Pace Quickens in Russia’s Suit Against the Bank of New York

This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

The New York Sun

MOSCOW — Russia’s Federal Customs Service and the Bank of New York Mellon are ramping up the pace of their attacks in preparation for today’s expected resumption of hearings in a $22.5 billion racketeering lawsuit.

The bank’s case could be weakened by the disclosure that one of its star witnesses, Richard Thornburgh, a former Pennsylvania governor and U.S. attorney general, is mentioned in a document published by his law firm that says the bank took responsibility “for crimes involving fraud and money laundering” when it signed a nonprosecution agreement with the Department of Justice in 2005. The document was obtained by The New York Sun.

This comes on the heels of the bank’s releasing a statement that it says outlines several inconsistencies by experts for the Russian side, including contradictory statements regarding the Racketeer Influenced and Corrupt Organizations Act, on which the case is based.

A critical issue in the lawsuit is whether the Bank of New York Mellon admitted to any criminal misconduct when it signed the nonprosecution agreement at the conclusion of a federal investigation into money laundering by bank employees in the 1990s. The use of RICO requires that some type of predicate criminal act, such as money laundering, has taken place. The Russians argue that, in the nonprosecution agreement, the bank took responsibility for its employees, some of whom admitted to laundering the money, and thus itself admitted guilt. The bank insists it never admitted to any criminal conduct in the nonprosecution agreement.

Last October, five months after Russia filed its lawsuit, a paper published by a partner at the firm where Mr. Thornburgh is of counsel said the bank in the nonprosecution agreement accepted responsibility for criminal actions. The partner at Kirkpatrick & Lockhart Preston Gates Ellis, Barry Hartman, thanked Mr. Thornburgh in a footnote, noting that the former attorney general had “provided substantial input into this outline through his presentation Outline of Remarks on Government and Internal Corporate Investigations.”

The nonprosecution agreement “relates to BNY’s responsibility for crimes involving fraud and money laundering, as well as BNY’s failure to comply with mandatory reporting obligations under the Bank Secrecy Act,” Mr. Hartman wrote in the paper, which was for a class held by the American Law Institute and the American Bar Association titled “The Fourteenth Annual Advanced ALI-ABA Course of Study for the Defense and Government Bars.” In a nonprosecution agreement, “the company is still required to admit to its conduct, giving the DOJ substantial leverage in prosecuting if the company violates the agreement,” he wrote.

A spokesman at the Bank of New York Mellon pointed out that in the same paper, Mr. Hartman wrote: “a non-prosecution agreement is similar to a deferred prosecution agreement except no charges are filed.” This argument, the bank said, is exactly the point made by Mr. Thornburgh in his testimony. The nonprosecution agreement “represents the official decision by U.S. prosecuting authorities not to prosecute BNY. Thus, no criminal complaint of any kind was brought against BNY, and no criminal finding was made by any U.S. courts against BNY,” Mr. Thornburgh testified in May.

Many lawyers agree that the bank didn’t accept responsibility for any criminal act that would qualify under RICO.

“In its nonprosecution agreement, the bank admitted a failure to detect, a failure to prevent, and a failure to notify authorities. They haven’t copped to a RICO offense,” a professor of international law and diplomacy at Johns Hopkins University, Ruth Wedgwood, a former prosecutor, said. She added that Mr. Hartman’s paper cannot be given too much weight because it was intended for use in a classroom.

In a conference call with investors in April, the associate general counsel at the bank, Matthew Biben, said of the nonprosecution agreement: “Nowhere in that document, and that is the controlling document, does the Bank of New York admit criminal conduct.” He added that the bank accepted “responsibility for our employees and recognize that we failed to have in place proper supervision and monitoring at the time. That is what we agreed to. We have never admitted criminal conduct. We have never been charged with criminal conduct.”

Still, all this back-and-forth may be enough to cause confusion in the Russian court. “There are many subtleties in the RICO statute, and it’s my experience that translating laws can be very complicated and not easily done,” Ms. Wedgwood said.

The Bank of New York Mellon is also pointing to a number of inconsistencies by Russia’s experts. In a release handed to reporters, it notes, for example, that G. Robert Blakey, an expert for the Russians who is widely considered the author of RICO, has reversed himself on whether RICO is a public or private law. This is an important distinction because it is rare that one country would apply the public law of another country. In testimony for this case, Mr. Blakey said RICO is a private law, but he has previously published the view that it is a public law.

A lawyer for the Russians, Steven Marks, called this “a complete fabrication. Just because RICO plays an important public role doesn’t mean it doesn’t also play an important private role.”

The bank also notes that Mr. Blakey was part of a similar case in 2001, The Attorney General of Canada v. R.J. Reynolds Tobacco Holdings, which was dismissed. In that case, the court said RICO was not intended for use in a foreign court. The Bank of New York Mellon also points out that another witness for the Russians, George Pratt, once served on the 2nd Circuit Court of Appeals, which is the court that upheld the dismissal.

Mr. Marks said the two cases are not similar because the Canadian case involved the recovery of taxes, while this case does not. The two sides disagree on this point: The bank maintains that the Russians are, in fact, looking for lost tax revenue. American and most Western European laws do not allow one country to enforce a tax judgment from another country. If the suit is about taxes, it would diminish the likelihood that the Russians could ever collect damages in America or Western Europe.

The bank makes several other points, including that the plaintiffs have been unable to show damages — a prerequisite of RICO — and that Mr. Marks himself argued in an earlier case that America “is the only appropriate forum to redress misconduct by American defendants in violation of U.S. law.”

Mr. Marks denied he ever made such a statement. He added that the damages in the case are obvious because of the capital flight “facilitated by the bank, which allowed billions of dollars to leave the Russian economy at a critical time.” The bank says this is an insufficient argument, that under RICO a specific dollar figure must be shown.


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