Pozner: I would say, of all the news we have just seen, the most interesting yet is the one relating to Natasha Kagalovsky who is now suing the Bank of New York for a nice round sum of two hundred and seventy million dollars.

To remind you of what’s behind all this, let’s follow the short story:

An article in the New York Times in August of last year reported that dirty Russian money was flowing through the Bank of New York accounts. Not just any money, but the funds given by the International Monetary Fund and, perhaps, by the World Bank. So, what did the bodies of the American justice system discover? Approximately seven billion dollars were transferred from Russia to the Bank of New York accounts between the 1996 and August of 1999. Investigation ensued and it revealed that the bulk was the money of Russian importers paying for goods delivered to the US and some other countries.

Allegations that these funds included those given to Russia by international financial organizations were never proven. Nevertheless, Manhattan prosecutors indicted the head of a British company, Benex, Peter Berlin and his wife, former executive of the Bank of New York, Lucy Edwards, and a Russian businessman, Alexei Volkov. They are charged with conspiring to transmit funds without a license. No grounds were found to bring charges against the bank. The New York Times acknowledged that its published material came from dubious sources.

The source was identified to be Emanuel Zeltser, a lawyer and an йmigrй from the former USSR. It appeared as though this chapter had ended. However, in February, Peter Berlin and Lucy Edwards testified in American court. According to them, funds were transferred to the US from Moscow, and then to some offshore banks. Benex, allegedly, assisted the Russian Depositarno-Clearingovy Bank to transfers funds to the West. It is also known that at the time of these transactions took place the DCB was controlled by two other banks: the MDM-Bank and SobinBank. It also appeared that the Flamingo Bank, which belonged to the SBS-Agro group, as did SobinBank., had something to do with the DCB.

Names of Boris Berezovsky and Alexander Kovalenkov, who control SBS-Agro, as well as Alexander Mamut, the head of the MDM-Bank, started appearing in the Western press.

Whichever way the scandal may end, the Russian financial and economic community is convinced that all that is going on is an attempt to undermine Russia as business partner and a as a place to invest.

        Pozner: I’m standing in front of the building of Inkombank in Moscow. Inkombank was one of Russia’s banks which had close ties to the Bank of New York. It was its correspondent bank that transferred a immeasurable sums through the Bank of New York. Whatever the whole story is one thing is clear - it cannot be untangled here in Moscow. I decided to travel to New York and invite you to join me in this journey.

In 1784 a young financial genius as he was regarded, Alexander Hamilton, founded the Bank of New York. These are not just the buildings behind me, because today this bank owns a lot of buildings in New York City. This bank is the oldest, the most respected, the most prestigious if you wish, bank in the United States. The news of a scandal having happened here was like --- how shall I put it -- a discovery of an unscrupulous lady amongst the attendees of the Smolny Institute for Virtuous Damsels.

        Pozner: Meet Emanuel Zeltser. He graduated from the Law School of the Kishinev State University in 1974. That same year he immigrated to the United States. Having brilliantly passed his professional exams here, he became a lawyer in 1990. In the past several years he has represented deceived depositors of Inkombank in a lawsuit against the Bank of New York. I have known him for three years and am aware of his investigation in this area.

The first thing that I’m interested in… -- some time ago we spoke about this issue… You told me then that this very Bank of New York, one of the oldest, one of the most respected banks in the United States of America, is involved in a scandal, or let me put it this way, in laundering large amounts of money; and that individuals from Russia as well as individuals from the US were involved. I would like you to tell our viewers, and there are millions of them who are unfamiliar with the whole story, as if all our viewers were right in front of us -- which is in fact the case --- what happened.

        Zeltser: Some time in June of 1995 or 1996, when we discussed this matter -- Russian press at that time, had already started publishing material about what what we in the US refer to as capital flight, that is, large amounts of money, hard currency, were disappearing, in this case from Russia and flowing through certain accounts to various offshore jurisdictions.

One of the main US correspondent banks, I would even say, the main correspondent bank for virtually all large Russian banks, was the Bank of New York. The Bank of New York established close relations with Russian bankers, including some less than scrupulous, like for example, former management of Inkombank. Their relationship solidified and had emerged closer for some time. The already huge amount of money from Russia passing through the Bank of New York accounts was increasing.

        Pozner: When you say ‘huge amounts of money’, can you give us a figure, at least approximately?

        Zeltser: As regards Inkombank that was one of [BONY’s} principal correspondents, I can, because it was part of our litigation. We obtained this data during our investigation. In 1994 when Inkombank was not so large, it became larger in 1996 and 1997, we are talking about two billion dollars per month that went through the Bank of New York accounts.

        Pozner: Per month?

        Zeltser: Quite correct, per month. Subsequently the amount increased. For example, Natasha Gurfinkel, not exactly an obscure figure, mentioned in her interview as recently as yesterday that approximately three and a half billion dollars passed through the so-called “Russian accounts’ per day. This includes all 167… [Russian banks] --

        Pozner: One moment, let me explain to my viewers that Natasha Gurfinkel is known in Russia by her husband’s name – Natasha Kagalovsky.

        Zeltser: That’s correct.

        Pozner: Her husband, Konstantin Kogalovsky, if I’m not mistaken, was Russia’s representative to the International Monetary Fund?

        Zeltser: True.

        Pozner: These were the amounts that went through the Bank of New York from Russia, which in and of itself is not unlawful…

        Zeltser: No, it isn’t.

        Pozner: What was here that could be labeled unlawful? What actually led to this scandal which began, at least as far as we know, on August 19 last year?

        Zeltser: Whenever money classified as ‘dirty’ pass through accounts it is unlawful. That is to say, money which is the product of certain unlawful activity.

        Pozner: So…

        Zeltser: For example, activity such as bribery, murder, bank robbery and so on. Thus, assuming that all monies that went through these accounts, through the Bank of New York, had been lawfully earned ...

        Pozner: Yes…

        Zeltser: …there wouldn’t be any problem at all. But, as we know, a few weeks ago, Mrs. Lucy Edwards, also known as Ludmila Pritsker, and her husband, Mr. Peter Berlin, officially pleaded guilty in that they did indeed took part in the operations connected with Russia’s dirty money. In other words, someone stated for the first time that money laundering, that is, dirty money, did really take place. They gave a specific figure, and that amount was rather insignificant, taking into consideration the scale of the whole operation. But as the US special agencies, the FBI, in particular, that is conducting the investigation, inform, this is only the beginning.

        Pozner: One can say “The most visible part of an iceberg”.

        Zeltser: This is quite a correct definition.

        Pozner: You told me once that you suppose that considerable sums of money that the International Monetary Fund had given to Russia were stolen, and thus, transferred to off-shore accounts, etc. Is what we are talking about related to this?

        Zeltser: It is, no doubt. It was mentioned, and not just once, in the American press, as well as in the Russian press, that the funds given to Russia by the IMF was partially, if not completely, stolen.

        Pozner: But probably completely? Would you admit that?

        Zeltser: I would admit that it was partially stolen and partially spent, perhaps, without any malice, well, squandered.

        Pozner: Still stolen were…

        Zeltser: My understanding is that considerable sums were stolen.

        Zeltser: Let’s begin with Russia. Nikolai Gonchar spoke in the Duma, it was about a year ago.

        Pozner: Yes…

        Zeltser: Where he explained quite in detail how the funds received by the Central Bank from the IMF could have been stolen. Moreover, he even showed diagrams. It was shown on the ‘Vremya’ program, if I am not mistaken. Moreover, Russia’s Chief Auditor, his name escapes me now, while talking on the BBC, said, and I’m literally quoting him, “To my great shame I have to admit that the IMF transfer – he was talking of the then transfer of around 4.8 billion dollars – was partially or completely squandered or stolen”. From the point of view of my understanding of what was taking place, yes, all the money was sent either to the Central Bank or the Department of Finance. This is a standard method to allocate the IMF money. But let us see what transpired after that. Yes, yes, the money really goes to the Central Bank. After that the money goes somewhere. By all means, somewhere. It is very important to ask where it really goes. Large sums of money were distributed through banks, large sums.

        Pozner: Through commercial banks…

        Zeltser: Commercial banks.

        Pozner: That is, from the Central Bank…

        Zeltser: Money went from the Central Bank to commercial banks. In particular, to ten large commercial banks.

        Pozner: Including Inkombank…

        Zeltser: Including Inkombank, including Menatep, including Credobank…

        Pozner: What about Agro?..

        Zeltser: …also Agro, by all means. Question: “Was the IMF aware of it?” No doubt, it was. There are constantly… in Russia… delegations come… There is a permanent representative office of the IMF in Russia. How ignorant could the IMF have been? It would be very difficult to suppose that they were really unaware of it. So, the money goes from the Central bank to some commercial banks. Next, can the IMF track it or not? The way I see it, if they can’t, then they ought to. Because what happened to the money as regards those commercial banks that we are aware of? In 1998 the Kommersant, quite respected among the media, stated that about one and a half billion dollars was stolen from Inkombank alone. Moreover, a man called Montag-Girmes, hired by Inkombank to conduct an audit there, spoke about it in his interview. My understanding is that there wasn’t one billion and a half there, because right from the very beginning their figures were inflated. Some pitiful five hundred million was stolen, perhaps, six million. That’s why… But that it was stolen there is no question about it. I don’t think that someone in Russia or someone in America doubts that certain bankers, Russia’s private bankers, did steal the money. They put the money in their pockets, transferred it to their off-shore accounts.

        Pozner: Consequently, that was dirty money.

        Zeltser: From the moment it was stolen, no doubt, it was dirty money.

        Pozner: Now this question: to what degree, do you think, the so-called ‘1998 default’ is related to this… generally… this theft? What, eventually… I don’t know what the total… what is the total of that theft? It must be enormous.

        Zeltser: In the case of Inkombank, if Mr. Kuznetsov and other former managers of Inkombank returned all the stolen money from their off-shore accounts and transferred it back to Inkombank, then today it would be a wonderful and prosperous bank. But now it’s no longer in existence.

        Pozner: No longer.

        Zeltser: No longer.

        Pozner: Do you think that other large Russian banks took part in this, i. e. participated in the general thievery? Do you have anything to confirm it?

        Zeltser: In addition to Inkombank, no doubt, several of the banks, some of them are no longer in business today, took part in this. Bank ‘Imperial’ took part in it, this bank is also a thing of the past. Former managers of ‘Kredobank’ and some other banks participated in this. And the problem is now that a much more political (than it is) story has been created. Certain people participated in this. Here we have a sort of war between Russia… The whole thing has turned into some kind of a war between Russia and America. I guess, you have heard about the cold war…

        Pozner: Yes.

        Zeltser: What is happening now is… there is such a notion in America – called “Greenmail”. This is like blackmail… It should probably be translated as “Green blackmail”. It is a certain…

        Pozner: There is blackmail?

        Zeltser: There is blackmail…

        Pozner: Blackmail…

        Zeltser: There is also “Green blackmail”…

        Pozner: I see…

        Zeltser: “Green blackmail” is blackmail through money.

        Pozner: Aha.

        Zeltser: And we are having now, sort of, a “green war”, so to say. But eventually, everything is getting back to money. How and in what way is Russia going to continue getting money from the IMF, on whom, no doubt, Russia is dependent? What additional monitoring actions is the IMF going to undertake as regards funds given to Russia? Who and from what side is going to participate in it? The most important thing is who is to blame. The Russian side or the American side? The answer to it is neither: there is no such notion as the Russian side or the American side. This is already more part of the election campaigns that are currently taking place in Russia and America.

Who’s fault is it? Was it Gore’s, was it Putin’s, was it Yeltsin’s? No, neither Gore, nor Yeltsin is to blame, Russia is not to blame. Is Gore to blame for what…

        Pozner: Neither Putin is to blame…

        Zeltser: Neither Putin, nor the US. Neither is Clinton…

        Pozner: … to blame for all…

        Zeltser: … with all my lack of respect for him unfortunately, he can’t be blamed either. There are well-identified individuals, very specific individuals who are at fault, specific... Both on the American side, and on the Russian side.

        Pozner: Tell me something, Mr. Zeltser, naturally, without breaching the ethics, the lawyer’s ethics, can you name anyone? Because, as you understand, it is not enough for you to say: “Specific individuals, specific people”. Naturally, we all want to know who you actually mean.

        Zeltser: At present, in our lawsuit against the Bank of New York...

        Pozner: “Ours” meaning whose?

        Zeltser: In this case, there’s a group consisting of several lawyers ... since this scandal began, several civil lawsuits, very serious civil lawsuits, commenced against the Bank of New York. Investors- shareholders of the Bank of New York itself, are suing the Bank of New York and its management, including Mr. Renyi and other members of the Board of Directors. Another lawsuit commenced on behalf of the depositors, former depositors of Inkombank, who had lost a lot of money.

        Pozner: How many of them?

        Zeltser: Total, 122 thousand people.

        Pozner: 122 thousand?

        Zeltser: Correct, they are represented by myself and several other American attorneys and the well-known Boris Kuznetsov from Russia. We allege that in this whole money laundering through the Bank of New York, certain members of BoNY management aided certain unscrupulous Russian bankers, essentially to steal all the money, or most of the money belonging to [Inkombank’s] depositors.

        Pozner: Well…

        Zeltser: The names are mentioned in the complaint. Specifically, from the American side, the names such as Vladimir Galitzine, Natasha Gurfinkel-Kogalovsky), and Mr. Renyi are mentioned. From the Russian side…

        Pozner: This is the Chairman of the Board?

        Zeltser: The Chairman of the Board of the Bank of New York.

        Pozner: So…

        Zeltser: From the Russian side, such people like Valentina Gaves, former Chairman of the Board of Inkombank and his right hand, second person at Inkombank, Alexei Kuznetsov, and several other names are mentioned in our claim…

        Pozner: Names…

        Zeltser: Those whose names were connected with Inkombank. Our specific claim relates directly to Inkombank. These are the people who, as we state, and we are going to prove in court, participated both in money laundering, in essence, participated in money theft, in these money thefts.

        Pozner: Here I have an English magazine that I always read, one may say, with religious fervor, in that I never miss it, it is called The Economist. And here, on its cover of August 28 – September 3 last, we can see quite a striking picture. Sort of, smacks of the Brezhnev times, there’s such an ape-looking Russian man sitting there, in this… horrible, sort of, old-style sleeveless sheep-skin vest, in such a… such a fur hat, and is washing money in some washing machine. Here’s the caption: “What the Russian economy is heated with…” Then there’s a long article about the fact that in Russia everything was sold long time ago, everything was bought, there’s nothing but corruption around. Well, so to say, in particular, the material we are discussing today is mentioned. Well, I’m embarrassed to tell you frankly… this is this image of Russia. You have touched on this subject. It means, obviously, we are talking not only of the existence of corruption in Russia, very serious, to boot, what nobody denies. But this is still a two-way street.

        Zeltser: Absolutely, two-way street. This is an ugly and vulgar picture, quite biased, very biased, just like the article itself. It represents the position of certain circles in America, who wish to shift all the blame, all this scandal, to Russia. Unfortunately, the Russian press itself helped this impression very much at some point, stating that the Bank of New York scandal, in essence, did not take place, that it was all invented by me or some other person, doesn’t matter that much. What matters is that, in essence, the Russian press was led by those people who also wrote this article. Namely, declaring that the scandal… declaring that generally, the whole story, or the basis for the story with the Bank of New York, did not exist, in essence, the Russian side accepted the blame. All knew that there was a scandal. All knew that there was a story. In the West they understood it better than in Russia. As soon as the Russian… The question was only in who was to blame: the Russian side, the American side… The Russian side spoke and stated: “The Bank of New York is OK”. They did not comprehend that by saying this they sated, “We are not”. Well, in essence, what has happened? Now, eventually, I’m beginning to notice… and your trip over here… this is also indicative of the attitude, that the Russian press is beginning to understand that this is not quite so. It’s not the question whether there was a scandal. Don’t protect the Bank of New York. The Bank of New York has done enough of dirty things. Very few people doubt it. The question is ‘Who has done most and who has taken part in it?’ Again, specific people have taken part in it, both from the Russian side and from the American side. The American input, so to say, in this affair was not smaller than the Russian one.

        Pozner: Tell me this… I understand that this is not a simple question, but do you suppose, you cannot probably blame, but do you suppose that some officers of the same International Monetary Fund are also involved this way or the other?

        Zeltser: A difficult question. I can say with sufficient degree of confidence that even if they are not involved, it’s necessary to smack them. When… when all this was happening… was introduced…

        Pozner: That is, either they treated all this with extreme negligence…

        Zeltser: With criminal negligence.

        Pozner: Criminal negligence towards their responsibilities, or they in reality…

        Zeltser: Which is also probable.

        Pozner: Not precluded…

        Zeltser: Not precluded…

        Pozner: Not precluded.

        Zeltser: No doubt, a large number… a certain number of officers, both at the IMF and the European Bank of Development, as well as in the American Government, received alarm signals starting from 1996… there were letters, enough of materials was sent… confirming what we were talking about… was sent both to the International Monetary Fund, and to the American law-enforcement bodies, as well as overseeing agencies. The Securities Commission received these materials in 1996. Moreover, they responded, “Many thanks for advising us”, and that was it – “We will sort it out”. Well, they had been sorting it out till the moment when all this…

        Pozner: How can you explain it?

        Zeltser: I don’t know how I can explain it. I don’t like it. This I can tell you exactly.

        Pozner: Okay, another…

        Zeltser: It’s strange, at least.

        Pozner: You have told me yourself that there was one federal judge, you did not name him, and I’m not asking for it, but he, sort of, facilitated that this case would not get out, would not be splashed out. Did it take place?

        Zeltser: This is what took place: Certainly, I must be very careful with we deal with federal judges…

        Pozner: Yes, extremely… I understand.

        Zeltser: But presently…

        Pozner: Let me just interrupt you. The thing… I’ll interrupt you in the sense that our viewers in Russia, generally, don’t know what a federal judge is.

        Zeltser: In America he is the Tsar, he is God and he is your army captain.

        Pozner: Is he appointed by the President?

        Zeltser: This is a person appointed by the President and whom the President can’t fire.

        Pozner: Once appointed, means for life… And this is someone who has a colossal, how shall I put it, weight. That’s why when I said that a federal judge had done something it’s not just some man-of-the-street, this is an extremely important person. Now please…

        Zeltser: A federal judge is really an important person. It’s a person who has the capability to order the President what to do. Thus, one has to treat him in a special manner when we are talking about a lawyer, i. e. a person who is fully under his jurisdiction. The only thing I can say in this regard is today in the case of Inkombank which, in essence, just this bank… Inkombank is non-existent now… The last thing that happened there was that the shareholders of Inkombank sent the judge a motion to withdraw him in connection with the fact that his conduct looked, and this is the correct legal word, looked biased.

        Pozner: Of this judge…

        Zeltser: Yes.

        Pozner: …the conduct looked…

        Zeltser: Thus, a motion to dismiss him was filed.

        Pozner: I have three questions in conclusion. The first question: to what degree, in your opinion, does the negative attitude towards Russia that is the remnant of the cold war affect… have its roots, no doubt… To what degree do these sentiments today, this way or the other, affect the objectivity of the analysis of all this situation?

        Zeltser: They do.

        Pozner: They do?

        Zeltser: They do by all means. There’s no doubt they do. At the time when this scandal sprang up, at the time when this default appeared yet in August… Those people or those certain circles that somehow became subdued during the Perestroika and were forced to submit to the general mood again surfaced with their statements, “But we have always told so! Russians are bad! They have acquired their experience.”

        Pozner: The second question: these scheme, as I understand, that must be moved somewhere from somewhere, and on the back of it there’s something penned in and signed… Signed, if I’m not mistaken, by someone you’ve named.

        Zeltser: Quite correct. Here we are talking…

        Pozner: This is Vinogradov!

        Zeltser: This is Vladimir Vinogradov.

        Pozner: What is this? What kind of a scheme is this?

        Zeltser: In essence, we are talking here about the general scheme for money laundering, which, with these or those modifications, was used by Inkombank and its management, as well as by other banks.

        Pozner: How did it get here?

        Zeltser: It got here in the process of a legal investigation, which we conducted. These schemes, no doubt, were developed… by the way, one has to look at them in order to understand them. They were not developed by Russia’s beginning bankers and former Young Communist League leaders, such like Vinogradov used to be, who graduated from the Ufa Engineering Institute majoring in aircraft engines. No doubt, it was not done… here we are talking… when Vinogradov came here for the first time, I remember, I gave him his first credit card in his life: the American Express. He called me aside and asked, “Where am I supposed to sign it here? They say one has to sign it somewhere.” He was not the one who invented this scheme.

        Pozner: That is, you mean that this… to him… They got help from some…

        Zeltser: No doubt, it was… a professional… quite correct. It’s enough to look at this scheme to understand that what… Mr. Vinogradov’s participation and that of his surrounding people… no doubt… Absolutely undoubtful is the fact that this scheme, quite professionally done, was done with the help of Americans. Not only the Americans, but also Europeans…

        Pozner: The Swiss…

        Zeltser: In particular, them too.

        Pozner: So what… here, their… perhaps, not free of charge.

        Zeltser: I suppose so. I have just heard it was not free of charge.

        Pozner: And the last question: what do you think? Where is it all going to lead? What is it all going to end with? How? What do you expect?

        Zeltser: No doubt, nobody in America wants to ruin the Bank of New York. It’s a very serious bank, a huge one. Part… it’s part of what they call in Russia ‘system-forming’… Really, forming a system… Nobody wants to put the Bank of New York out of business, nobody wants to deprive it of its Charter. Thus, no doubt, there’s going to a tendency to soft-pedal it. Unfortunately for many this affair begins to acquire its own life. And where it’s going to move next will depend on you, gentlemen, the press, on the activity of the press and on the activity of the law-enforcement bodies, both in America and Russia.