Reputational Risk: BoNY-M's Russian adventure

Newsdesk

Friday 04 July 2008

Bank of New York, Mellon - who may not have noticed that they were going to be called BoNY-M and become embroiled in a Court case where Ra, Ra, Rasputin held, er, Court - has never been convicted of money laundering. But each time the Russian case comes back into the news, there's a hint of "oh, the money laundering case."

First the facts: Bank of New York was used by Lucy Edwards (a false name) who worked at the bank to push through the bank some USD7 milliard in money stolen from the Russian people. She has never been convicted of money laundering and neither has her husband who set up companies that she used as vehicles nor has the bank which employed her but failed to supervise her to the extent that no one outside the Russian desk spoke, understood, read or wrote Russian and so had no way of knowing what was going on in the piles of Russian documents that the desk generated.

The bank has been subject to regulatory proceedings and civil penalty and Edwards and her husband Peter Berlins have been convicted of money laundering related offences.

But the money has long gone. The Russian people want it back. They didn't bother chasing BoNY because they thought the bank would not be able to afford a judgment, Russia has said. But after the takeover by Mellon, BoNY-M was a rather stronger animal. And the Russians sensed the prospect of actually being able to get the money back - after all, the IMF which coincidentally had lent Russia several thousand millions just before the money was taken wanted its money back. And, readers will remember, when the case blew up in 1998, Russia was broke and had the begging bowl out.

Russia sued BoNY-M in the Russian courts. It calculated the full amount of debt, damages and costs and came to the figure of USD21 milliard. BoNY-M at first decided that it should just ignore the case. But as it became clear that the Russians meant business and that if the bank failed to appear the Court would be asked to make judgment against the bank, its attitude changed.

It did send lawyers to hearings but they presented little argument and less evidence. They adopted US tactics of trying a series of attempts to land blows that would give rise to a technical knock-out.

That has not gone down well in Russia, where the Court and the State want to get on with the evidence and move to a conclusion of the case.

The latest release from the Russians' law firm hints that the tactics are continuing. It is reproduced in full below.

 

 

 

2 Jul 2008 12:25 GMT

 

 

 

 

Bank of New York Flip-Flops Position on Russian Legal System

 

The Bank Now Claims No Country Will Honor Russian Verdict

 

MOSCOW, 2 July -- Attorneys representing the Russian Federal Customs Service said today that the Bank of New York's (NYSE:BK) comments on the Russian legal system were both condescending and inconsistent with the Bank's own prior position on the jurisdiction of the specific court in which the case involving the Federal Customs Service's US$22.5 billion claim is being heard.

 

In the Bank of New York's June 30, 2008 press conference in Moscow, Bank of New York Vice-President Mathew Biben chastised the Russian legal system, telling the Russian public that even if a Moscow Arbitration Court ruled against the bank, the judgment would be disregarded by the bank and could not be enforced in any country throughout the world.

 

The Russian Federal Customs Service lead U.S. attorney, Steven C. Marks with Podhurst Orseck, challenged the Bank of New York's position, saying, "It is an affront to the Russian government to suggest that its judgments have no validity around the world. Russia is not a third world country. It is one of the leading economic powers in the world. Moreover, the Bank of New York has the audacity to suggest that all 90 countries where it operates will snub it? This type of arrogant disrespect, from a foreign company that is earning billions of dollars in Russia, is an embarrassment."

 

"The Bank of New York is attempting to intimidate the Court by linking President Medvedev's pledge to improve the Russian judiciary to the outcome of this case. This is an absurd argument because the Bank of New York has already admitted to criminal money laundering in the United States. There is nothing inconsistent in a Russian court arriving at the same conclusion as did the U.S. Department of Justice," added Marks.

 

The bank also questioned the impartiality of the Russian judicial system, a position inconsistent with its own related RICO case, Pavlov v The Bank of New York. In that case, the Bank of New York argued that the Moscow Arbitration Court - which is hearing the present case - would be a better forum in which to decide the RICO claims Bank of New York then faced. The Bank asserted "[t]he Russian courts are clearly an adequate, available and much more convenient forum for the resolution of this dispute."

 

Bank of New York stipulated that the Moscow Arbitration Court was fair, impartial and that Bank of New York would not contest enforcement of any final judgment handed down by the Russian court.

 

"It is a total contradiction to ask for a RICO case to be transferred to this Russian Court at one time, and now to object to that court hearing this RICO case," Marks said. "As to impartiality, this court has shown unusual patience and tolerance for the many procedural and technical matters raised by the Bank of New York."

 

For additional information on this matter, please visit www.russianbanksuit.com.

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