REDWASH

Semyon Mogilevich

Thomas A. Renyi

Lucy Edwards

Peter Berlin

Timothy L. O'Brien

Arthur H. Christy

RELATED REPORTS

MT
Other press

REDWASH

The untold story of the Bank of New York, global money laundering and financing of international terror

[FOREWORD]

It was called "Russiagate," "the bank heist of the 20^th century," "the biggest financial scandal of all times." It was investigated by the FBI, the Federal Reserve Board, the New York State Banking Department, the banking and law enforcement authorities of Switzerland, Italy, Russia, Cyprus and other countries. It was a subject of hearings in the House and Senate. It was reported on the front pages of the New York Times, Wall Street Journal, London Times and most other major news media of the US, UK and other countries.

Yet the Bank of New York - Russian money laundering affair ended not with a bang but a whimper. Unlike the latter scandals involving Enron, Arthur Andersen, WorldCom and Tyco, not a single one of BoNY’s top echelon has been indicted or convicted. Even the scandal’s "superstars", Lucy Edwards and her husband Peter Berlin, who pleaded guilty to money laundering, immigration fraud and other grave federal crimes in February of 2000 have never been sentenced and never spent any time in prison. Indeed the only person who was actually sent to jail ... for two weeks in connection with the BONY scandal of the century, was a low level clerk, Svetlana Kudriavtseva. (Kudriavtseva pleaded guilty to lying to an FBI agent about a $500 per month compensation paid her by Edwards and Berlin.)

After a year long media frenzy reporters lost interest and BoNY was by and large out of the public eye. In the wake of tragic events of 9/11, the Enron scandal, Al Qaeda, Afghanistan and Iraq, the Bank of New York - Russian laundering uproar was essentially forgotten.

In February, 2000, the Federal Reserve Bank of New York, which regulates banking activity in the State "formally sanctioned the Bank of New York for ''deficiencies'' in its anti-money-laundering practices", according to a New York Times' report (Regulators Take Action Against Bank of New York (NY Times 02/09.2000).) The report however conceded that "the move, known as an enforcement action, d[id] not include monetary penalties against the bank and f[ell] short of a more serious ''cease and desist'' order that regulators could have imposed." In reality, the regulators' action was limited to compelling BoNY to enter into an agreement with the Federal Reserve Bank of New York and the New York State Banking Department, in which BoNY essentially promised to abide by money laundering laws -- something that the bank was supposed to do ab initio. Many experts regarded this as a "slap on the wrist" that was meant only to create the appearance that BoNY not get away with murder.

But BoNY did. Despite the scandal, the stock of the Bank, preceding the September 11 attack was at all time highs. 1999 BoNY’s financial report is prefaced by the statement of Mr. Renyi: "Last year, your company achieved the highest earnings in its history, the seventh consecutive year in which we set new records for overall financial performance." BoNY Chairman and CEO Thomas Renyi continues to reign over the Bank of New York and his total compensation in 1999 was a little over $74 million. In 1999 Renyi was "punished" for the money laundering scandal by receiving a bonus of only $5.73 million (in addition to his $850,000 salary, $167,819 in other compensation and 500,000 share options.) However, this "shortfall" was made up to him in the year 2000 in the form of a $12.1 million bonus.

October 3, 2000, thirteen months after the Bank of New York scandal broke, the Wall Street Journal wrote:

"Federal authorities hotly pursue an investigation into a huge money- laundering operation at Bank of New York Co. And one of the bank's former executives has pleaded guilty to conspiracy charges in the case and is cooperating with criminal prosecutors. So what is Wall Street doing? Bidding up the bank's stock -- which has outpaced both the broader market and its peers since news of the investigation broke last year. Investors effectively are betting that, despite intense scrutiny by both the U.S. attorney in Manhattan and the Manhattan district attorney, the bank will ride out the storm without facing criminal charges. And even if the bank eventually is criminally charged -- two grand juries related to the investigations still are sitting, though neither has had any witnesses in months, people familiar with the matter say -- investors believe the bank can handle the consequences, while maintaining its strong growth. ... Since Aug. 18, 1999, the day before news of the investigation broke, shares of Bank of New York have surged 46% to $56.56 at 4 p.m. yesterday in New York Stock Exchange composite trading. By contrast, the Standard & Poor's 500 index has risen 7.8% during the same period; the major regional bank sector has dropped about 3% through Friday." (Investors Are Betting That Bank of New York Will Emerge Unscathed From Investigation The Wall Street Journal 10/03/2000.)

Chart shown in the Wall Street Journal "Investors Are Betting That Bank
of New York Will Emerge Unscathed From Investigation" October 3, 2000

The objective of this book is to at least raise a question of the correlation between the unfinished Bank of New York affair and the corporate corruption found at Enron and others and possibly a link with the dismal events of September 11. Could it be that the scandals that shook corporate America to its core and caused one of the more severe downturns in our economy and investors' confidence would not have happened if the BONY matter was not whitewashed? Even more troubling is the question of how much the unremedied BONY money laundering affair contributed to the events of September 11 and beyond.

Following the 9/11 tragedy, on September 24, President Bush signed an executive order freezing assets of suspected terrorists. The President described this order as a "major thrust" in a war against terrorism aimed at "starving" terrorist networks. National Security Advisor, Condoleezza Rice, echoed this sentiment pointing out that the bin Laden organization "will ultimately not be able to function if it cannot have access to money." US and international law enforcement agencies promised a massive offensive against money laundering viewing this to be a major weapon against organized terror. Experts agree that cutting off the money channels will eventually disrupt the terrorist networks.

Many however believe that tracking these channels will be a major challenge because of "paperless, rudimentary financial system commonplace in many Muslim nations." (See "Financial sleuths arm themselves to follow money trail", CNN, Sep. 22, 2001)

Could it be that we are looking in the wrong place and maybe (just maybe) before embarking on a gargantuan search of stealth transactions of the Muslim financial system, we should consider taking a closer look at our own books? We know that hundreds of thousands of US dollars were paid to train hijackers to fly aircraft and to support them and their families in style in Florida and other US cities for years. It would be naive to assume that these monies were smuggled to Florida in brown paper bags from Afghanistan or Sudan. They came into the criminals’ hands through banks; US banks to be sure; the very banks that are required by law to keep exhaustive records and report suspicious transactions.

The unfortunate and simple truth is that the September 11 tragedy was made possible by our general aversion at looking for evil amongst us. Who wants to acknowledge that a venerable US bank contributed, even unwittingly, to the most horrific tragedy ever visited upon America? We are naturally reluctant to go after our big financial institutions, continually succumbing to the banking lobby’s opposition to more stringent anti-money laundering legislation. Case in point: the House and Senate hearings, conducted in 1999 and 2000, amidst the Bank of New York scandal, resulted, in practical terms, in nothing meaningful. The tough anti-money laundering bill proposed by the House Committee on Banking and Financial Services got stalled in Congress.

Nobody disputes that billions of dollars were laundered through the Bank of New York, one of the most respected financial pillars of America. Testifying before the House Banking Committee, BoNY Chairman, Tom Renyi, admitted that allowing the suspect accounts "to remain open and active without sufficient questioning was a lapse on the part of the bank." BoNY’s senior vice president, Lucy Edwards, pleaded guilty to money laundering conspiracy designed "to facilitate ... criminal activity, including the payment of $300,000 in ransom on behalf of a Russian businessman who had been kidnapped in Russia." What other criminal activities have these (and perhaps other) billions of laundered cash financed? Could the September 11 attacks on the US have been prevented if the "lapses" (admitted by BoNY’s chairman) were more thoroughly investigated? We don’t know. What we do know is that the hijackers’ box-cutting knifes were purchased with US dollars handed to criminals by a teller at a US bank. We know that these dollars either originated in the US or were wired to a US bank from overseas.

We also know that BoNY is one of a handful of major international banks that, as of September 11, maintained correspondent relationship with the Central Bank of Afghanistan (which also acted as a commercial bank with multiple branches throughout Afghanistan.) BoNY also maintains offices in Lebanon and other terrorist hangouts. It continues to quietly raise millions of dollars for companies in Lebanon, Pakistan, Qatar, United Arab Emirates, Bahrain, and Jordan through its depository receipts programs. One wonders how BoNY manages to deal with the "paperless" Muslim-style financial system and yet ensure that this relationship is profitable. Perhaps its management would be in the best position to advise our law enforcement officials on ways to investigate "Muslim banking..."

Notably, BoNY maintains more correspondent relationships with Colombian and Panamanian banks than any other U.S. bank. The U.S. State Department’s Bureau for International Narcotics and Law Enforcement Affairs has identified Colombia and Panama as suspect countries for drug trafficking and money laundering.

Of course, in order to stop crime, we must make sure that crime doesn’t pay. But not only to those abroad who actually committed the crime. Nobody here at home should be enriched by its fruits.

Noteworthy is that, as noted in the earlier quoted Wall Street Journal article, "two grand juries related to the investigations still are sitting, though neither has had any witnesses in months..." Yet the court records in a string of civil litigations filed against BoNY for its role in the money laundering scandal show no lack of witnesses testifying under oath about an apparent money laundering conspiracy between some of the top BoNY executives and corrupt Russian bankers. None of these witnesses however testified before any authority investigating the scandal. Civil cases were dismissed on technicalities or quietly settled. Evidence showing BoNY’s transgressions is gathering dust in court archives.

The second question that this book raises: how was the Bank of New York able to hush the scandal of the 20th century? Publicly available court records show evidence of BoNY’s close interaction with entities tied to Russian organized crime and linked to massive world-wide fraud, drug and weapon trafficking, bribery of public officials and contract murder. Edwards admitted to laundering billions of dollars through BoNY accounts arranging for ransom for a kidnaped businessmen, visa fraud and bribery of a bank officer. Billions in IMF monies given to Russia are still unaccounted for. Yet, at a deposition taken in one of the civil cases against BoNY its chairman, Thomas Renyi testified in 2001 that as far as he understands the investigation into the BoNY-Russian laundering affair was over. Natasha Gurfinkel - Kagalovsky, who testified in London where she currently resides in June of 2002 said that she never heard from investigators since leaving the bank in 1999. Why did the investigation come to a halt so abruptly? Why was Lucy Edwards never sentenced, after pleading guilty in February of 2000?

We do not claim to be able to answer all of the unanswered troubling questions. But if this book can stress the need for answers we will consider our mission accomplished.