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Russian Customs Deny Hold Up In BoNY Tax Case

by Tatiana Smolenskaya, Tax-News.com, Moscow

04 June 2007


Maxim Smal, a Moscow-based attorney representing Russia's Federal Customs Service in its $22.5 billion lawsuit against the Bank of New York, has denied media reports suggesting that the case has been held up.

"Today various news services are reporting that the Russian Federation's $22.5 billion dollar lawsuit against the Bank of New York has been 'delayed for a month,'" said Smal. "This statement is incorrect and misleading."

"The Moscow Arbitration Court has asked us to provide proof of service that a copy of the complaint has been sent to the Bank of New York. Even though we have up to one month to provide the court with the requested document, we submitted proof directly to the court today (Wednesday, May 30) and fully expect the matter to be resolved within a day or two. The Bank will not be successful in delaying our progress based upon its refusal to accept service," he said.

"Unlike the US legal system, a Russian judge must initially scrutinize a suit before requiring a response," added Smal.

"The case has now been accepted, which means that after the court's careful scrutiny, the lawsuit has been found to be timely, legitimate and with merit contrary to the Bank of New York's earlier statement that the claim is frivolous -- a statement that was admittedly made before BONY even saw the complaint. It is remarkable that the Bank would make such a statement after admitting to countless wrongdoings and after entering into a non-prosecution agreement with US federal prosecutors," he said.

However, reports in the Russian media have suggested that the Federal Tax Service has declined to take part in the case because any possible claim for back taxes has expired under the statute of limitations, although the tax service could participate if criminal charges were filed against the bank.

BoNY has dismissed as "totally without merit" the Russian government's claim, which stems from a prior money-laundering case involving a former BoNY vice-president.

"We believe any such suit would be totally without merit, if not frivolous, and we would expect to defend it vigorously," BoNY has said in a statement.

"It should be noted that the events related to the lawsuit occurred more than ten years ago and were previously resolved by the company," the statement added.

The new claim, filed last month 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 in the 1990s. This scheme resulted in about US$7 billion being laundered through the bank, avoiding Russian taxes in the process. The crime was allegedly facilitated by former BNY vice president Lucy Edwards and her husband Peter Berlin through a special account opened in 1996.

As a result of the first investigation, two Russian-born American residents were sentenced to five years probation last year, while Edwards and Berlin both received a sentence of six months of house arrest, plus fines totalling $725,000.


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