By Lucy Komisar
The Moscow Times, Oct 3, 2000
When news broke in August 1999 that somewhere from $7 billion to $15 billion had been spirited out of Russia through the Bank of New York, in what looked to U.S. investigators to be money laundering, American bankers professed shock. A month after those revelations, Bank of New York CEO Thomas Renyi told the U.S. House Banking Committee how dismayed I have been by the suggestions in the press that the Bank of New York has been involved in, or been used as a vehicle for, money laundering or other illicit activities.
Renyi‘s dismay aside, this was hardly the first time a New York bank had been soiled by money believed stolen by Russian criminals. U.S. immigration agent Thomas O‘Connell described one scam in detail. Connell headed a U.S. inter-agency federal investigation of money laundering and other international crimes. The FBI, the IRS, the Customs Department and O‘Connell‘s agency, the Immigration and Naturalization Service, had monitored two Russians with unusual banking habits. In 1993 and 1994, the pair used Chemical and Chase ” now merged ” Citibank, and the Bank of New York to launder almost $2 million embezzled from St. Petersburg Channel 5 television.
And there was more. During that investigation, U.S. authorities discovered roughly a thousand bank accounts they suspected of being used by other Russian criminals.
Most [of the accounts] were out of the Chemical Bank in Dag Hammarskjold Plaza in New York City, said O‘Connell. The first four or five bank statements I saw had hundreds of thousands of dollars going through them. The money would be wired in from Russia and then go out [offshore] to the Cayman Islands or the Isle of Man or Switzerland in two or three days. There‘s at least a thousand of them, and in each one, there‘s money being wired into the U.S. ” hundreds of thousands of dollars. O‘Connell said the money moving through all the accounts investigators examined ran into the hundreds of millions.
O‘Connell said dozens of the owners of the targeted accounts were linked to Russian organized crime. He said one customer was Vyacheslav Kirillovich Ivankov, at the time the most powerful Russian organized crime leader in the United States. Ivankov was convicted of extortion in Brooklyn in 1996 and sentenced to 10 years in federal prison at Raybrook, New York.
The bank accounts were discovered because investigators were tapping the fax machine of a Russian immigrant, Alexander Yegmenov, who‘d caught the attention of law enforcement authorities almost the moment he set foot in the country.
Yegmenov arrived in the United States more than 10 years ago when he was in his early 30s. O‘Connell arrested him in 1990 as an overstay, when he was living at a fraternity house at Rensselaer Polytechnic Institute in Troy, New York. Seeking to block deportation, in 1990 Yegmenov filed a political asylum application. He claimed he had been an economist in the dissident organization Sintez and had been detained in a psychiatric facility for a month. Actually, Russian authorities had convicted him in 1984 on weapons and unlawful sale of goods charges and he had served three years, the court records said. That wasn‘t known by U.S. Immigration then, and Yegmenov got asylum.
A good capitalist, Yegmenov went into the corporate services business, setting up shell companies ” paper corporations used to evade taxes or disguise transactions. He established New York companies through his All American Corporate Service Inc., in Albany, and filed for Delaware corporations with help from Delaware Business Incorporators in Wilmington.
He would create a company in New York and subsidiaries outside the U.S., typically in the Caribbean, said New York State police Captain David McNulty of the Bureau of Criminal Investigations, who helped collect evidence. Sometimes, he was creating a couple of hundred corporations a week all over the country. People came to him and said, ˜I need four companies outside the U.S. that the IRS can‘t get access to.‘
To incorporate U.S. subsidiaries, Yegmenov would dummy up supporting documents to show that companies existed in Russia.
I have 16 boxes and filing cabinets of his papers, O‘Connell said. I have two boxes full of Russian stamps and seals he made for every Russian entity, from federal police agencies to universities to hospitals. They bought a modem for the stamping company and were modeming them images of the stamps they wanted.
We seized a Russian typewriter, he added. They use thin paper and bind it with white string. He had all that stuff. The grand jury indictment called Yegmenov a master forger.
He promised fast service. He was buying people at the New York State Department of State drinks and dinner to expedite the incorporation process, O‘Connell said. At one time, he had a box of blank New York State certificates of incorporation that an employee at the Department of State gave him. They had a watermark and seal. Two state clerks were disciplined in the wake of that discovery, he said.
Too Many Visas
Yet Yegmenov was sloppy. Some clients wanted to use the companies to back up requests for business visas, claiming the American subsidiaries of their companies needed them to work here. The INS got suspicious about the large number of applications Yegmenov was filing. Investigators discovered that he had printed business cards for many of the companies at the same two addresses: 1 Columbia Place and 283 State Street in Albany.
They tapped his fax machines ” and learned he had set up thousands of shell companies. They found 4,000 in New York, a thousand in Delaware, a few hundred in Pennsylvania, Massachusetts, Ohio and other states, plus a couple dozen in havens such as the Isle of Man and the Cayman Islands.
The faxes led authorities to a Yegmenov client named Mikhail Syroejine and the $2 million embezzlement case.
Scamming St. Pete TV
Syroejine was 28 in 1993 and had just been appointed deputy director of St. Petersburg‘s GTRK Channel 5. He was responsible for company purchases. Prosecutors charged that Yegmenov helped Syroejine set up TV & Radio of St. Petersburg Inc., which was registered in August 1993 in Albany in the name of Syroejine‘s wife, Anna Potyomkina. Syroejine was the secretary. Channel 5 director Bella Kurkova and her deputy, Viktor Pravdyuk, were listed as shareholders. Kurkova was a close ally of then-St. Petersburg Mayor Anatoly Sobchak ” the man who brought Vladimir Putin into politics as his deputy mayor.
At the same time, Yegmenov established several other shell corporations to use in the scheme. And Syroejine opened an account for TV & Radio of St. Petersburg at Chase Manhattan Bank in Manhasset, New York, with a $200 deposit.
Then, Syroejine arranged to purchase new Sony television equipment from the phony TV & Radio of St. Petersburg. Channel 5 paid $2 million into the account of the shell company between December 1993 and February 1994.
St. Petersburg television officials said Syroejine had persuaded them that the cheapest way to buy the Sony equipment was via a three-way contract between GTRK, VN Express ” one of the New York shell companies ” and Jojan Consultants Ltd., a company registered in Dublin, Ireland. The Irish capital offers corporate secrecy, hiding owners‘ names from government investigators and courts.
As it often does in these cases, some of the money ended up fueling the U.S. economy. In April 1993, Syroejine had gotten a non-immigrant visa from the U.S. Consulate in Vienna, and in March 1994 he disappeared from St. Petersburg and showed up in America to micromanage the scam. On March 18, 1994, half a million dollars was wired from a Liechtenstein account to a New York Citibank account Syroejine controlled, and between March and May, checks drawn on Citibank paid for a $20,000 Rolex watch, a 1994 Jeep Grand Cherokee and a Chris-Craft 380 Continental pleasure boat.
Covering the Tracks
Money launderers move cash through multiple accounts to obfuscate paper trails. Between August 1993 and May 1994, Syroejine opened accounts at Chase, Chemical, Citibank and the Bank of New York, and shifted hundreds of thousands of dollars between them until he sent nearly $2 million out of the country. Some $430,000 went to Barclay‘s Bank in Limassol, Cyprus. Another $400,000 was sent to an account called Mand Stifftung, opened in the name of Valeri Martioukhine at Verwaltung Und Privatbank in Vaduz, Liechtenstein. That bank was mentioned in a report by the German intelligence service last year as a prominent money launderer. More than a million dollars went to Jojan Consultants at Lloyd‘s Bank in Britain.
By May 1994, close to delivery time for the illusory Sony television equipment, VN Express had replaced the now defunct TV & Radio of St. Petersburg as the supplier and taken over its $600,000 banked assets. Syroejine sent a fax from VN Express stating that because of the provocative behavior of one of Channel 5‘s representatives, VN Express refused to deal with it anymore. Channel 5 never got more of an explanation or the equipment, nor could it get in touch with VN Express or Syroejine.
Meanwhile, U.S investigators learned through Interpol of Yegmenov‘s 1984 Russian convictions and jail term. The U.S. Justice Department‘s Office of International Affairs passed the information to the Russians, and in 1995, Russian prosecutors began looking into the disappearance of the $2 million from Channel 5.
On Nov. 13, 1995, the FBI arrested Yegmenov in Brooklyn. Agents also seized Syroejine at his Santa Monica California condominium. The two men were indicted in November 1995 for money laundering. Yegmenov was also charged with visa fraud. The U.S. calculated the total theft of the Channel 5 case at $1,949,460.66. Authorities interviewed for this article declined to say whether any money was recovered.
O‘Connell had the INS run a computer search to pull all the visa applications Yegmenov had filed. It found about a thousand. They were for the Brighton Beach crowd, he said. Ninety-eight percent of the companies were out of Brooklyn. He referred, of course, to a prominent center for Russian immigrants.
Then U.S. agents used the applications to lead them to the bank accounts of the phony companies.
Each company that petitions for an alien has a file, a lot of supporting documents, O‘Connell said. I had at one time a thousand of those files, each for different companies, all sent to our service center in St. Albans, Vermont. We had the center start asking the petitioners for additional documents, including bank statements. Most were out of the Chemical Bank in Dag Hammarskjold Plaza in New York City. Some were from the Bank of New York, a couple from Citibank.
He said the Russian mafia was using many of the bank accounts to bring in large sums by pretending they were paying for contracts in the United States.
O‘Connell suspects hundreds of millions of tainted dollars have passed through the New York banks into offshore havens. Once sent there, money is generally impossible to locate or recover because those jurisdictions won‘t open bank records to law enforcers.
Lost in the Paperwork
When investigators sought to locate other shell companies Yegmenov had incorporated, they were stymied by U.S. state corporation department practices. There was no way to run a computer search to locate corporations by filer. New York State Police agents had to search by hand the papers of every corporation filed with the state over a period of time and pull folders with recognizable names such as Yegmenov or someone from his office. Sensing the surveillance, he had started using other petitioners‘ names. Limited to tagging files that bore names they knew, investigators still discovered roughly 4,000 New York state shell companies Yegmenov set up.
But investigators could get banking information only from corporations sponsoring people to get visas, not from those set up just to launder money.
The only reason we know about the bank accounts is because of the supporting documents, O‘Connell said. If Alex incorporated 3,000 companies that didn‘t apply for visas, where do you start looking? Do you search every bank to see if it has accounts from those corporations? It‘s an impossible task.
Yegmenov pleaded guilty in 1995 to money laundering and visa fraud. He served about a year in prison or in INS detention, and was deported. In Russia, he was jailed for a year on the St. Petersburg television station charge, then released.
Prosecutors in Moscow opened a case against Syroejine in January 1995 and in May handed the case to the Interior Ministry in Moscow. A source said that in the United States, Syroejine had been freed on bond, but from Jan. 18, 1996, most U.S. court records in his case were sealed, including any indicating its disposition. That suggests he got his freedom in a deal to provide information to U.S. authorities.
U.S. Embassy sources in Moscow said Yegmenov was arrested last year illegally attempting to cross the border to Belarus. They also said local authorities want Syroejine back, but that he is still in the United States and is seeking immigration status. The Federal Security Service, the Prosecutor General‘s Office and Interior Ministry offices in Moscow and St. Petersburg all declined to answer questions on what happened to Yegmenov or the money, what efforts were being made to get Syroejine back and whether the information revealed here was considered when authorities decided not to prosecute Kurkova and her confederates.
A Bank of New York spokesperson also declined to comment. Officials at Citibank and the now-merged Chase and Chemical banks promised to look into the matter. Follow-up queries brought the reply that they were still looking.
The U.S. Justice Department and the attorneys who handled the case declined to provide information on grounds that aspects of it are still being investigated. There are thousands of Yegmenov companies suspected of being used for illegal purposes.
I get calls all the time on the companies he opened, O‘Connell said. It created a lot of awareness in the U.S. State Department. Every once in a while, I‘ll get a call from the Office of International Affairs. The legate to Moscow or St. Petersburg has one of Yegmenov‘s companies on his desk and what should he do about that. I tell them, ˜Don‘t give the guy the visa.‘ He added, I‘m sure somebody by now has taken Yegmenov‘s place.
Hiding the Money
Lax U.S. federal and state regulations make it easy for criminals to hide their connections to shell companies and bank accounts.
Banks routinely establish accounts for phony companies without exercising effective due diligence to check out their customers. Law enforcement agents are hamstrung by state corporation recording procedures that make it hard to ferret out bogus companies set up by crooks. Neither New York nor Delaware, for example, demands that owners and officers be listed on incorporation filings. Company directors are supposed to be listed on the annual Delaware franchise tax filing, but lawyers often name themselves or leave a blank.
A clerk at the New York State Division of Corporations said a requirement for biannual filings signed by the chairman of the board was not enforced, because the legislature hadn‘t passed an implementing law. A Delaware corporation division clerk said when papers come through with directors not listed, the lack of data is ignored.
Immigration agent O‘Connell and Anthony Russo, the IRS agent on the Alexander Yegmenov investigation, agreed that company owners and officers should be named in incorporation papers and that state incorporation computers should be configured to facilitate searches of owners, officers and filers. Then, Russo said, If we had an allegation against a suspect, we could go there right away and see that he formed 5,000 corporations, instead of having to hunt for them by hand.
Written with assistance of research grant from the U.S. National Research Council.