August 22, 1999
Russian Money-Laundering Investigation Finds Familiar Swiss Banker in the Middle
By TIMOTHY L. O'BRIEN with RAYMOND BONNER
At the intersection of illicit Russian money and the Bank of New York is Bruce Rappaport, a Swiss banker who has had brushes with governmental investigators in the past and who has long had an important connection to the bank.
Together with the Bank of New York, Rappaport owns a bank in Switzerland that helped provide the American bank with important business contacts in Russia, according to Western bankers familiar with the operation.
And millions of dollars that were channeled through the Swiss bank, known as Bank of New York-Inter Maritime, are linked to what Federal investigators describe as possibly one of the biggest money-laundering schemes in the United States, according to a person close to the investigation.
The Bank of New York, which for years aggressively sought business in Russia, is currently engulfed in a Federal money-laundering investigation that led to the suspension last week of two senior officers who oversaw the bank's Russian business. Federal investigators are also looking into the activities of their husbands, both of whom are involved in businesses that have ties to either Rappaport or his Swiss bank.
The money moving through the Bank of New York-Inter Maritime raises the question of why the Bank of New York, a conservative institution that is one of the nation's oldest banks, worked closely with a man who has frequently drawn the attention of government regulators and law-enforcement officials worldwide.
Most recently, Rappaport's bank was sued by the Justice Department in 1997, to recover proceeds that the Government asserted were from drug sales that had been deposited in the Bank of New York-Inter Maritime on the Caribbean island of Antigua by a known money-launderer. A Federal judge dismissed the case last year, though, citing lack of jurisdiction. The Government is appealing the decision.
A Boston lawyer representing Bank of New York-Inter Maritime, William Shaw McDermott, did not respond to requests to interview Rappaport or talk about the Justice Department suit. Efforts to contact Rappaport were unsuccessful. The Bank of New York, which is cooperating with the Federal money-laundering investigation, declined to comment about Rappaport.
The interest of investigators is heightened, one official said, because Rappaport, who is 76 years old and lives in Switzerland, was recently named Antigua's Ambassador to Russia. Antigua, this official noted, has been a major center of Russian money-laundering for many years. Rappaport has long had close business, banking and political ties to Antigua, where the Government once granted him a near-monopoly on the fuel-oil market.
Money-laundering is a legal catch-phrase that refers to the criminal practice of taking ill-gotten gains and moving them through a sequence of bank accounts so that they ultimately look like legitimate profits from legal businesses. The money is then withdrawn and used for further criminal activity.
Rappaport, who has never been convicted of any wrongdoing, is well known in Russian banking circles. He helped solicit business during the boom times in Moscow. In fact, for a brief time, Bank of New York Inter-Maritime, was used in 1994 by the Bank of New York to conduct business in Russia.
The world of international banking is often built on personal relationships. In that world, an ability to deal easily across borders and within business, political and financial circles is highly valuable to big banks. To gain access to certain foreign markets, the Bank of New York has relied on people like Rappaport.
Born in Haifa, now Israel, Rappaport has used his base in Geneva to pursue investments and business in a wide range of places, including Oman, Liberia, Nigeria, Haiti, Thailand, Indonesia, Belgium and the United States. Rappaport opened Inter-Maritime in Geneva in 1966.
By the 1980's, he was one of the Bank of New York's largest individual shareholders, controlling millions of dollars in stock amounting to a nearly 8 percent stake in the company.
Although virtually all of that stock has been sold, back in the 80's, Rappaport's hefty stake gave him entre to the bank's senior management, including the chief executive at that time, Carter Bacot. Bacot, whom the Bank of New York declined to make available for comment, is said by a former Bank of New York senior executive to have approved the bank's decision to buy a large stake in Rappaport's bank known then as Inter Maritime.
By 1992, the Bank of New York reportedly owned about 28 percent of what became known as Bank of New York-Inter Maritime.
In the Federal money-laundering investigation of the bank that surfaced last week, one of the accounts authorities are looking at is Benex, which moved funds through the Bank of New York as well as the Bank of New York-Inter Maritime.
The sole director of Benex Worldwide, a British affiliate, according to corporate records in London, is Peter Berlin. He is the Russian-born husband of one of the senior officers at the Bank of New York, Lucy Edwards, who was suspended last week by the bank. Ms. Edwards, 41, oversaw Russian accounts in the Bank of New York's London office.
Berlin is believed by American investigators to have had authority over the Benex account at the Bank of New York.
An initial round of Federal subpoenas issued to the Bank of New York produced 3,500 pages of transactions for one account in Benex's name, investigators said.
Ms. Edwards reported to Natasha Gurfinkel Kagalovsky, who is based in New York and supervised all of the bank's Eastern European business.
Ms. Kagalovsky, 44, was also suspended because of the money-laundering investigation, and her office, like Ms. Edwards's, was searched and sealed by law-enforcement officials last week. The Bank of New York has repeatedly declined to make either of the women, who have not been accused of any wrongdoing, available for comment.
Ms. Kagalovsky's husband, Konstantin Kagalovsky, is a former senior executive at Bank Menatep, one of Russia's largest banks. And Menatep, according to Western law-enforcement officials, has also had dealings with Rappaport.
Menatep, now virtually insolvent, is part of an industrial empire overseen by Mikhail Khodorkovsky, one of Russia's prominent financiers, or so-called "oligarchs." 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 that may have been laundered through the Bank of New York came from Menatep. Menatep, and related companies in Russia, are suspected by Western investors and Russian regulatory authorities of having looted money from the country, assertions that Khodorkovsky and his representatives have firmly denied.
In 1994, Khodorkovsky briefly served as a director of the European Union Bank, an Internet bank based in Antigua. Khodorkovsky has said that he served as a director of the on-line bank for only one week and had no further involvement with it. The bank later collapsed amid accusations from various regulators that it was a scam.
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