Publication: Monitor Volume: 5 Issue: 156

The scandal surrounding the alleged laundering of Russian money through the Bank of New York is continuing to grow. The “New York Times” reported today that U.S. Attorney General Janet Reno is taking a “personal interest” in the investigation and that the U.S. House of Representatives will hold hearings next month on the threat moneylaundering poses to America’s banking system (New York Times, August 25).

According to reports in the “Times”–which broke the story–and in other media, investigators believe that anywhere from US$4.2 billion to US$10 billion were laundered through the Bank of New York from October 1998 through March of this year, and that some of it came from reputed Russian mafia boss Semyon Mogilevich. According to various media reports, investigators suspect that some of the money was laundered by two once-powerful Russian banks, Menatep and Inkombank, both of which all but crashed after the August 1998 financial meltdown. Investigators are also reportedly looking into whether US$200 million from International Monetary Fund (IMF) credits to Russia may have passed through the Bank of New York. Konstantin Kagalovsky, husband of Natasha Gurfinkel Kagalovsky, a senior Bank of New York executive reportedly under investigation, was formerly Russia’s representative to the IMF and a senior executive in Bank Menatep. Today he is a vice president of Yukos oil, which is run by Menatep founder Mikhail Khodorovsky (see the Monitor, August 24).

Russian media and officials have also continued to react to the Bank of New York moneylaundering case–and, in some instances, the reaction might be described as muted or even defensive. Judging by comments made yesterday by Finance Minister Mikhail Kasanov, the Russian government has no plans to assist Western law enforcement agencies in their investigations, or even look into the matter at all. “I have no information indicating that Russia has anything to do with this problem, so there is no need for the government to interfere in this situation,” Kasanov said. He said that every cent the IMF had lent to Russia was used properly and accounted for (Moscow Times, August 26).

The Bank of New York scandal, according to one account, is helping the FBI bring back to life the “ramshackle myth about the Russian mafia” and that “certain circles” in the United States are trying to prove that it is pointless to for the IMF to give credits to Russia (Segodnya, August 25). If so, these “circles” appear to be having little success. Finance Minister Kasanov said he was sure that the Bank of New York scandal would not adversely affect Russia’s chances of receiving the next US$640 million tranche of the IMF’s US$4.5 billion loan, scheduled for disbursal at the end of September. Gerard Belanger, deputy head of the IMF’s Second European Department, praised Russia yesterday for implementing economic reform, saying its “successful results” had exceeded all expectations (Moscow Times, August 26; Russian agencies, August 25).