Bank of New York Linked to Russian ‘Mafia’ via Money Laundering

Evidence of the growing links between global organised crime, international banking and government was uncovered by in an investigation into money laundering at one of New York’s most prestigious banks. The money trail involves suburban London, the Isle of Man, Geneva, Moscow, the Cayman Islands and northern Italy among other sites. It may also reach into the heart of Russian government. The US government announced new steps to combat money laundering.

In August it was revealed that the Bank of New York was under investigation for its involvement in a huge money laundering operation operated by Russian organised crime. At least $4.2 billion are thought to be involved, and perhaps as much as $10 billion, making it the largest such case in the world. The case is being handled jointly by the FBI and the US attorney’s office in New York, also in collaboration with Swiss, British, Italian and Russian authorities.

Although it had been known that the Russian mafia had infiltrated New York’s banking system, the apparent extent of the operation surprised investigators. The Bank of New York transfers more money per day around the world than any other bank, $600 billion a day. Estimates are that between $500 and $1500 billion, equivalent to 5% of gross world product, is laundered every year through the world’s banking system.

In reaction to the scandal at the Bank of New York the US Treasury announced new steps to combat global money laundering in September. It included proposals to extend US laws on the transfer of funds from overseas accounts to the US to apply to corrupt foreign officials. There would be renewed pressure on governments identified as ‘rogue jurisdictions’. And the Treasury called for greater use of surveillance over wire transfers and movements of money. Casinos, brokerage firms and storefront check cashiers would be required to inform the authorities of suspicious transactions. Spokesman Larry Summers connected the crackdown on money laundering with efforts to tackle drug smuggling and organised crime.

Although the story was broken by the New York Times in August, the investigations leading to the Bank of New York had begun at least two years before. The report brought into the open an ongoing investigation by the US attorney’s office and the FBI, responding to a tip off by investigators in the City of London.

British inquiries had focused on a Russian businessman, Yukovich Mogilevich. Mogilevich is thought to have been involved in arms running, extortion and prostitution. The authorities claim that he began as a small-time crook from Kiev, but made much of his early fortune defrauding Soviet Jews leaving for Israel in the 1980s. He himself has Israeli citizenship. Later he apparently sold weapons looted from the Russian army to Iran, Iraq and Serbia. During the 1990s he lived in Budapest, where he is suspected of organising prostitution. However, when the allegations surfaced Mogilevich moved to Moscow, from where he denied any criminal activities

Mogilevich had been under investigation for years by British intelligence as part of an inquiry into Russian organised crime in Britain. The trail led to the Bank of New York and a firm in Philadelphia, YBM Magnex, which makes magnets, and which is thought to be the first front for money laundering. The first indications of his financial activities was the setting up of a company registered in the Channel Islands in 1991. This company later acquired YBM Magnex.

The $10 billion was alleged to have passed through Benex Worldwide, a general trading company with headquarters in a semi-detached house in suburban Essex, England. Two Benex accounts at BONY containing $20 million were seized in August in a joint operation between the FBI and the New York Police Department. One of Benex’s directors is Peter Berlin, a Russian-born businessman, whose wife, Lucy Edwards (born Lyudmila Pritzker), works for the eastern Europe desk of the Bank of New York in London. According to BONY, Edwards concealed her marriage to Berlin from her employers. She was suspended by the Bank along with a second Russian-born executive, Natasha Kagalovsky, who worked in New York. Her husband is a prominent Russian banker. The other three directors of Benex are a Russian banker, Eleonora Razdorskaya, and two financial consultants, Vladimir Malkov and Vladimir Razdorski.

Confirmation of the suspicions came from Italian investigators in Rimini, northern Italy. Criminal proceeds from racketeering and extortion in Italy were routed through Moscow and New York according to the Italian authorities. The trail also led to Benex Corporation and its network of companies. The findings came as the result of a two-year inquiry into the harassment of Russian traders in Italy by gangs. The small town of Rimini was targeted because of the large number of small Russian trading businesses exporting luxury Italian goods to Russia. The Rimini gang is suspected to have close links with Russian mafia from Brooklyn.

A second company under investigation is Bank of New York-InterMaritime, a Swiss bank whose joint-owner, Bruce Rappoport, is Antigua’s ambassador in Moscow. The Swiss authorities froze 59 bank accounts held by Russians in September, which may be linked to the Bank of New York investigation. They acted on advice from Russian investigators. The search also spread to include a London law firm, now defunct, thought to be responsible for setting up many of the shell companies. Two lawyers associated with the firm were arrested by Britain’s National Crime Squad in 1998.

Russian government sources played down the scandal and the allegations of high level involvement in organised crime. Moscow’s papers implied that the US Republican Party had inflamed the scandal to harm the presidential prospects of Al Gore. The Italian newspaper Corriere delle Serra alleged that the scandal reached President Yeltsin and his daughter, both of whom had credit cards paid for from an account in Switzerland registered with Mabetex bank. Yeltsin’s son-in-law held two accounts at the Bank of New York’s branch in the Cayman Islands.

In Russia, the investigation focused on Yukos Oil, the country’s second-largest oil company, and its holding company Rosprom. Its chairman, Mikhail Khodokovsky, was once the top official at Russia’s energy ministry before going on to found the Menatep bank. The FBI suspect Menatep of being part of the money laundering operation. Natasha Kagalovsky, one of the two Bank of New York executives under suspicion in the inquiry, is married to a vice chairman of Yukos and Menatep. Yukos has subsidiaries in Cyprus, Switzerland, the Isle of Man and the Caribbean. Some of its shareholders suspect the management of looting the company’s assets and hiding the proceeds abroad.

Russia's Interior Ministry estimates that anywhere from $50 billion to $250 billion was transferred out of the country illegally between 1994 and 1998. The credit rating agency Fitch IBCA said $136 billion left the country from 1993 to 1998. As much as $200 million of the total sum supposed to be laundered may have originated as IMF funds.

Activity at Bank raises suspicions of Russia mob tie, Raymond Bonner and Timothy L. O’Brien New York Times 19.8.99; Russian mob ‘used US bank’ to launder cash, Jane Martinson and Dan Atkinson The Guardian 20.8.99; Investigators Seize $20 Million in Russian Money-Laundering Case, Kit R. Roane New York Times 26.8.99; Russian fraud inquiry widens, Jonathan Steele 28.8.99; Russian Organised crime, The Economist 28.8.99; Follow the Money, if You Can, Timothy O’Brien 5.9.99; The Russian Money Trail, New York Times 12.9.99; US veils plans for crackdown on global money laundering, Jane Martinson The Guardian 24.9.99; London Law Firm Is Target Of Russia Banking Inquiry, Timothy O’Brien New York Times 24.9.99; Italy Sees Russian Mob Link Through Bank of New York, John Tagliabue New York Times 28.9.99

Falun Gong: China Cracks Down on ‘World’s Fastest Growing Spiritual Movement’

China’s crackdown of the Falun Gong spiritual movement provoked protests from the growing numbers of followers inside China but also in North America, Australia and Europe. The loosely networked organisation of the movement and its extensive use of the Internet across the globe make it difficult for Chinese authorities to contain.

The Falun Gong spiritual movement was officially banned by the Chinese authorities on July 22, sparking protest in China and abroad, where the number of followers is growing rapidly. Up to 5000 people were detained in mass round ups, and thousands of books, cassettes and videos seized and destroyed. The crackdown came in retaliation for the movement’s mass demonstrations in April, when 10,000 people assembled outside the Communist Party headquarters to call for official recognition. There were also demonstrations in other cities.

The group claims to have between 70 and 100 million followers worldwide, a figure disputed by the Chinese government. They say that there are only 2 million in China. Falun Gong has been described as the fastest growing spiritual movement in the world. It does not regard itself as a sect, cult or religion.

Religious affiliation is increasing in China, but only a few religions are officially recognised (Buddhism, Confucianism, Taoism, Islam, Christianity), leaving many others to exist partly in the open and partly underground. Compared with crackdowns on similar groups, the action against Falun Gong has been more severe and thorough, possibly because there are thought to be many members within the Communist Party and armed forces. What also seems to have rattled the authorities is the speed and stealth with which April’s demonstrations were organised.

Falun Gong makes intensive use of the Internet, and Chinese authorities moved quickly to attack websites in North America and Europe by bombarding them with requests. The Chinese government opened its own website to counter Falun Gong, detailing horror stories about followers and attacking its leader’s integrity. Websites in China carrying information about the movement were suspended. A 70 minute TV programme on Chinese television also attacked its leader, Li Hongzhi, featuring interviews with former acquaintances and school colleagues and cases of followers who had died as a result of his teachings.

Although there were perhaps no more than 2 million people with access to the Internet in China at the time of the ban, it is estimated that by the end of 1999 there will be 4 million Internet users in the country.

Falun Gong’s leader, Li Hongzhi was a minor official working for the state bureau of grain in China’s northeast. He founded the movement in 1992 and the now group claims to have 39 teaching centres and 1900 instruction centres in China. Most followers are middle-aged members of the urban middle classes. They had become a familiar sight doing early morning exercises in the 28,000 sites designated by Li in China’s cities.

Li wrote Zhaun Falun (‘Rotating the Law Wheel’), the book containing his core beliefs. Further insights are recorded on cassettes and videotapes and distributed from New York, or disseminated via the Internet. The movement is based on gigong or Qi Gong, traditional Chinese meditation and healing beliefs, blended with elements of Buddhism and Taoism. The falun or ‘law wheel’ rotates within the abdomen enabling people to draw upon good forces and expel bad ones. Channelling these energies, gigong, is a practice common in many Chinese beliefs. Li also instructs on good moral conduct, drawing upon Buddhist concepts of karma. Followers attest that the exercises relive pain and cure ailments. Li’s stated aim is to lead humankind to salvation from its current state of corruption. He also claims to be able to make prophecies.

In 1996 Zhaun Falun was banned in China, and the following year Li went into exile in the US, moving to New York. He pays regular visits to seminars and conferences organised by the movement in various countries.

After the July crackdown Li Hongzhi called on the Chinese government to enter into dialogue with Falun Gong, saying that the movement posed no political threat. He denied that there was a Falun Gong organisation, only volunteers willing to spread his teachings to friends and neighbours. Li also denied organising the April protest, despite entering the country shortly beforehand and leaving soon after. The Chinese authorities contest that Falun Gong is a well-organised and well-financed cult. Within China itself, the crackdown met with demonstrations in more than 30 cities, including Shangahi, Guangzhou, Shenzen and Wuhan.

On September 11 demonstrations in support of Falun Gong took place in many US and Canadian cities, including Chicago, Boston, Detroit and Los Angeles. There were also protests in Australia, Taiwan and Hong Kong SAR, where the group remains legal. US-based Falun Gong members took their campaign to the United Nations in October, calling for a peaceful resolution. Diplomatic protests about China’s action have come from the USA, Australia and Canada. The US State Department urged China to recognise religious freedom, earning it a rebuke from Beijing and a request that Li Hongzhi be arrested. China also called on the UK to bar Li Hongzhi, but British authorities stated that there was no grounds for preventing his entry into the country. Interpol declined to arrest the leader.

Falun Gong was introduced to Britain in 1996 and before the ban there were estimated to be no more than 300 followers in the country. Organisers claimed that numbers trebled after July. Peter Jauhal was a Cambridge graduate searching the Internet for meditation techniques when he came across Falun Gong in 1996. He began the first exercise group in London’s Hyde Park. Now classes in meditation and exercise are held in twenty British cities. As in China, the membership is drawn mainly from urban professionals and Universities.

The seriousness with which the Chinese government regards new religious movements was made plain when, in July the government announced that it had sentences to death the leader of a Christian religious group in Hunan. Liu Jiaguo, leader of Supreme Spirit, was tried for swindling his followers and raping some of his female disciples. Other leaders of the group were imprisoned or sent to labour camps. Police in Hunan have broken up 10,000 religious groups in recent years.

Falun Gong: A new cult emerges, James Miles BBC 28.4.99Death for Chinese cult leader, BBC 14.7.99; Beijing Detains Leaders of Sect, Watchdog Says, Mark Landler New York Times 21.7.99; The complex Web of Falun Gong, Kieran Cooke 22.7.99; Falun Gong Hong China bans sect of 100 million over suspected political agenda, Lorien Holland Independent 23.7.99; Banned Movement's Head Urges Talks With China, Erik Eckholm New York Times 24.7.99; China reels as sect leaders rounded up, James Miles Independent 25.7.99; Chinese wage Internet war on banned cult, Oliver August Times of London 28.7.99; Why the exercisers exercise China’s party, The Economist 31.7.99; Secretive Chinese sect spreads to Britain, Yvonne Ridley Independent 1.8.99; Falun Gong War Explodes Onto Internet, CNN 2.8.99; This man claims to be teaching an ancient method of spiritual healing…, Alix Kirsta Times of London 14.8.99; China asks UK to bar Falun Gong leader, Reuters 17.8.99; Banned Chinese group comes to Britain’s parks, Ruth Gledhill Times of London 26.8.99; Gongers take to the parks on plastic bags, Helen Rumbelow Times of London 30.8.99; Spiritual movement is banned in China, David Crumm Detroit Free Press 11.9.99; China and the challenge from cyberspace, Gillian Gray BBC 23.9.99; Falun Gong launches campaign to pressure China to lift ban, CNN 7.10.99