Russia v Bank of New York: How weak can a case get?
Russia’s $22.5 billion case against the Bank of New York Mellon now appears to hinge upon a stray misstatement contained in a continuing legal education outline written by a lawyer who’s never been involved in the case, and who was simply repeating a misstatement contained in a government press release that was later amended to delete the misstatement due to its inaccuracy.
This takes a little while to explain, but I really think it’s worth the trouble. I’ve never seen anything quite like it.
Last week, I explained here that Manhattan federal prosecutors seemed to have blown a massive hole in the Russian Federal Customs Service’s exceedingly unusual $22.5 billion civil RICO case against the Bank of New York Mellon (BK), a case that, notwithstanding its purported reliance on U.S. law, Russia has chosen to file in a commercial court in Moscow, known as an arbitrazh court.
As explained in that earlier post, Russia’s lead lawyer, a Miami-based airplane-crash lawyer named Steven C. Marks of Podhurst Orseck, has predicated his case in large part on the premise that when Bank of New York entered into a non-prosecution agreement in Nov. 2005, it admitted criminal responsibility for the actions of rogue vice president Lucy Edwards in the late 1990s. Edwards pled guilty in 2000 to having helped Russian citizens illegally wire transfer their money out of that country via Bank of New York accounts.
This July, however, the federal prosecutors office that had investigated the bank refuted Marks’ claim, explaining that the bank had never admitted “criminal culpability.” (The clarification came in this letter, which I published last week.)
Although nothing in the nonprosecution agreement itself had ever said that the bank admitted criminal responsibility for Edwards’ conduct, a poorly-written government press release that accompanied the nonprosecution agreement did leave that misimpression, stating that the bank had “admitted its criminal conduct.” It did so in part because it was actually reporting the resolution of two unrelated probes tied to different Bank of New York branches. In the view of the prosecutors, the bank was, in fact, admitting criminal responsibility for certain wrongdoing at a branch on Long Island (which had nothing to do with Russia), but not for what Lucy Edwards had done, which related to a branch in Manhattan.)
In August of this year, federal prosecutors further tried to clarify the situation by issuing an amended version of the original press release, deleting from it the language about the bank having “admitted its criminal conduct” that Marks had repeatedly quoted in statements to the press, bank stock analysts, and the court. The amended release also made clear that certain other language in the release — including language quoted by Russia’s retained expert Alan Dershowitz in his affidavit in the case — actually related to the Long Island probe, not the Lucy Edwards matter. I described that situation in this feature story for the Sept, 29 issue of Fortune. (As reported there, Dershowitz never responded to my inquiries about the apparent mistake, and Marks’s comment was cryptic and hard to characterize; you can read it for yourself there.)
On Monday of this week, at the resumption of a pretrial hearing in the case, two of the bank’s key experts testified. One of them, former U.S. attorney general Richard Thornburgh, addressed the meaning of the nonprosecution agreement, the government press release, the press release’s amendment, and the July letter from the Manhattan U.S. Attorney’s Office stating that the bank had never admitted criminal culpability in connection with Edwards’ conduct. Thornburgh, now a partner at the K&L Gates law firm, testified that the bank had never been charged with criminal conduct, let alone admitted any.
If Russia had wanted to cross-examine Thornburgh, it could have, of course. Instead, to the amazement of the bank’s lawyers, Russia sent no representatives at all to the long-scheduled hearing, as I reported here. Instead, its lawyers simply sent a fax to the judge that morning asking for an adjournment, explaining that all of its lawyers were too busy to attend. Though Marks was checked in at his Moscow hotel, according to what a hotel receptionist told me, and had apparently flown to Russia solely to attend that hearing, he didn’t show up. The judge rejected the faxed request and took testimony anyway — it was, after all, the third time Thornburgh and the other expert, Greg Joseph, had made the trip to Russia hoping to testify. At the end of the day the judge adjourned the hearing until Nov. 13.
Marks never returned a Monday voicemail or email seeking comment about why none of Russia’s lawyers attended, and Russia’s public relations firm, the Miami office of Burson Marsteller, has not yet responded to the same question, which I posed to it yesterday at about 12:30 pm.
What Burson Marsteller did do yesterday, however, was issue this statement, which does not explain or even allude to the fact that its client failed to show up. The statement also does not explain or even allude to the recently revealed July letter from the Manhattan prosecutors office — denying that the bank ever admitted criminal culpability — that, as I’ve said, seems to blow a massive hole in its case. Instead, Burson Marsteller’s statement reveals how Russia purportedly would cross-examine Thornburgh in the event that the bank agrees to schlep him back to Russia at some time in the future (and assuming, of course, that Russia’s lawyers aren’t still too busy with other matters to attend).
Here’s how Russia purportedly would undermine Thornburgh’s credibility, according to Burson Marsteller: “He and/or his firm stated the following in an article written with his assistance: ‘the Non-Prosecution 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… As part of the non-prosecution agreement, BNY agreed to… admit to its criminal conduct.’”
I was familiar with the “article” Burson Marsteller was referring to, since Marks had cited it prominently in a document called “Case Summary for the Press,” which he sent to me when I first started looking into the case. (The article was highlighted in paragraph two of Marks’s five-page press document; paragraph one had been devoted to the subsequently deleted language from the government press release.)
In conversations with me, Marks usually referred to this document as “the Thornburgh memo,” and the digital file he sent me of it was labeled “Thornb article.” All it really is, however, is this Continuing Legal Education document, written by Barry Hartman, who, like Thornburgh, is a partner at K&L Gates, which is a firm of 1,235 lawyers and 243 partners, according to The American Lawyer. (Hartman declined to comment for this story. Suffice it to say that I am aware of no public record anywhere suggesting that Hartman has ever personally represented the Bank of New York in any matter whatsoever. A different law firm entirely, Sullivan & Cromwell, represented the bank in connection with its non-prosecution agreement in 2005.)
In the section of Hartman’s presentation relating to non-prosecution agreements, he lists 12 examples, including the Bank of New York’s, and gives a short, blurb-like summary of each. Footnotes explain the sources of Hartman’s information. For the Bank of New York entry (see page 15) Hartman’s footnote (footnote 24) lists his sole source of information as — you guessed it — the government’s Nov, 8, 2005 press release that was, in August of this year, amended to delete the language that Russia and Burson Marsteller are still trying to draw our attention to.
That leaves one final question. Why do Russia, Burson Marsteller, and Marks think that Thornburgh had anything to do with Hartman’s CLE outline? I asked Marks that question some weeks back, and he drew my attention to footnote 1 of the document (page 2) in which Hartman acknowledges that he’s made use of a CLE outline Thornburgh wrote on the subject of internal corporate investigations. What’s that got to do with anything? Probably nothing at all, since, as is apparent from the title page, Hartman’s talk had two parts: part one was about internal corporate investigations, and part two was about nonprosecution agreements. Thornburgh’s outline was pertinent to part one.
But Marks saw it differently when he emailed me on Sept. 2: “Presumably, before his partner put his name on the article, he showed it to him and Mr. Thornburgh explicitly or at least implicitly agreed to the contents. For all we know, his important contribution concerned that very section,” Marks wrote, referring to the part about the Bank of New York’s nonprosecution agreement, whose source had been explicitly identified as the government’s later corrected press release.
Is this the stuff that $22.5 billion lawsuits are made of?
Why can’t Russia sue BNY under local fraud statutes? Civil RICO is so effing complex, it can hardly be applied consistently in the United States (e.g., circuits split over definition of criminal enterprise). I predict an amusing result in Russia.
I am a registered Professional Engineer, NOT a Lawyer.
However,IMO, I believe that it must be noted that IF the “Current Legal System”? of Lawyers had existed prior to Henry Ford in the late 1800-1900s, there would be NO Fuel and Environmental “problems” associated with Automotive Vehicles today because there would be far too few to NO SUCH Vehicles today. Further, IMO: there would be a very serious “Shortage” of rlevant Jokes about Lawyers and the Legal “Profession?”… Sadly, my Comment here applies to this Matter equally, IMO.
I am a registered Professional Engineer, NOT a Lawyer.
However,IMO, I believe that it must be noted that IF the “Current Legal System”? of Lawyers had existed prior to Henry Ford in the late 1800-1900s, there would be NO Fuel and Environmental “problems” associated with Automotive Vehicles today because there would be far too few to NO SUCH Vehicles today. Further, IMO: there would be a very serious “Shortage” of rlevant Jokes about Lawyers and the Legal “Profession?”… Sadly, my Comment here applies to this Matter equally, IMO.
Steve Marks, in his comment, makes two main fallacious arguments.
1. The first is this: “only the date of the release is relevant . . . because it establishes the date upon which the Russian Federation could have reasonably been put on notice of BNY’s involvement in the criminal money laundering activity.” Nonsense. The “involvement” of BNY, in the sense that it employed vice president Lucy Edwards and failed to prevent her from committing her crimes, has been widely known (notorious internationally) since the scandal broke in late 1999 and certainly since Edwards’s guilty plea in open court in February 2000. Steve’s argument for resetting the statute-of-limitations clock in November 2005 has always (until now at least) revolved very much around the alleged fact that Bank of New York was in 2005 admitting criminal responsibility for Edwards’ offenses and that Russia was finding that out for the very first time. The full explanation of this point, including links to Steve Marks himself making this very argument, are contained at my earlier post: http://legalpad.blogs.fortune.cnn.com/2008/10/01/us-prosecutors-refute-russian-claim-in-suit-against-bank-of-new-york/
2. In a shameless straw-man argument, Marks argues: “Parloff continues to mislead his readers by again making the bogus assertion, which of course BNY also advances, that a civil RICO claim somehow requires a prior criminal conviction or admission.” Actually, I’ve never made that argument and, as far as I know, neither has BoNY. It would be a silly argument to make since it has, indeed, been clear for decades that a defendant need not have been convicted of a RICO offense before he can be sued civilly under RICO. The importance of the BoNY’s having made an admission of criminal conduct in this case stems from two factors, as fully explained in the same post I just linked to (and fully ignored in Marks’s comment here): (1) it’s crucial to Marks’s argument for getting around the statute-of-limitations problem and (2) it’s crucial to surmounting a jurisdictional hurdle that arises from having sued in a Russian commercial court, which has no jurisdiction to interpret criminal laws (Russian or American). Russia had hoped to circumvent the jurisdictional problem by arguing that BoNY had already admitted criminal responsibility for Edwards’ conduct, so the Russian court wouldn’t have to engage in any adjudication of BoNY’s guilt under criminal statutes. The problem is that federal prosecutors have recently made clear that BoNY hasn’t ever admitted such criminal conduct. It’s this latter, jurisdictional issue that is the subject of the pretrial hearing going on right now–the one that Marks and no other Russian lawyer showed up to Monday. Steve, why didn’t you attend?
How Biased and Transparent can a Reporter Get?”
As counsel for the Russian Federation, I take issue with the one-sided reporting and narrowly focused agenda of Roger Parloff and Fortune magazine. The characterization that Russia’s case somehow hinges on the wording of the U.S. Justice Department’s press release is absurd. The press release is and has always been irrelevant to the merits of the Russian Federation’s case and the elements of a civil RICO claim in general. Any attempt by current employees of the Justice Department to rewrite history in order to benefit the Bank of New York or possibly help out a former Justice Department colleague and current BNY V.P. and in-house counsel Mathew Biben, does not change the underlying facts of the case or the veracity of Russia’s claim.
The press release is solely relevant to the narrow issue of tolling the statute of limitations. And for that purpose, only the date of the release is relevant (which not even the Justice Department can change after the fact), because it establishes the date upon which the Russian Federation could have reasonably been put on notice of BNY’s involvement in the criminal money laundering activity. The Russian Federation’s case does not rely on the wording of the press release.
In focusing on this inconsequential wording change, Parloff continues to mislead his readers by again making the bogus assertion, which of course BNY also advances, that a civil RICO claim somehow requires a prior criminal conviction or admission. Both Parloff and BNY appear to be unaware of the United States Supreme Court’s unequivocal rejection of this conclusion over 20 years ago in Sedima, S.P.R.L. v. Imrex Company, Inc., 473 U.S. 479, 493 (1985). The Court clearly stated:
In sum, we can find no support in the statute’s history, its language, or considerations of policy for a requirement that a private treble-damages action under § 1964(c) can proceed only against a defendant who has already been criminally convicted. To the contrary, every indication is that no such requirement exists.
Id. Perhaps because BNY is unhappy with what the law is, it has turned to “experts” who are advocating a flawed interpretation that is more favorable to the bank. Indeed, two of BNY’s experts – Richard Thornburgh and Abner Mikva – have long been outspoken critics of civil RICO, and have sought to limit its use. See 116 Cong. Rec. 35342-43 (1970) (remarks of Rep. Mikva); 131 Cong. Rec. E4595-03 (1985) (testimony of J. Mikva); Attorney General Richard Thornburgh, Remarks to the National Press Club as Luncheon Speaker, (March 28, 1989) (transcript available through the Federal News Service). However, this testimony obviously cannot change the law, which is unconcerned with whether BNY admitted criminal responsibility for these indisputably criminal acts.
As even the Justice Department’s new press release acknowledges, but Parloff’s incomplete reporting still ignores, BNY “accepted and acknowledged responsibility for the conduct detailed in the NPA.” This indisputable fact is why the NPA, as opposed to the press release, is relevant to the merits of this case. By accepting responsibility for the criminal money-laundering activities of its senior employees, the Bank can no longer evade civil liability for these activities by claiming that “rogue employees” performed them. The NPA shows that the money-laundering was not a single, isolated “rogue” event in which the employer did not have knowledge or some participation.
Additionally, it should not be forgotten that the NPA was the product of a criminal investigation, not a civil one. The conduct that the Justice Department was investigating was criminal conduct. The NPA, as its title makes clear, allowed the bank to avoid criminal prosecution. After all, there is no such thing as a civil prosecution. One would have to really distort reality and ignore the agreement’s language in order to avoid reaching the obvious conclusion that BNY accepted responsibility for the criminal conduct of its senior employees.
For Roger Parloff to focus on this single, narrow issue out of a large and complex litigation, and thereby make it seem as though the entire case hinges upon this insignificant press release is disingenuous and misleading. Fortune magazine should hold itself to a higher journalistic standard.
How Biased and Transparent can a Reporter Get?”
As counsel for the Russian Federation, I take issue with the one-sided reporting and narrowly focused agenda of Roger Parloff and Fortune magazine. The characterization that Russia’s case somehow hinges on the wording of the U.S. Justice Department’s press release is absurd. The press release is and has always been irrelevant to the merits of the Russian Federation’s case and the elements of a civil RICO claim in general. Any attempt by current employees of the Justice Department to rewrite history in order to benefit the Bank of New York or possibly help out a former Justice Department colleague and current BNY V.P. and in-house counsel Mathew Biben, does not change the underlying facts of the case or the veracity of Russia’s claim.
The press release is solely relevant to the narrow issue of tolling the statute of limitations. And for that purpose, only the date of the release is relevant (which not even the Justice Department can change after the fact), because it establishes the date upon which the Russian Federation could have reasonably been put on notice of BNY’s involvement in the criminal money laundering activity. The Russian Federation’s case does not rely on the wording of the press release.
In focusing on this inconsequential wording change, Parloff continues to mislead his readers by again making the bogus assertion, which of course BNY also advances, that a civil RICO claim somehow requires a prior criminal conviction or admission. Both Parloff and BNY appear to be unaware of the United States Supreme Court’s unequivocal rejection of this conclusion over 20 years ago in Sedima, S.P.R.L. v. Imrex Company, Inc., 473 U.S. 479, 493 (1985). The Court clearly stated:
In sum, we can find no support in the statute’s history, its language, or considerations of policy for a requirement that a private treble-damages action under § 1964(c) can proceed only against a defendant who has already been criminally convicted. To the contrary, every indication is that no such requirement exists.
Id. Perhaps because BNY is unhappy with what the law is, it has turned to “experts” who are advocating a flawed interpretation that is more favorable to the bank. Indeed, two of BNY’s experts – Richard Thornburgh and Abner Mikva – have long been outspoken critics of civil RICO, and have sought to limit its use. See 116 Cong. Rec. 35342-43 (1970) (remarks of Rep. Mikva); 131 Cong. Rec. E4595-03 (1985) (testimony of J. Mikva); Attorney General Richard Thornburgh, Remarks to the National Press Club as Luncheon Speaker, (March 28, 1989) (transcript available through the Federal News Service). However, this testimony obviously cannot change the law, which is unconcerned with whether BNY admitted criminal responsibility for these indisputably criminal acts.
As even the Justice Department’s new press release acknowledges, but Parloff’s incomplete reporting still ignores, BNY “accepted and acknowledged responsibility for the conduct detailed in the NPA.” This indisputable fact is why the NPA, as opposed to the press release, is relevant to the merits of this case. By accepting responsibility for the criminal money-laundering activities of its senior employees, the Bank can no longer evade civil liability for these activities by claiming that “rogue employees” performed them. The NPA shows that the money-laundering was not a single, isolated “rogue” event in which the employer did not have knowledge or some participation.
Additionally, it should not be forgotten that the NPA was the product of a criminal investigation, not a civil one. The conduct that the Justice Department was investigating was criminal conduct. The NPA, as its title makes clear, allowed the bank to avoid criminal prosecution. After all, there is no such thing as a civil prosecution. One would have to really distort reality and ignore the agreement’s language in order to avoid reaching the obvious conclusion that BNY accepted responsibility for the criminal conduct of its senior employees.
For Roger Parloff to focus on this single, narrow issue out of a large and complex litigation, and thereby make it seem as though the entire case hinges upon this insignificant press release is disingenuous and misleading. Fortune magazine should hold itself to a higher journalistic standard.
Thank you for covering this so diligently. I somewhat expect this type of activity from Marks, but I wish many more people would be aware of Burson Marsteller’s activity of turning a blind eye to facts in favor of hefty fees.
Thank you for covering this so diligently. I somewhat expect this type of activity from Marks, but I wish many more people would be aware of Burson Marsteller’s activity of turning a blind eye to facts in favor of hefty fees.
Can’t we just give Russia a new pair of pants similar to those that were supposedly lost by the conscientious dry cleaner?
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This blog is about legal issues that matter to business people, and it's geared for nonlawyers and lawyers alike. Roger Parloff is Fortune magazine's senior editor (legal affairs). He practiced law for five years in Manhattan before becoming a full-time journalist.
Why can’t Russia sue BNY under local fraud statutes? Civil RICO is so effing complex, it can hardly be applied consistently in the United States (e.g., circuits split over definition of criminal enterprise). I predict an amusing result in Russia.