Russian Mob Laundered Billions Through NY Banks

by Lucy Komisar

But the scandal was no surprise to federal immigration agent Thomas D. O'Connell. Nor was it the first time a New York bank had been soiled by money believed stolen by Russian con men. Though it has not been reported until now, the Bank of New York and other New York banks -- including Chemical, Chase Manhattan, and Citibank -- were and most likely still are conduits for the proceeds of a still-to-be-tallied series of crimes, with at least a thousand shell company bank accounts laundering dirty cash. Indeed, O'Connell suspects that hundreds of millions of tainted dollars have passed through the New York banks into offshore havens. O'Connell described one scam in detail after this reporter discovered the court record last year. O'Connell was then heading an inter-agency federal investigation of money-laundering and other international crimes.

That case was among the many that calls into question the melodramatically proclaimed surprise of Bank of New York CEO Thomas Renyi, who told the House Banking Committee in September "how dismayed I have been by the suggestions in the press that the Bank of New York has been involved in, or been used as a vehicle for, money laundering or other illicit activities."

Another big New York bank also moved funds on a grand scale. O'Connell said investigations into the activities of one of the men in the St. Petersburg swindle revealed roughly a thousand bank accounts used by Russian crooks.

"Most (of the accounts) were out of the Chemical Bank in Dag Hammarskjold Plaza in New York City. The first four or five bank statements I saw had hundreds of thousands of dollars going through them," he said. "The money would be wired in from Russia and then go out (offshore) to the Cayman Islands or the Isle of Man or Switzerland in two or three days. There's at least a thousand of them, and in each one there's money being wired into the U.S., hundreds of thousands of dollars."

O'Connell said the total of the money moving through all the accounts investigators examined ran into "hundreds of millions."

This story underscores dangerous failures in U.S. bank practices and federal and state policies:

• Banks routinely establish accounts for phony companies without doing effective "due diligence" to check out their customers.
• Law enforcement agents are hamstrung by state corporation recording procedures that make it hard to ferret out bogus companies set up by crooks.
• Once money moves through offshore secrecy havens such as the Cayman Islands, it's generally impossible to locate or recover, because those jurisdictions won't open bank records to law enforcers.

O'Connell believes dozens of the owners of the targeted accounts were linked to Russian organized crime. One customer was Vyacheslav Kirillovich Ivankov, at the time the most powerful Russian organized crime leader in the United States. Indicted in 1995, Ivankov was convicted of extortion in Brooklyn in 1996 and sentenced to 10 years of federal prison at Raybrook, N.Y.

The bank accounts were discovered because investigators were tapping the fax of a Russian immigrant, Alexander Yegmenov, who'd provoked the attention of law enforcement authorities from almost the moment he set foot in this country. The St. Petersburg fraud which brought Yegmenov down offers a fascinating glimpse into the money-laundering process. The details were obtained from court records and interviews with government investigators.

All the banks discussed in this piece were given several opportunities over the past several weeks to provide information. A spokesperson for the Bank of New York declined to comment on any of the cases. The PR officials at Citibank and the now-merged Chase and Chemical banks promised to look into the issues. Follow-up queries brought the response that they were still looking.

A good capitalist, Yegmenov went into the corporate services business, setting up "shell companies," paper corporations that don't actually operate, but are often covers to evade taxes or disguise transactions. He established New York companies through his All American Corporate Service, Inc. in Albany and filed for Delaware corporations with help from Delaware Business Incorporators in Wilmington. DBI advertises that it can set up a one-person anonymous corporation with zero capitalization, and that shelf companies are available. Shelf companies are dormant shell companies often revived for new buyers to provide phony histories, i.e., "founded in 1980."

"He would create a company in New York and subsidiaries outside the U.S., typically in the Caribbean," explained New York State Police Captain David L. McNulty of the Bureau of Criminal Investigations, who helped collect evidence. "Sometimes he was creating a couple of hundred corporations a week all over the country. People came to him and said, 'I need four companies outside the U.S. that the IRS can't get access to.' He provided shelf corporations in Antigua and the Cayman Islands."

To incorporate U.S. "subsidiaries," Yegmenov would dummy up supporting documents to show that companies existed in Russia. O'Connell said, "I have 16 boxes and filing cabinets of his papers. I have two boxes full of Russian stamps and seals he made for every Russian entity from federal police agencies to universities to hospitals. They bought a modem for the stamping company and were modeming them images of the stamps they wanted. We seized a Russian typewriter. They use thin paper and bind it with white string. He had all that stuff." A grand jury indictment called Yegmenov "a master forger."

He promised fast service. O'Connell said, "He was paying off people at the New York State Department of State to expedite the incorporation process. At one time he had a box of blank New York State certificates of incorporation that one of employees of the Department of State gave him. They had a watermark and seal. Two state clerks were disciplined for that infraction.

Yet Yegmenov was sloppy. Some clients wanted to use the companies to back up requests for business visas, claiming that the "American subsidiaries" of their "companies" needed them to work here. The INS got suspicious about the large number of applications Yegmenov was filing. Investigators discovered that he had printed business cards for many of the companies at the same two addresses, 1 Colombia Place and 283 State Street in Albany.

They tapped his fax machines and hit pay dirt. They learned that he had set up thousands of shell companies. They would find 4,000 in New York State, a thousand in Delaware, a few hundred in Pennsylvania, Massachusetts, Ohio, and other states, and a couple of dozen in such secrecy havens as the Isle of Man and the Cayman Islands.

Yegmenov helped Syroejine set up TV & Radio of St. Petersburg, which was registered in August 1993 in Albany in the name of Syroejine's wife, Anna Potyomkina. Syroejine was secretary, and his real boss, TV station director Bella Kurkova, and her deputy chief, Victor Pravdyuk, were shareholders.

Yegmenov that day also established several other shell corporations to use in the scheme. And Syroejine opened an account for TV and Radio of St. Petersburg, Inc. at Chase Manhattan Bank in Manhasset, L.I., with a deposit of $200. Then, Syroejine arranged to "purchase" new Sony TV equipment from TV & Radio of St. Petersburg. Channel Five paid $2 million into the account of the phony company between December 1993 and February 1994.

St. Petersburg TV officials would later insist that Syroejine had persuaded them that the cheapest way to buy the Sony equipment was via a three-way contract between GTRK, V.N. Express (one of the New York shell companies) and Jojan Consultants, Ltd., an offshore company registered in Dublin, Ireland, where corporate secrecy laws hide owners' names from government investigators and courts.

But as it often does in these cases, some of the money ended up fueling the U.S. economy. In April 1993, Syroejine had gotten a nonimmigrant visa from the U.S. consulate in Vienna, and in March 1994, he disappeared from St. Petersburg and showed up in America to micromanage the scam.

Syroejine needed walking-around money. On March 18, 1994, half a million dollars was wired from a Liechtenstein account to a New York Citibank account he controlled, and between March and May, checks drawn on Citibank paid for a $20,000 Rolex watch, a 1994 Jeep Grand Cherokee, and a Chris Craft 380 Continental pleasure boat.

Money launderers move cash through multiple accounts to obfuscate paper trails. Between August 1993 and May 1994, Syroenine opened accounts at Chase, Chemical, Citibank, and the Bank of New York and shifted hundreds of thousands of dollars between them until he sent nearly $2 million out of the country. Some $430,000 went to Barclay's Bank in Limassol, Cyprus.

Another $400,000 was sent to an account called Mand Stifftung, opened in the name of Valeri Martioukhine at Verwaltungs-und-Privat-Bank in Vaduz, Liechtenstein. In February, the bank complained to German public prosecutors that it had been defamed by a report by the Bundesnachrichtendienst (BND), the German intelligence serivce, which said the bank was used to launder drug money in transfers organized by the board chairman.

More than a million dollars went to Jojan Consultants at Lloyd's Bank in the U.K.

By May 1994, close to delivery time for the illusory Sony television equipment, V.N. Express had replaced the now defunct TV & Radio of St. Petersburg as the "supplier" and taken over its $600,000 banked assets. Syroejine sent a fax from V.N. Express stating that because of the "provocative behavior" of one of Channel 5's representatives, V.N. Express refused to deal with it any more. Channel 5 never got more of an explanation or the equipment, nor could it get in touch with V.N. Express or Syroejine. Meanwhile, U.S. investigators learned through Interpol of Yegmenov's 1984 Russian convictions and jail term. The Justice Department's Office of International Affairs passed the information to the Russians, and in 1995, Russian prosecutors began looking into the disappearance of $1.87 million from Channel 5.

Yegmenov was also charged with visa fraud for his phony asylum application. The U.S. calculated the total fraud of the Channel 5 case at $1,949,460.66. Authorities would not say whether any money was recovered. O'Connell had the INS run a computer search to pull all the visa applications Yegmenov had filed. It found a thousand. "They were for the Brighton Beach crowd," he said. "Ninety-eight percent of the companies were out of Brooklyn." Brighton Beach in Brooklyn is a center for Russian criminals. Then U.S. agents used the applications to lead them to the bank accounts of the phony companies. "Each company that petitions for an alien has a file, a lot of supporting documents. I had at one time a thousand of those files, each for different companies, all sent to our service center in St. Albans, Vt., O'Connell explained. We had the center start asking the petitioners for additional documents, including bank statements. Most were out of the Chemical Bank in Dag Hammarskjold Plaza [near the UN Building] in New York City. Some were from the Bank of New York, a couple from Citibank." He said the Russian Mafia was using many of the bank accounts to bring in large sums by pretending that they were paying for contracts in the United States.

When investigators sought to locate other shell companies Yegmenov had incorporated, they were stymied by state corporation department practices. There was no way to run a computer search to locate corporations by filer. New York State Police agents had to search by hand the papers of every corporation filed with the state over a period of time and pull folders with recognizable names Yegmenov or someone from his office. After he sensed surveillance, he started using other petitioners' names.

Limited to tagging files that bore names they knew, investigators still discovered roughly 4000 New York State shell companies Yegmenov set up. But investigators could get banking information only from corporations sponsoring people to get visas, not from those set up just to launder money.

"The only reason we know about the bank accounts is because of the supporting documents, O'Connell said. If Alex incorporated 3000 companies that didn't apply for visas, where do you start looking? Do you search every bank to see if it has accounts from those corporations? It's an impossible task."

Examining each company would have been useful. Yegmenov's enterprises dealt in more than visas and money laundering. Officials said some Delaware companies he set up appear to have been used for exportation of stolen cars, weapons trafficking, and motor oil excise tax fraud in which crooks import diesel and call it home heating oil to avoid paying taxes. Other Yegmenov firms specialized in bilking Medicare and Medicaid with phony invoices, for fictitious wheel chairs. Yet others provided fake documents for manicurists' licenses. Authorities also learned that certain auto body shops he incorporated in New York were used by car-theft rings that changed plates and shipped cars to Russia. there were "a bunch" in New York City, "Some of [the body shops in New York City] turned out to be vacant lots. There were at least a dozen owned by Brooklyn people. You run vehicles through various businesses. McNulty explained. "You create a corporation, XYZ Automotive. It gets licenses to operate as a garage, and when a car is stolen, you can run it through the books of that company." Authorities lacked enough information to indict Yegmenov on that, however," O'Connell said.

Yegmenov pleaded guilty in 1995 to money laundering and visa fraud, with time served spent a year in prison, and was deported. In Russia, he was jailed for a year on the St. Petersburg tv station charge, then released. A source said that Syroejine had been freed on bond, but from January 18, 1996, most court records in his case were sealed, including any indicating its disposition. None of the other station officials in Russia were charged with crimes. The Justice Department and regional U.S. Attorneys who handled the case declined to provide information because aspects of it are still being investigated. There are thousands of other Yegmenov companies suspected of being used for illegal purposes.

"I get calls all the time on the companies he opened," O'Connell said. "It created a lot of awareness in the U.S. State Department. Every once in while I'll get call from the Office of International Affairs. The legate to Moscow or St. Petersberg has one of Yegmenov's companies on his desk and what should he do about that. I tell them, 'Don't give the guy the visa.'" He added, "I'm sure somebody by now has taken Yegmenov's place."

O'Connell said neither New York State nor Delaware had done a comprehensive investigation of the companies Yegmenov incorporated, nor closed any down.

But U.S. government officials say that Russian organized crime is developing importance on a par with the Italian Mafiosi, Colombian drug traffickers, Japanese gangsters, and Chinese triads. Internationally, estimates are that $500 billion to $1 trillion in criminal money from all sources ends up in U.S. and European banks each year. The major economic powers, led by the U.S., have failed to challenge the structures that facilitate money laundering by Russians and others. They have refused to act to end the corporate and bank secrecy that lets crooks hide behind shell companies and anonymous accounts in offshore havens such as the Cayman Islands. On the contrary, the major American and international banks have subsidiaries offshore where they assiduously help clients evade the laws of their own countries.

Congress shares the blame. Yegmenov's clients might not have moved their illicit money undetected so easily had Congress not killed the "Know Your Customer" rule proposed by U.S. bank regulators last December. The law already requires banks to perform "due diligence" on their big customers and report "suspicious transactions." The proposed rule would have made the mobsters spell out their procedures -- to identify the owners of accounts, to determine big-money customers' sources of funds, to monitor large transactions, and to flag those that were not normal.

Now, the scandals have put anti-money-laundering legislation back on the agenda. House Banking Committee Chairman Jim Leach (R-Iowa), and Sens. Charles E. Schumer (D-NY), Paul D. Coverdell (R-Ga.) and Carl Levin (D-Mich.) have introduced measures requiring banks to have records of account owners' identities and to ban correspondent or concentration accounts which commingle funds of an institution's customers without identifying them, a way offshore banks commonly move clients' money. The bills would make it a crime for banks in the U.S. to knowingly handle money traceable to foreign government corruption, and they would expand the list of crimes that trigger money laundering charges. The Clinton administration, with a Treasury Department strongly influenced by banks and investment companies and a traditional policy of welcoming capital no matter what its origins, has introduced a much weaker bill that would merely expand the list of money laundering crimes to include theft of public funds by officials, arms trafficking, and crimes of violence and would give U.S. courts jurisdiction over foreign banks that violate U.S. money laundering laws. It would not address offshore bank and corporate secrecy or the need for clear identification of U.S. company owners and bank customers.

The American Bankers Association, which fiercely lobbied against the Know Your Customer regulation, is now opposing new laws to flush out dirty money. John J. Byrne, ABA senior counsel, worries about "pressure from examiners and media and the public that may force the bank to report possible criminal activity more frequently than they would have in the past."

International clients, Byrne says, would say, "I don't think it's anybody's business in the U.S. how I do my business. I'm going to go to a country where they're not going to ask all these penetrating questions and take my business elsewhere."

For now, there's no effective law that forces a bank to screen out the likes of Yegmenov and his clients.