Russian oil giant Yukos last night said it was unable to meet a midnight deadline to pay a $3.4 billion (€2.76 billion) tax bill and said bailiffs could begin taking control of its assets within hours.

A Yukos official made the admission hours before the deadline at the close of a day dominated by reports the company was in last-minute talks to stave off bankruptcy.

Its detained chief shareholder, billionaire Mr Mikhail Khodorkovsky, was said by his lawyer to be ready to give up control of the firm.

"We are not in a position to pay and we have not paid," the official said. A senior company source said the question of whether the firm would go bust was "a political decision".

Earlier yesterday, OECD criticised Russia's handling of the Yukos case, saying legal action against the oil firm and its owners represented "highly selective law enforcement".

The Paris-based economic organisation made its comments in a survey of Russia's economy published yesterday.

"The courts are often subservient to the executive, while the security services, the prosecutors and the police remain highly politicised," the OECD wrote.

"The so-called 'Yukos case' reflects these problems. Whether the charges against the company and its core shareholders are true or not, it is clearly a case of highly selective law enforcement."

Analysts view the Yukos case and the arrest of key shareholder Mr Mikhail Khodorkovsky, on trial for fraud and tax evasion, as a move by the Kremlin to curb his political ambitions. It said similar charges of tax evasion could be levelled against millions of Russian citizens. Instead they have been directed at one specific company and its shareholders.

"The simultaneous eruption of so many criminal cases and investigations - many of them eight or nine years old - does not look like the impartial operation of the law enforcement agencies and the courts," the OECD wrote.

Russia will struggle to rid itself of the corruption that plagues its legal system while the state itself continues to manipulate court cases, the report said.

The OECD also said Russia must do more to reform its economy to protect itself from the risks of being heavily dependent on natural resources, especially oil.

Russia is not a member of the OECD.