On May 17, Russia’s Federal Customs
Service sued Bank of New York (BoNY)
in Moscow for $22.5bn of alleged loss
resulting from BoNY’s involvement in
laundering shadow imports in Russia in
1996-1999. According to the claim, a
“group of Russian individuals and companies,”
as a US court put it, continuously
understated the value of imported goods
to pay less duties and relied on BoNY for
actual payments in the US. Last July, US
courts indicted BoNY executives for fraud
worth some $7bn.
As the Russian customs officials seek to
continue the inquiry formally closed in
November 2005, some big names may yet
emerge, causing embarrassment – at best
– for individuals and companies whose
involvement with BoNY in the 1990s helped
them climb to the lists of Russia’s most
wealthy and successful.
The “old” BoNY case became known in Russia thanks to USA Today and The New York Times reports citing anonymous FBI sources and suggesting BoNY had laundered up to $10bn of Russian and Eastern European money in 1996-1999. US security officers came to Russia in September 1999 to complete their inquiries but, according to Russian presidential aide Viktor Ivanov, then deputy director of the Federal Security Service, at that point denied Russians any access to their own files. The media speculated that such prominent politicians and businesspeople as Anatoly Chubais, Oleg Soskovets, Alexander Livshits, Vladimir Potanin, Tatyana Dyachenko (Boris Yeltsin’s daughter) and others were involved and that part of an International Monetary Fund loan given to Russia for financial stabilisation had been embezzled.
A federal court in New York City ordered criminal inquiries against Lucy Edwards, a BoNY vice president in London, who handled Russian and Eastern European accounts, and her husband Peter Berlin for unlicensed banking operations and money laundering. Both Edwards, a.k.a. Lyudmila Pritsker, and Berlin, came from Russia (she from Leningrad, he from Moscow). Edwards took the last name of her first American husband Brad Edwards and came to BoNY as a cashier. Berlin, a molecular physicist by training, founded Benex International Co.
and became a stockbroker.
Benex opened an account in BоNY in 1996, and immediately started, together with another company, Becs International, transferring outrageous sums of money. Apart from Edwards and Berlin, other BoNY managers of Russian descent, including Senior Vice President Natalia Kagalovskaya, and Russian- born businessmen such as Alexei Volkov with his Torfinex Corp., were charged with financial crimes but their involvement was not confirmed.
Kagalovskaya formally went on vacation and then resigned, claiming the bank had failed to protect her from media slander.
In 2000, she laid a defamation lawsuit in Moscow against BoNY, which reportedly ended in an amicable settlement. Edwards and Berlin confessed in 2000 to receiving a $1.8mn commission for using offshore tax havens to launder money on behalf of Russian individuals and companies. Their BoNY accounts were used as an illicit channel for over 160,000 money transfers to and from Russia, amounting to $7bn by the end of 1999. Edwards confessed to having helped three Russian banks to open their own accounts with BoNY and start operations in the United States without due permissions from the US authorities. In November 2005, BoNY admitted to negligence and failure to find illegal schemes in its own operations and reimbursed $12mn to banks and $26 million to the US for the losses inflicted by its employees. Edwards and Berlin were indicted for having hidden $7bn, earned by Russian individuals and companies, from taxation in 1996-1999.
They both got a $20,000 fine, five years in prison suspended, six months of home arrest and a collective back-tax claim from the US government for $685,000.
In an earlier development (July 13, 2002), Svetlana Kudryavtseva, another Russianborn BoNY employee, was sentenced to two weeks in prison and 23 weeks of home arrest for her involvement inmoney laundering.
