MOSCOW'S MONEY PROBLEMS

	September 15, 1999
	Special correspondent Simon Marks reports extensively from Moscow on Russia's money laundering crisis.

SIMON MARKS: They are three separate corruption scandals that have rocked the Kremlin to its foundations, threaten to engulf President Boris Yeltsin and derail U.S.-Russian relations. All three are complex, detailed, and dominated by allegations that are not yet proven facts; with their dizzying array of influential characters, they have created a firestorm. Each scandal centers on money, and each scandal involves alleged dubious business dealings with a wide range of countries worldwide. Scandal number one involves the Bank of New York. It hit the headlines a month ago -- at its heart, questions about up to $15 billion that reportedly passed through as many as nine accounts with the bank. The accounts were overseen by two Russians, both vice presidents with the bank, one in New York, the other in London. The London employee, Lucy Edwards, who was born Ludmila Pritska, has been fired by the bank and remains behind the closed doors of her apartment in Britain. SIMON MARKS: We're wondering whether you'd be happy to talk to us about your suspension from the Bank of New York. LUCY EDWARDS: I have no comment at this time. SIMON MARKS: Is there any chance we could film you on the doorstep? LUCY EDWARDS: You can talk to my lawyer. SIMON MARKS: The Bank of New York, which has been cooperating with federal investigators, reportedly opened up to nine accounts related to a company called BENEX. BENEX, based in Britain, has only one director and shareholder, a Russian named Peter Berlin. Berlin is married to Lucy Edwards, the bank's fired London employee. And at the bank, she helped oversee her husband's accounts. Investigators say the company is also allegedly tied to notorious Ukrainian mobster, Semian Mogilevich. Mogilevich denies any connection to prostitution rings, drug sales, and other criminal businesses. But underworld activities he allegedly controls throughout the former Soviet Bloc are believed by investigators to be responsible for at least some of the money passing through the BENEX accounts. JIM MOODY, Former FBI Deputy Assistant Director: The FBI, I personally, identified Mogilevich as the head of a Eurasian organized crime group operating in the United States as far back as May of 1996. SIMON MARKS: Jim Moody, recently retired, is the deputy assistant director of the FBI's organized crime program. He was the first U.S. official to identify Mogilevich as a leading member of the East European Mafia. JIM MOODY: He and his people conduct the traditional type of organized crime activities of extortions and drug trafficking, but he's also into arms trafficking, frauds and a lot of the extortions they do I hear are very brutal. You're talking about a smart, vicious organized crime group, and he's supposedly a smart and vicious individual. SIMON MARKS: And certainly Lucy Edwards, the fired bank employee, knows how criminals often launder their money through banks overseas. In June, she addressed this conference in Latvia. Her subject: Money laundering. The NewsHour declined to pay the conference organizers the $10,000 asking price for an audio tape of her speech. But even if Mogilevich did have the assistance of bank employees, investigators believe the money he allegedly laundered was only a small portion of the money passing through the Bank of New York. $15 billion is more than 40 percent of the Russian government's entire annual budget, so investigators have been focusing on the other players in scandal number one: Natasha Kagalovsky, a bank vice president, who supervised the BENEX accounts, and her husband Konstantin. He is no stranger to the United States. He was once Russia's envoy to the International Monetary Fund, an economic reformer who now says U.S. investigators are using him as a scapegoat in the burgeoning Bank of New York inquiry. KONSTANTIN KAGALOVSY, Former Russian Envoy to IMF: (speaking through interpreter) My wife is being accused of being married to a Russian businessman, and that's what all these speculations are based on. SIMON MARKS: Not so, say those investigating the bank of New York. They are based instead on concerns that some of the money allegedly laundered through the BENEX accounts could have emanated from here, the headquarters of the IMF in Washington, where Mr. Kagalovsky used to work. An internal IMF investigation is underway to determine whether IMF aid to Russia was diverted. The Russians insist it wasn't. Even if the money didn't come directly from the IMF, there are other possible sources: The Russian banks that spectacularly collapsed during the past year. They include a bank called Menatep, which once operated from this cavernous building in Moscow. Menatep's failure was not an ordinary business bankruptcy. It closed after allegedly funneling much of its reserves overseas. Investigators believe it was taking the personal fortunes of Russia's powerful business leaders to havens safe from a free-falling ruble. Among Menatep's executives at the time - Konstantin Kagalovsy, who became the bank's first deputy chairman after leaving the IMF. FRITZ ERMARTH, Former CIA Officer: The native Russian players in the Bank of New York story, Ms. Kagalovsky and Ms. Edwards, look like they've been asked to take the fall, when we all know they were not freelancing. SIMON MARKS: Fritz Ermath was a senior officer with the CIA, Until his requirement last year. Earlier this year in the an argument in the magazine National Interest, he accused U.S. policymakers of consistently ignoring the threat to Russia posed by top level corruption. FRITZ ERMARTH: Some portion of the $300 billion to $5 billion of wealth that have been sucked out of Russia in the last ten years has come through various pipes, Cyprus, Switzerland, Bahamas, into New York, Bank of New York among other places. And how much actual money laundering; that is, disguising through various transactions, has been going on, rather than simply moving and depositing, I have no way of knowing. But this should emphasize the point that it's not just laundering but capital flight where the origin of the capital is not really honest and fair. SIMON MARKS: Not really honest and fair, but not necessarily illegal either. The billions of dollars exiting Russia would, under American law, only be leaving illegally if they could be tied to specific illegal acts. And analysts say the rule of law in Russia is so lax that it may never be possible to tie specific dollars to specific crimes. JIM MOODY: Proving that this money was generated dirty is going to be very, very difficult. SIMON MARKS: So at the end of the day, this could be smoke without fire this could be activity that's obviously highly suspicious, highly dubious, but might be completely legal? JIM MOODY: Based upon Russian law, that's correct. Now, the reason why is because Russian criminal law is woefully inadequate. SIMON MARKS: The Bank of New York investigation will likely take many months, and without the full cooperation of the Russians few U.S. observers believe it will ever be possible to untangle completely the trail of money, I.M.F. Or otherwise, that that passed through the BENEX accounts. Without a complete investigation it may never be known who in Moscow authorized the flight of capital. At the moment, no Kremlin officials are implicated in the Bank of New York scandal. The same cannot be said about scandal number two. Call it the credit card scandal. Boris Yeltsin is proud of the renovations to the Kremlin that have been carried out during his rule. He's shown them to a stream of visiting foreign leaders in the course of the past few months. But those renovations may have come at an incalculable price. The second scandal dominating Russia centers on claims that, in exchange for the renovation contract, a Swiss construction company gave a $1 million bribe to the president, members of his family and his senior advisors. Swiss prosecutors say they have evidence showing that the company, MABATEX, deposited money into an account controlled by the Kremlin's chief property manager, Pavel Borodin. It's claimed that credit cards issued to Boris Yeltsin, his daughter, Tatiana Jachencko, and Mr. Borodin were paid off using that money. Last week, in an interview with the NewsHour in his Kremlin office, Mr. Borodin, who has compared the inquiries to the Spanish Inquisition, went to great lengths to proclaim his innocence. PAVEL BORODIN, Kremlin Chief Property Manager: (speaking through interpreter) Modern banking technology allows anyone to issue credit cards in any name. Issuing credit cards is one thing. Using them is something else. These are my credit cards. Look, you can see them. This one is from Russia's Spare Bank, this one is from S.B.S. Agro Bank. These are the credit cards which I actually use. I can provide you with the receipts. With these cards, I take money from my personal accounts and I pay for business functions and meetings. Everything is transparent, everything is clear. It is not my interest to hide anything. SIMON MARKS: And as for the allegations against President Yeltsin... PAVEL BORODIN: (speaking through interpreter) I am sure the Yeltsin investigation will soon fall apart. I assure you that Yeltsin is on the state's payroll. He's got no idea what a credit card is all about. SIMON MARKS: But Swiss prosecutors, according to newspaper reports in Italy, have pointed the finger firmly at Boris Yeltsin and his daughter Tatiana, seen here on the left, one of his key aides, she and her sister are suspected of using MABATEX's-backed credit cards during business trips to Europe. Uri Skuratov has his way has been blocked ever since Boris Yeltsin ordered his dismissal after the public release of a compromising videotape allegedly showing Mr. Skuratov in the company of two prostitutes. Just last week, Mr. Skuratov's home was searched again by security agents shortly after he told the NewsHour that 90 percent of the reports linking the Yeltsin family to the scandal are accurate. YURI SKURATOV, Prosecutor General: (speaking through interpreter) As far as the Yeltsin family is concerned, I am pretty sure that Boris Yeltsin is a decent man, an honest man. And what happened was a bitter mistake made by people who are organizing presidential travel overseas and dealing with financial matters. Most likely, he didn't even know about the whole business to do with credit cards, but when we talk about his daughters, it is a more complicated matter. It would be interesting to find out how with a modest member of the presidential administration, Tatiana Jachencko, with a salary of 5,000 to 6,000 rubles, could spend $10,000 without asking herself where this money came from. SIMON MARKS: And Tatiana Jachencko is not the only Yeltsin family member tarnished by scandal. Valery Okulov is married to Yeltsin's other daughter, Yalena. He runs the state airline Aeroflot, subject of scandal number three. Prosecutors in Russia and Switzerland are investigating whether profits from Aeroflot was held in was stolen while Mr. Okulov was in command. He denies all the allegations, but says the welter of charges has brought anguish to his father-in-law, the president. VALERY OKULOV, Yeltsin Son-in-Law: (speaking through interpreter) We are feeling terrible, obviously, it hurts. It's hard to get through. I have no doubt that there will be answers to these absolutely fictional allegations. SIMON MARKS: From the Bank of New York to the Kremlin's renovations, to the Aeroflot investigation, the whiff of scandal now touches a wide range of business and political leaders in Russia, allegations and denials cloud the political atmosphere.