Dont mess with Russia is the message as customs claim $22.5bn from Bank of New York
On July 3, the very eve of America's annual celebration of Independence Day, a Moscow courtroom sizzled with acrid testimonials to the effect that the oldest bank in the US is internationally accountable on charges of money laundering and, if convicted, will have to pony up $22.5bn to the Russian Customs Service, said sum representing just over a third of the bank's capital.
The outfit in question is the indubitably venerable Bank of New York, founded in 1784 by investors including Alexander Hamilton, first US Secretary of the Treasury, Aaron Burr (who later killed Hamilton in a duel) and the Bank of England. At least part of the start-up capital was money filched from a public works scheme to clean up Manhattan's drinking water.
Today BNY–Mellon, as it's formally known, is
a huge private bank catering to blue chip companies and clients round the world.
In the early 1990s, BNY scented opportunity in Russia and soon became a favoured port of call for customers in the former Soviet Union eager to dispatch very large sums of money overseas. Assisting BNY in this hospitable activity was a Russian couple, Peter Berlin and his wife Lucy Edwards, who finally removed from the Russian Federation and settled in New York. In 1996 Peter set up a couple of companies, Benex and BECS, with accounts at the BNY Branch at One Wall St, Lower Manhattan.
For the next three years, astoundingly large sums sluiced into these accounts, remitted from Moscow by a Russian enterprise called Depositarno Kliringovy Bank (DK
, for whom Peter and Lucy were acting as front operators, in a money-laundering operation of the utmost simplicity. Between 1996 and 1999, $7.5bn flowed into the BNY accounts.
The couple would sit in front of their computers using a BNY software program called 'micro/CA$H-Register' to whisk the money out of BNY and dispatch it to trusted financial institutions in the South Pacific such as Sinex, later described unflatteringly by US federal prosecutors as a "shell bank in Nauru controlled by principals of DKB". The South Pacific island of Nauru was a popular financial laundromat in the 1990s.
All this time, so these same US federal prosecutors say in an annexe to the "non-prosecution agreement" co-signed in 2005 by Thomas Renyi (right), chairman and CEO of BNY, BNY's supervisors at the One Wall Street branch were never moved to file even so much as one Suspicious Activity Report, or even to display any disquiet at the manifest and illegal trafficking that made Benex and BECS the highest fee producers at the branch, with BNY earning $1m in simple transaction fees. Ignorance is bliss when it’s dangerous to be wise.
When the Feds lowered the boom in 1999, BNY said that by a series of miscommunications - left hand not knowing what the right was doing and that sort of thing - for three years it had absolutely no idea of what was going on. Indeed BNY had promoted Lucy to a vice-presidential spot during that period.
The Russian couple eventually pleaded guilty in 2000, admitting they'd been paid $1.8m in commissions for their role in the wash. They paid fines, got five years' probation, but nothing in the way of jail time. The feds imposed record forfeitures - $38m - on BNY (which paid its chairman almost twice that sum in 1999) and made all sorts of fierce noises in the 2005 agreement, but no BNY executive faced actual prosecution, let alone a day behind bars, for being an amenable entrepot for money launderers to an extent that gets humble drug dealers who don't have Alexander Hamilton as a progenitor put away for decades.
In May 2007 the Russian Customs Service filed a $22.5bn claim against the Bank of New York. Its legal onslaught is based on the US Racketeering Influenced and Corrupt Organisations (RICO) Act, which clambered into the US statute book in 1970,
signed by Richard Nixon, with "finishing off the Mafia" as the familiar pretext. Since all it has to do is to establish a pattern of criminal activity, RICO is popular with prosecutors. In civil cases it imposes a triple penalty - hence the escalation from $7.5bn to $22.5bn.
The public posture of BNY has been to slight the Russian case, insisting that the RICO law can't be be used in cases outside US jurisdiction and that if a Russian kangaroo court - it's the same one (Basmanny) that did in the oil company Yukos - finds BNY guilty, the Russian Customs Service will never be able to collect. But as court proceedings got under way in Moscow this year, BNY had some nasty jolts. The man who actually wrote the RICO law, G Robert Blakey, filed an affidavit supporting the Russians, and flew to Moscow to testify. Prof Alan Dershowitz similarly filed a supportive affidavit. The lawyers will reassemble in the Moscow court on July 28 when Blakey thinks there will be a settlement out of court. BNY, meanwhile, keeps an anxious eye on its share price. Aside from trying to get their money back, the Russians want to send a strong signal that looting the Federation and exporting the proceeds is no longer a risk-free option. These sorts of signals do have an effect. Fearful of being grabbed on charges of war crimes, Henry Kissinger is still careful in the jurisdictions he visits, as no doubt will be George Bush and Dick Cheney, once they quit office..
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