When an international arbitration panel ruled in July 2014 that Russia must pay $50bn US to the former majority owners of the Yukos Oil company, the ruling riveted the legal world. After a decade-long legal battle, the arbitration had seemingly affirmed the value of international investment protection treaties as a tool for compensating owners of nationalised (or stolen) assets. 

However, there is a vast difference between winning a legal judgment and successfully collecting it – especially when such huge sums are at stake. While Russia clearly seized Yukos and stripped the former ownership group of their control, the country is now going to great lengths to discredit the arbitral ruling.

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Efforts are afoot in the Hague to overturn the arbitral ruling. Separate legal proceedings are playing out in the US, where the former owners are trying to enforce the judgment – and to seize any Russian assets that might turn up in the US. 

One prong of Russia's case has been to question the 'foreign-ness' of the investors who won the verdict. Strictly speaking, investment treaties – and the international legal protections contained therein – are designed to protect 'foreign' investors only. However, such treaties often impose few limitations on who can be considered a foreigner; local (i.e. Russian) investments routed via offshore shell companies (in Cyprus and the Isle of Man) back into Russia thus may be legally transformed into 'foreign-owned' investments. 

Whenever citizens of a given country can sue that same country in the guise of a 'foreigner' merely by using an offshore shell, this reminds us of the potential malleability of the international system that protects FDI flows. The question on many minds is whether the stretchy nature of this system could lead to its disintegration. 

Governments may come to realise that their own local laws and courts are in danger of being marginalised altogether if 'local' companies can easily fly a foreign flag and then use the international legal system to resolve essentially domestic disputes. 

In the Yukos case, however, Russia is further complaining that the use of offshore shells has enabled the real owners of Yukos to sidestep questions about their own alleged wrongdoing back in the mid-1990s when the company was privatised and sold off. 

Russia complains that arbitrators took an overly formalistic approach whereby they declined to look past the foreign shell of the Cypriot and Manx companies to consider whether those shells might be owned by the same Russian parties that Russia accuses of fraudulent activity in order to acquire Yukos at rock-bottom prices in the mid-1990s. Russia argues that these alleged original sins – if scrutinised more deeply by arbitrators, rather than sidestepped – might have led to a very different verdict in the arbitration proceedings (perhaps even to a finding that the investors can't come to an international tribunal if they themselves have 'unclean hands'). 

A US court will need to decide whether Russia's arguments hold any weight. In the meantime, though, Russia is not rushing to write any cheques. 

Luke Eric Peterson is the publisher of InvestmentArbitrationReporter.com a specialist news service focused on the law and policy of foreign investment.