Russia: Bank of N.Y. Mellon settles money laundering case

ByNataliya Vasilyeva, AP Business Write
September 16, 2009, 1:29 PM

MOSCOW -- Russia has reached a settlement with Bank of New York Mellon over a $22.5 billion lawsuit against the bank stemming from a 1990s money laundering scheme by one of its executives, Finance Minister Alexei Kudrin said Wednesday.

Russia would receive no less than $14 million for court costs under the long-anticipated, out-of-court deal, Kudrin said — only a fraction of the billions it was claiming. But he said the government would also get a $4 billion discounted loan from the bank, an "act of goodwill" Kudrin insisted is not related to the case.

He said the agreement would be signed soon. Bank of New York's bk press office declined immediate comment.

The two-year court case stems from a decade-old scandal in which a Bank of New York vice president and her husband were convicted of illegally wiring $7.5 billion of Russian money into accounts at the bank. The Russian federal customs service went to court in 2007 to claim lost tax revenue on those transfers, but the judge overseeing the hearings urged the two sides to reach a settlement.

Kudrin told parliament "there is not enough information to win such litigation."

"The guilt has not been proven," he said. "An out-of-court settlement will be signed."

The government would receive no less than the amount the bank paid as a non-prosecution fee in the United States, which he said was $14 million.

The loan is unrelated to the case or expenses the government has incurred during the trial, Kudrin said, but would be extended "as an act of good will" and would show the bank's "relation to Russia in a difficult time when Russia's economy needs financial resources."

Kudrin gave no details about the loan. Citing unnamed sources, business daily Kommersant reported earlier this week that the New York bank would provide the loan to Russian state banks in $400 million tranches every six months for five years.

Bank of New York, which later merged with Mellon, was never charged with any wrongdoing in the United States. It reached a non-prosecution agreement with U.S. federal prosecutors in 2005.

But the litigation in Russia raised concern among investors and legal observers about the rule of law.

Miami-based trial lawyers — working for a 29% contingency fee — brought the case in Russia under U.S. anti-organized crime legislation that allows claims for three times the amount of estimated damages. The so-called RICO statute has never been successfully ruled on in a foreign court, and legal observers questioned the tactic of using it in a commercial court in Russia.

"Any attempt to use RICO is utopian" in such a situation, said Sergei Volfson, a Moscow-based lawyer with Dewey & LeBoeuf.

He said the customs service's case had no proper legal standing, and described the bank's apparent decision to pay court costs and provide a loan for state banks as a "purely commercial solution."

"The bank has decided to boost its position on the market," said Volfson, who is not involved in the case.

Bank of New York Mellon has insisted throughout the proceedings that it did not intend to pay in the event of an adverse ruling and has not set aside a provision for the claim.