THE WALL STREET JOURNAL
February 22, 2000 Bank of New York Investigation Widens
To Include Swiss Financier RappaportBy PAUL BECKETT and MICHAEL ALLEN
Staff Reporters of THE WALL STREET JOURNAL
As federal authorities pursue the trail of $7 billion laundered through Bank of New York Co., the New York County district attorney's office is focusing on another aspect of the bank's business: its relationship with financier Bruce Rappaport, people familiar with the matter say.
Mr. Rappaport, a Swiss oil trader and financier, held a stake of about 8% in Bank of New York in the mid-1980s, though that was diluted when the bank acquired Irving Trust Co. in 1989. The size of his remaining stake is unclear. Also in 1989, Bank of New York began building a stake of 27.9% in Inter Maritime Bank, a Geneva-based bank that Mr. Rappaport controls.
Among the avenues investigators are pursuing is whether proper disclosures and representations of ownership were made by the bank and by Mr. Rappaport in connection with their holdings in each other's businesses, the people familiar with the matter say.
'We Have Nothing to Hide'
A spokesman for the district attorney's office in Manhattan declined to comment, as did Bank of New York. Martin Mendelsohn, a lawyer for Mr. Rappaport, said he hadn't been contacted by prosecutors. He added: "We have nothing to hide and every reason to cooperate, and we will."
There are no signs Mr. Rappaport and his role at the bank are tied to the money-laundering scheme that funneled $7 billion from Russia from 1995 to 1999 through three companies, including Benex International Co., which held accounts at Bank of New York. The scheme was used largely to help Russian businesses avoid customs duties and taxes, but authorities say the system was also used to launder the proceeds of criminal activity.
Mr. Rappaport said in a statement in the summer: "I know none of the individuals involved in this matter, and I certainly have no knowledge of whatever their business was about."
Mr. Rappaport does, however, have extensive business connections in Russia, where he serves as Antigua's ambassador. And Rayburn Hesse, a former State Department official, says he believes Mr. Rappaport at one time helped Russians seeking to move money to offshore havens in the Caribbean.
History With Regulators
"We had information from Caribbean sources that some of these Russian entrepreneurs were using letters and business cards from Bruce Rappaport as an introduction to Caribbean bankers," Mr. Hesse said.
Mr. Mendelsohn, Mr. Rappaport's lawyer, said: "My understanding is that they may have had business cards but not letters of introduction."
Mr. Rappaport also has a history with regulators. In 1997, the U.S. filed a civil complaint in a Boston federal court against two banks in Antigua and Barbuda purportedly controlled by Mr. Rappaport, seeking to recover more than $7 million in drug money that had been laundered through the institutions in the 1980s by an associate of a Boston drug ring. Last year the judge in the case dismissed it, citing lack of jurisdiction. Mr. Rappaport has denied wrongdoing in the case.
As well as bringing Mr. Rappaport's role in Bank of New York under scrutiny, the money-laundering probe has prompted an extensive review of the bank's involvement in Russia, where it became one of the most-prominent Western banks. It specialized in establishing correspondent accounts to allow Russian banks to transfer funds internationally. Authorities in Switzerland, Italy, the United Kingdom and elsewhere continue to pursue separate inquiries.
Manhattan Probe of Couple May End
The Manhattan district attorney's office has been investigating the laundering scheme. But now that two of the scheme's key players -- Benex President Peter Berlin and his wife, Lucy Edwards -- are cooperating with federal authorities, the Manhattan district attorney's office isn't expected to pursue its own charges against the couple, people familiar with the matter say.
Mr. Berlin and Ms. Edwards, who was fired from her job as a vice president at Bank of New York in August, last week pleaded guilty to a broad conspiracy to conduct unlicensed banking activities in the U.S. and to launder money. They also admitted paying a low-level bank employee to keep the Benex system running smoothly after they moved to London in 1996. But the people familiar with the matter say that, to the best of the bank's knowledge, no senior Bank of New York officer knew of the Benex scheme, although some colleagues of Ms. Edwards knew of the system.
Mr. Berlin and Ms. Edwards arrived in New York from their London home last week and quickly pleaded guilty to the charges brought by the Manhattan U.S. attorney's office. A person familiar with the situation says they entered their pleas so soon after arriving in part to diminish the chance of facing separate charges from the Manhattan district attorney.
Write to Paul Beckett at paul.beckett@wsj.com and Michael Allen at michael.allen@wsj.com
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