East West United Bank in troubled waters

The Court of Appeal ruled on Tuesday in an unusual case that is especially embarrassing for Luxembourg. It upheld the first instance judgment in what could be the final part of East West's resistance to the enforcement of a court order in Latvia forcing it to pay back €15 million.

It all starts on 3 October 2011. On that day, East West United Bank, whose main shareholder is the Russian conglomerate Sistema, granted a €15 million loan to Swiss company Helvetia Financial Services S.A. for a period of one year. At the same time, the Luxembourg bank entered into a pledge agreement with Latvian bank Latvijas Krajbanka, i.e. Krajbanka deposited 15 million euros as collateral in an account at East West, which East West could seize if Helvetia Financial Services failed to meet its loan repayment obligations. This is much sooner than expected, as Helvetia Financial Services has not paid its first instalment due on 30 November 2011. 37,500 euros in interest, failing which it would execute the pledge taken by Krajbanka, i.e. it would repay itself by paying the €15 million deposited by the Latvian bank. On 2 December 2011, having still not received anything from Helvetia, it informed Krajbanka that it would not pay back the €15 million.