bank of new york linked to russian ‘mafia’

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    Bank of New York Linked to Russian ‘Mafia’ via Money Laundering

    Evidence of the growing links between global organised crime, international banking and government was uncovered by in an investigation into money laundering at one of New York’s most prestigious banks. The money trail involves suburban London, the Isle of Man, Geneva, Moscow, the Cayman Islands and northern Italy among other sites. It may also reach into the heart of Russian government. The US government announced new steps to combat money laundering.
    In August it was revealed that the Bank of New York was under investigation for its involvement in a huge money laundering operation operated by Russian organised crime. At least $4.2 billion are thought to be involved, and perhaps as much as $10 billion, making it the largest such case in the world. The case is being handled jointly by the FBI and the US attorney’s office in New York, also in collaboration with Swiss, British, Italian and Russian authorities.

    Although it had been known that the Russian mafia had infiltrated New York’s banking system, the apparent extent of the operation surprised investigators. The Bank of New York transfers more money per day around the world than any other bank, $600 billion a day. Estimates are that between $500 and $1500 billion, equivalent to 5% of gross world product, is laundered every year through the world’s banking system.

    In reaction to the scandal at the Bank of New York the US Treasury announced new steps to combat global money laundering in September. It included proposals to extend US laws on the transfer of funds from overseas accounts to the US to apply to corrupt foreign officials. There would be renewed pressure on governments identified as ‘rogue jurisdictions’. And the Treasury called for greater use of surveillance over wire transfers and movements of money. Casinos, brokerage firms and storefront check cashiers would be required to inform the authorities of suspicious transactions. Spokesman Larry Summers connected the crackdown on money laundering with efforts to tackle drug smuggling and organised crime.

    Although the story was broken by the New York Times in August, the investigations leading to the Bank of New York had begun at least two years before. The report brought into the open an ongoing investigation by the US attorney’s office and the FBI, responding to a tip off by investigators in the City of London.

    British inquiries had focused on a Russian businessman, Yukovich Mogilevich. Mogilevich is thought to have been involved in arms running, extortion and prostitution. The authorities claim that he began as a small-time crook from Kiev, but made much of his early fortune defrauding Soviet Jews leaving for Israel in the 1980s. He himself has Israeli citizenship. Later he apparently sold weapons looted from the Russian army to Iran, Iraq and Serbia. During the 1990s he lived in Budapest, where he is suspected of organising prostitution. However, when the allegations surfaced Mogilevich moved to Moscow, from where he denied any criminal activities

    Mogilevich had been under investigation for years by British intelligence as part of an inquiry into Russian organised crime in Britain. The trail led to the Bank of New York and a firm in Philadelphia, YBM Magnex, which makes magnets, and which is thought to be the first front for money laundering. The first indications of his financial activities was the setting up of a company registered in the Channel Islands in 1991. This company later acquired YBM Magnex.

    The $10 billion was alleged to have passed through Benex Worldwide, a general trading company with headquarters in a semi-detached house in suburban Essex, England. Two Benex accounts at BONY containing $20 million were seized in August in a joint operation between the FBI and the New York Police Department. One of Benex’s directors is Peter Berlin, a Russian-born businessman, whose wife, Lucy Edwards (born Lyudmila Pritzker), works for the eastern Europe desk of the Bank of New York in London. According to BONY, Edwards concealed her marriage to Berlin from her employers. She was suspended by the Bank along with a second Russian-born executive, Natasha Kagalovsky, who worked in New York. Her husband is a prominent Russian banker. The other three directors of Benex are a Russian banker, Eleonora Razdorskaya, and two financial consultants, Vladimir Malkov and Vladimir Razdorski.

    Confirmation of the suspicions came from Italian investigators in Rimini, northern Italy. Criminal proceeds from racketeering and extortion in Italy were routed through Moscow and New York according to the Italian authorities. The trail also led to Benex Corporation and its network of companies. The findings came as the result of a two-year inquiry into the harassment of Russian traders in Italy by gangs. The small town of Rimini was targeted because of the large number of small Russian trading businesses exporting luxury Italian goods to Russia. The Rimini gang is suspected to have close links with Russian mafia from Brooklyn.

    A second company under investigation is Bank of New York-InterMaritime, a Swiss bank whose joint-owner, Bruce Rappoport, is Antigua’s ambassador in Moscow. The Swiss authorities froze 59 bank accounts held by Russians in September, which may be linked to the Bank of New York investigation. They acted on advice from Russian investigators. The search also spread to include a London law firm, now defunct, thought to be responsible for setting up many of the shell companies. Two lawyers associated with the firm were arrested by Britain’s National Crime Squad in 1998.

    Russian government sources played down the scandal and the allegations of high level involvement in organised crime. Moscow’s papers implied that the US Republican Party had inflamed the scandal to harm the presidential prospects of Al Gore. The Italian newspaper Corriere delle Serra alleged that the scandal reached President Yeltsin and his daughter, both of whom had credit cards paid for from an account in Switzerland registered with Mabetex bank. Yeltsin’s son-in-law held two accounts at the Bank of New York’s branch in the Cayman Islands.

    In Russia, the investigation focused on Yukos Oil, the country’s second-largest oil company, and its holding company Rosprom. Its chairman, Mikhail Khodokovsky, was once the top official at Russia’s energy ministry before going on to found the Menatep bank. The FBI suspect Menatep of being part of the money laundering operation. Natasha Kagalovsky, one of the two Bank of New York executives under suspicion in the inquiry, is married to a vice chairman of Yukos and Menatep. Yukos has subsidiaries in Cyprus, Switzerland, the Isle of Man and the Caribbean. Some of its shareholders suspect the management of looting the company’s assets and hiding the proceeds abroad.

    Russia's Interior Ministry estimates that anywhere from $50 billion to $250 billion was transferred out of the country illegally between 1994 and 1998. The credit rating agency Fitch IBCA said $136 billion left the country from 1993 to 1998. As much as $200 million of the total sum supposed to be laundered may have originated as IMF funds.

    Activity at Bank raises suspicions of Russia mob tie, Raymond Bonner and Timothy L. O’Brien New York Times 19.8.99; Russian mob ‘used US bank’ to launder cash, Jane Martinson and Dan Atkinson The Guardian 20.8.99; Investigators Seize $20 Million in Russian Money-Laundering Case, Kit R. Roane New York Times 26.8.99; Russian fraud inquiry widens, Jonathan Steele 28.8.99; Russian Organised crime, The Economist 28.8.99; Follow the Money, if You Can, Timothy O’Brien 5.9.99; The Russian Money Trail, New York Times 12.9.99; US veils plans for crackdown on global money laundering, Jane Martinson The Guardian 24.9.99; London Law Firm Is Target Of Russia Banking Inquiry, Timothy O’Brien New York Times 24.9.99; Italy Sees Russian Mob Link Through Bank of New York, John Tagliabue New York Times 28.9.99

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