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. PRESS   August 20, 1999 The New York Times Bank in Laundering Inquiry Courted Russians Zealously By TIMOTHY L. O'BRIEN with RAYMOND BONNER The Bank of New York, in an effort to expand a lucrative business in Eastern Europe over the last several years, aggressively pursued relationships with Russia's largest banks, a strategy that might have led to the embarrassing questions about money laundering now being posed by Federal investigators. The bank specialized in setting up cash and securities accounts for Russian banks in the United States, a highly competitive market that it dominated, according to American bankers and financial analysts. The accounts, which were managed by one senior officer who has now been suspended, allowed Russian institutions to transfer money outside of Russia easily. At first, working with Russian banks seemed like a fruitful new business. But now several of those banks have collapsed, and billions of dollars that passed through the Bank of New York are being examined by Federal investigators who suspect a money laundering operation by Russian organized crime, law enforcement officials say. Investigators believe that it could be one of the largest money laundering operations ever uncovered in the United States, with $4.2 billion passing through one account alone from last October through March. The bank said Wednesday that it had been cooperating with the investigation, and that there were no allegations of wrongdoing by the company. It declined to comment further. The bank entrusted responsibility for much of the fast-growing business in Eastern Europe to Natasha Gurfinkel Kagalovsky, a senior vice president whom the bank suspended on Wednesday. Federal investigators are closely examining her role. One of her best customers was Inkombank, a fast-growing Russian bank that handled more than 250 payments a day through the Bank of New York. Inkombank brought its business to the Bank of New York from the Republic New York Corporation in 1992 because Ms. Kagalovsky promised to be less vigilant than Republic about the way Inkombank's accounts were handled, according to Emanuel E. Zeltser, once a lawyer for Inkombank, who is in a dispute about fees with his former client. Ms. Kagalovsky assured Inkombank representatives that "Bank of New York would be much more understanding about how to manage correspondent accounts than Republic," Mr. Zeltser said. Republic officials declined to comment, as did lawyers for Inkombank in New York. When Republic and the Bank of New York handled similar transactions with Russian clients some time ago, one investigator said, Republic filed a suspicious activity report with bank regulators but the Bank of New York did not. The nature of the transactions could not be learned. "Bank of New York was very happy with the money Natasha and Galitzine were making and routinely let them run their own show," Mr. Zeltser said, referring to Ms. Kagalovsky and Vladimir Galitzine, another Bank of New York officer. The Bank of New York said Mr. Galitzine was unavailable for comment. An individual familiar with the investigation of the bank said that Mr. Galitzine has not been suspended. But a vice president for the bank in London, Lucy Edwards, was suspended. She worked with Ms. Kagalovsky in the Eastern European division of the bank. Neither Ms. Kagalovsky nor Ms. Edwards has been accused of any crime. It remains unclear whether there was wrongdoing by them or other individuals, and how closely the bank supervised their activities and their Russian customers. It could not be determined who supervised Ms. Kagalovsky. She was unavailable for comment, and the bank declined to comment. Investigators have linked some of the accounts under scrutiny at the Bank of New York to a man who, Western law enforcement officials say, is a major figure in Russian organized crime, Semyon Yukovich Mogilevich. Mr. Mogilevich is involved in a wide range of activities from arms trafficking and extortion to prostitution, American and European law enforcement and intelligence agencies say. Mr. Mogilevich could not be reached for comment. One thing is certain: Ms. Kagalovsky, the wife of Konstantin Kagalovsky, a prominent Russian banker and oil executive, was a vociferous cheerleader in pushing the Bank of New York to expand its presence in Russia in the early and mid-1990's. In a 1995 memo to Thomas Renyi, who was then the president of the bank and is now the chief executive, Ms. Kagalovsky and another executive made note of how important Inkombank was to the Bank of New York. "Inkombank is our largest generator of fee income, and they are now the largest clearing bank in Russia for domestic transactions," the memo noted. The memo, which the Bank of New York declined to comment on, was given to The New York Times by Mr. Zeltser, who said he acquired it as part of a lawsuit he has filed against Inkombank over unpaid fees. Lawyers for Inkombank declined to comment about the bank's involvement with the Bank of New York or Mr. Zeltser's lawsuit. Inkombank, like many of it counterparts in Russia, is now insolvent. Another Russian bank that had accounts with the Bank of New York was Menatep, part of an industrial empire overseen by Mikhail Khodorkovsky, one of Russia's prominent financiers, called "oligarchs." The Bank of New York had an active relationship with Menatep and helped the bank list its stock for trading in the United States. Federal investigators are trying to determine whether some of the money channeled through the Bank of New York came from Menatep. Western investors and Russian regulatory authorities suspect Menatep and related companies of having looted money from the country, allegations that Mr. Khodorkovsky and his representatives have denied. Through Ms. Kagalovsky, the Bank of New York had a personal connection to Menatep. Ms. Kagalovsky's husband, Konstantin, is a former senior executive at Menatep and is now the vice chairman of Yukos, an oil company that is the flagship of of Mr. Khodorkovsky's troubled business empire. Mr. Kagalovsky did not respond to an interview request. Mr. Zeltser, the former Inkombank lawyer, said that the Kagalovskys were married in the mid-1990's, when the Bank of New York began doing business with Menatep. An American official close to the money laundering investigation of the Bank of New York described the Kagalovskys' business connection as "extraordinarily provocative." The Kagalovskys own a condominium on East 47th Street in Manhattan that Ms. Kagalovsky bought in January 1997, for $796,000, according to real estate records. It appears that Ms. Kagalovsky paid cash. The property records show no loan.   ALL THIRD PARTY COPYRIGHTED MATERIAL APPEARING ON ARLI PAGES IS REPRODUCED FOR NON-COMMERCIAL EDUCATIONAL AND RESEARCH PURPOSES ONLY Bank of New York   Russian mob scandal _________________________________________________           || OUR MISSION || NEWS || LEGAL REFORM || RESEARCH || || ORGANIZED CRIME || MONEY LAUNDERING || || ARLI COUNCIL || CONTACT US || HOME ||   Copyright © by American Russian Law Institute All rights reserved             "Russian organized crime can use its resources to corrupt institutions here in the United States. The recent case involving the Bank of New York may prove to be one such example." ARLI on Capitol Hill Congressional Statement of Emanuel Zeltser, Director and  General Counsel of ARLI  "... corrupt officials supply the [Russian] crime syndicates with export licenses, customs clearances, tax exemptions and government contracts. Officials of law enforcement and security services provide criminals with protection from arrest and prosecution." John Deutch, Director of the Central Intelligence Agency RUSSIA'S ROAD TO CORRUPTION Speaker's Advisory Group on Russia "It is truly impossible in many instances to differentiate between Russian organized  crime and the Russian state" "Organized crime shaped the post communist Russian banking industry and now manages it." "Russia is the biggest mafia state in the world, the super power of crime that is devouring the state from top to bottom." "While the U.S. and the West were bailing out Russia's economy with money from the IMF and the World Bank, 700 Russian officials were reaping the financial benefits of insider trading..."   Arthur Christy Inkombank's lawyer U.S. LAWYERS HIRED AS SPIN DOCTORS FOR RUSSIAN MOB Janna Boulakh- Samuylik Former Inkombank Representative "The boundaries of any kind of decency were overstepped" $1715.76 undies at Chanel- Boutique purchased at the expense of  the shareholders and depositors.

 

 

 

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