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VTB Bank Lawyers Can’t Get Paid Because of Russia Sanctions (2)

June 16, 2022, 3:13 PMUpdated: June 16, 2022, 8:31 PM

Sanctioned VTB Bank PJSC is having trouble getting new legal representation because lawyers are struggling to find financial institutions willing to accept payments from Russia.

A federal magistrate judge on Thursday agreed to pause a lawsuit against the bank until June 23, about a week less than VTB’s current counsel at Latham & Watkins had requested. The move gives the bank’s new lawyers about a week to work out the kinks of getting paid.

VTB said this month it agreed to hire Brafman & Associates lawyers, including partner Marc Agnifilo, who has represented defendants such as Harvey Weinstein and ex-Goldman Sachs banker Roger Ng.

Latham & Watkins said in April it would stop representing the Russian bank in the case brought by the parents of Quinn Schansman, a U.S. man who died in the downing of Malaysia Airlines Flight 17.

VTB’s judicial request shows the challenges entities face in flowing money out of a country largely closed off from international banking following Russia’s invasion of Ukraine.

A member of VTB’s legal department said the bank had set aside funds for Brafman in a retainer and that the firm was in the process of finding a bank that would accept the payment.

The parents of Schansman are suing VTB, Sberbank and others in a federal court in Manhattan, alleging they provided financing to the Donetsk People’s Republic, which they say is a terrorist group responsible for the attack that killed 298 people.

Latham & Watkins, which still represents VTB until it hires new lawyers, asked Wednesday to pause the case until July 1, noting Brafman lawyers “hope to clear this hurdle soon.” Jenner & Block, which represents the Schansmans, opposes the requested delay, Latham said in the court documents.

Magistrate Judge Gabriel Gorenstein ruled on Thursday no further extensions will be granted unless a daily log is provided detailing the efforts made for new counsel to file an appearance in the case.

Legal Odyssey

After Latham said in April it was going to withdraw from the case, VTB hired a Russian law firm, Orion Partners, to find new US lawyers for the case.

Orion spoke with Brafman, which agreed to represent the banks as long as the firm could accept payment under the sanctions, according to an affidavit from a VTB legal department employee.

Orion is slated to pay Brafman’s retainer on VTB’s behalf, the bank’s legal department employee, Izamit Mamaev, wrote.

Brafman then spoke with the US Treasury Department’s Office of Foreign Assets Control, which enforces sanctions. The office told the firm there is a “general license” permitting payment to US attorneys in exchange for legal services provided to a blocked entity in pending US court cases, Brafman of counsel Zach Intrater said in a court document.

The firm then discussed the case with its unnamed New York-based bank, Intrater wrote. So far, the financial institution is “unwilling to receive funds originating from within the Russian Federation,” he said.

Discussions are ongoing and Intrater said the firm believes it “may result” in the bank agreeing to receive the payment.

Meanwhile, Brafman has started to look for a different financial institution that will take the payment.

The case is Schansman et al. v. Sberbank of Russia PJSC et al., S.D.N.Y., 19 02985.

(Updates paragraphs two and adds paragraph nine with detail on judge's ruling pausing the case.)

To contact the reporter on this story: Roy Strom in Chicago at rstrom@bloomberglaw.com

To contact the editors responsible for this story: Chris Opfer at copfer@bloomberglaw.com; John Hughes at jhughes@bloombergindustry.com