```

[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

                               __________

                       Printed for the use of the
            Commission on Security and Cooperation in Europe

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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

=======================================================================

                          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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