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. Last Updated: 07/27/2016

Court Rejects EBRD's Claim to $58M in Debt

The latest attempt by the European Bank of Reconstruction and Development to reverse a court decision that bars the bank from collecting $58 million it asserts are owed to it failed this week, after the Moscow Regional Arbitration court ruled in favor of the defendant, Runicom SA, a shareholder in the Sibneft oil major.

The foundation for the legal dispute between the EBRD and Runicom was laid in 1998, after the EBRD opened a multimillion-dollar credit line to SBS-Agro to fund a small-business loan program through that bank. The EBRD was established in 1991 with the aim of developing small businesses in Russia and Eastern Europe.

After the financial crash of 1998, SBS-Agro, which by then owed $14 million to the EBRD, said it could not pay off the initial loan and instead offered an overdue debt from Runicom - with a principal of $14 million - as collateral.

However, when the EBRD attempted to collect the funds from Runicom, the latter refused to recognize the debt, insisting it had paid off all of its debts that could be linked to either the EBRD or SBS-Agro.

After the payment deadline ran out on May 31, 1999, the EBRD sued Runicom for $58 million - the sum of the initial loan plus penalties and interest - but lost the case. The bank subsequently lost two appeals in Russian courts, and there seems to be little hope for reconciliation, with both sides maintaining that they are in the right.

According to Runicom's defense statement submitted to the court and obtained by The Moscow Times, Runicom initially owed money to the Zoloto-Platina Bank. Runicom argued that for creditors rights to have been transferred to the EBRD, Zoloto-Platina Bank would have had to officially recognize such a transfer. Runicom lawyers insist Zoloto-Platina never sanctioned the transfer.

"We consider this case closed," an official spokesman for Sibneft said Thursday.

However, the EBRD continues to maintain that there had indeed been a transfer agreement between Zoloto-Platina and itself.

In earlier communications with the EBRD, Runicom also made a number of contradictory statements as to where the loan money went. One version proffered by Runicom suggested that the money had been repaid to Zoloto-Platina Bank, while another said the debt was settled as an offset with a Western bank.

The Russian court, siding with Runicom, ruled that the EBRD had no right to claim the $58 million.

The dispute also has shed some light on long-rumored but never-documented ties between the business empires of arch-oligarch Boris Berezovsky and Alexander Smolensky, the founder of the now-defunct SBS-Agro bank.

Berezovsky and Roman Abramovich, both Kremlin insiders, are believed to own Sibneft, while Smolensky-controlled firms participated in the creation of Sibneft in 1995-1996.

Not satisfied with the turn of events, the EBRD is considering its options, including an appeal to the Supreme Court of the Russian Federation. There is no deadline for such an appeal.

Apart from the original complaint, EBRD officials have also spoken of mistreatment at the hands of the court.

"The lower courts refused to admit into evidence documents demonstrating that Runicom SA had in fact not paid the claim on the date they say it was satisfied," said an EBRD statement issued after the court decision on Wednesday.

Runicom's lawyers frequently argued the EBRD's case lacked evidence.

"We were not given an answer as to why there are so many contradictions, or why our request for examination was denied," said Elizabeth Wallace, the director of the EBRD Financial Institutions Team, the bank's legal argument was ignored by the Russian court.

"We feel that there has been a violation of due process, and all we are asking is for a fair hearing," Wallace added.

Wallace, however, pointed out the Runicom case will not affect the EBRD's commitment to its small-business development programs in Russia.