Russia, BNY Mellon End $22.7 Billion Suit; Settlement for $14 Million in RICO Case Clears the Way for Bank to Open Lending Channels

By Gregory L. White

MOSCOW -- Russia withdrew a $22.7 billion lawsuit against Bank of New York Mellon Corp. Thursday, agreeing to a $14 million settlement and ending a case that critics said had threatened to further tarnish the already battered reputation of its judicial system.

The three-year-old case had drawn high-level political attention on both sides and concerned some investors, although the bank maintained throughout that it would have fought any judgment against it. BNY Mellon shares rose $1.19, or 4.2%, to $29.25 on Thursday. The bank said that with the suit out of the way, it would expand trade-finance lending, opening $400 million in lines to several Russian state banks.

Russian officials, facing a deep recession and their first budget deficit in a decade, welcomed the financing, which they said would amount to $4 billion over five years. Matthew Biben, deputy general counsel for the bank, called the deal "a common-sense resolution."

"Instead of the 'rape' of the foreign investor that everyone expected, in this case the court behaved calmly and wisely and helped the parties reach an acceptable decision that didn't compromise Russian justice or the authorities," said Dimitry Afanasiev, a Russian lawyer who advised the bank in the case and whom both sides credited with helping to broker the settlement.

The case had been brought by the Federal Customs Service, represented by Florida-based lawyers Podhurst, Orseck, which stood to get as much as 29% of any judgment. The suit sought to apply U.S. Racketeer Influenced and Corrupt Organizations, or RICO, law in a Russian court, arguing that the bank was liable for unpaid Russian taxes on transfers made in a late-1990s money-laundering scandal.

The bank never admitted wrongdoing in that case, which involved a bank executive and billions in transfers out of Russia. In 2005, the bank paid $14 million in a nonprosecution agreement with the U.S. government.

In the Russian case, both sides marshaled prominent Western legal experts to argue in the Moscow court. The RICO statute has never been successfully applied outside the U.S.

After heavy lobbying by U.S. officials, the Russian government last year decided to settle the case. Negotiations took months, however. People close to the case said the improvement in U.S.-Russian relations in recent months helped ease the process, as did the bank's willingness to pay as much to the Russian government in the settlement as it did to the U.S.

In a joint release with the bank Thursday, Customs chief Andrei Belyaninov said the case demonstrated Russia's "vigilance in international financial markets" and "the efficiency and independence of Russian courts." The Customs Service cited a July 2008 letter from the U.S. Attorney's office explaining the bank hadn't admitted criminal liability in the U.S. case as leading the Russian agency to conclude that "there is no basis to hold the bank liable," the release said.