MOSCOW, March 26 (Reuters) - Russian businesses and banks that face losses from the European Union's bailout of Cyprus are considering legal action but may have a hard time making a case, say lawyers who are combing through treaties find strategies to recover funds.
Big depositors – many of them Russian – face losses of up to
40 percent as the result of a so-called ‘bail-in’ to back 10
billion euros ($13 billion) in EU financial aid to stabilise the
Cypriot banking system.
“It’s worth trying, it’s not going to be easy, its not going
to be a one-off, 24-hour court case, but the nature of the
action itself sounds like expropriation,” said Andrey Goltsblat,
managing partner at Moscow-based law firm Goltsblat BLP.
There could be a basis to sue either Cyprus or individual
banks, say lawyers who have been contacted by current and
prospective clients seeking redress.
“People are just frustrated and … are trying to find a way
to get their money off Cyprus,” said Goltsblat, who said that
two clients – one in Russia and a second Russian client residing
in Cyprus – had inquired about legal options.
Steven Philippsohn, partner at London-based law firm PCB
Litigation, said three major banks based in or around Russia had
asked about the possibility of legal action.
“We have been contacted and we are monitoring the situation
and will revert to them when we have further news,” he said.
Russians are believed to account for most of the 19 billion
euros of non-EU, non-bank money held in Cypriot banks at the
last count by the central bank in January.
While insured deposits of up to 100,000 euros are safe, big
depositors in Cypriot banks could lose about 40 percent of their
money, Finance Minister Michael Sarris said on Tuesday. Hiring a
lawyer may help depositors reduce their losses.
“If you file a suit they are going to be concerned and
hopefully come to an arrangement that would be more satisfactory
than if you didn’t,” said Philippsohn. “There may be a chance of
recovery too.”
Still, there is scepticism about the likelihood of success.
An earlier plan to impose a state levy on deposits, which was
described by Russian officials as “expropriation”, has been
ditched in favour of a plan that restructures banks and
exchanges non-guaranteed deposits for shares.
If Cyprus‘s two biggest banks are simply allowed to “die,
without passing the law on taxing deposits, there will be no
chance to take legal action”, said Goltsblat.
Vladimir Gidirim, partner with Ernst & Young in Moscow,
noted that large depositors would not have investments directly
confiscated but see them exchanged for equity stakes in a “good
bank” to be carved out in the rescue.
“This is not a total expropriation,” said Gidirim. “After a
year, the stake might be worth more than the initial deposit.”
“Russian depositors who suffered from Cypriot authorities’
actions may, in theory, file lawsuits but I don’t see
substantial reasons for it,” he added.
ROUTE TO RECOVERY
Lawyers say one route to take action would be to use a
bilateral investment treaty to show that investments must be
protected. Russia’s investment treaty with Cyprus has not been
ratified, however, so another option could be via treaties with
other countries where Russian firms may have vehicles.
“It could well be that some of the vehicles that lost the
money – for example companies that have been formed by Russians
in the British Virgin Islands or Jersey – may have a bilateral
investment treaty and it may be a breach if we can demonstrate
that people have been treated unfairly,” said Philippsohn.
A second option could be to take legal action under
international public law, via the International Court of
Justice. A case would need to be brought by Russia on behalf of
its people, lawyers say.
Thomas Keane, co-founder of Cyprus-based law firm Keane
Vgenopoulou & Associates LLC, said a plaintiff could argue in
Cypriot or European court that restrictions on the free movement
of capital violated EU law.
“Clients have not come up and raised this but there is a
growing feeling out there of unfairness and injustice that the
depositors are being forced to carry the can,” said Keane, whose
firm has Russian corporations amongst its clients.
State-controlled VTB, the Russian bank with the
greatest exposure to the island, said it was premature to
comment on whether it planned to sue the Cypriot authorities.
“The VTB Group is carefully following the situation. It will
be possible to estimate the consequences only after we have
reviewed a package of documents prepared by the Cypriot
government,” the bank said in a statement.
VTB has said that in a worst-case scenario losses in Cyprus
could reach “tens of millions of euros”. Sberbank, Russia’s top
bank, declined to comment.
