Russian mafia plugs  into US bank billions
    (Sunday Times, 30 August 1999)

    Garth Alexander and Mark Franchetti
               Moscow

 HER LIFE was like a fairytale. At 19, Lyudmila
 Pritzker escaped the Soviet Union by marrying a
 young American sailor she had met in Leningrad.
 Then, whisked off to America, she created a new
 life, calling herself Lucy Edwards. She became
 an American citizen, landed a good job at a bank
 and, most recently, was promoted to the London
 branch of the Bank of New York, in charge of
 east European and Russian accounts.

 But Edwards's glittering new life was shattered
 last week when the Bank of New York
 suspended her amid allegations that Russian
 mobsters had used several accounts at the bank
 to conduct the largest money-laundering
 operation yet uncovered.

 Five of those accounts were in the name of a
 company that seemed to have no obvious
 business but had received $5-10 billion in the
 past year. The accounts were managed by Peter
 Berlin, Edwards's new Russian husband.

 Investigators now believe that more than $15
 billion may have been laundered through the
 Bank of New York and three other New York
 banks in the past year. "This is just the tip of the
 iceberg," said an investigator. "The more we dig,
 the more we find."

 They estimate that only part of the money came
 from mobrelated activities, such as extortion and
 prostitution. Billions of dollars may have been
 siphoned off from emergency loans extended to
 Russia during the past few years by the
 International Monetary Fund (IMF)and other
 relief agencies.

 Billions more appear to have been funnelled out
 of the country by crooked officials and
 businessmen who used elaborate transfer pricing
 schemes to cheat local investors and plunder
 Russia's natural resources.

 The newspaper USA Today quoted British
 investigators as saying Russian officials had
 deliberately sought the assistance of compatriot
 mobsters to launder their money and send it
 abroad. It quoted a Russian official as saying it
 was "hard to believe" that President Boris Yeltsin
 was not aware of what was going on.

 On Friday Vladimir Ustinov, the acting state
 prosecutor, ordered the FSB, the former KGB,
 to conduct its own investigation. This will
 inevitably target a number of prominent Russian
 officials, possibly including the notorious
 "oligarchs", widely regarded as the shadow
 power behind the Kremlin.

 No charges have been laid against any of those
 named in the Bank of New York investigation.
 Both Edwards, 41, and her superior in New
 York, Natasha Gurfinkel Kagalovsky, 37, who
 has been placed on paid leave, have insisted that
 they are innocent, and the bank has claimed it
 had no knowledge of unusual account
 movements until last September when it notified
 federal investigators.

 Kagalovsky is married to Konstantin
 Kagalovsky, a high-flying businessman who was
 Russia's representative to the IMF from 1992 to
 1994. He then became a senior executive at
 Menatep, a Russian bank that later went
 insolvent. He is now vice-chairman of Yukos,
 Russia's second-largest oil company.

 British and American investigators have made no
 official statement about the investigation, which
 has been going on for more than a year, and have
 expressed "grave disappointment" at the fact that
 news of the investigation was leaked to The New
 York Times, which published a front-page
 account 11 days ago, forcing the national crime
 squad to raid Edwards's flat in Marylebone, west
 London, the night before the article appeared.

 Until then, both British and American officials
 had been secretly monitoring the suspected Bank
 of New York accounts and others in different
 banks in more than a dozen countries. They had
 also been watching the flow of funds in and out
 of a global network of companies (several of
 them registered in the Channel Islands) allegedly
 connected to Semion Mogilevich, a Russian
 mobster.

 The Russian media have denounced the
 Anglo-American investigation as part of a
 political plot to tarnish Russia's image and stop
 the IMF giving it more loans.

 Politicians in Washington have been attacking
 their own officials, particularly Al Gore, the
 vice-president, who has been a strong advocate
 of aid to Russia. Steve Forbes, who is
 campaigning to become the Republican
 presidential candidate next year, said Gore's
 policies had been "an unmitigated disaster. They
 have piled billions of dollars into the hands of
 kleptomaniacs".

 Congress is up in arms. Jim Leach, chairman of
 the house committee on banking, says he will
 hold hearings next month on the
 money-laundering allegations and wants to
 modify the IMF programme, which is giving
 Russia $17 billion over two years.

 IMF officials deny there has been any pilfering.
 But Price- Waterhouse Coopers has just
 completed an audit for the Russian central bank
 showing that $1.2 billion was hidden during the
 mid-1990s by Russian officials in a Jersey
 account. A senior official said last week that, had
 the fund known about that money, it might not
 have given Russia the aid it sought at that time.

 Western economists estimate that about $140
 billion was siphoned out of Russia between 1994
 and 1998. They believe capital flight continues at
 the rate of about $15 billion a year.

 Chris Marquet, of Kroll Associates, who
 co-wrote a report for the Russian finance
 ministry on a money-laundering operation a few
 years ago, said: "The key is to turn your money
 into something that looks legitimate. You pass it
 through different banks and companies in
 different countries, such as Canada, France,
 Austria, maybe Cyprus. Ultimately, a lot of it
 comes to America because that is one of the
 most stable places to invest it. Then you put the
 money into small businesses, real estate or
 equities."

 British investigators have become concerned
 about the activities of Mogilevich since the
 gangster began expanding his operations beyond
 Russia and eastern Europe in the early 1990s.

 In an interview published on Friday in
 Kommersant, the Russian business newspaper,
 Konstantin Kagalovsky claimed that the
 investigation was part of an "anti-Russian"
 campaign. He said: "I think as usual the US
 policemen are lying." He said that his wife knew
 nothing about the money-laundering.

 Ironically, Lucy Edwards was a
 money-laundering expert. Just two months ago
 she gave a speech at a conference on financial
 services, in Riga, Latvia, entitled
 Money-Laundering: Latest Developments and
 Regulations.

 Additional reporting: Maeve Sheehan