Legal News

Russia Wanted $22.5b from BONY, But Will Settle for $14m?

By Ashby Jones

The Russia/Bank of New York Mellon case has long been a source of serious befuddlement on our part: How is it possible, we’ve asked, that a foreign country (Russia) can successfully sue a U.S. company in Russia, invoking a U.S. law? (Click here for an earlier post on this question.)

After all this time, we’re still not exactly sure. Nevertheless, word out today is that the parties are close to settling.

The background: the Russian Federal Customs Service in 2007 sued BONY over an illegal wire transfer scheme from the 1990s, in which two Russian émigrés - one of whom worked for BONY - moved $7.5 billion to American accounts from Russia via unlicensed wire transfers. They later pleaded guilty to various offenses under U.S. law.

BONY, under a non-prosecution agreement with the DOJ, acknowledged failure to properly monitor wire transfer activity and paid a fine of $14 million. In the suit, the Russians claimed they, too, should be awarded a fine, to the tune of $22.5 billion. The Customs Service, represented by the Miami law firm Podhurst Orseck, based its suit on the U.S.’s RICO statute.

According to the WSJ, the settlement talks picked up after the bank offered to restart trade-finance lending to Moscow after the suit is resolved, according to people close to the discussions.

The proposed lending isn’t explicitly linked to the case, according to people close to the discussions, but would begin after any settlement, resuming business that the bank suspended as the case heated up in recent years. Under discussion is a $400 million trade-finance facility to be available to Russian state banks to help fund imports and exports. Renewable every 180 days, it would run for five years, which led some Russian news reports to total it and refer to a $4 billion loan. A person close to the talks said the bank’s exposure would be no more than $400 million and pricing would be done at market terms.

In addition, the lawsuit would be settled with an out-of-court agreement under which the bank would pay court costs, up to about $14 million, which is what it paid in the U.S. case.

The Customs Service had been seeking far more – as much as $1 billion – in the talks, according to people close to the discussions. But the bank rejected a large settlement, which officials said would have rewarded the U.S. lawyers who brought the case. Court documents show the lawyers would get nearly a third of any settlement, though the lawyers won’t comment on the terms of their contract.

Full post as published by Law Blog - WSJ.com on September 14, 2009 (boomark / email).