After a year of investigating whether Bank of New York accounts were used to launder funds from Russia, federal law enforcement officials have not yet found proof that Russian organized crime is significantly involved or much direct evidence of activity that would be prosecuted under U.S. money-laundering laws, sources familiar with the case said.
Yet in the wake of the torrent of publicity about the case, the gap appears to be widening between the hard, steady progress of the investigation and the rush by politicians and regulators to draw conclusions from it. On Capitol Hill, the House Banking Committee will begin a series of hearings Tuesday on money laundering and Russian corruption, and a leading lawmaker will introduce legislation that would require U.S. banks to pay closer attention to their overseas clients and place new restrictions on their dealings with offshore banks.
The case began with a routine request a year ago to track a $300,000 ransom payment in a Russian kidnapping case, sources said. Since then, law enforcement officials have turned up thousands of leads, tracked the flow of about $5 billion through the Bank of New York, obtained reams of documents and identified a host of suspects.
Last fall, earlier than previously known, investigators also secured the cooperation of the Bank of New York and succeeded in keeping details of the probe from a bank official married to one of the figures involved in the alleged scheme, sources said.
Now, to gather crucial evidence about the original sources of funds, U.S. authorities will soon begin reaching out for cooperation from their counterparts in Russia, where most of the money was originally wired from accounts at two banks, Sobinbank and Depozitarno-Kliringovy, sources said. From there it traveled though nine more accounts at the Bank of New York to scores of banking institutions throughout the world--including cities across the United States, sources said.
Meanwhile, House Banking Committee Chairman Jim Leach (R-Iowa) on Tuesday plans to propose legislation requiring U.S. banks to learn more about foreign entities that conduct business with them, including the identification of all "beneficial owners" of an account. A beneficial owner is the person or organization that enjoys the benefits of ownership, even though the title is in another name.
The law also would prohibit U.S. financial institutions from opening or maintaining correspondent accounts with offshore banks facing little regulatory scrutiny and not permitted to do business in their home countries. The bill also would expand the number of overseas crimes that can trigger money-laundering prosecutions in the United States.
In a draft of his speech, Leach said the time has come to "pierce the veil of secrecy that for too long has made it possible for institutions and individuals operating in largely unregulated off-shore jurisdictions to gain unfettered access to the U.S. financial system for purposes of legitimizing the proceeds of illegal activity."
It's difficult to say what bearing those proposals would have had on the circumstances of the Bank of New York case. But Rayburn Hesse, a former senior policy adviser for financial crimes at the State Department, praised the proposals as a "step in the right direction" toward giving authorities "more ammunition" to fight money laundering.
The administration plans to announce its own money-laundering policy this week, possibly on Thursday. Congress directed the White House to come up with such a policy last year, when lawmakers passed the National Money Laundering and Financial Crimes Strategy Act.
The Bank of New York case began in August 1998 with a request for help from Russian police. The Russian MVD, or Ministry of Internal Affairs, was working on a kidnapping that occurred in June 1998, according to law enforcement sources.
The MVD asked the FBI to track a $300,000 ransom payment that was paid to a brokerage in San Francisco. The FBI investigators found that the money had then been transferred to an account at the Bank of New York in the name of a company called Becs International LLC, according to law enforcement sources. Authorities recently determined that more than $1 billion flowed through the Becs account.
At about the same time the FBI began tracking the ransom money, Republic National Bank notified federal authorities of suspicious activity in a single account--soon found to be related to Becs--that was opened by a company called Torfinex. Investigators turned up evidence of a host of other related accounts at the Bank of New York, including several opened by Benex International Inc.
While federal authorities had evidence from the kidnapping case that some of the money flowing through the accounts came from an illegal activity, they wanted more information, sensing they had a much larger scheme on their hands. With additional investigators added to the case, subpoenas were issued to the Bank of New York .
What eventually came back stunned investigators: They received piles of paper documenting more than 87,000 transactions in the questionable accounts. The response of the FBI is at odds with suggestion that it did not moved quickly enough to follow through on the case. Still other financial investigators were assigned to review those documents. They turned up evidence that more than $5 billion moved electronically through the accounts into banks around the world, including those in U.S. cities both large and small.
Authorities had to tread carefully. As they gathered information and monitored open accounts the Bank of New York and Republic National Banks in a search for clues, they did not want to alert possible suspects. Those included Lucy Edwards, a vice president in the Bank of New York's eastern European division.
Investigators discovered that Edwards was married to Peter Berlin, a Russian native, now U.S. citizen, who is associated with all the accounts under investigation and is president of a few companies that opened them. Federal officials said the bank worked closely with investigators for months to shield the probe from Edwards and others who might be involved. Bank officials also cooperated by turning over documents. Edwards has since been fired. She and Berlin deny any wrongdoing.
As the FBI agents continued, they met several times with investigators from England, who were pursuing a parallel case. British authorities have turned over documents that appear to link the U.S. investigation to Semyon Mogilevich, a Russian who authorities believe is a major organized-crime leader.
Mogilevich is also associated with YBM Magnex International, which appears to have received a wire transfer from Benex International, sources said. But U.S. investigators have not turned up evidence that Mogilevich is directly involved in the Bank of New York case, law enforcement sources said.
Staff writer Kathleen Day in Washington contributed to this report.