Organized Crime, Intelligence Services, and the Bank of New York Money Laundering Scandal
This article covers the Eurasian organized crime and global intelligence service connections to the Bank of New York money laundering scandal. It is the fifth article in the series “Vladimir Putin, Global Corruption, and the Road to the 2016 Election.” While it is not necessary to read earlier entries, it is recommended.
The first article provides a brief history of Russia’s intelligence services and a definition of “Disinformation” and “Active Measures.”
The second article describes Vladimir Putin’s early life and his experiences as a KGB Officer in Russia and East Germany.
The third article describes how elements of the KGB laundered billions of dollars of Communist Party money into the West as the USSR collapsed.
The fourth article describes the rise of the post-Soviet oligarchic system and the role Eurasian organized crime played in facilitating it.
The fifth article covers Putin’s tenure as Deputy Mayor of St. Petersburg and his enduring relationship with organized crime.
This article is a partial excerpt from my book, While We Slept: Vladimir Putin, Donald Trump, and the Corruption of American Democracy, available here.
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In the latter days of the Yeltsin presidency, a series of scandals rocked the Kremlin and threatened “The Family,” the group of political insiders and family members closest to Boris Yeltsin, with future prosecution. This set the stage for the ascension of Vladimir Putin.
The core secret agreement that ushered Putin into the presidency was a quid pro quo that involved him agreeing not to prosecute Yeltsin or his family after he left office.
According to former Russian intelligence officer Felipe Turover, who spoke with the journalist Catherine Belton, one of these scandals, involving a Swiss construction company Mabatex, was partially engineered by elements of Russian intelligence to ensnare Boris Yeltsin in a bribery scandal.
Another scandal exploded across the headlines when on August 19th, 1999 The New York Times reported that billions of dollars had been laundered out of Russia and into the Western financial system through the Bank of New York (BNY).
Founded in 1784 by a group that included Alexander Hamilton and Aaron Burr, the Bank of New York, now part of BNY Mellon, was one of the oldest financial institutions in the United States.
The scandal implicated the highest levels of the Russian government, including members of “The Family,” and was the largest money laundering operation in US history to that point.
Participants in the laundromat included some of the most senior members of Eurasian organized crime, including the infamous Semyon Mogilevich, and in multiple places there are hints at the involvement of global intelligence services.
Republic National Bank of New York, Eurasian Organized Crime, and the Suspicious Activity Report that Launched a Scandal
In August of 1998, Republic National Bank of New York issued a Suspicious Activity Report (SAR) regarding an account it shared with the BNY’s Eastern European Division. Banks are required by law to file SARs with the US Financial Crimes Enforcement Network (FinCEN) for transactions that indicate possible money laundering or fraud.
While there is nothing unusual about filing SARs, the fact that it was Republic National Bank, which was no stranger to Russian organized crime and corruption itself, made the filing was curious indeed.
Republic was owned by the Lebanese-Brazilian banker Edmond Safra. Starting in January 1992, it was licensed by the US government to deliver nearly $10 billion in US hard currency to Russia each year. Every evening, five days a week, for years, a Boeing 767 departed JFK for Moscow’s Sheremetyevo Airport carrying a Republic National Bank courier and on average $100 million in freshly printed $100 bills.
Upon landing in Moscow, a fleet of armored trucks collected the cash and delivered it to Republic’s correspondent Russian banks that had ordered greenbacks on behalf of their clients.
According to journalist and author Robert I. Friedman, given the pervasive infiltration of organized crime into Russia’s young and unruly banking sector, Republic was suspected of at the very least turning a blind eye to money laundering activities, particularly by officials at the Criminal Investigation Bureau of the New York State Banking Department.
Republic would receive an order from a Russian bank for American dollars. It would then turn around and purchase the dollars directly from the New York Federal Reserve.
The same amount, plus a fee, would then be wired to Republic from the Russian banks clients, normally from an account in London. Republic at one point controlled 95% of US banknote sales to Russia.
Anti-money laundering laws in place at the time required only that Republic make sure that it was not doing direct business with criminals or their agents. As long as the banks they did business with were licensed by the Russian Central Bank, they were legally in the clear.
The penetration of organized crime into the highest levels of the Russian banking system was pervasive. Billions worth of American $100 bills undoubtedly made their way into the hands of Russian organized crime syndicates.
While Republic’s dollar trade in Russia took place, numerous US government officials suspected that it was knowingly involved in money laundering for Russian organized crime, but all proposed countermeasures were overruled by senior policy makers.
Thus it was surprising when Republic issued a SAR for an account it shared with the Bank of New York, an institution that it was competing with to establish correspondent banking relationships in Russia.
One account they flagged for unusual activity was a shell company named Benex. Benex had already caught the eyes of investigators at the British National Criminal Intelligence Service (NCIS), who were investigating a Canadian stock swindle masterminded by Semyon Mogilevich.
The Brainy Don: Semyon Mogilevich and Sophisticated Financial Crime
According to a classified British report, Mogilevich had been on the NCIS’s radar since the mid-90s when he tried to set up a system in the UK to launder the immense illicit profits he was earning from “large-scale extortion, prostitution, arms dealing and drug trafficking.”
The scheme involved laundering upwards of $50 million using a Royal Bank of Scotland account owned by the London law firm of Adrian Churchward, a 53-year old solicitor from Romford, Essex. Churchward’s wife had been one of Mogilevich’s past girlfriends.
Upon discovering the London-based laundromat, British authorities launched “Operation Sword,” which promptly shut it down and barred Mogilevich from entering the country but failed to lead to his arrest.
Mogilevich is described in an internal NSA document as “the US government’s top Russian organized crime target.”
Semyon “Seva” Mogilevich was born in Kyiv to a Jewish family in 1946. The city, particularly its Jewish population, had been utterly devastated by the Second World War and the Holocaust.
A chain smoker who weighs over 300 pounds, Mogilevich possesses a comprehensive understanding of global finance and its vulnerabilities.
His first arrest occurred in 1974 and was related to foreign currency. Mogilevich spent his early life in-and-out of Soviet prison, where he undoubtedly became intimately familiar with the vor v zakone, the Soviet Union’s infamous prison subculture.
He received the nickname “The Brainy Don” due to the fact that he holds an economics degree from the University of Lvov.
In the mid-1980s, Mogilevich began scamming Jewish emigres leaving the USSR, offering to buy their possessions in Russia and promising to sell them for better prices on the international market and then send them the profits when the had resettled. Needless to say, their money never arrived.
As someone who grew up in the authoritarian Soviet Union and spent time in-and-out of prison, Mogilevich is also adept as the art of interacting with governmental and law enforcement authorities, which includes becoming an informant. A Western official told Catherine Belton that Mogilevich was recruited by the KBG in the 1970s, which allowed him to defraud the émigrés in return for informing on them.
Mogilevich has also had complex relationships with Western intelligence agencies. In 1998, it was reported that he entered into an agreement with the Bundesnachrichtendienst (BND), Germany’s intelligence agency, to report on the “Russian mafia.” This raises the inevitable question: who is ultimately playing whom?
In 2006, Mogilevich attempted to cut a deal with the Department of Justice to avoid an indictment, though DOJ refused the offer.
In the 1980s, Mogilevich set up Arbat International, a petroleum import-export company registered in the British Channel Island tax haven Alderney. 25% of Arbat was owned by Vyacheslav “Yaponchik” Ivankov, a notoriously violent gangster and one of the last tatoo-sporting, old-school members of the vor v zakone.
Mogilevich reportedly established close ties with Ivankov after bribing a judge to release him early from prison where, according to US court records, he was being held “for robbery and torture.”
Ivankov was later sent by his criminal confederates to the United States where the FBI found him living and Trump Tower in New York. He was also a high roller at the Trump Taj Mahal casino in Atlantic City.
The other owners of Arbat International are Sergei Mikhailov and Viktor Averin, senior members of the powerful Solntsevskaya criminal syndicate.
Another Channel Island based firm associated by the FBI to be integral to Mogilevich’s criminal activities is Arigon Ltd.
In 1990, Mogilevich moved to Israel and was granted citizenship.
Robert I. Friedman, the investigative reporter who first wrote about Mogilevich for The Village Voice and was subsequently informed by the FBI that a $100,000 price had been placed on his head, was shown a secret Israeli intelligence report about Mogilevich.
The report stated that Mogilevich used his Israeli citizenship to travel freely abroad as well as to develop significant political, business and criminal connections within the country.
The report further alleged that Mogilevich owned an Israeli bank with branches in Moscow, Cyprus and Tel Aviv.
Friedman further describes an internal FBI document that claimed Mogilevich was at this time laundering money for both Columbian and Russian organized crime.
In 1991, Mogilevich fled Moscow due to violent gang wars raging in the Russian capital and settled in Budapest, establishing brothels known as Black and White Clubs primarily using German and Russia women in Prague, Budapest, Riga and Kiev.
A Mogilevich and Mikhailov associate named Dietmar Clodo wrote in an affidavit seen by the Russian publication The Insider that he paid one million Deutsche Marks as a bribe on behalf of Mogilevich to a young Hungarian politician Viktor Orbán. Orbán is now the Hungarian Prime Minister and a darling of the American right.
Both the Solntsevskaya and Vyacheslav Ivankov were involved in Mogilevich’s prostitution empire. Mogilevich used the illicit proceeds to purchase military grade weaponry destined for the illegal arms market.
Other crimes Mogilevich has been accused of include extortion, the narcotics trade, trafficking in nuclear materials, dealing with precious gems, art fraud and money laundering.
Mogilevich was tightly connected to many Eurasian organized criminals who operated out of Brighton Beach, Brooklyn, following the passage of the Jackson-Vanick amendment, beginning in the 1970s. His closest associate in America, prior to the arrival and short American reign of Vyacheslav Ivankov, was the Russian mobster Monya Elson.
Elson described Mogelivich as the “most powerful mobster in the world.”
The FBI grew so alarmed by Mogilevich’s activities that they opened their first ever office abroad in Budapest in the early months of 2000.
The FBI considers Mogilevich as one of the most dangerous mobsters in the world, even placing him for a period on their 10 most wanted list.
Mogilevich sits at the nexus of the Russian intelligence services and organized crime and has laundered money for both.
“[D]espite overblown descriptions as ‘the most dangerous mobster in the world’ — his FBI wanted notice says he should be ‘considered armed and dangerous’,” writes Russian mafia scholar Mark Galeotti, “Mogilevich is not so much a gangster in his own right, although he has been accused of substantial frauds, as first and foremost the man gangsters turn to when they need someone to handle their money.”
In addition to his connections with the Solntsevskaya and the vor Vyacheslav Ivankov, Mogilevich is also an associate of the KGB and criminally-linked Boris Birshtein and Grigori Luchansky.
Birshtein’s activities laundering money on behalf of the KGB and Eurasian Organized Crime was described in a previous article. The Russian newspaper Izvestia claimed that Birshtein was an agent for both the KGB and Isreal’s Mossad. He has been described as Mogilevich’s “most important Israeli contact.”
In 1995, Mogilevich, Mikhailov, Luchansky and Luchansky’s Ukrainian deputy Vadim Rabinovich attended a summit hosted by Birshtein in Tel Aviv, Israel, to discuss their various possessions and criminal holdings in Ukraine, where they wielded immense influence which they exercised to benefit of the Kremlin.
Mogilevich, the YBM Magnex Stock Swindle, and the Trail to the Bank of New York Laundromat
British authorities unearthed a Mogilevich laundering scheme while investigating the company Arbat International
25% of Arbat was owned by Ivankov, another 25% was held by an associated company also registered in the Channel Islands, Arigon, Ltd.
NCIS investigators watched with interest as through a series of complex transactions involving multiple shell companies Arigon took control of YBM Magnex International, a company headquartered in Newtown, Pennsylvania.
The acquisition was just the first step in Mogilevich’s planned infiltration of North American financial markets.
After transferring $30 million from Arigon to YBM Magnex, Mogilevich merged it with Magnex 2000, a Hungarian magnet and military hardware company under his ownership.
He then placed his close friend and criminal associate Igor Fisherman as YBM Magnex’s Chief Operating Officer.
The Ukraine born Fisherman was a naturalized US citizen as well as an Israeli citizen who the FBI believed coordinated Mogilevich’s criminal activities in Russia, Ukraine, Hungary, the Czech Republic, the United Kingdom and the United states.
Mogilevich set up dozens of shell companies in the US through which to launder the profits of his global syndicate through YBM, but money laundering was far from the extent of his criminal ambitions.
Realizing that the Canadian stock exchange was less regulated and thus a convenient port of entry to North American financial markets, Mogilevich and Fisherman enlisted a Russian professor of metallurgy named Jacob Bogatin, also a naturalized citizen of the US, to prepare a public stock offering on the Alberta Stock Exchange.
Bogatin had served on the board of the Mogilevich enterprises Arbat and Magnex 2000. Bogatin travelled to Alberta and registered yet another front company called Pratecs Technologies, Inc, which then purchased YBM Magnex and was listed on the Alberta Stock Exchange.
In the 1980s, Jacob Bogatin’s brother, David Bogatin, was involved in a remarkably lucrative fuel tax scam involving the Colombo Crime Family. According to Wayne Barret, Bogatin laundered some of the proceeds of his crimes through all cash purchases of five units at Trump Tower, which Donald Trump himself was personally present to accept.
Interestingly, David Bogatin claimed to have worked for the CIA in Poland during the mid-1980s. Bogatin’s lawyer, Mitchell Rogovin, had done extensive legal work for the CIA, including managing a prisoner exchange following the Bay of Pigs disaster, and had formerly served as chief counsel to the Internal Revenue Service.
Despite the relative ease with which they could have discovered the YBM’s mafia links given Canada’s place in the Commonwealth of Nations and its relationship with the UK, where a full-scale operation against Mogilevich was being conducted involving companies publicly linked to YBM, lax Canadian regulators failed to perform perfunctory due diligence that easily could have linked Pratecs to Arigon.
After briefly pausing trading during Operation Sword in 1995, Pratecs Technologies simply changed its name to YBM and resumed trading. Far from being penalized, YBM was eventually moved onto the larger Toronto Stock Exchange in 1996.
By 1998, YBM had gone from being a penny stock to a “multinational corporation” worth over $1 billion.
According to a federal indictment lodged by the US District Court for the Eastern District of Pennsylvania, in their attempts to make YBM look investment worthy Mogilevich, Fisherman, and Jacob Bogatin were guilty of deceiving and offering bribes to auditors, cooking their books and falsifying company records and intentionally misleading regulators and the investment community.
Overly enthusiastic Canadian penny stock traders and deceived auditors, including Deloitte & Touche LLP, all seemed to give YBM a pass as it went from 20 cents to $20 Canadian.
Remarkably, trading was only halted after the FBI had raided YBM’s headquarters in Newtown, PA. By that point, half a billion dollars in YBM’s market capitalization had disappeared, $100 million in hard currency had been raised, and hundreds of millions more had been laundered by the Mogilevich organization.
As they looked into the unravelling YBM scandal, British investigators at NCIS noticed that YBM had received $270,000 from another Mogilevich linked shell company called Benex.
Upon closer examination, British officials were floored by what they discovered. In a six-month period, over $4.2 billion dollars had passed through Benex in 10,000 separate transactions and was funneled into an associated account in the Bank of New York.
Authorities would later come to suspect that as much as $10 billion had passed through the Benex account. The information was promptly passed over to US authorities.
In addition to the Republic National of New York Bank’s Suspicious Activity Report flagging Benex and the intelligence report from Britain’s NCIS, the FBI received yet another tip implicating the mysterious shell company in widespread criminality.
In 1998, Russian prosecutors reached out to the FBI regarding a kidnapping case. The Russians requested assistance in tracing the whereabouts of $300,000 in ransom money that had been paid by the victim’s bank in San Francisco.
The FBI traced the money from the Bank in San Francisco to the Bank of New York, which then transferred the cash onto Benex before it finally wound up in Sobin Bank in Moscow.
With multiple investigative threads now implicating Benex in a worldwide network of crime, the FBI trained its sites on the Bank of New York.
Benex, Peter Berlin, and Natasha Edwards: the Bank of New York Connection
The corporate shell Benex was established in 1993 under the name of Peter Berlin, a Russian native turned US citizen.
Berlin had arrived in the US three years earlier and lived in a modest apartment in New Jersey with his wife Lucy Edwards. Edwards, who was born in Leningrad under the name Lyudmilla Pritzker, had immigrated to the US in 1977 after marrying a 19-year old American merchant seaman she had met at a club in Russia. The couple divorced in 1988 and in 1992 Edwards married Berlin.
After her divorce in 1988, Edwards got an entry-level job handling commercial accounts at the Bank of New York and by the time she married Berlin in 1992, she was a loan officer in BNY’s Eastern European Division.
The husband and wife duo had more than being Russian in common, both had a predilection for shoplifting, with Edwards getting caught in the act in the early 1990s not once but twice while her husband Peter Berlin was caught attempting to steal sinus medication.
Years later when the scandal broke, BNY claimed it never knew of Edwards’ criminal record.
Upon establishing Benex in 1993, Berlin initially used it to transfer money for Dial Electronics, a company founded by two young Russian entrepreneurs that purchased Japanese electronic goods in the United States and sold them at markup in Russia.
Dial became one of Russia’s largest electronics dealers and by 1994 Berlin was hired as the sole director of its import-export arm called Dimalex N.Y.
The company received the attention of a number of crafty and enterprising individuals in Russia who wanted to transfer large amounts of cash to the United States in as efficient and quick a manner as possible and saw a potential opportunity.
In 1995, Lucy Edwards was approached by Kiril Gusev, a liaison for Moscow-based Depozitarno-Kliringovy Bank (DKB).
Gusev had met Edwards a year earlier while working at the Moscow Interbank Currency Exchange. Edwards had supervised the installation of BNY’s high-speed money transfer software called Micro/Ca$h-Register and just like that, the Exchange was connected to the US financial system.
Shortly thereafter, Gusev joined his friend Ivan Bronov at DKB where they put together a rudimentary system to move money out of Russia and into the US financial system.
Gusev and Bronov established a relationship Russian émigré and former dental surgeon living in New York named Aleksey Volkov. Volkov managed General Forex, a shell company with an account at Citibank and a mail drop on Long Island.
For a while, DKB successfully used General Forex as a means to get Russian money into the US financial system. The scheme hit a snag when Citibank grew alarmed at the accounts activity and shut it down.
“You should meet my husband,” Edwards told Gusev upon hearing of his troubles. His company Benex, she explained, already had an account with the Bank of New York. “Otherwise you’ll have to start from scratch. That won’t be easy.”
Gusev took her advice and arranged for Volkov to meet with Edwards’ husband Peter Berlin for lunch at an Italian restaurant on Broadway.
Berlin and Volkov quickly began collaborating, creating on behalf of interests in Moscow an entire ecosystem of shell companies that ultimately revolved about Benex and its account with the Bank of New York.
Volkov established an independent money laundering vehicle called Torfinex and listed it at the same address in Queens that Berlin used for Benex. Edwards set the Queens operation up with BNY’s transfer software Micro/Ca$h-Register and she and her husband started receiving wire transfer commissions.
The laundromat only expanded from there.
Berlin and Volkov set up multiple shell companies to maintain opacity over the ever growing flow of Russian money through the Bank of New York. In addition to Benex, Berlin also established Becs International and Lowland, each with direct BNY accounts.
Becs International opened accounts with Austria’s largest financial institution, Bank Austria. Interestingly enough, “Becs” is the Hungarian world for Vienna, at the time Semyon Mogilevich’s criminal headquarters was located in Budapest.
Lowland was established to service the oddly named Flamingo Bank after it was taken over by DKB. Many of the banks that would ultimately be implicated in the BNY laundromat, including Sobinbank and Flamingo, were partially owned by SBS-Agro, which itself was owned by three of the most influential Russian oligarchs of the 90s, Aleksandr Smolensky, Boris Berezovsky, and Roman Abromovich.
Mogilevich’s part in the scheme is suspected to have encompassed far more than Benex itself. Few believe that Berlin or Volkov came up with scheme, but rather played the part of pawns.
Sources told The Wall Street Journal that before they were arrested Berlin and Edwards were offered a plea deal to become informants but refused.
Lucy Edwards later testified that her contacts at DKB told her that they were often afraid to leave their office because “customers with machine guns were waiting for them.”
The Commercial Bank of San Francisco’s Involvement in the Wider Bank of New York Laundromat
A separate grouping of offshore companies that ultimately led back the Bank of New York were registered in the obscure Island secrecy jurisdiction of Nauru, a remote island located 1,200 miles off New Guinea in the heart of the Pacific Ocean.
Nauru’s specialty is in the establishment of “shell banks,” in other words, a bank that exists only on paper and is not required to keep any records.
In 1998 alone, the Deputy Chairman of Russia’s Central Bank estimated that Russian criminals laundered $70 billion through hundreds of companies registered to a single address in Nauru.
Two years earlier, Aleksey Volkov was placed on the board of the newly created, Nauru-registered Sinex Bank. Its correspondent bank in the United States was the Commercial Bank of San Francisco.
The privately held Commercial Bank of San Francisco was 10% owned by Boris Avramovich Goldstein, a Latvian mathematician and immigrant who sat on its board and headed its international department.
During Goldstein’s tenure, Commercial’s asset base went from $81 million to $167 million, with a third of the bank’s new depositors coming from Russia.
Goldstein purchased his stake in Commercial Bank in 1994 with a partner named Peter Nenkov, a now-deceased Bulgarian banker who, according to FBI and CIA intelligence, was an associate of organized criminals in his home country.
Prior to moving to the United States, Goldstein had founded Dalderis Bank in Latvia. In 1991, Dalderis was subsumed by Sakaru Bank, making Goldstein an 18% shareholder of Sakaru’s stock.
The business manager at Sakaru Bank, Edmund Johanson, was the final chairman of the Latvian KGB before it was disbanded. US intelligence later alleged that Goldstein hired five former members of the Latvian KGB across his various firms.
Other shareholders in Sakaru, which folded in 1996, included the Swiss engineering firm Mabatex, which, as mentioned above, was involved in a KGB plot to entrap Russian President Boris Yeltsin in a bribery scandal.
Another Sakaru shareholder was a Swedish-registered firm called Pattyranie & Co. Pattyranie was half-owned by Michail Saifullin, a close business partner of the Latvian crime lord Vladimir Ivanovich Leskov.
Both Saifullin and Leskov controlled Olimpija Bank in Riga, known to US intelligence as “the most mobbed up bank in Latvia,” before it collapsed due to rampant embezzlement.
Money from DKB would at times be funneled through the Sinex web of shell companies and Naura-registered shell bank before making its way to Benex’s account at the Bank of New York.
Commercial Bank also dealt with Benex directly, handling nearly $8 million in wire transfers. It was just one cog in a vast and growing laundromat with Benex and BNY in the middle.
While the BNY laundromat was used to launder the proceeds to Russian organized crime, the majority of the money that flowed through Benex came from hundreds of Russian import-export traders who were seeking to pay foreign suppliers without paying Russian taxes or customs duties.
In other words, in addition to being the largest money laundering scandal in American history, it was quite possibly the largest tax evasion scandal in Russian history. Some estimate that as much as 80% of Russian importers used the BNY laundromat while it was in operation.
“Russian businessmen are very inventive, Vyacheslav Soltaganov, the head of Russia’s tax police, told The Wall Street Journal in 1999. After estimating that 99% percent of Russian companies didn’t pay taxes in full, he added, “I leave out 1% just in case… Maybe there is someone who pays everything.”
In 1996, Lucy Edwards was moved to BNY’s London office and Peter Berlin relocated with her, but this didn’t cause their money laundering activities to slow down at all.
They paid a BNY employee at the New York office named Svetlana Kudryavtsev $500 a month to make sure the status of the Benex accounts was always up-to-date and continued their activities from the British capital.
By 1998, by money flowing through the Benex often exceeded $200 million a month, earning BNY $400,000 in annual commissions. Berlin and Edwards were themselves growing wealthy, and bought a spacious flat in central London which they left on occasion to vacation in Italy.
Higher Up The BNY Totem Pole: Irving Trust and the Kagalovsky’s
BNY leadership would later claim that the bank failed to follow-up on Benex because of Lucy Edwards’ respected position at the company. Yet she was hardly the only employee at the bank with links to Russia.
Edwards’ boss Natasha Kagalovsky was one of the best connected Russian-American bankers in Moscow.
Born Natasha Topler, she grew up in Leningrad and immigrated to the United States in 1979 with the wave of Russian immigrants that left the USSR for the United States and Israel following the passage of the Jackson Vanik Amendment.
In 1986, she was hired by the American financial institution Irving Trust to manage their trade with Soviet banks. Irving Trust had done business with Soviet banking institutions since 1922, when it opened an account with Vnesheconombank, which at the time was the bank for Soviet foreign economic affairs.
Irving Trust has also had correspondent banking relationships with two banks with strong links to US intelligence that were suspected of extensive criminal activity including the laundering drug money, Castle Bank in the Bahamas and Nugan Hand Bank in Australia. The former was co-founded by OSS and CIA veteran Paul Helliwell and the latter involving former CIA director William Colby
In 1987, a year after Natasha Kagalovsky was hired by Irving Trust, it was seized in a hostile takeover by BNY. The move was influenced by BNY chairman J. Carter Bacot to take control of Irving’s technologically advanced securities processing software “Cash Register System,” which following the takeover was renamed “Micro/Ca$h-Register” and was used by Berlin at Benex.
Following the merger much of what would become BNY’s Eastern European Division had migrated over from Irving, with Natasha as its lead executive.
BNY’s point man for Soviet banks had been Vladimir Galitzine, a descendent of Russia’s high aristocracy whose family had fled following the Revolution and had settled in New York in 1951. Galitzine’s aristocratic affectations and time away from his homeland made him a less effective ambassador for the bank and Natasha quickly took over as BNY’s chief representative in Russia.
By all accounts, she excelled in this role.
In one illustrative example, she happened across the up-and-coming politician Boris Yeltsin in Moscow airport at one point in 1989 and noticed that he was surrounded by Americans who were attempting to speak with him. Yeltsin, who didn’t speak a word of English, was rescued by Natasha when she offered to translate for him. Yeltsin was so impressed that he offered to carry her bag to the plane for her.
As they waited to board their flight to Vienna, Yeltsin asked her, “How come you don’t have a bank office in Moscow?”
Yeltsin wouldn’t have to wait long. In the chaotic years of Russia’s chaotic transition to capitalism, BNY emerged as the undisputed leader among American banks in Russia, forging over 300 correspondent banking relationships and securing ties with the country’s most powerful financial institutions.
One of the early accounts Natasha helped win was with the Moscow Interbank Currency Exchange, where her subordinate Lucy Edwards met Kiril Gusev and established the relationship that eventually led to Depozitarno-Kliringovy Bank’s utilization of Benex.
On March 12th, 1992, Russia’s Inkombank established a U.S. dollar account with BNY in a deal brokered by Kagalovsky. Inkombank, which would later be mired and controversy and have its charter revoked, became one of BNY’s most profitable customers.
Semyon Mogilevich is alleged to have secretly controlled Inkombank.
The bank had plans to “establish front companies and US bank accounts to run an unlicensed banking operation in New York.”
In 1994 Inkombank used money from U.S. investors to set up two accounts with Citibank, one for a Liechtenstein-based shell company Tetra Finance Establishment and another for a shell company called Avalon Capital.
Shortly thereafter, Inkombank’s Cyprus Offshore Banking Unit issued Kagalovsky with a “General Mandate,” roughly equivalent to the power of attorney, over its subsidiary accounts including Tetra and Avalon.
Tetra and Avalon set up an office in midtown Manhattan and listed a woman named Janna Boulakh as its American representative.
Boulakh was a former Belorussian prostitute who had immigrated to Brighton Beach, Brooklyn. At some point she connected with individuals associated with Inkombank and ended up being used as a front person in the bank’s US shell game shenanigans.
Using the name of her deceased Belorussiun aunt on legal documents, Boulakh was listed as the owner of Avalon Capital. At the time Boulakh was married to an American computer programmer who, according to his own later testimony, was hired by Inkombank to “design a system which would control a network of secret bank accounts of offshore companies belonging to bank management.”
The network was meant to handle “hundreds of millions of dollars through a complex network of offshore companies and multiple bank accounts to numbered accounts” linked to Inkombank’s wealthiest clients.
While most Russian investigations into capital flight and money laundering issues came to naught, there were a few dedicated individuals in the Russian bureaucracy attempting to make progress. The head of the Russian Ministry of Justice’s Institute of Legal Policy and Implementation contacted BNY chairman J. Carter Bacot and told him that Inkombank was the target of an investigation by the Russian Central Bank.
In a later sworn deposition, a Russian government attorney claimed that Inkombank officials had been illegally moving between $140–165 million a year out of Russia with the help of assistance of high BNY officials. He further testified that all of his attempts to contact or exchange information with BNY officials were rebuffed.
The Federal Reserve eventually denied Inkombank’s application, and after the bank was crushed in the 1998 Russian financial crisis the Russian Central Bank revoked its banking license.
In 1994, Natasha had married Konstantin Kagalovsky, a 37-year old high level banker who had served as Russia’s representative to the IMF from 1992–1994. The power couple had met in the IMF’s Washington, DC headquarters. After their wedding in New York, they moved into a Moscow hotel room with a view overlooking the Kremlin.
It was a curious match, with Konstantin having just recently negotiated vast infusions of IMF aid into the Russian economy while his new wife was busily aiding the very capital flight that the IMF was attempting to mitigate.
Konstantin Kagalovsky and the Bank Menatep Connection to the BNY Laundromat
Konstantin Kagalovsky was hired by Mikhail Khodorkovsky’s Bank Menatep as its first deputy chairman.
The establishment of Bank Menatep was inextricably linked to the reforms that took place in the dying days of the Soviet Union. In an early attempt to promote semi-private economic activity, the Communist Party set up tax-free “Youth Scientific Technical Creativity Centers.”
A young Khodorkovsky, who was then a deputy chairman of a local communist youth league, established Group Menatep and started a brisk business in buying and reselling computers while taking advantage of price differences between the domestic Russian and international markets.
Bank Menatep was established in 1988 and Khodorkovsky proceeded to make a fortune through currency manipulation.
By 1993, Menatep became the official bank for the city of Moscow and other Russian regional governments and in this capacity amassed the largest holdings of Finance Ministry guarantee papers.
Menatep’s head of analysis, Aleksey Kondaurav, was formerly a general with the KGB’s Fifth Chief Directorate, the department that had been tasked with moving CPSU funds offshore.
During its short lifespan, Menatep ultimately went under during the 1998 crisis, the bank was the subject of a wide variety of serious accusations of criminality by the Western press, all of which they vociferously denied.
An article in the Washington Times, supposedly based upon CIA analysis, claimed that Menatep was “controlled by one of the most powerful crime clans in Moscow.”
In 1999, The Guardian was told by “Russian intelligence sources” that $500 million worth of Menatep assets had passed through BNY accounts connected to Semyon Mogilevich, presumably referring to the Berlin-Edwards operation.
In addition to establishing a correspondent banking relationship with Menatep, BNY sponsored Menatep’s American depository receipts program, which allowed it to trade shares in the United States.
This was part of a coordinated campaign by Khodorkovsky to promote Menatep in the West. In 1994, he spent $1 million on full page ads in The Wall Street Journal and The New York Times promoting the bank.
Khodorkovsky hired the accounting firm Arthur Andersen to audit Menatep’s books. A few short years later, Arthur Andersen would become embroiled in the Enron scandal and was driven out of business.
Investigators looking into the Bank of New York laundromat would later zero in on Menatep’s relationship with Valmet, a Swiss financial advisory firm based out of Geneva with affiliates in Britain, Gibraltar and the Isle of Man, the latter a notorious hub for international money laundering.
In 1989, 51% of the Valmet was purchased by the Washington, DC based Riggs Bank. Riggs was unique among US banks in that it primarily catered to the diplomatic community.
Riggs enjoyed long standing ties to the CIA, with current and former top executives at the bank receiving high level government security clearances and foreign clients including the Saudi Ambassador Prince Bandar bin Sultan and Chilean dictator Augusto Pinochet.
In 1994, Riggs sold back its stake to Valmet, which then turned around and sold the stake to Bank Menatep.
Despite having left its partnership with Valmet, Riggs remained closely affiliated with Menatep, serving alongside BNY as a correspondent bank.
Riggs was also a correspondent bank to the suspected money laundering outfit the European Union Bank in Antigua. Mentioned in a previous article, EUB was owned by Alexandr Konanykhine and Khodorkovsky.
Of particular focus to investigators was a Valmet subsidiary established on the Isle of Man and headed by Peter M. Bond.
According to private detectives speaking with The Wall Street Journal, Valmet Isle of Man’s corresponding office in Moscow was situated in an apartment owned by Russian foreign intelligence officer.
Under Bond, Valmet was accused of establishing offshore entities that allowed Khodorkovsky’s Menatep group to obscure the ownership of its vast Russian assets and engage in “tolling” and profit skimming schemes through offshore intermediaries.
The link between Valmet (Isle of Man) and BNY, heavily obscured beneath a veritable blizzard of offshore vehicles, involved cash transactions between the offshore vehicle Runicom and the Cayman Islands based BNY accounts of Boris Yelstin’s son-in-law Leonid Dyachenko.
While Runicom was technically owned by two Valmet subsidiaries, the actual owners were affiliated with the Siberian oil company Sibneft, which was dominated by the oligarchs Boris Berezovsky and Roman Abramovich. Hundreds of thousands of dollars passed between Dyachenko’s BNY accounts and Runicom, which raised serious questions about bribery of Russian high officials and a possible link to the BNY laundromat.
As one peels back the seemingly endless layers of corruption of the BNY laundromat, one finds that illicit activities and shadowy personalities reach still higher up the banks corporate ladder than even Natasha Kagalovsky, who headed its Eastern European Division.
One of BNY’s largest shareholders was the Swiss-Israeli banker Baruch “Bruce” Rappaport. Rappaport played a key role in establishing a beachhead for BNY in Russia.
Bruce Rappaport, US and Israeli Intelligence, and the Bank of New York’s Introduction to Russia
Born in Haifa, Israel to Russian immigrants and later based in Geneva, Rappaport had business dealings across the globe in Israel, Switzerland, Antigua, Oman, Nigeria, Haiti, Thailand, Indonesia, Belgium, and the United States.
Rappaports two major banks were Swiss American Bank and Inter-Maritime Bank. In the 1980s he purchased an 8% stake in the Bank of New York, which grew over time. While that stake was diluted after BNY took over Irving Trust, he remained close with the banks upper management.
Rappaport’s Swiss American Bank, which was neither Swiss nor American, was the first bank to be registered in Antigua following the passage of International Business Corporations Act of 1982.
Two years earlier in 1980 Rappaport had negotiated a sweetheart deal with Antigua’s Prime Minister Lester Bird that led to buying a controlling stake in the West Indian Oil Company for only $6 million. Thirty years later the Antiguan government purchased his ownership stake back for $68 million.
Rappaport and Swiss American became embroiled in multiple criminal cases and scandals, including a remarkable case in which 500 Israeli Galil assault rifles and over 200,000 rounds of ammunition were funneled through Antiguan melon farm and ultimately made their way to the Medellin drug cartel in Columbia under Jose Gonzalo Rodriguez Gacha. Rappaport provided both the financing and land for the melon farm at the center of the scandal.
Swiss American Bank was, along with Riggs, also a correspondent banking institution for Alexandr Konanykhine’s and Mikhail Khodorkovsky’s controversy-plagued online European Union Bank. In 1997, the Geneva-based Rappaport was made Antigua’s ambassador to Russia.
According to Jonathan M. Winer, former deputy assistant US secretary of state for international law enforcement, EUB’s accounts for Russian organized criminals were handled by Swiss American Bank.
In 1992, the Bank of New York purchased 28% of Rappaport’s Inter Maritime Bank, thus creating Bank of New York-Inter Maritime Bank (BNY-IMB). In addition to BNY, Benex moved money through accounts at BNY-IMB as well.
Rappaport’s name repeatedly surfaces as a financial facilitator in a remarkable array of late 20th Century scandals, including the plundering of Suharto’s Indonesia through its state owned oil and natural gas corporation Pertimina, the laundering of narco-trafficking proceeds, laundering money for a proposed Iraqi oil pipeline, the Bank of Credit and Commerce International (BCCI) scandal, and the Iran Contra affair.
In their study of the Bank of New York affair, Professor Alan A. Block and Constance A. Weaver determined that Rappaport was heavily connected with both U.S. and Israeli intelligence and would often try to impress people by picking up the phone and directly calling Israeli Prime Minister Shimon Peres or senior officials in the CIA, FBI or DEA.
In particular, Rappaport was long-time friends with former OSS Officer and Director fo the CIA under Ronald Reagan, William Casey.
Casey and Rappaport’s relationship dates back as far as Rappaport’s involvemen in Indonesia. The CIA played a critical part in the the overthrow of the Sukarno regime in Indonesia, which led to the ascension of Suharto and created the circumstances for Rappaport to seize an interest in Indonesia’s national oil and gas interest Pertimina.
According to Block and Weaver, “Casey and Rappaport visited during the various Pertimina disturbances and it is exceedingly likely that there was significant intelligence value to their friendship from the beginning. Because there was an evolving subculture of intelligence that traced its roots back to the isolationist years of World Wars I and II, no one could actually control the networks spinning from this subculture that were articulated by the exceptionally wealthy and well connected and were not an intrinsic formal part of any government agency.”
As party of this shadowy milieu, Rappaport later was deeply involved in the Iran Contra scandal, which of course took place during the time that William Casey served as Ronald Reagan’s CIA director.
Authors Peter Truell and Larry Gurwin, who were writing about the criminal and intelligence-linked Bank of Credit Commerce International (BCCI), state that Rappaport was a member of what they called the “Hardy Boys,” a group of individuals Casey collaborated with outside the normal channels of the CIA.
Casey and Rappaport golfed together at Long Island’s Deep Dale Golf Club. Rappaport’s chaffeur on his trips to visit Casey at Deep Dale was Louis Filardo, allegedly an associate of New York’s organized crime families.
Rappaport hired former US intelligence alums, including Robert Townsend, who worked for the CIA in the Middle East and the Soviet Union.
At one point, Abbas Gokal, the single largest borrower from the organized crime and intelligence linked Bank of Credit and Commerce International (BCCI), owned 20% of Rappaport’s Inter-Maritime Bank.
Perhaps the most mysterious shareholder of Inter-Maritime Bank was E.P. Barry, a veteran of the Office of Strategic Services (OSS), the World War II-era precursor to the CIA. Barry was the head OSS’s highly secretive X2 Counterintelligence unit in Vienna. Like Rappaport, Barry was also a “longtime associate” of William Casey’s, who also served in OSS.
E.P. Barry was also a significant shareholder in a company that owned the Bank of Perrine and the Bank of Cutler Ridge. Both of these latter banks were closely related to the aforementioned Castle Bank, which was co-founded by the former OSS and CIA veteran Paul Helliwell and a Chicago-based attorney with ties to American organized crime named Burton Kanter.
While Helliwell had served in the OSS in China, established numerous CIA proprietaries, and later served as paymaster during the Bay of Pigs debacle, Burton Kanter was an attorney of the wealthy and secretive Pritzker family, which had established the Hyatt Hotel chain with loans from the organized crime-linked Teamsters pension fund.
While Helliwell died in 1976, Bruce Rappaport had a close and ongoing business relationship with Burton Kanter and was in contact with him while pursuing correspondent banking relationships for the BNY in Russia.
As mentioned earlier, Helliwell and Kanter’s Castle Bank’s correspondent bank in the United States was Irving Trust. Irving was later purchased by the Bank of New York and it was Irving’s Eastern European section, led by Natasha Kagalovsky, that was the most heavily engaged in Russian money laundering activities.
According to authors Jonathan Beatty and S.C. Gwynne, Rappaport played a critical part in the secret program established by William Casey to fund the Afghan Mujahideens war against the Soviet military. The funding was facilitated in party by BCCI and the Bank of Oman, both of which were closely linked to Rappaport.
By 1990, Rappaport played a critical early role in establishing the Bank of New York as the preeminent American bank operating first in the Soviet Union and later the Russian Federation.
Rappaport met with Soviet President Mikhail Gorbachev and Prime Minister Nikolai Ryzkov which ultimately led to the establishment of three major joint ventures in shipbuilding, cruise ship tourism and shipping port refurbishment and maintenance.
How Rappaport went from facilitating the funding of secret wars against the Soviet Union to becoming one of the first foreigners to conduct business in the country remains something of a mystery. Was Russian intelligence aware of Rappaports previous activities? It is unclear.
One of these new joint ventures included building a container port in that came to be known as the Leningrad International Terminal. According to Philip Short, Rappaport later swindled the St. Petersburg Mayors office, where Vladimir Putin worked as the Deputy Mayor, out of millions of dollars that were meant to refurbish the port.
The port was later seized by Putin-associates with links to the Tambovskaya Bratva, the most powerful criminal syndicate operating in St. Petersburg.
Both Rappaport and Burton Kanter (of Castle Bank infamy) promoted a service called Moneyfacts, first in the Soviet Union and later in newly independent Russia. Moneyfacts provided its subscribers with insights into the offshore financial secrecy world, including information related to offshore trusts, investment funds, and banks. In short, the kind of information necessary to launder money out of Russia and into the Western financial System.
Rappaport also helped establish BNY’s earliest correspondent banking relationships in Russia. The very first Russian bank that BNY established a correspondent relationship with was DialogueBank, one of Russia’s earliest private banking institutions.
Despite the fact that it was the largest money laundering scandal in the history of the United States at the time, nobody in higher levels of the Bank of New York was ever prosecuted.
After a six year investigation, the Bank of New York was fined $38 million for a scandal in which they may have laundered upwards of $15 billion.
Svetlana Kudryavtsev, the low level employee who was paid $500 a month by Lucy Edwards after she moved to London to keep tabs on the Benex account, was sentenced to two weeks in prison after pleading guilty to “accepting illegal payments.”
Peter Berlin and Lucy Edwards were sentenced to six months of home confinement and fined $750,000.
A Congressional committee investigating the Bank of New York scandal requested Bruce Rappaport’s testimony. He refused.
In Congressional testimony, Thomas A. Renyi, chairman and chief executive officer of BNY, downplayed his banks involvement in Russia.
Renyi was lying. While he was later pursued in a series of private shareholder lawsuits, the US government and American law enforcement appeared uninterested in pursuing the matter further.
A few months after the Bank of New York money laundering scandal broke to the public, Edmond Safra, the man whose bank First Republic had filed the Suspicious Activity Report died in highly mysterious circumstances involving a fire and knife wielding assailants at his home in Monaco.
The violent incident left the wealthy residents of the beautiful and normally serene European statelet confused and on edge. One Monaco resident, however, may have known more about the causes of Safra’s death than the others. His name was Bruce Rappaport.
We’ll never know, of course. Nobody bothered to ask him