DHS Investigator Todd Hyman… by on Scribd
U.S. v. Prevezon Et Al. Exh… by on Scribd
Timestamp: 29:17, Pt. 1
Q: Did you get in touch with the banks, did the United States get in touch with the banks and verify the bank records that you had received?
A. No, we did not. Again, we expect copies of these, some of the accounts, foreign accounts, such as the transfers that went into Prevezon to come through the discovery process.
Q. In other words, the transactions from Moldova?
A. That’s correct.
Q. What about the transfers from Russia, has a request been made by the United States for those records?
A. There is pending a Mutual Legal Assistant Treaty request to Russia.
Q. You say pending.
A. It’s in works.
Q. Meaning the United States is now seeking to prepare a document that it will
send to Russia?
A. That’s correct.
Q. And without that, does the United States have any way of authenticating the transactions involving Intercommerz Bank, Sberbank, Alfa Bank and the other Russian banks listed on Exhibit B?
MR. ADAMS: Objection.
A. I don’t know. We would have to — I believe not.
Timestamp: 39:50, Pt. 1
Q. So you say that the client, in this case, did request the transfer? Yes or no.
A. I don’t know. I couldn’t say definitively.
Q. Again, you’re speaking for the United States. Did the client request the transfer from Bank Krainiy Sever to Elenast?
A. Which client are you talking about now?
Q. It was your word. Let’s step back. Did you examine documents which disclosed who directed that there be a transfer from Krainiy Sever to Banca De Economii for the benefit of Elenast?
Q. So you don’t know who gave the instructions?
A. No, I do not.
Q. The complaint refers to an organization; does it not?
A. Yes, it does.
Q. Was the person who gave the instructions part of the organization?
A. I don’t know.
Q. Who gave the instructions to transfer funds from Krainiy Sever to Bunicon?
A. I don’t know.
Q. Here you’re speaking for the United States. You understand that?
A. Yes, I do.
Q. Was the person who gave the instructions to transfer money from Krainiy Sever to Bunicon acting on the instructions of a member of the organization?
A. I do not know.
Q. Was it in fact a member of the organization?
A. I do not know.
Q. So money went from Krainiy Sever, you said, to Elenast. Is that correct?
A. That’s correct.
Q. Did you see that there were such transfers?
A. Can you clarify the question?
Q. Did you see — on the records that you were told might be bank records, did you see that those reflected transfers?
A. Yes, I did.
Q. But you did not verify that?
Q. You have not checked that with the bank in Moldova as we sit here now; have you?
A. No, I have not.
Q. And again, you’re speaking for the United States.
Timestamp: 46:32, Pt. 1
Q. You said that you got this information from William Browder and from Hermitage generally.
Q. What investigative steps did you take to verify the accuracy of what you were told?
A. We found William Browder to be credible and we examined the documents and the documents purport to be official documents. And they bear marks, insignia, templates of something that would appear to be an official documentation. And just upon examining the documents and his testimony, or his statement.
Q. Let’s step back. From your first investigative step was you found Mr. Browder to be credible?
Q. What steps did you take in finding Mr. Browder to be credible?
A. Well, we reviewed his documentation, we reviewed some of his statements and verified some of his statements via the internet. Because some of the things he had mentioned were public source documents.
Q. Such as what? What — in the process of evaluating and determining that Browder was credible, what steps did you take? You said you found him to be
credible, that was your first investigative step. So let’s go into the steps that lead to that.
A. Okay. We initially interviewed Mr. Browder, and he provided us the documentation and the allegation. And in providing that, he provided — made certain statements that were then verified.
Q. What did he tell you?
A. Well, he told us the story of Sergei Magnitsky, which is public record.
Q. When you say “public record.”
A. Meaning —
Q. Okay. He told you a story about Sergei Magnitsky.
Q. Is it contained in the complaint?
A. Yes, it is.
Q. Okay. Did he tell you — withdrawn. What public source documents did he refer you to?
A. Well, he referred me to website. He referred me to just making a general internet search via various search engines. He referred me — on his website, he referred me to a Russian language newspaper, that copies of these articles appear on the website. And he referred me to the passage of our own Sergei Magnitsky Rule of Accountability Law.
Q. What else?
A. And the documents that he provided.
Q. What documents did he provide?
A. Copies of the bank records, copies —
Q. Copies of portions of records of certain accounts at certain banks?
Q. Did you get in touch with the banks to see if they were accurate?
A. No, I did not. They were foreign banks.
Q. Yeah? Does your phone go long distance?
MR. ADAMS: I think he answered the question no.
A. No, it does not.
Q. Can you get authority to call or write abroad?
Q. Did you seek such authority?
Q. Is that true for the entire investigation, that no one sought authority to verify with the Russian banks the accuracy of the portion of the records they had?
A. Prior to filing the complaint, no.
Timestamp: 52:17, Pt. 1
Q. If we could, you said that — we were talking about the investigation, and you said the first thing you did was to?
A. To interview — to receive the allegation, interview Mr. William Browder.
Q. And you determined that he was credible?
Q. And thereafter you obtained documents which purport to be bank records; is that correct?
A. We obtained documents that included what purported to be bank records from Hermitage, yes.
Q. And you obtained flow charts; is that correct?
A. That’s correct.
Q. And those were also from Hermitage that you obtained them?
Q. Did you obtain other documents than bank records and flow charts, and data written for newspapers or the internet?
A. Well, we obtained some documents that were derived from the previously mentioned documents, such as spread — Excel spreadsheets, Word documents, that contained information that was derived from the source documents, copies of the source documents.
Q. And the source documents are flow charts, what purport to be bank records, spreadsheets derived from those, and what documents did you obtain from the internet?
A. Copies and references to the events surrounding the death of Sergei Magnitsky. Copies and articles related to the passage of pertinent U.S. law. Copies of property reports related to the purchases of Prevezon properties in the United States.
Q. What else?
A. Just — copies of websites, articles on the web.
Q. What else?
A. That’s pretty much it.
Q. Is that it?
A. That I’m aware of, yes.
Q. Did you seek or obtain official records from Russia?
A. Prior to filing the complaint, no.
Q. Since the complaint was filed, have you — has the United States approached the Russians to ask for assistance in the case?
A. It’s my understanding that approach has not yet been done, but it is in progress.
Q. When you say “in progress,” you’re speaking for the United States. You mean people working for the United States are working to put together a document that would constitute a request?
A. Yes, that would be correct.
Q. But no request has been made?
A. Not that I’m aware of at this time.
Q. Did you interview any witnesses other than those from Hermitage?
A. No, I did not.
Timestamp: 1:33:30, Pt. 1
Q. So what is the mathematical necessity, if any, for the money from Krainiy Sever being from the Treasury that went into Prevezon?
A. The equivalent ruble amount that goes into the Prevezon account would have to be at least the equivalent ruble amount that exited the Krainiy Sever account.
Q. That’s an assumption. Correct?
A. That’s an accounting assumption, yes.
Q. But it’s not that you have someone saying I directed the transfer to go here, and someone else saying I directed it to go there because that was part of the agreement?
A. That’s correct.
Q. You have none of that?
A. No, we don’t have that.
Q. So every transfer here is based on copies that are not authenticated, of records that are incomplete, based on an accounting assumption. Is that right?
A. That would be correct.
Timestamp: 2:15, Pt. 2
Q. Okay. Before we broke, the question was, who directed the transfer. And your answer is that it was — that you do not know, but that if in fact a statement you attribute to Katsyv about what Petrov said that Kim did is correct, then it would have been Kim?
A. That would be correct.
Q. It’s a lot of hypotheticals; isn’t it?
MR. ADAMS: Objection.
A. I — based on the statements that we have —
Q. Did you check — the statement from Katsyv, who interviewed him?
A. The statements actually came from his representative.
Q. Who in the United States interviewed his representative?
A. No one that I’m aware of.
Q. So the statements actually came from someone else; is that correct? Not from his representative. The statement —
Q. — attributed to his representative came from someone other than his representative. Is that correct?
A. That would be correct. They were also posted on the web.
Q. Does posting something on the web make it true?
Q. Did you verify if it was true?
Q. Did you call the representative?
A. No, I did not.
Q. Did anyone from the United States call the representative?
A. Not that I’m aware of.
Q. Who provided you with the statement that purports to be from the representative reflecting what Katsyv said that Petrov said that Kim might have done?
A. This would come from the Hermitage agents, as well as the websites maintained by Hermitage.
Q. So that all reduce down to people taking direction from Browder?
Q. And you found him credible?
Q. Is there any other basis for that case than your finding of him to be credible?
A. Well, I mean, some of the statements he gave us are corroborated by
other documents that he provided. Particularly, for example, the initial Russian wire Treasury — the transfers, the fact that not only is he alleging that they were inappropriate, but there is actually a copy of a Russian conviction regarding this scheme that shows that these were illegitimate transfers. And other —
Q. No, let’s step back.
Q. From whom did you obtain the Russian conviction?
A. Hermitage agents.
Q. How many convictions did they give you?
A. There were three people convicted. So I have a copy of at least one court document, or what purports to be a court document.
Q. Okay. Who were convicted?
A. There were three defendants. And if I can refresh from Exhibit 1, I believe we mention their names. We have a one Mr. Markelov, a Mr., I’m probably going to mispronounce this, Khlebnikov, and — and there is also another individual who is also named but not yet convicted. But there is at least two people given those names.
Q. Do you have records of the convictions of Markelov and Khlebnikov?
A. I have copies of the convictions that were provided by Hermitage agents.
Q. Do you know if they’re genuine?
A. They appear to be, but I do not know for certain.
Q. Do you have a copy of the conviction of Browder?
A. I do not.
Q. Was he convicted of fraud?
A. I’m aware that Browder, along with Sergei Magnitsky, was convicted of some offense in Russia. I don’t know specifically what the offense was.
Q. Did you read the document — did you obtain the document, let’s start off with that, did you obtain the document?
A. No, I did not. His conviction, no, I did not.
Q. Would a fraud conviction affect your opinion of someone’s credibility, yes or no?
Q. Did you read the conviction?
A. No, I did not.
Q. Did you ever attempt to get in touch with Katsyv?
A. No, I did not.
Q. Did you ever attempt to get in touch with his lawyer in New York before your serving legal process?
A. No, I did not.
Timestamp: https://youtu.be/uwJbMRqiWKY?t=601>10:01, Pt. 2
…that would be, as far as you knew, Kim’s money on that hypothetical; correct?
A. I don’t know. I couldn’t tell you where the money came — it may have been money that he directed to be sent to Mr. Kim for all I know.
Q. Okay. You have no evidence on this point?
Q. And you haven’t sought to interview the witnesses?
Q. But you have sought to seize the property?
Timestamp: 35:32, Pt. 2
Q. What witnesses have you identified who are competent to testify that Prevezon Holdings knew about the $230 million tax refund fraud?
A. None at this point.
Timestamp: 1:26:51, Pt. 2
A. You would have to ask Hermitage. Bill Browder never told me where he was getting some of the information.
Q. Did anyone from Hermitage tell the United States where they were getting the bank records?
A. Not to my knowledge.
Q. By this you mean not to the knowledge — you mean yes or no, it’s not the question — it can’t be not to my knowledge because you’re speaking for the government. Did anyone, did he tell anyone in the United States how he was obtaining the bank records that he says he had?
A. He didn’t tell us where he was getting his records. The records, other than what was on the website that he would post, that’s how we would get them. He didn’t say to us. To the best of my knowledge.
Q. In the course of your investigation before you froze the property, did you ask about the source and authenticity of the bank records?
A. Yes, we did. And Mr. Browder — to the best of my knowledge, Mr. Browder wouldn’t reveal the sources of some of his records.
Q. So you know them to be unsourced, having asked where you got them from. Correct?
Firebrand Alex Jones showed up in front of the White House with a bullhorn on Tuesday, the fourth day of Lee Stranahan’s journalism vigil in support of Julian Assange at Lafayette Square in front of the White House.
Alex made an impassioned plea for Donald Trump to support free speech and end the censorship, and targeted tech companies especially. He also called for the release of jailed journalist Julian Assange, who was arrested on April 11th and is currently being held at Her Majesties Prison Belmarsh. Reports from last night, including from Julian’s mother, state that Assange has not been allowed any visitors, including from his legal counsel.
Also showing up at today’s vigil was Cassandra Fairbanks, who said she believed that Assange would be processed, information she received after she repeatedly “harassed” the Belmarsh prison for information about Assange. She said that Assange has talked to his lawyers by telephone, but has not been able to see anyone yet, something that officials have blamed on the Easter holiday.
Independent journalist George Webb also made an appearance during the vigil, showing support for Assange and calling for his release.
Exclusive: Giuliani’s Link to Ukrainian President Who Colluded with Democrats in 2016 Election Interference
About a minute into this, I report that POTUS attorney Rudy Giuliani is said to be working on behalf of Ukraine’s President Petro Poroshenko to cover up Poroshenko’s role in 2016 elections interference by the DNC and Ukraine.
Seems Rudy Giuliani is part of the misinformation/disinformation campaign designed to misdirect POTUS from understanding Poroshenko’s 2016 effort to elect Hillary.
Other players (witting or unwitting) include Fox News, Dan Bongino, Jon Solomon, Sean Hannity and Sara Carter.
This betrayal of the POTUS involves John Solomon, Senior VP at The Hill billed as an “investigate Journalist” by Fox News, who ran an interview with Ukraine Prosecutor-General Lutsenko, a close Poroshenko ally, that drew attention away from Poroshenko’s role.
Fox News echoed that narrative.
After the interview with John Solomon and The Hill — which Poroshenko knew about — Lutsenko was forced to backpedal on key claims he made and has since offered to resign.
Note that Fox News has a history of hiding the truth about Ukraine and the DNC’s collusion and election interference.
They did not report on Soros protege Serhiy Leshchenko’s conviction on election interference in December 2018 until the record HINTS about it.
Whistleblower Andrii Telizhenko confirmed to me that John Solomon has made no attempt to contact him, nor has anyone at Fox News.
Telizhenko was a key source in this January 2017 article and has been interviewed by Jack Posobiec & Gateway Pundit.
Numerous media reports show that Rudy Giuliani met with Ukrainian President Poroshenko several times in 2017.
Supporters of the POTUS have good reason to be concerned that someone as close to Donald Trump as Giuliani is working with Poroshenko.
The original Politico story in January 2017 clearly showed Poroshenko was deeply concerned before Trump even took office that the Ukrainian support for Hillary and the DNC in the 2016 election would hurt him, so Poroshenko hired US lobbying firm BGR.
From the following is an excerpt from Robert Friedman’s Red Mafiya: How the Russian Mob Has Invaded America.
The book was publihed in 2000 (before Putin came to power) and was based on articles originally published in the late 1990s. It’s significant because it talks about the background of key people involved in the Real Russiagate scandal including Jonathan Winer and Mikhail Khodorkovsky, both of whom are connected to the Magnitsky Act and Bill Browder, who was the subject of the Trump Tower meeting.
On a hot, muggy afternoon in September 1992, two Hungarian police officials—a man and a woman—approached Alexander Konanikhine as he ate lunch with his wife at the Aquarian Hotel in Budapest. The lanky, twenty-three-year-old banker from Moscow kept a comfortable apartment in Budapest, where he often went for business. But a premonition had prompted him to check into the more secure luxury hotel. The policewoman, wearing a drab brown pants suit, ordered Konanikhine to accompany them to the Ministry of Security for questioning. They produced IDs, but Konanikhine could not read Hungarian.
“Do I have to go?” Konanikhine asked.
“No,” said the woman. “We don’t have official orders. But it will save a lot of trouble and paperwork if you come with us.”
Konanikhine was driven to an ornate, five-story building in the center of downtown Budapest, several blocks from the security ministry. When the police ordered him inside, Konanikhine was suddenly terrified. He was the head of the All-Russian Exchange Bank, the largest commercial financial institution in the former Soviet Union. Ever mindful of the large number of Russian bankers who had been kidnapped and assassinated by mafiosi, he told his abductors that he had changed his mind and wanted to go back to the hotel.
“That’s too bad,” said the woman, a semiautomatic pistol protruding from her jacket. “We insist.”
Konanikhine was led into a large room, and then a smaller inner sanctum where V B. Adeev, the All-Russian Exchange Bank’s chief of foreign investment, was standing inside the doorway. Adeev, twenty-five, was a massively built man with a Buddha belly. He was flanked by an even bigger Russian who was introduced as Sasha. “Most of the talking was done by Adeev,” Konanikhine recalls. “The big guy didn’t need to talk. Adeev wanted everything! My companies! All my money!”
Konanikhine, who was used to having his orders followed, and was irritated by Adeev’s insolence, snapped, “You cannot tell me what to do!”
Konanikhine, who was used to having his orders followed, and was irritated by Adeev’s insolence, snapped, “You cannot tell me what to do!”
“You want me to kill you?” Adeev sneered, threatening to toss the young banker into a scalding bathtub and have Sasha work him over. Sasha lumbered toward him brandishing an electric iron, an incarnation of brute force.
“I don’t want to die, Adeev,” Konanikhine whispered.
“No pain. Just sign everything over.”
“I was considered easy prey,” Konanikhine, now thirty-three, recalls without a trace of emotion. “I was young and had a baby face. I didn’t look dangerous. Many Russian businessmen have a very heavy look. They look like you don’t want to fuck with them. That’s the message and it was their protection.”
“I was young and had a baby face. I didn’t look dangerous. Many Russian businessmen have a very heavy look. They look like you don’t want to fuck with them. That’s the message and it was their protection.”
The next few moments, he knew, would be dicey. He either played along, or Sasha would kill him. But he feared that as soon as he signed away his assets, he’d be killed anyway, and then they’d go after his wife. So Konanikhine stalled for time.
“I said, ‘Fine. How do you want to do this?'”
“Well, just call your bank and transfer your money,” Adeev instructed him. “I have a list of your accounts and business holdings.”
Konanikhine convinced his captors that he needed his own letterhead stationery, a notary, and an attorney in order to complete the transfers without arousing the suspicion of his Swiss bankers. The process, he said, would take several days. He haughtily demanded to be taken back to his hotel so he could begin the paperwork.
“They were extremely dangerous, but very stupid,” Konanikhine recounts. “I talked to them with a tone of authority. Russia and Eastern Europe are divided by social classes. They were from the subservient class used to taking orders from bosses.” Konanikhine shook hands all around, and praised them for their fine organization. “Their social position in Russia was much less than mine, so it was like a general complimenting a private.”
Konanikhine was driven back to the Aquarian, minus his passport and cash, which the group kept in order to prevent him from fleeing. Six guards were also posted in the hotel—one in the corridor near his room, the others in the lobby. Later that evening, Konanikhine calmly retrieved a second Russian passport with multiple business entries into the United States and some U.S. currency that he had earlier deposited in the hotel safe. He and his wife then somehow managed to slip out of the hotel by walking right out the revolving front door. Waiting for them was a friend with whom they had previously made dinner plans. “We jumped in our friend’s car,” Konanikhine remembered. “I told him to drive like crazy. He did. He was a businessman. He had the latest model of Volvo. The thugs tried to arrange a pursuit in a couple of Czech-made Scodas. They had no chance. We outran them in about one minute. We flew top speed to Bratislava, which is just two hours away from Budapest.” There, Konanikhine and his wife boarded a plane bound for John F. Kennedy International Airport. “The next day we were walking in New York.”
While Konanikhine, relieved to land safely on U.S. soil, was stepping off the plane at JFK, a not unrelated event was unfolding at a terminal nearby. At Gate No. 14, the usual assortment of passengers milled about waiting to board Delta Flight 30 nonstop to Moscow: American businessmen prospecting the new Russian capitalism, Russian entrepreneurs returning from investor hunting, expatriates going home to visit family, tourists yearning for a glimpse of the once-closed Soviet land. One passenger, though, was a courier, and knew something none of the other passengers was aware of: that the plane would be carrying one million fresh hundred-dollar bills in its belly.
At about 5:00 P.M. a cream-colored armored truck drove up to the red, white, and blue Boeing 767. While Delta workers casually went about tossing luggage into the hold, two armed guards began placing large white canvas bags on a conveyor belt. In the bags were stacks of uncirculated new $100 bills, all still in their Federal Reserve wrappers, dozens to a bag. And there were dozens of bags.
The plane departed JFK at 5:45 P.M. Throughout the nine-hour flight, the unarmed courier, who worked for the Republic National Bank of New York, relaxed in the passenger cabin while the money sat “all by its lonesome” in the cargo hold, according to one law enforcement source. Upon arrival at Sheremetyevo airport at 10:55 A.M. Moscow time, the money was transported by a fleet of armored trucks to Russian banks, which purchased the $100 bills on behalf of clients, who typically paid for it with wire transfers from London bank accounts.
Rather remarkably, no one ever tried to hijack Delta Flight 30, even though it left JFK at the same time five days a week—rarely carrying less than $100 million and sometimes more than $1 billion. Since January 1992, federal authorities estimate more than $80 billion—all in uncirculated $100 bills, hundreds of tons of cash—was shipped to Russia. That amount far exceeds the total value of all the Russian rubles in circulation. The huge shipments of money remained safe only partly because of security; another reason was that anybody who might have been inclined to pull off such a heist was also well aware who is buying all those $100 bills.
“If you rip off Russian banks, you rip off the Russian mob,” says one Mafia source here in the United States. “And no one’s got big enough balls or a small enough brain to do that.”
The Russian mob, according to numerous well-placed law enforcement sources, has been using an unimpeded supply of freshly minted Federal Reserve notes to finance its international crime syndicate. Ironically, the cash is supplied to dirty banks in Russia with the full blessing of the Federal Reserve in an attempt to prop up the ruble and preserve Russia’s fragile free market economy. American C-notes have become the unofficial currency of Russia, and, of course, can get things done there that rubles cannot; but the hundreds are also being used to fuel the Russian mob’s flourishing dollar-based global drug trade, as well as to buy the requisite villas in Monaco and Cannes. The Russian Mafiya has also used laundered funds to set up operations abroad, including its American offshoot in Brooklyn’s Brighton Beach, and has begun investing in legitimate businesses across Europe and in the United States.
In his speech to the United Nations in January 1995, President Bill Clinton declared money laundering a threat to national security. “Criminal enterprises are moving vast sums of ill-gotten gains through the international financial system with absolute impunity,” he said, signing a presidential directive ordering the attorney general and the Treasury to identify individuals and organizations involved in global financial crime and seize their assets here and abroad.
When the Soviet Union collapsed in 1991, so did the entire government-controlled banking system. Replacing the government banks were private institutions chartered and supposedly regulated by the new Russian Central Bank. But as Major General Alex Gromov of the Russian tax police told a 1994 international conference on Russian organized crime, the “application” to charter a new bank typically consisted of making a $100,000 bribe to a banking official. “A grossly underregulated banking sector sprang up virtually overnight,” says Harvard economist Jeffrey Sachs. “Now you have two thousand banks, many of which are deeply undercapitalized, and therefore everything is possible.”
No one saw the possibilities more clearly than the mob. On July 2, 1993, two chartered jets touched down in Yerevan, the capital of the Republic of Armenia, and disgorged a panoply of wiseguys from the United States, Germany, Turkey, Italy, and South America. They had been summoned by Rafik Svo, the gangster equivalent of an international diplomat, who had tried to broker the peace accord between Elson and Nayfeld. Svo was determined to bring order and mutual prosperity to the Thieves’ World by ending destructive turf wars and forging alliances between the Sicilian Mafia, the Brighton Beach Organizatsiya, and Colombian drug lords, all of which sent emissaries. At the meeting it was decided that the Russian banking system, new and vulnerable, would be used to launder funds, make favorable loans to “friends,” and supplant Zurich as a haven for dirty money. The big joke at the Armenian conclave was, “Why rob a bank when you can own one?”
While initially the mob used Russian banks just to park their money, they soon began to “buy banks, to find out who had big deposits so they knew who to kidnap,” said Jack Blum, a Washington lawyer who directed congressional investigations into money laundering and who broke open the Bank of Credit and Commerce banking scandal. Then, in collusion with politicians, government bureaucrats, black marketeers, and the KGB, the mob used the banks to facilitate the huge post-perestroika looting of the former Soviet state. Profits from the sale of stolen raw materials, of weapons snatched out of military arsenals, and of assets stripped by insiders from newly “privatized” industries were all spirited out of the country into off-shore companies and bank accounts. U.S. officials privately complain that tens of millions of dollars in aid have gone into Russian banks, never to be seen again. In fact, within just two years after the fall of communism, untold billions’ worth of rubles, gold, and other material assets had already disappeared from the former U.S.S.R.
“Many of these Russians do not consider their activities to be criminal,” said a CIA official. “For them, it is just ‘business.’ Their sense of right and wrong is nonexistent.” Crime was the only growth industry in Russia, and the country had become, in the words of one former CIA director, a “kleptocracy.”
Of course, that illicit money was not applied toward capitalizing legitimate businesses. Almost all of it was used by the Mafiya to fund its international criminal activities, from extortion to drug trafficking to arms dealing. Mob-controlled Russian banks took in huge deposits of narco-dollars from South America, converting them to rubles, then back into dollars through European and U.S. banks. Increasingly, they have purchased European companies with histories of legitimate banking activity, and then used them as a conduit to pass illicit funds into the international banking system. More ominously, they have acquired hidden control of banks in Austria, Germany, France, Switzerland, and England, according to U.S. law enforcement sources. In fact, in only eight years, the Russian banking system has already become one of the world’s leading money laundering centers, replacing Panama as the favored dirty-currency exchange of the Colombian cartels and the Italian Mafia.
“Almost all Russian banks are corrupt,” Major General Alex Gromov explained at the international conference, which was co-sponsored by the Financial Crimes Enforcement Network (FINCEN), which tracks money laundering for the U.S. Treasury. A 1994 classified CIA report identified ten of the largest Russian banks as mobbed-up fronts. And in a 1995 meeting in Moscow with State Department envoy Jonathan Winer, Viktor Melnikov, the Central Bank’s director for foreign exchange control, “expressed great concern about the state of the Russian banking system, citing estimates that anywhere from 50 to 80 percent of Russian banks were under the control of organized crime,” according to a State Department cable. FINCEN director Stanley Morris put it more bluntly: “Russia’s banking system is a cesspool.”
The Mafiya’s takeover of Russian banking has been shockingly easy. Since there are no regulatory controls over proprietorship, even felons are permitted to own banks. What’s more, there are no money laundering laws, regulatory agencies, or depositor insurance. The Russian Central Bank is notoriously lax in exercising control over the nation’s nascent financial system—a point some Russian central banking officials readily concede.
“It’s very difficult to tell from the outside what a transaction [with a Russian bank] really means,” says the State Department’s Winer. “There are not a lot of public documents. You can’t go to an SEC to look at a balance sheet for a Russian firm the way you can in the United States. You can’t go to a bank regulator and [find out] what kinds of loans have been made, what the underlying source of capital is, or any other number of key issues, let alone who their customers are.
“These are issues which the Russian Association of Bankers is concerned about, because they are not unrelated to the murder of the bankers.”
More than sixty Russian bankers have been killed by mobsters since 1994 — one for simply having refused to make a loan. In a particularly grisly incident, Oleg Kantor, president of Moscow’s Yugorsky Bank and a gas and oil mogul, was found outside a luxury hotel on July 20, 1995, with a huge hunting knife plunged into his chest in what police called a contract killing connected to his bank’s business with a mobbed-up aluminum company. Kantor had been stabbed seventeen times, his throat was slit, and his chest slashed vertically in half. Many more bankers have been threatened. The deputy superintendent of the New York State Banking Department, Robert H. McCormick, has heard stories of Russian bank examiners being chased away from doing their jobs by a hail of gunfire.
“It’s very frightening,” says Dan Gelber, the former minority chief counsel of the Senate Subcommittee on Investigations. “What [do] you do with a bank that from top down is not honest? I mean, it almost creates a situation where there is no remedy.”
Russian banker Alexander Konanikhine was confident that America would provide a safe haven from the cruel forces that had dispossessed him. If he could make a mint in the motherland, why not in the U.S.A., where cunning could also turn dreams into fabulous fortunes?
Still, the loss of Konanikhine’s bank in Russia was a severe blow to the financial prodigy. He had grown accustomed to the lavish perks of Klondike capitalism. By 1992, he had controlled a Russian banking and real estate colossus with some 100 companies; his personal net worth was more than $300 million. The anchor of the whiz kid’s financial empire was the All-Russian Exchange Bank, the first commercial bank to be granted a government license to operate a hard currency foreign exchange. It was also permitted to issue unusual certificates of deposit in the form of specially minted sterling silver doubloons, bearing the aquiline profile of Konanikhine’s wife. “You can’t imagine what kind of wealth was produced,” Konanikhine boasted. “By the time I was twenty-three, there wasn’t a single hard currency in which I was not a millionaire. I was one of the richest entrepreneurs in Russia.”
Along with a score of other fabulously wealthy young capitalist princes, Konanikhine had helped to finance Boris Yeltsin’s successful 1991 presidential campaign. The election victory was followed by a failed coup by hard-liners, in which Yeltsin, like Lenin at Finland Station, rallied the masses from atop a tank. Fearing the return of totalitarianism and the end of an era that gave them the unfettered license to make money, Konanikhine, along with the other new capitalists, increased their support for the new president.
A grateful Yeltsin treated Konanikhine as a favored son, inviting him to join his delegation during his first official state visit to America. In addition, Yeltsin bestowed upon him a sprawling state residence that once housed Mikhail Gorbachev, as well as the former compound of Soviet World War II hero Marshal Zhukov, who led the Red Army into Hitler’s Berlin. Konanikhine also built his own showy dacha in a densely wooded area not far from Moscow with eight bedrooms, a private gym, a swimming pool, and a twelve-car garage — which hardly accommodated his fleet of sixty automobiles. The banker says he was protected around the clock by a praetorian guard of some 250 veteran KGB security men.
To protect his companies, Konanikhine claims he hired four KGB officials, including Adeev, placing them in top management positions. Later, he asserts, he discovered that the men were secretly running a multimillion-dollar money laundering ring through the All-Russian Exchange Bank. It was his attempt to fire them, he explains, that resulted in the kidnapping in Budapest, the home base for the Red Mafiya’s powerful crime lord Semion Mogilevich, whom the FBI believed had joined forces with the KGB men to chase Konanikhine out of his banking kingdom.
But Konanikhine couldn’t easily abandon all that he had worked for in Russia. After arriving in the United States, he initiated a furious letter-writing campaign to President Yeltsin and the Russian press, bitterly complaining about his abduction and the Mafiya’s seizure of his assets. He named names and demanded a police investigation.
His strategy backfired when Adeev filed a criminal complaint with federal prosecutors in Russia, charging that Konanikhine had embezzled $3.1 million from the All-Russian Exchange Bank. “[Konanikhine] has a persecution complex,” Adeev told Kommersant, a respected daily business newspaper in Moscow.” He thinks I am following him and that I want to kill him. But in all my affairs I follow the principles of economic expediency. And it tells me that this is not to our advantage to kill Konanikhine until the time when the bank gets the $3 million back. But as for me, I would not give a single dollar for the life of this man.” Adeev’s charges prompted Deputy Prime Minister Anatoly Kulikov to declare before the Duma that Konanikhine had actually embezzled an astounding $300 million from the bank, and a warrant was issued for his arrest.
A few months after settling in America, Konanikhine went to work for Menatep Bank, one of the largest banks in Russia. According to a 1995 classified CIA report, Menatep was “controlled by one of the most powerful crime clans in Moscow,” and that it had set up “an illegal banking operation in Washington.” Konanikhine’s boss, Mikhail Khodorkovsky, was one of the titans of the Russian business world. The thirty-five-year-old tough-talking chairman of Menatep was worth some $2.5 billion, and enjoyed a spot on the Forbes 200 list of billionaires. Through Menatep, Khodorkovsky controlled tens of billions of dollars of Russian assets, among them Yukos Oil, the country’s second biggest oil company, as well as vast mineral, media, and capital assets — all won, the CIA claimed, by trawling the murky shallows of the Russian underworld, a claim Khodorkovsky vehemently denies.
Konanikhine and Khodorkovsky had first met in Moscow where they were rival bank moguls. “I had a lot of respect for him,” Konanikhine admitted. “He had a lot of respect for me. I wound up here in the U.S. with not much to do, and he said: ‘Why don’t you help me turn Menatep into Russia’s first international bank? Russian banks don’t have much of a presence in foreign countries. They are very domestic.’ We made a lot of research, and I started implementing it.”
Konanikhine received a $1 million employment contract from Menatep, which he claims named him the company’s vice president. He soon resumed his lavish lifestyle, quickly acquiring a $315,000 condo in the Watergate Complex with a view of the White House, homes in Antigua and Aspen, a Mercedes 600SL, and a BMW.
High on the Russian bankers’ list of objectives, says Konanikhine, was to persuade the Federal Reserve to grant Menatep a license to open branch offices in New York and Washington, which would enable it to accept American deposits and make loans. Branch offices in the United States, with its iron-clad financial system and the respect it had earned in the international community, would immediately lend credibility and prestige to any bank, greatly facilitating its business anywhere in the world. Attorneys hired by Konanikhine made their case to the Fed, and were turned down immediately. Menatep subsequently took out full-page ads in the New York Times and the Wall Street Journal, hoping to counter its unsavory image. The Russian banking giant also paid $66,000 to PBS’s New York affiliate, WNET, to have its name and corporate logo appear in fifteen-second spots before and after The MacNeil/Lehrer NewsHour, which ran six times a week for almost a year.
After finding that opening a branch bank in the United States would be problematic, Konanikhine tried to help Menatep set up “false-flag” banks in Austria, England, and Uruguay. “The bank in Uruguay was supposed to become the financial bridge between South America and Eastern Europe,” Konanikhine explained.
In was in the Caribbean, however, that Konanikhine had his greatest success. In July 1994, Konanikhine and Khodorkovsky discreetly founded an Internet bank in Antigua. The European Union Bank (EUB) was created, according to the CIA, with a $1 million investment from Menatep. The initial company filings in Antigua listed EUB as a subsidiary of Menatep and Konanikhine as the bank’s sole shareholder. The Bank of England later informed the Federal Reserve that Konanikhine had been in Antigua in 1995, “where he called on government officials to request their cooperation in keeping Menatep’s ownership of European Union Bank confidential,” according to a U.S. banking document. EUB’s prospects were helped by the fact that Clare Roberts, who became Antigua’s attorney general, registered it and was a member of its board. To lend EUB an air of international respectability, Lord Benjamin Murkoff, a member of the British House of Lords, was brought on board as founding chairman. (Murkoff bailed out when the Bank of England told him there was something “dodgy” about EUB.)
It was no accident that EUB was set up in Antigua, the center for dirty money in the Caribbean. Despite its tiny population of 66,000, the island has more than fifty banks, at least eleven of which are owned by Russian organized crime, according to the State Department’s Jonathan Winer. The country’s officials receive enormous bribes from gangsters willing to pay to operate quietly there. “Antiguan officials promise they’re going to clean it up, and as soon as I step on the plane and fly back to Washington, they open another mobbed-up bank,” the State Department’s Winer complained. In March 1997, the State Department called Antigua the “most vulnerable East Caribbean island to money laundering” and a “key transit zone” for drugs smuggled into the United States.
Touted as the world’s first Internet bank, EUB thrived for a few glorious years. It offered fabulous rates on CDs, money wiring services, and credit cards, and quickly became, assert law enforcement sources, one of the world’s premier money laundering facilities — a kind of crooked bankers’ Stargate, where gangsters using secret-coded accounts could hurtle funds around the globe in nanoseconds. Its elegantly designed Web site promised super-secrecy so that its cybercustomers could conduct any number of transactions, such as laundering funds from fictitious companies, over the Internet. The Russian and Colombian cartels allegedly washed millions through the bank before U.S. law enforcement officials caught on. More embarrassing still, although EUB’s office was located above a noisy bar in Antigua, its computers were operated by Russian techies out of Konanikhine’s advertising agency located in Washington, D.C.’s, courtly Willard Hotel, just blocks from the White House. If a crime was being committed, therefore, it was under U.S. jurisdiction. But by the time the FBI woke up to the alleged money laundering operation, it had been shut down and the computers, the master server codes, and records had been shipped to Canada.
According to INS documents filed in Virginia, Khodorkovsky responded to a Federal Reserve inquiry about Konanikhine’s and Menatep’s banking activities by admitting in a letter that Konanikhine was authorized “to carry out a study of American and offshore markets” for Menatep. Menatep’s lawyers, however, professed minimal involvement in establishing EUB, further stipulating in a letter to U.S. banking regulators that while Khodorkovsky intended to serve on EUB’s board, he and Menatep severed their ties to Konanikhine shortly after EUB was chartered. For his part, Konanikhine claims to have sold his shares of the bank before it was shut down and went bad, though he refused to say to whom.
According to Canadian law enforcement officials, however, it was Vitali Papsouev, an eighth-grade dropout and the son of a janitor, who bought the holding company. He happens to be one of Toronto’s top Russian organized crime figures, according to the RCMP.
Whatever the truth of the matter, EUB was merely a cog in the Russian mob’s money laundering colossus. Congressman Jim Leach, who heads the House Banking Committee, has asserted that billions of dollars may have been laundered out of Russia since 1995, and that dozens of Western banks have been used as conduits for this money. “Any time that dirty money can find its way into the U.S. financial system, it poses a risk to us,” said Jerry Rowe, the IRS’s chief officer of narcotics and money laundering.
The Russian mob’s monstrous growth has been aided considerably by its ability to quickly and easily launder its dirty criminal proceeds into clean — and now supposedly counterfeit-proof — U.S. hundreds. It is this money that has allowed the Russian dons to swagger into Miami and ratchet up prices on the luxury housing market by paying for million-dollar properties with minty new $100 bills, or to set up shell companies in Brighton Beach to sponsor U.S. visas for Russian gangsters, or to hire sophisticated money managers and lawyers in Los Angeles and Denver to invest in import-export companies. This money “can, in fact, give criminals an opportunity to operate in a legitimate arena,” said Rowe, “whether it be in the political arena or buying up businesses. I mean, we could end up with those companies in some way supporting political candidates that they think will help them in one way or another.”
In banking, reputation is everything. So when agents of the Criminal Investigation Bureau of the New York State Banking Department learned in 1993 that Republic National Bank was selling tens of billions of dollars’ worth of federal currency to as many as fifty corrupt Russian banks, they became particularly alarmed. “This posed a question to us: if there are legitimate reasons — and there very well may be — for this money to be going over to Russia, why is it being sent to entities which have been determined, rightfully or wrongly, and I believe rightfully, to be controlled by organized crime?” said a source close to the Banking Department’s investigation. “It just didn’t make sense to me. The analogy I always use is that it would be like sending money to [John Gotti’s] Bergin Hunt and Fish Social Club. Why are we doing that?”
New York State banking officials were so concerned by these findings, the source said, that they urged federal agencies to probe Republic’s banknote trade with Russia. But “right down the line” from the FBI to the CIA, “basically, the response that we were getting was, ‘Yeah, it looks like we’ve got a potential problem here, but you know what? It’s not our problem.’
“To us, it was like a sore on Cindy Crawford’s face! I mean, it was there. And I said, ‘Geez, isn’t someone curious about how that sore got there?'”
If American law enforcement was slow on the uptake, the Russians certainly knew what was going on. At the September 1994 conference in the United States, a Russian general was asked why Russian banks were buying billions of dollars in U.S. currency. According to a participant at the meeting, he chuckled, and said, “‘Oh, that’s money laundering.’ Then he went, ‘Hey, we’re being ripped off in our country; the money is coming over here, being cleaned, and being brought back [into the United States].'”
State Department officials explain that money laundering works something like this: Russian assets, such as oil, are stolen by underworld figures or corrupt plant managers and sold on the spot market in Rotterdam. The proceeds are wired through front companies on the Continent and deposited in London banks. Gangsters place an order for, say, $40 million in U.S. currency through a bank in Moscow. The bank wires Republic, placing a purchase order for the cash. Republic buys the currency from the New York Federal Reserve. Simultaneously, Republic receives a wire transfer for the same account from the London bank. Republic pockets a commission and flies the cash from New York to Moscow. It is then used by mobsters to buy narcotics or villas, or run political campaigns.
As far as Republic is concerned, if there was a problem with a customer, it was up to the banks in London or Moscow to warn it. According to a provision of the 1992 Annunzio-Wylie Anti-Money Laundering Act, American banks are required only to make sure that they’re not knowingly doing direct business with criminals or their agents. “All that’s incumbent upon the American bank is to see if the other bank is a duly constituted bank, recognized by the central bank of that country,” said the New York State Banking Department source. “To me, looking at it as someone who has been in law enforcement all my life, do I think maybe we might have some willful blindness here, or blinking, or looking the other way? I think so. Can I prove it? No. Republic’s guilty of willful blindness, though not in technical violation of any existing law. … It may be overly simplistic, but I’ll put it like this: if you identify bad guys, and you’re sending money to bad guys, I mean, to me that’s not good!”
“That money is used to support organized crime; it’s used to support black market operations,” agreed an official at the federal Comptroller of the Currency office, which regulates Republic. “In my personal opinion, this is an absolute abomination. It should not exist. Yet it appears that at least part of the federal government sees nothing wrong with it.”
One part of the government that has chosen not to address the problem is the U.S. Treasury, which stands to gain $99.96 from any $100 bill that leaves the country and never returns. The Federal Reserve is similarly, blissfully ignorant. “What do we know of Republic’s customers?” said New York Fed spokesman Peter Bakatansky. “We don’t. It’s their responsibility to know who they are sending it to.”
For the record, the Republic National Bank, which made millions from the currency sales, insisted it certainly was not knowingly selling $100 bills to mobsters. “That’s my responsibility, to make sure we don’t sell to the banks that have organized crime ties,” said Richard Annicharico, one of Republic’s compliance officials. “That’s the hardest thing to find. In fact, if you know of any, let me know.
“I’ve run out of places to check,” continued Annicharico, a retired IRS agent. “Someone tells me [the banks are corrupt] and gives me substantial reason why — you know, anything, really — we don’t sell to them. I mean, anybody who tells us not to, we’ll stop them tomorrow.”
Asked about a classified CIA report that named ten major Russian banks — among them many Republic clients — that are run by organized crime, Annicharico replied, “We looked at that, and we stopped doing business with some of those banks as a result of that.” In fact, Annicharico asserted, Republic would completely shut down the dollar trade if federal officials ever showed it hard evidence that its client banks in Russia are corrupt. “Believe me, I wish they would,” he said. “But you have a large faction of the U.S. government that thinks this is great! You have some of the law enforcement people who are negative on it. So you have a dual thing.”
Annicharico acknowledged that a federal money laundering task force had contacted him about Republic’s currency trade with Russia. “The task force told me that they think Russian organized crime is involved in money laundering. But so what?” he said. “Who? What? Who? No one’s been prosecuted. What’s the crime? Tell me—I’ll stop. I always tell them, ‘Tell me which banks, and we’ll stop.’ I can’t find them. I’m not being facetious.”
Despite the number of investigations, high-level meetings, and international conferences that seem to involve Republic, Annicharico insisted the bank has never been officially accused of selling money to a mobbed-up bank. “No. I never heard that,” he said. “But the innuendo is there because we sell to [Russia]. But so what?”
In the wake of all the attention Republic was attracting concerning its dollar trade with Russia, Anne T. Vitale, senior vice president and deputy counsel of Republic National Bank and a former assistant U.S. attorney, was assigned by Republic to investigate whether selling cash to banks in the former Soviet Union was potentially illegal. She turned to the FBI, to see if they would “give her a letter that everything Republic was doing was clean,” according to a former government official. The FBI refused, stating that while Republic’s sale of dollars to Russian banks is legal, it “doesn’t pass the smell test.”
Many law enforcement officials were not surprised that it is Republic that became the focus of concern regarding these controversial banking practices. “Republic has had a checkered past,” said a New York State Banking Department source. “They’ve been a subject of suspicion over the years. . . . People have sort of grinned when they heard Republic’s name linked to mobbed-up banks in Russia.” Buddy Parker, an assistant U.S. attorney in Atlanta who has prosecuted major money laundering cases, said: “Well, let’s say Republic always had some very interesting customers who find the government looking at them, more so than maybe other banks. I know that a number of customers of Republic Bank have been targets, some of which have been prosecuted, some of which haven’t. . . .”
As for Republic’s dollar trade with mobbed-up banks, former U.S. commissioner of customs William von Raab said with characteristic bluntness, “That’s the smell that was always coming off Republic.”
Proclaimed by Institutional Investor to be “perhaps the most successful banking entrepreneur of the postwar era,” Republic’s owner, Edmond Safra, built up a $50 billion global empire while amassing a personal fortune exceeding $2 billion. A Lebanese-born Orthodox Jew descended from generations of Syrian traders, Safra was also a financial prodigy. By the age of twenty-one he had founded Banco Safra in Brazil, which became a magnet for Jewish-flight capital from the volatile Middle East and later South America. In 1966, he founded Republic National Bank in New York with a scant $11 million in capital and a single branch in a Manhattan brownstone.
Republic quickly became known on the street as a bank that would send an armored car to pick up large sums from its customers with no questions asked. In the 1980s, Republic became the Russian bootleggers’ bank of choice, and its suspect client accounts were subpoenaed by federal officials. Although Marat Balagula and dozens of other Russians were subsequently convicted of gasoline bootlegging, by then, hundreds of millions of dollars of illicit bootleg money was already flowing through the U.S. banking system, having been washed through a welter of shell companies.
The bank grew rapidly and became the twentieth largest in the United States, with assets of $50.4 billion and some seventy branches in New York, California, and Florida. An arm of Safra’s Geneva-based Trade Development Bank (TDB), Republic had a net income for the nine months ending September 30, 1998, of $143 million, though it lost a staggering $190.7 million on Russian securities trading.
Safra specialized in niches that most other banks eschew, such as trading gold and banknotes. Though Republic’s commission on banknote sales was not publicly divulged, “it’s always profitable,” Safra once told Institutional Investor. According to Charles Peabody, a banking analyst at UBS Securities, this kind of trade became “increasingly significant” to Republic’s revenue stream. “It’s a volume business, and it ties into the relationships they have with the central banks of the world . . . and I think Republic does have good relationships with the central banks of the world, probably built up through their gold-trading operation.” Republic controlled more than 95 percent of banknote sales to Russia.
In the mid-1980s, Safra became the victim of a smear campaign orchestrated by American Express, which had bought Republic’s Swiss parent, TDB, for $520 million in 1983. (Safra regained control of TDB five years later.) American Express hired a convicted felon to spread false stories in the international press depicting Safra as an unscrupulous operator involved in everything from the Iran-Contra scandal to money laundering. Safra successfully sued two newspapers in France for libel and eventually won a public apology from American Express and $8 million, which he donated to four charities, including the International Red Cross and the Anti-Defamation League. Though Safra was stung by the accusations, they helped to inoculate his bank against subsequent money laundering allegations that were the result of legitimate law enforcement inquiries, as well as to scare away reporters.
Ironically, at around the same time American Express was disseminating these malicious falsehoods, the DEA, Customs, and the Swiss police had begun investigating Safra’s banks in Switzerland and New York for laundering Colombian and Turkish drug money. “I can say on the record that the sense I got from the Customs agent with respect to Republic was that they were concerned about its activities,” said William von Raab, the U.S. commissioner of customs from 1981 to 1989. (Despised by the banking industry for his outspokenness, von Raab had accused bankers at a 1982 conference in Miami of knowingly washing cartel drug money, shouting, “I am ashamed of all of you. You and your banks are engaging in sleaze!” A few years later, the crusading von Raab helped draft America’s first money laundering law.)
Investigators had first been led to look into Republic’s business through a bizarre set of circumstances. On Thanksgiving Day 1987, two Armenian brothers arranged to fly from Los Angeles to Zurich on KLM, having checked their baggage through to Zurich on Pan Am. “The Pan Am people were panicky about a bomb,” Greg Passic, then a DEA supervisor and now with FINCEN, revealed. “The bomb squad put the suitcase in one of those blast containers, and exploded it, and $2.2 million went flying out of the thing.”
The suitcases were addressed to the Magharian brothers, who were major currency traders. They had been depositing drug money into Shakarchi Trading company of Zurich, which in turn had allegedly been wiring it, as well as the funds of many other drug dealers, into account number 606347712 at Republic. According to News day, the account was “the junction of two major narcotics-money-laundering investigations spanning four continents.” Customs agents were convinced that Republic was complicit. “The agents were really, really down on Republic,” a top-level Customs source says. “I think they just felt it was a rotten bank.”
A classified DEA investigative report prepared by a field agent in Bern, Switzerland, and approved by the DEAs Passic, dated January 16, 1988, described the link between Shakarchi, Safra, and Republic: “Shakarchi Trading company of Zurich, Switzerland, operates as a currency exchange company and is utilized by some of the world’s largest trafficking organizations to launder the proceeds of their drug-trafficking activities. Its director, Mohammed Shakarchi, has been closely associated with the heads of these criminal organizations and assists those criminal organizations.
“Shakarchi Trading maintains accounts at the Republic National Bank of New York, a bank which has surfaced in several previous money laundering investigations.
“While he was alive, Mahomoud Shakarchi (Mohammed’s father) maintained a close relationship with Edmond Safra, owner of the Safra Bank and founder of the Trade Development Bank as well as owner of approximately 38 percent of the stock in Republic National Bank of New York. All of those banks surfaced in Mahomoud Sharkachi’s alleged drug laundering activities.”
In March 1989, the Magharians were indicted in Los Angeles for money laundering; two years later, Shakarchi’s records were subpoenaed by Swiss and American police, who also confiscated Shakarchi’s account at Republic, through which more than $800 million had passed over a five-year period. Neither Republic nor Safra nor Shakarchi was indicted, though Shakarchi later told Israeli journalist Rachel Ehrenfeld that he was convinced that the DEA was going after him to get him to testify against Safra.
The case against Shakarchi was quietly dropped in 1990, after the U.S. attorney for the Eastern District in New York concluded that there wasn’t enough evidence to prove the money in the Republic account consisted of drug proceeds, said Robert Cozzolina, deputy special agent in charge of the U.S. Customs Service in Manhattan. Ehrenfeld, who investigated the case, alleged in her 1992 book Evil Money that a corrupt U.S. government official purposely inserted errors in the subpoena so that Shakarchi’s attorneys could easily quash it and stop the investigation. To this day, Passic says he believes Shakarchi Trading was knowingly doing business with drug traffickers. Customs agents who have investigated Safra preferred not to talk about him because of his power. “If you go after somebody like Safra, you had better dot every i and cross every t,” asserted one of the Customs agents who worked the Shakarchi case.
Although Republic had become a convenient fulcrum to help U.S. policymakers deal with Russia, by supporting its economy with the sale of badly needed dollars, many officials in both law enforcement and the Treasury Department privately worried that their dollar trade was funding the mob and not a needy ally. Officially, the Treasury and the Fed back the sale of U.S. dollars to Russian banks, arguing that market forces and geopolitics — and not the priorities of law enforcement — should drive the trade. At a high-level meeting of Fed and Treasury officials convened in Washington in 1995, specifically to discuss the huge dollar sales by Republic to Russia, Fed officials defended the practice, insisting that, other than through direct loans, it was the best way to bulk up the sagging ruble and help Russia enter the global free market, according to one participant.
When one official at the meeting suggested that Republic might, in fact, be doing business with banks controlled by organized crime, another vigorously defended the institution, saying that it did a tremendous amount of due diligence to make sure that Russian banks were legitimately operated.
“And that in itself is a big laugh,” said the participant. “There is no possible way for anybody to conduct due diligence on a Russian bank. There were people there from the Fed who have no common sense at all.”
The dissent in the government reaches all the way to the Comptroller of the Currency’s office. When one senior official there was asked about Republic’s dollar trade, he replied, “What I understand is that they are aiding in organized crime activities out of the former Soviet Union through their so-called correspondent bank relationships.”
Indeed, an interagency federal task force on economic crime made a preliminary finding that Republic’s dollar trade with Russia was consistent with money laundering, according to the Comptroller of the Currency source and another investigator with knowledge of Republic’s activities. Drafts of working papers prepared by task force analysts stated this finding, but the charges were “tempered substantially” in the final drafts that went to senior policymakers, said the official.
Although the early versions of the drafts did not explicitly use the term money laundering, “they indicate that the volume of new money being transferred out of Republic Bank into Russia is beyond that which is needed to support the normal use of U.S. dollars in the former Soviet Union, and that a further study needs to be made as to the actual use of those funds,” said the Comptroller of the Currency official. But then the individuals who are in charge of researching all that state that this is, in fact, used to support the black market and organized crime. But that does not appear [in] the final report that is submitted to the policy-makers.”
So far the most vigorous government action that has been taken regarding mobbed-up Russian banks has come at the state level in New York. “We frankly have had a number of expressions of interest from Russian banking institutions,” said Robert H. McCormick. However, McCormick said, “There is a whole potpourri of problems connected with the Russian banks, [including] money laundering activity and underworld connections. So we generally discourage Russian banks from applying for branch or agency licenses.” Because of strict state and federal licensing standards, only a few Russian banks have applied for even representative office status in New York, which would allow them to conduct public relations work, but not operate as banks; other Russian banks backed off, after learning they would have to submit to a rigorous investigation by the state and the Fed’s board of governors. “We have to be concerned about the competence of the people running the bank, their experience, their background,” said McCormick, “and sometimes when we check that very briefly, the news is not good.”*
In 1992, Stolichny Bank, then one of Russia’s five largest private financial institutions and a major recipient of cash from Republic, met with New York’s banking officials to inquire about obtaining a charter. After being discouraged, it never followed up with an application. Stolichny has been identified in a classified CIA report as a front for organized crime; the respected Austrian newsweekly Wirtschafts Woche has cited police records that alleged Stolichny’s owner, Alexander Smolensky, was an international drug dealer in the top echelon of the Russian Mafiya. Two other allegedly mob-linked banks that bought cash from Republic — Inkombank and Promstroybank — also submitted New York applications. Promstroybank’s license to open a representative office was approved by the State Banking Department in June 1995, and later by the Fed. Inkombank’s April 24, 1995, application failed to pass either agency, and in October 1998 its license was revoked.
As for Republic, just as it was being acquired in September 1999 by HSBC Holdings PLC of London for $10.3 billion, US federal prosecutors and banking regulators launched an investigation into its securities unit for massive fraud, centering on allegations that the head of the unit vastly inflated the value of an investment fund in which Japanese investors had placed more than $1 billion. The federal government charged in the indictment that the unit’s head, Martin Armstrong, siphoned more than $500 million of investors’ money in a giant Ponzi scheme in an apparent attempt to hide enormous trading losses. Republic’s stock tanked in response, sparking rumors that the deal with HSBC might fall through. Although Republic cooperated with the investigation, it was legally liable for the lost funds. In November 1999, Safra accepted $450 million less than was made in the first offer for his controlling stake in the company. “Safra also agreed to be personally liable for up to an additional $180 million in costs related to the investigation beyond an already agreed and undisclosed sum,” according to the New York Times.
On December 3, 1999, Safra was asphixiated by a thick, smoky fire in his Monte Carlo apartment complex set by a male nurse. The attack came during the final stages of the purchase of Republic Bank by HSBC by the Central Bank of Russia for its inability to honor its loan obligations. The bank collapsed amid allegations that Russian underworld figures looted accounts and used the banks to launder dirty money. “Why is it that there are so few Russian banks that operate in New York?” asked the Banking Department source. “The primary reason is that none of them are trusted.”
But Russian mobsters have found a way around regulators. Instead of trying to bring Russian banks to the United States, they are buying stakes in privately held banks across the nation. Officials in California, for instance, are investigating the Russian mob’s penetration of the state’s privately held banks. As long as their investment remains under 10 percent, the mobsters do not have to file financial disclosure statements to the state or federal government. In some cases, several Russians acting in concert have allegedly bought sizable shares of California banks.
Although combating money laundering may have been stated to be a top priority of the Clinton administration, it’s virtually impossible to stop. There are about 700,000 wire transfers a day, totaling $2 trillion. Some $300 million of that—less than one sixtieth of one percent—represents laundered funds, which are hidden by the huge volume of legitimate transfers, said a September 1995 report by the Office of Technology Assessment. The report concluded that no existing technology is capable of identifying all but the most obvious trade anomalies. “There is no way you can program the system to say, T want you out of these 700,000 transfers to look for [dirty] banks,'” said Rayburn Hesse, a State Department senior policy adviser who chairs a federal task force on money laundering. “The result is that we have an international banking system that knows no horizons. It operates around the clock. Our laws, however, know horizons called national boundaries.” By 1999, law enforcement officials estimated that between $500 billion and $1.5 trillion (or 5 percent of the world’s gross product) was being laundered every year.
No one in government with even rudimentary knowledge about Russian organized crime doubts that it has penetrated the international banking system. Many insist that selling dollars to mobbed-up Russian banks is morally indefensible, regardless of whether the trade is sanctioned by the Federal Reserve. Equally, they believe that if the dollars are bought with wired funds derived from asset-stripping, narcotics, stolen U.S. aid, or the black market sale of arms or nuclear materials, then the transaction should be considered money laundering. “Even though you can’t fault Republic as to the current interpretation of the law, it doesn’t necessarily mean that it’s legal,” said a Treasury source.
“It just means that some of the questions that you ask are ahead of where we have gotten,” adds the State Department’s Winer. “We are grappling with it. We are trying to put it together. But all of this has happened very quickly, and it’s taking us some time to get adequate answers.”
As part of that effort, the Treasury has helped the Russian Central Bank draft money laundering laws. But the legislation has stalled the Russian parliament, which has dozens of convicted criminals among its members.
Meanwhile, Russia’s lawlessness has become so rampant that it has virtually capsized the country’s banking system. In November 1998, Andrei Kozlov, the Russian Central Bank’s deputy chairman, announced that mobbed-up banks had stolen Western government loans and aid, contributing to the meltdown of Russia’s economy in August 1998, and leading to the insolvency of about one half of Russia’s remaining 1,500 commercial banks. Menatep, for one, became insolvent and lost its license. Audit Chamber, a Russian government budgetary watchdog, and the Prosecutor General’s office charged that Central Bank officials had made off with as much as $9 billion loaned to Russia by the World Bank and the International Monetary Fund. The looting had allegedly begun.
For more on Robert Friedman, read the article The Best Investigative Reporter You’ve Never Heard Of
For more on this story, read this by Martin Armstrong.