On Russia's Federal Customs Service $22.5B suit against the Bank of New York

[EJ]

Russia Sues Bank of New York for $22.5 BillionMay 17, 2007 (Hannah Gardner and Maria Levitov)

May 17 (Bloomberg) -- Russia's Federal Customs Service is seeking $22.5 billion in damages from the Bank of New York Co., the world's second-largest custodian of investor assets, for alleged money laundering in the 1990s.

The bank "committed violations of Russian law that resulted in damages of $22.5 billion to the state'' between 1996 and 1999, Maxim Smal, a lawyer for the service, said by phone after filing the lawsuit in the Moscow Arbitration Court today. Andrei Stukov, head of the Customs Service's legal department, confirmed the amount of damages sought via a spokeswoman.

Smal said the suit is "almost entirely based'' on a U.S. investigation that ended in 2005 with the bank agreeing to pay $38 million to settle two criminal probes and admitting it failed to report $7 billion in suspicious Russian transactions. The U.S. probe ``uncovered very serious violations,'' Smal said, declining to elaborate, saying more details will be revealed at a news conference in Moscow tomorrow.

Founded in 1784, eight years after the signing of the Declaration of Independence, Bank of New York sold its branches in October and two months later agreed to merge with Mellon Financial Corp. to create the world's largest custody bank. It has a market value of $31 billion and is the depositary for more than 1,250 U.S. and global depositary receipt programs, including Russia's VTB Group, the state-run bank that raised $8 billion last week.

A Russian friend of iTulip comments:

"This is a Post Scriptum to Putin's 'friendship' with Dubya. In the KGB man's mind, just like he owns Russia, so Bush owns America - so, for Putin, ordering his servants to attack the BoNY means attacking Bush's personal interests. So, yes - it's the war. A veeeeeeeeeeery cold one."

Condoleezza Rice's visit with Putin, as with Rice's visits with just about anyone, ends with no deal. (As Jim Rogers pointed out to us, "Hasn't anyone noticed that Rice never closes a deal, ever?)

Summit Between the EU and Russia Likely Won't Ease Tensions Much
May 18, 2007 (MICHAEL CONNOLLY - Wall Street Journal)

When U.S. Secretary of State Condoleezza Rice held talks in Moscow last week with Russian officials to try to cool tensions ahead of a meeting of presidents next month, both sides refused to budge on significant disputes, from the placement of a U.S. missile-defense shield in Europe to proposals at the United Nations to make the Serbian province of Kosovo independent.

That pattern is likely to be repeated at the European Union-Russia summit, which began Thursday night outside Samara, 560 miles southeast of Moscow, with an informal dinner hosted by Russian President Vladimir Putin. With disputes mounting and the summit's showpiece agreements shelved, some EU nations argued earlier this week for canceling the meeting altogether.

We don't know anyone who believes that the timing of the Russian suit against the BoNY and Rice's visit with Putin are coincidental. Putin is making it very clear that Russia will not be pushed around by the US, just as he's made it clear that "there will be no Orange Revolution in Russia."

EU Voices Concern Over Russian Opposition Arrests
May 18, 2007 (Buzzle.com)

The Kremlin today sent a signal of open defiance to the west as several opposition figures were arrested and western journalists detained as they attempted to fly to a summit between Russia and the EU.

Police held Garry Kasparov - the former world chess champion and a vocal critic of Vladimir Putin's regime - as he tried to board a flight from Moscow to the southern city of Samara.

Mr Kasparov was due to lead a demonstration by the Other Russia, a coalition of anti-Kremlin groups. They were protesting on the margins of the summit, hosted by Mr Putin and attended by the German chancellor, Angela Merkel, and other EU leaders.

Ms Merkel immediately voiced concerns that the Russian authorities were blatantly attempting to restrict freedom of speech.

Russia is on the top of our Hot Spot watch list of potential sources of political and economic disruption in 2008.

[AMaltsev]

Re: On Russia's Federal Customs Service $22.5B suit against the Bank of New York

Russia is on the top of our Hot Spot watch list of potential sources of political and economic disruption in 2008.

In less than a year we'll know who will be the next Russian president - so, yeah, 2008 in Russia is going to be a year of turmoil.

However, I would not agree with those who claim the Russia is looking forward to a new Arm Race or a Cold War. Well, just look onto Washington's military spendings - they are greater than of the rest of the world combined - and ask yourself, who is looking forward to what!

As I wrote to Mr. Jeffrey R. Nyquist in responce to his (IMO) somewhat paranoid article at financialsense (http://www.financialsense.com/stormw...2007/0511.html):

"[...]This is really funny. In the history of mankind only the USA nuked
cities, USSR/Russia did not. So if you look for the nuclear threat,
look no further than Washington, DC: American government has proved it
doesn't hesitate to use WMD.
For information on the "New Arms Race" I'd suggest you to read an
article of F. William Engdahl, "V. Putin & the Geopolitics of the New
Cold War".
http://www.financialsense.com/editor...2007/0218.html
And ask yourself a question: who is so meticulously looking for
enemies and for the excuse to launch another Arm Race, Russia or the
US? Does Russia encircle the US, does Russia install elements of its
anti-missile defense in Canada and Mexica? Or maybe the United States
are encircling Russia, installing (or trying to install) its bases and
AMD elements in East-European countries (Czech Republic, Poland), in
Asia (Kirghizia, Afganistan), on Korean Peninsula?

It's great that commodities are becoming more and more expensive and
valuable. Maybe it'll help to rebuild our Army, since it is currently
(after 17 years of a crisis non-stop) extremely fragile. It's a pity,
though, that these very commodities are still being exported in
exchange for fiat currencies, which (together with commodities
themselves) will be long gone by the next century. So I see nothing,
absolutely nothing, wrong with attempts to get something MORE for our
resources, for example, INFLUENCE.
Of course, the West wants the stuff, and it wants to get it from a
country that "behaves", that "listens", and that does exactly as it is
being told. After all, the West got used to it in 1990s! Were you
Russian, you would definitely be glad that the "free lunch" is now
almost over. Being Westerner, you are infinitely angry. I tell you,
this is a typical "double standard" approach, inability to see (and
reluctance to share) other people's point of view.
Ah, yeah - I don't have a TV and I don't watch it, so it's impossible
to blame "Putin's propaganda" for my humble opinion."

Let's see how things are going to develop. Not a single week passes by without news of another deterioration of relationships of Russia with other countries (especially European). Last week we learned of the multibillion charge against BoNY - another nail in the coffin of our former friendship with the West. I guess, it's time for us Russians to turn to the East...

[BlackVoid]

Re: On Russia's Federal Customs Service $22.5B suit against the Bank of New York

It is the US strategy to prevent a powerful alliance in Eurasia. Such an alliance would undermine the hegemony of the US. But that hegemony is soon history anyway.
Europeans are more and more reluctant to be dragged around by America. They are under pressure not to get friendly with Russia. With the US power weakening, I hope the tension between the EU and Russia will diminish.
Still, some countries have friendly relations with Russia: Hungary, Germany (think baltic pipeline).

Turning east for Russia is not easy, there is little energy infrastructure in the East. It may not be worthwhile to build it. Also the bigger threat for Russia in the long run is China and not Europe. Putin realizes this and thats why he suggested the EU-Russia strategic treaty, but while America is strong this cannot be made.

[jk]

Re: On Russia's Federal Customs Service $22.5B suit against the Bank of New York

Europeans are more and more reluctant to be dragged around by America. They are under pressure not to get friendly with Russia. With the US power weakening, I hope the tension between the EU and Russia will diminish.
Still, some countries have friendly relations with Russia: Hungary, Germany (think baltic pipeline).

dependence on russia for its energy needs, combined with russia's demonstrated willingness to turn the energy spigot on and off for political purposes, has made the eu very wary. the eu is now desperate to diversify its energy sources, but lacks enough alternatives. russia sees the eu as both a market for its product and a potential source for technology. there will be a long and complicated dance between the eu and russia.

[GRG55]

Re: On Russia's Federal Customs Service $22.5B suit against the Bank of New York

However, I would not agree with those who claim the Russia is looking forward to a new Arm Race or a Cold War.


Although history never repeats exactly, perhaps we should not be too surprised that the Russian Government's reaction to the US missile proposal is not unlike the initial US reaction during the infamous 1962 Cuban missile crisis. History also teaches that commodity-income dependent economies rarely do well over time, and perhaps Russia is just skillfully playing a poor hand?

[FRED]

Re: On Russia's Federal Customs Service $22.5B suit against the Bank of New York

As I wrote to Mr. Jeffrey R. Nyquist in responce to his (IMO) somewhat paranoid article at financialsense (http://www.financialsense.com/stormw...2007/0511.html):

Lots of good stuff over at Financialsense, but we find ourselves donning our tin foil hats before entering.

However, I would not agree with those who claim the Russia is looking forward to a new Arm Race or a Cold War.

There's a reason why we run videos on the US military industrial complex on the site, such as the one we're running now.

A partnership between China and Russia is natural: China needs military technology and natural resources.

[jk]

Re: On Russia's Federal Customs Service $22.5B suit against the Bank of New York

A partnership between China and Russia is natural: China needs military technology and natural resources.

a working and wary partnership. russia fears irredentist chinese in its eastern lands.

[FRED]

Re: On Russia's Federal Customs Service $22.5B suit against the Bank of New York

a working and wary partnership. russia fears irredentist chinese in its eastern lands.

Of course. All is relative... China isn't installing missile systems around Russia. The situation is similar to China and Japan in that China and Japan have not exactly been the best of pals over the centuries, but China's alliance is with Japan is getting stronger today while Japan's alliance with the US gets weaker.

[bill]

Re: On Russia's Federal Customs Service $22.5B suit against the Bank of New York

but China's alliance is with Japan is getting stronger today while Japan's alliance with the US gets weaker.

I agree
Japan emerging as article 9 gets revised http://www.boston.com/news/world/asi..._constitution/. The Japanese will be a major supplier of resources to China . The Japanese have been setting up shop in China for the last few years and will continue to utilize China ’s vast labor pools for many years to come. China really couldn’t give a shit who supplies the resources as long as it’s a reliable source. Their main concentration has been on factories, exports and internal infrastructure to support the same. China does not want to go to the “Resource Theater” and waste time and money wrestling resources creating all kinds of political problems for them selves. China wants to supply the world with a secure reliable inexpensive factory labor production base, they want to make money and keep a low profile (Chinese way). The Japanese will carry the big stick in the “Resource Theater” supplying China ’s (JV inside China Japanese,Chinese) resources.
The next move by the Japanese will be to unwind the yen carry trade giving them the opportunity to enter the “Resource Theater” at a discounted cost bases. The window of opportunity for the Japanese to acquisition resources should be over the next 2-3 years

[GRG55]

Re: On Russia's Federal Customs Service $22.5B suit against the Bank of New York

I agree
Japan emerging as article 9 gets revised http://www.boston.com/news/world/asi..._constitution/. The Japanese will be a major supplier of resources to China . The Japanese have been setting up shop in China for the last few years and will continue to utilize China ’s vast labor pools for many years to come. China really couldn’t give a shit who supplies the resources as long as it’s a reliable source. Their main concentration has been on factories, exports and internal infrastructure to support the same. China does not want to go to the “Resource Theater” and waste time and money wrestling resources creating all kinds of political problems for them selves. China wants to supply the world with a secure reliable inexpensive factory labor production base, they want to make money and keep a low profile (Chinese way). The Japanese will carry the big stick in the “Resource Theater” supplying China ’s (JV inside China Japanese,Chinese) resources.
The next move by the Japanese will be to unwind the yen carry trade giving them the opportunity to enter the “Resource Theater” at a discounted cost bases. The window of opportunity for the Japanese to acquisition resources should be over the next 2-3 years

Bill: If I understand you correctly you think the Chinese do not have an interest to scour the globe for their resource needs, and would prefer teh Japanese do it for them? You need to spend a little time in the places I've been living/working the past few years. In Kazakhstan they were in early and control much of the choice assets now. In the Arabian Gulf they have been muscling aside the Japanese who have been losing some of their long standing JV assets (e.g. Kuwait, Saudi neutral zone). It's quite clear that sub-Saharan Africa is going to be developed by the Chinese, not the nationals who for the most part just want to be paid handsomely so they can buy a nicer flat in Mayfair. I have first-hand experience dealing with the Chinese presence in all three of these locations. THey aren't going home any time soon.

[bill]

Re: On Russia's Federal Customs Service $22.5B suit against the Bank of New York

Bill: If I understand you correctly you think the Chinese do not have an interest to scour the globe for their resource needs, and would prefer teh Japanese do it for them? You need to spend a little time in the places I've been living/working the past few years. In Kazakhstan they were in early and control much of the choice assets now. In the Arabian Gulf they have been muscling aside the Japanese who have been losing some of their long standing JV assets (e.g. Kuwait, Saudi neutral zone). It's quite clear that sub-Saharan Africa is going to be developed by the Chinese, not the nationals who for the most part just want to be paid handsomely so they can buy a nicer flat in Mayfair. I have first-hand experience dealing with the Chinese presence in all three of these locations. THey aren't going home any time soon.

I said a “reliable source” I don’t think the Nations and regions you refer to are a political stable source for resource development as per their track records reflect.
I do believe the Chinese have been scouring the globe with little success as I pointed out in my post here.http://www.itulip.com/forums/showthr...=9625#post9625

[GRG55]

Re: On Russia's Federal Customs Service $22.5B suit against the Bank of New York

The trophy resource assets are mostly developed and in the hands of others. That means the Chinese have to bid for the companies that hold them, as others have recently (e.g. Inco, Falconbridge, Alcan). You mentioned their desire to keep a low profile; is this perhaps the reason they have not been more aggressive in this respect (especially after the Unocal affair)? Preferring instead to go after undeveloped resources most of which reside in "difficult" jurisdictions? Or maybe they are just waiting to take over BHP and Rio so they can merge them...

[bill]

Re: On Russia's Federal Customs Service $22.5B suit against the Bank of New York

The trophy resource assets are mostly developed and in the hands of others. That means the Chinese have to bid for the companies that hold them, as others have recently (e.g. Inco, Falconbridge, Alcan). You mentioned their desire to keep a low profile; is this perhaps the reason they have not been more aggressive in this respect (especially after the Unocal affair)? Preferring instead to go after undeveloped resources most of which reside in "difficult" jurisdictions? Or maybe they are just waiting to take over BHP and Rio so they can merge them...

It is as I predicted the Chinese will invest in the PE Firms.
http://www.itulip.com/forums/showthr...10152#poststop


http://news.yahoo.com/s/nm/20070520/...tWsiz1kogE1vAI

China's new state investment firm on Sunday said it plans to make a $3 billion investment in the Blackstone Group, one of the most prominent and powerful U.S. private equity firms.

[c1ue]

Re: On Russia's Federal Customs Service $22.5B suit against the Bank of New York

Russia's Customs service is just following the money. Not all of the loot from the Yeltsin era was in the form of natural resources companies; a lot of actual cash was taken out as well.

This action is of the same vein as the Yukos sanction.

Those of you who are interested in Russia - Wharton has a pretty respectable overview at:

http://knowledge.wharton.upenn.edu/s...m?specialID=66

While the flavor and information in the articles above are very good -especially for an American publication, there are a couple of important points missing which I see echoed in the sentiments above:

1) Russia/Russians are very anti-Chinese both now and historically

While there are some short term geopolitical benefits to Russia and China working together, on the other hand both countries share a long and long disputed border. Russia's eastern provinces are also a significant portion of Asia's land mass including significant natural resources.

Russia in recent history has leaned towards Europe for acculturation, but Russia is also an Asian power.

Russia is more commodity oriented and China more labor oriented. China was using Russia for years as a dumping ground for goods failing standards for export into the US. As a result, the percentage of Russia's exports which are made in/routed through China is actually the lowest in any industrialized nation up until last year. In the 2000-2005 time frame, it was around 5% to 10% of total imports into Russia - so far in 2007 the amount has jumped to nearly 25% (vs. 35% in the US).

It is not clear how much of this is a tradeoff vs. increased Russian energy exports to China - the Russians on the street are very much against Chinese goods.

2) Russia is more of an Arctic circle country than a 30-60 latitude country.

Just think of Canada. The power centers of Russia are on the same latitude as Prince Rupert, whereas the majority of Canadian cities are near the US/Canada border or roughly the same latitude as Western Europe.

This affects lifestyle, thinking patterns, agriculture, etc.

[Christoph von Gamm]

Re: On Russia's Federal Customs Service $22.5B suit against the Bank of New York

Norway is the world's third largest exporter of crude oil, quite next to Central and Western Europe (less than 400 km to Germany, for example). Lybia can provide energy, same as Nigeria and even the Middle East. Where is the problem for Europe? The problem is to get the energy to the US. From a geoperspective Europe has quite a good choice.