Russia's Federal Customs Service dropped its $22.5 billion claim against Bank of New York Mellon Corp. on Thursday, ending a two-year legal battle that highlighted the shortcomings of the Russian legal system.
In a joint statement, the two sides said that the banking company admitted no liability and will pay Russia $14 million "as compensation of trial costs." The banking company said it then would supply trade finance to Russian state banks totaling $4 billion.
The customs service brought its claim in spring 2007. It related to a U.S. Justice Department investigation in which a bank vice president allegedly helped transfer $7 billion out of Russia in the late 1990s. The lawsuit soon became a worry for analysts, putting pressure on the banking company's share price early last year.
News of the settlement may allay wider fears about the ability of foreign companies to defend themselves in local courts; it came shortly after the resolution of another high-stakes dispute, between Telenor ASA and its Russian co-investor, Alfa Group.
The Russian customs service had wanted the Moscow court to apply U.S. racketeering law under which, it said, the U.S. banking company was liable for triple damages on the sum allegedly transferred out of the country.
Judges in Moscow repeatedly adjourned the claim, asking the sides to settle, but the bank's lawyers called the suit "without merit."
In the joint statement, Matthew Biben, Bank of New York Mellon's deputy general counsel, called the settlement a "common-sense resolution that benefits our company," and the head of the Russian Customs Service, Andrei Belyaninov, said it demonstrated "the efficiency and independence of Russian courts."
Biben also said the company "looks forward to supporting … Russia's largest companies" and, in a widely expected move said the company would make a series of loans to Russian state banks. "Now that the impediment of the litigation has been removed, we look forward to expanding our relationship with certain customers and making the trade finance facility … available in the weeks to come," Biben told reporters outside the courtroom.
The bank will supply $400 million to Russian state banks, which will be renewable every six months for five years, bringing the total to $4 billion.