Bank Of New York Accused By Russians Of Money Laundering

Taken from The times, UK, 18/05/2007
Tom Bawden in New York

Russia’s customs service said that it was suing the Bank of New York for $22.5 billion (£11.3 billion) in compensation for an alleged money-laundering scheme in which US companies colluded with Russian banks to defraud its Government.

The Federal Customs Service said that the Bank of New York, the world’s largest “custodian” of assets, played a central role in a laundering campaign in the late 1990s to help clients to avoid Russian taxes and import duties and to hide money obtained through crime.

Maxim Smal, a lawyer for the customs service, said that between 1996 and 1999 “an illegal scheme was organised to legalise monetary resources that were brought into Russia without paying taxes.

“Violations were discovered that, I think, border on the criminal and this is why we decided to file a claim in the court and seek damages.”

Russia’s suit, which will be detailed at a press conference today, stems from a previous case involving the Bank of New York, which is in the process of merging with Mellon Financial.

Lucy Edwards, a former vice-president in the bank’s Eastern European division, and her husband, Peter Berlin, pleaded guilty last year to conspiring to help to move $7 billion to small US companies from Russian banks in order to hide the money from the authorities.

The couple were sentenced to six months’ house arrest, put on probation for five years and ordered to pay a $20,000 fine and $685,000 in compensation.

Their sentencing came after the Bank of New York had admitted failing to report $7 billion in suspicious Russian transactions and agreeing a $38 million payout.

Before a press conference yesterday, Andrey Strukov, head of the customs service legal department, would only say: “The Federal Customs Service confirms the filing of the suit against the Bank of New York. [It] is filing the suit for $22.5 billion in damages inflicted against the Russian Federation.”

However, the Bank of New York questioned the merit of the Russian lawsuit, which it said it had not seen.

“We understand from press reports that a lawsuit has been filed against the company by a Russian agency described as the Federal Customs Service,” the bank said.

“While we have not seen the complaint, based on our knowledge of the facts, we believe any such suit would be totally without merit, if not frivolous, and we would expect to defend it vigorously.

“The company was previously approached by lawyers purporting to represent this agency, who claimed to be able to dispose of the matter for a tiny fraction of the amount now claimed.

“It should be noted that the events related to the lawsuit occurred more than ten years ago and were previously resolved by the company.”

Bank of New York’s $16.6 billion takeover of Mellon, first announced in December last year, brings together New York’s oldest bank, founded in 1784, with the Pittsburgh institution that bankrolled the Pennsylvanian steel industry in the 19th century.

It revives a failed attempt by Bank of New York to buy Mellon in 1998 for $23.7 billion, which foundered with a disagreement over the carve-up of senior positions. Mellon went on to sell its consumer banking division to Royal Bank of Scotland in 2001 for $2.1 billion.

The new entity will have $16.6 trillion of assets under custody for which it will carry out low-margin back-office functions, such as record-keeping and fund accounting.

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