07MOSCOW2452, RUSSIA: BANK OF NEW YORK OFFICIALS ON NEW LAWSUIT

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Reference ID Created Released Classification Origin
07MOSCOW2452 2007-05-25 09:49 2011-08-30 01:44 CONFIDENTIAL Embassy Moscow

VZCZCXYZ0007
PP RUEHWEB

DE RUEHMO #2452/01 1450949
ZNY CCCCC ZZH
P 250949Z MAY 07
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 0598
INFO RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RHMFISS/DEPT OF JUSTICE WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RHMFISS/FBI WASHINGTON DC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY

C O N F I D E N T I A L MOSCOW 002452 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EUR/RUS, EB/CBA 
TREASURY FOR MEYER 
NSC FOR KLECHESKI 
USDOC FOR 4231/IEP/EUR/JBROUGHER 
 
E.O. 12958: DECL: 05/25/2017 
TAGS: ECON EINV EFIN RS
SUBJECT: RUSSIA: BANK OF NEW YORK OFFICIALS ON NEW LAWSUIT 
 
Classified By: ECMIN Quanrud for reasons 1.5 b and d. 
 
1. (C) Bank of New York (BONY) officials confirmed in a 
meeting with the Embassy on May 24 their understanding that 
the Moscow Arbitration Court has accepted a case against the 
company, reportedly filed by the Russian Customs Service.  On 
May 16, A U.S.-based lawyer claiming to act on behalf of the 
Russia's Customs Service announced that he a filed suit 
asking for USD 22.5 billion in damages in connection with 
money laundering charges brought against BONY in the late 
1990s.  BONY has not yet received a copy of the case, and 
will await receipt of the complaint to determine next course 
of action. The company is not seeking USG assistance at this 
time.  BONY officials speculate that the suit appears linked 
to the proposed merger between BONY and Mellon Bank, and may 
be part of a subterfuge to hide insider trading and attempts 
at market manipulation.  End Summary. 
 
The Case 
-------- 
 
2. (SBU) The complaint is based, per press reports, on a 
criminal investigation in the United States that dates back 
to the 1990s.  BONY officials were found to have laundered 
money, allegedly coming from Russian importers attempting to 
avoid taxes and customs duties.  BONY fired three branch 
managers, and paid out an estimated USD 26 million to the 
U.S. government in fines and damages, and another USD 12 
million to banks that lost money because of the transactions. 
 The settlements were paid out in November 2005. 
 
3. (SBU) BONY officials told us May 24 that they had received 
confirmation that Moscow Arbitration Court has accepted the 
complaint.  The Bank has not yet seen the complaint, but is 
making arrangements to obtain a copy from the court. 
(Comment: It is common for the charges to be sent by post, 
which can take several weeks.  End Comment.) 
 
An Odd Approach by a Miami Firm 
------------------------------- 
 
4. (C) According to BONY, about a year ago lawyers from the 
Miami-based law firm of Podhurst Oreck, which claimed to be 
representing the Russian customs service, approached the bank 
and said it planned to file suit for a claim of USD 7 billion 
related to the 1999 money-laundering case.  However, if BONY 
would pay USD 600,000, the case would be settled without 
going to the court - and that such a payment would keep "BONY 
from having regulatory trouble."  BONY refused to pay, 
perceiving this as a case of extortion.  To Bank officials, 
the timing of this approach did not seem coincidental since 
it was at the moment when BONY engaged in merger talks.  The 
company did not hear any more until press reports of the case 
filed on May 16. 
 
Market tampering? 
----------------- 
 
5. (C) BONY officials are suspicious about the timing of the 
lawsuit's announcement -- on the eve of BONY shareholder 
discussions about the proposed BONY-Mellon Bank merger, and 
speculate it was timed to affect market shares.  BONY 
officials said there were serious stock market fluctuations 
for both banks when the suit was announced; the two banks' 
trading spreads, which had been in sync since December, 
split, and trading volumes were up by four times average, 
activity that is sure to have caught the eye of the SEC and 
NYSE.  BONY is also curious why, if the Customs Service was 
so intent with its lawsuit, no representative from the 
Customs Committee attended the press conference announcing 
the lawsuit (and they were no-shows given that nameplates of 
Customs officials had been placed on the dais) and why 
Customs has been mute on the suit.  Moreover, the Customs 
Service, according to BONY, does not have the authority to 
bring such a suit under Russian law -- that right rests with 
the Finance Ministry, as a revenue flow is involved. 
 
Bank's Market Presence 
---------------------- 
 
6. (SBU) BONY has only a representative office in Russia, 
with no full-time American staff.  Despite its low-profile 
(understandable in the wake of the scandal and trial in the 
U.S.), it is still the depository agent for Gazprom, VTB and 
many other prominent Russian companies.  This fact, plus 
private assurances from the Finance Ministry (the nominal 
Ministry that would bring such a suit) that it had no hand in 
this, have led BONY to the conclusion at this point that this 
may be a renegade operation by an opportunistic trial lawyer. 
 
Next Steps 
---------- 
 
7. (C) The company is in the process of hiring local legal 
counsel, and will await a copy of the charges to determine 
appropriate next steps.  It has no plans to make further 
public statements and is not seeking USG assistance at this 
time. 
 
BURNS

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