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Russian customs service sues Bank of New York for $22 bln -5

Russia's Customs Service filed a suit with the Moscow Arbitration Court against the Bank of New York, a global leader in securities servicing, for $22.5 billion in damages, the service's lawyer said Thursday.
(adds bank's reaction in paragraph 3-4)

MOSCOW, May 17 (RIA Novosti) - Russia's Customs Service filed a suit with the Moscow Arbitration Court against the Bank of New York, a global leader in securities servicing, for $22.5 billion in damages, the service's lawyer said Thursday.

"In 1996-99, the bank organized an illegal scheme to launder the money received for Russian exported goods, which caused damages of $22.5 billion to the state," Maxim Smal said from the courtroom.

The Bank of New York dismissed the claims Thursday as unsubstantiated, saying it would appeal them.

"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 bank said in a statement.

The Bank of New York has been associated with a series of sensational cases. The bank managed the U.S. correspondent accounts of Incombank, formerly Russia's second-largest bank, which was declared bankrupt in the late 1990s. Bank employees were suspected of assisting Incombank's controversial activities, which allegedly led to its collapse.

Expert comments

Russian experts expressed surprise at the sum of the suit. "This is unprecedented -- $22.5 billion is a huge sum," said Pavel Medvedev, first deputy chairman of the lower house's committee for credit organizations.

Yevgeny Nadorshin, senior economist at the Trust investment bank, concurred with Medvedev. "This sum is really enormous, and this is why it is unlikely to be charged," he said.

Russian media on case history

Russian media said Thursday the Bank of New York case was the first "Russian mafia" inquiry that came into the focus of American justice in the late 1990s.

Russia heard about the case in August 1999 from publications in USA Today and The New York Times. The reports cited anonymous FBI sources as saying the bank had helped launder up to $10 billion from Russia and Eastern Europe in 1996-99.

There was speculation that the money could have included Russian loans from the International Monetary Fund, the Russian business daily Kommersant said.

In September, Russian law enforcement officials visited the U.S. to check the reports. But Russia's chief delegate, Deputy FSB Director Viktor Ivanov, said the FBI had refused to provide evidence in the case.

Prosecutor checks in Russian banks suspected of illegal money transfers overseas revealed no violations.

Investigators said $7 billion of Russian money had gone through the Bank of New York, but it later transpired that the funds did not belong to the "Russian mafia," but were untaxed profit of Russian exporters. Prosecutors said Russian citizens and companies had made more than 160,000 illegal transfers abroad in the three and a half years.

In September 1999, a federal court of New York opened criminal proceedings against Lucy Edwards, vice president of the Bank of New York's London branch who dealt with clients in Eastern Europe, and her husband Peter Berlin, a Russian emigre and head of the Benex and Becs companies.

The couple were accused of unlicensed bank operations and assistance in money laundering through the Bank of New York.

Edwards and Berlin pleaded guilty and got away with a brief arrest and insignificant fines. They acknowledged charges of illegally transferring Russian money and hiding it in offshore accounts for $1.8 million in kickbacks.

In November 2005, the bank itself pleaded guilty of violating U.S. laws on control over financial flows, and was ordered to pay a $38 million fine.

Maxim Smal, the Russian Customs Service lawyer, said Thursday the suit had been filed "on the basis of the agreement acknowledging guilt, which the Bank of New York had signed with the U.S. government, and on the basis of Lucy Edwards accepting her guilt."

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