Publication: Monitor Volume: 5 Issue: 184

Federal prosecutors in the United States announced yesterday their first indictments related to the Bank of New York money laundering scandal. Lucy Edwards, a former top executive in the bank, her Russian husband, Peter Berlin, and a third businessman, Aleksei Volkov, have been charged with conspiring to illegally transmit funds through the bank from 1996 until August of this year. Some US$7 billion were allegedly transferred through accounts which two of Berlin’s companies, Benex and Becs International, held in the Bank of New York. The indictment does not include the specific charge of money laundering, given that in order to make that charge, investigators must prove that the money which passed through the accounts were the result of a specific crime. The investigation is continuing on various fronts, including the alleged links between Benex and YBM Magnex Inc., a Philadelphia-based company allegedly part-owned by reputed Russian mobster Semyon Mogilevich. Volkov, a lesser known figure in the scandal, is the head of a company called Torfinex, which also had accounts in the Bank of New York and which is accused of having acted on the instructions of unnamed persons in Russia (Associated Press, October 5; Los Angeles Times, Russian agencies, October 6).

The Bank of New York announced today that it has informed a number of Russian banks, along with several other banks elsewhere in Eastern Europe, that their correspondent accounts in the Bank of New York have been closed. A spokeswoman was quoted as saying that the correspondent accounts of other Russian banks will remain open (Russian agencies, October 6).

The Bank of New York scandal has received much attention in Russia, particularly because of allegations that the bank may have been a funnel for proceeds made by top Russian officials and other VIPs from corrupt practices, including the misuse of International Monetary Fund credits. Leonid Dyachenko, the son-in-law of President Boris Yeltsin, has reportedly been asked to appear before a New York grand jury to answer questions about accounts that several companies to which he was connected held in the Bank of New York’s Cayman Islands branch. A lawyer for one of those companies has said that the money in those accounts were legal proceeds from legitimate business activities (see the Monitor for October 5). Russian, IMF and U.S. officials, meanwhile, have all denied that IMF funds were stolen or misappropriated.

At the same time, U.S. press accounts have quoted anonymous U.S. investigators saying that Russian officials have not been cooperative in providing documents and other information needed for the investigation. Some Russian officials have denied this, and Aleksandr Pochinok, head of Russia’s tax services, recently said that ten Russian banks which carried out questionable operations through the Bank of New York including Flamingo Bank, the Depositor-Clearing Bank and Sobinbank, are being investigated. Police raided Sobinbank’s offices in Moscow yesterday and seized financial documents (ORT, October 5).

It is possible, however, that the Russian investigation is selective, and some Russian press reports have suggested that the Russian authorities are not fully cooperating with their Western counterparts. One newspaper predicted that the continued lack of cooperation from the Russian side could push the scandal to new heights. It reported that several U.S. investigators are set to arrive in Moscow around October 15 to try to get access to financial documents of Russia’s Central Bank and ten to fifteen commercial banks. The goal of the investigators, the paper said, is to find out who made the decisions to transfer the billions through the Bank of New York. This means that the Russian authorities are caught between the options of, on the one hand, cooperating with the U.S. investigators and “exposing to the whole world our corrupt schemes and the names of the thieves,” and, on the other hand, not cooperating and risking a tough U.S. response, including an end to all financial aid and even the seizure of all Russian property in the United States (Argumenty i fakty, No. 40, October 1999).

A similar worst-case scenario was painted by Andrei Federov, one of the heads of the Council on Foreign and Defense Policy, a body closely associated with former Prime Minister Yevgeny Primakov. Federov predicted that if U.S. investigators are not given access to Russian banking information, “we will see a second phase of the scandal, the consequences of which will be a radical strengthening of the anti-Russian mood in the U.S. Congress and the Senate, and, possibly, the complete blocking of financial aid to Russia” (Russian agencies, October 5).