Russia Makes $22.5bn Tax Claim Against Bank Of New York

by Tatiana Smolenskaya, Tax-News.com, Moscow

21 May 2007

The Bank of New York (BoNY) has dismissed as "totally without merit" a claim by the Russian government for $22.5 billion in damages resulting from a prior money-laundering case involving a former BoNY vice-president.

According to reports, the claim, filed by Vladimir Zubkov, deputy head of the Russian customs service in Moscow, relates to unpaid taxes on money taken out of Russia via an illegal scheme facilitated by the bank more than ten years ago.

While the case, investigated by the US Federal Bureau of Investigation (FBI) and the US tax authorities, closed in November 2005 with BoNY admitting criminal conduct and paying a $38 million settlement, it is thought that the new claim may be just one of the first of a new wave of attacks against transactions which occurred under the presidency of Boris Yeltsin.

As a result of the first investigation, two Russian-born American residents, were sentenced to five years probation last year after they admitted laundering about $7 billion through the bank, avoiding Russian taxes in the process. Former BNY vice president Lucy Edwards and her husband Peter Berlin, reportedly facilitated the crime by opening an account in 1996. They also pleaded guilty and received a sentence of six months of house arrest, plus fines totalling $725,000.

A Russian customs service lawyer has confirmed that the $22.5 billion claim is related to the money laundering activities which took place through the account opened by Berlin and Edwards.

Meanwhile, BoNY has issued a strongly-worded rebuttal of the claims, which it described as bordering on "frivolous."

"We understand from press reports that a lawsuit has been filed against the Company by a Russian agency described as the Federal Customs Service. 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," BoNY said in a statement.

"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."

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