In April 1993, as Russia was hemorrhaging billions of dollars, a young Russian businessman approached a Washington consulting firm saying he had access to $1.7 billion of Russian money to send abroad. He was looking for a Caribbean or Latin American country where he could set up a bank and invest the money in exchange for 125 foreign passports to enable wealthy Russians to travel freely.
The businessman was Alexandre Konanykhine, now 33, who said he was vice president of Menatep Bank, a large, politically connected institution. Known within the CIA as "The Kid," Konanykhine had been identified by the U.S. spy agency as a friend of, and political fund-raiser for, Russian President Boris Yeltsin.
Konanykhine (pronounced Koh-Nah-NEE-Kin) also was believed by U.S. intelligence officials to be a member of a select group of former Communist youth activists dubbed the "Miracle Boys." Law enforcement officials and Russian experts said the group was picked by the KGB, the former Soviet Union's intelligence service, to help move billions of dollars outside of Russia. Konanykhine vigorously denies that he was a member of the "Miracle Boys" or had any affiliation with the KGB.
The president of the Washington firm approached by Konanykhine, Karon Von Gerhke-Thompson, 57, had worked at times as an unpaid "volunteer asset" for the CIA and other U.S. intelligence agencies. She found the proposal unusual, and called a CIA contact to ask if the agency was interested in following the case.
The answer was yes, and the CIA made the operation a high priority, according to Von Gerhke-Thompson and other sources with direct knowledge of the event, and to documents obtained by The Washington Post.
Von Gerhke-Thompson offered Konanykhine's proposal first to the Bahamas and then Uruguay. She didn't get anywhere, and the Russian stopped dealing with her in September 1993. It is unclear whether the CIA pursued the matter after that.
But Konanykhine didn't give up. Nine months later, in June 1994, he set up an Internet financial institution called European Union Bank. Though ostensibly based in the Caribbean island of Antigua, its computer hard drive, containing all the bank's records, was in a Washington apartment rented by one of Konanykhine's associates. Konanykhine lived in a $300,000 co-op at the Watergate at the time, and drove expensive cars.
U.S. and British law enforcement officials told the Antiguan government that the bank was used to siphon millions of dollars out of Russia on behalf of Konanykhine's sponsors there. A State Department report said that at least $12 million left Russia through the European Union Bank, and authorities are still investigating the case.
Konanykhine's story offers some glimpses into the shadowy financial flows and ambiguous characters involved in the massive exodus of Russian capital in the 1990s that recently has triggered legal investigations and aroused political controversy from Washington to Moscow. These issues are to be examined this week by congressional investigators on the House Banking and Financial Services Committee, for which Von Gerhke-Thompson is scheduled to testify.
Konanykhine, who now operates an Internet company in New York, says all of his business transactions were legitimate. He has not been charged with any crime, and in February the United States granted him political asylum. Konanykhine argued that he couldn't return to Russia because his enemies there would kill him. He was the first Russian to be granted U.S. political asylum since the Cold War ended.
Konanykhine has been well-known to the CIA for some time. The spy agency knew he put millions of dollars into Yeltsin's successful presidential bid in 1992, according to knowledgeable sources. Konanykhine confirmed the information in an interview and said that in Russia he had lived in a government-provided dacha, or weekend house, enjoyed state-paid bodyguards and had accompanied Yeltsin on his first visit to the United States.
James E. Moody, a retired senior FBI official who specialized in Russian organized crime and testified against Konanykhine at his immigration trial, said that based on evidence that he had examined, Konanykhine appeared to have had links to the KGB. "It appeared to me he may have been identified as an individual to get money out of Russia and laundered abroad," Moody said in an interview.
But something went wrong in Russia, and Konanykhine fled the country in September 1992. He alleged at his Immigration and Naturalization Service hearing and in a recent interview that his $300 million empire had been taken over by corrupt KGB officers.
He seemed to be back in business a few months later, though, when he proposed his investment-for-passports deal to Von Gerhke-Thompson at the First Columbia consulting firm in Chevy Chase. The CIA, according to sources, believed no one in Russia could have access to such large amounts of money without working for or with the KGB.
"Our understanding was that [Konanykhine's sponsors] were big wheels close to Yeltsin, but we did not have the names," said one knowledgeable source. "We suspected they were trying to move hundreds of millions, if not billions of dollars out of the country. We wanted the names. You couldn't do something like that at that time without ties to the KGB."
Konanykhine staunchly denies any ties to the KGB and offers a different explanation. Many countries in this hemisphere offer passports in exchange for a certain level of investment. He said he was not representing a small group, but any Russian who could afford to buy a foreign passport and avoid the headaches of traveling with a Russian one. He said the $1.7 billion was a projection of how much he could earn with the plan simply by selling passports to the newly rich Russians he already knew.
"I was not thinking about 125 passports for a specific group of people," Konanykhine said. "I was thinking about thousands if not tens of thousands of passports."
With the CIA's blessing, Von Gerhke-Thompson first peddled Konanykhine's proposal to a friend, former Bahamian prime minister Edward St. George. She wrote him that the Russians appeared to be "sophisticated, astute and quite knowledgeable in matters concerned with investment and finance. . . . I understand their combined liquid assets exceed one or more billion dollars."
But St. George, in an interview, said that after meeting Konanykhine he concluded that the Russian was a "complete fraud," and no deal was made.
Von Gerhke-Thompson then tried to put together a deal for Konanykhine to buy passports from Uruguay. She said that despite repeated assurances by Konanykhine's associates that the deal would be signed, it never was. In September 1993, Konanykhine's office broke off contact with Von Gerhke-Thompson and refused to pay a $12,000 bill she had submitted for her work.
The explanations for the deal's failure differ drastically. Von Gerhke-Thompson alleged in letters to the CIA that her operation was blown by Aldrich Ames, a CIA official later unmasked as a Russian spy. A person with direct knowledge of events said that when Ames was unmasked, every branch of the CIA prepared a list of operations Ames could have compromised. The source said the Konanykhine case was listed because it had "definitely crossed Ames's desk."
Konanykhine laughed at the assertion he had anything to do with Ames, and Ames has denied knowing Konanykhine. Konanykhine said he didn't trust Von Gerhke-Thompson, that he found better proposals elsewhere and was uncomfortable when she continued to call his office repeatedly.
Konanykhine subsequently set up the European Union Bank and was living well in Washington. He said that no large scale passport deals were made for money he invested in the bank.
Unbeknown to Konanykhine, and possibly the CIA, by September 1995 another process was in motion. The FBI had just opened an office in Moscow, and its members asked their Russian counterparts to identify cases in which the bureau could help. According to sources with direct knowledge of events, the Russians' top request was the extradition of Konanykhine, who, they said, had stolen $8.1 million. In February 1997, a senior Russian government official publicly accused Konanykhine of making off with $300 million.
The INS, at the FBI's request, reviewed Konanykhine's visas and, alleging irregularities, arrested Konanykhine and his wife in June 1996. Konanykhine was sent to jail but filed for political asylum, arguing that, if deported, he would be killed by corrupt Russian authorities.
Immigration Judge John Bryant heard Konanykhine's claim that he was accosted by KGB henchmen in Budapest, and that the thugs demanded he sign over all his businesses, including his bank, or be killed. Konanykhine said he persuaded his assailants to wait until morning, got them drunk, then sneaked out of the country with his wife. He was able to do this, he said, because both he and his wife had extra passports with valid U.S. visas, along with $1 million, in a hotel safe.
During the trial, Yuri Svets, a former KGB officer, testified that Konanykhine's businesses appeared to be a classic example of KGB front companies designed to hide illegal money transfers, but that even if this were the case, Konanykhine could have been used by the KGB and not known of the organization's involvement.
At one point a frustrated Bryant threw up his hands, saying the entire case "is such a stretch that it might be a novel by Tom Clancy."
Bryant denied the asylum request. But a senior INS agent then told the court that the case had been mishandled and that key evidence had been withheld by INS. A new hearing was held, and this time Bryant ruled that Konanykhine was entitled to asylum because "the murder of Russian business people in general and bankers in particular is not uncommon."
The INS is appealing the ruling. Antigua shut down Konanykhine's European Union Bank in 1996 under pressure from U.S. and British authorities who alleged that the bank was involved in corrupt practices. U.S. law enforcement officials are reviewing the bank's records, looking for ties with the recently disclosed case at Bank of New York, where suspicious transfers of billions of dollars of Russian money are under investigation.
CAPTION: Alexandre Konanykhine gained asylum by asserting at deportation hearing that he would be killed in Russia.
CAPTION: Alexandre Konanykhine sought foreign passports in return for investments.