The Financial Services Authority (FSA) and the London Stock Exchange (LSE) will break the law against dealing in "dirty money" if they allow the flotation of Russian state oil company Rosneft to go ahead on Wednesday, a High Court judge was told yesterday.
Potential investors in Rosneft were being misled into believing that there were no legal problems with the listing of its shares, said Clare Montgomery QC.
In fact, the flotation would amount to money laundering under the Proceeds of Crime Act because 70 per cent of the value of Rosneft's shares resulted from the unlawful seizure and sale of the assets of another oil company, Yukos, by the Russian government, she told Mr Justice Charles in London.
She strongly contested legal advice given to the FSA and LSE that Yukos's objections were "non-justiciable" - not open to legal challenge - in the English courts, because the courts had no power to interfere in the actions of a foreign state.
Miss Montgomery urged the judge to grant Yukos permission to seek a judicial review of decisions by the FSA and the LSE to admit the shares, plus an injunction blocking the flotation pending a full hearing.
Yukos claims that Rosneft's main oil producing subsidiary was "stolen" from Yukos by illegal seizure of its assets following bogus multi-million-dollar tax claims by the Russian authorities.
Rosneft's management have made it plain that they expect to win the case, having fought off previous lawsuits over rightful ownership of the subsidiary, Yuganskneftegaz (YNG). The FSA and the LSE are also contesting the case.
Miss Montgomery said that until October 2003 there were no complaints about Yukos from the Rus-sian tax authorities.
Then the company was subjected to reassessment for previous years and faced an unpaid tax demand for a total of $20 billion.
It was allowed only a day or two to pay up, and was then prevented from paying by a freezing order on its assets.
The company's appeal, in which its lawyers were given only 30 minutes a day to inspect 70,000 pages of documents ranged against them, was rejected by the Russian courts.
Bailiffs then moved in and seized the company's assets. YNG was sold at auction, by orders of the Russian government, for half its true value and was eventually sold on to Rosneft.
Yukos says that that the action taken against it by the Russian authorities may have been precipitated by the arrest and imprisonment of its former chief executive officer, Mikhail Khordorkovsky, after he announced that he was to provide funding for two opposition parties. The hearing continues.