The City, or the financial district, in London has long feasted at the Russian trough. Russians have loved London for decades as the preferred financial jurisdiction for their stolen billions spirited offshore. However, Western financial sanctions against the Russian Federation for its behavior in Crimea and East Ukraine have killed the golden goose. London bankers are eager to get the spigot turned back on.
For London, it’s always been about the money. The City’s bear hug of the Chinese and their attempt to make the yuan fully convertible is the latest example of putting money above controversial issues. Soon the world will be witness to another monumental decision, this time by the British courts.
In a bid to Russia, the International Monetary Fund has recently ruled that Ukraine’s $3 billion bond sold to Russia is ‘official’ debt. Under previous lending terms, this fact would have forced the IMF to suspend its lending program to Ukraine as Ukraine has now defaulted on the Russian bond, which is due in a few days in full. The fund cannot continue lending to countries in default on sovereign debt to another creditor. However, there is a catch; the IMF also changed its rules to allow lending to continue if the borrower is in ‘good faith’ negotiations to resolve the debt issue.
In short, Ukraine has defaulted on the debt and the IMF is not going to force them to pay. Russia is not amused and has vowed to sue the former Soviet republic in court for repayment. This is where London comes into the picture as the bond was issued under British jurisdiction.
So soon, you will have the spectacle of the Russian Federation, suing an American and European client state, in the courts of the most influential American ally. I guess we’ll see how special that special relationship is.
London will not want to compromise its financial sector and its reputation for the rule of law in order to placate Ukraine. The prospect of losing future business is simply not acceptable. A British court could rule the transaction fraudulent, as some believe the $3 billion loan was a bribe to former Ukrainian President Yanukovych, to keep him from signing a trade deal with the EU. But that will not happen. Britain will rule in favor of Russia.
But that will be the easy part. Then Russia will have to try and collect.