not), we urge you to contact us so we can tell you how we can help. Our initial consultations are always free.