How to Wash $7.3 Billion: Russians Battle America's Oldest Bank

On July 3, a Moscow courtroom sizzled with acrid testimonials to the effect that the oldest bank in the United States is internationally accountable on charges of money laundering and, if convicted, will have to pony up $22.5 billion to the Russian Customs Service, said sum representing just over a third of its capital.

The outfit in question is the indubitably venerable Bank of New York, founded in 1784 by investors including Alexander Hamilton. Today, Bank of New York Mellon, as it's formally known, is a huge private bank catering to blue chip companies and clients around the world.

In the early '90s, BNY scented opportunity in Russia and soon became a favored 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 Street in 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, for whom Peter and Lucy were acting as front operators in a money laundering operation of the utmost simplicity. Between 1996 and 1999, $7.5 billion flowed into the BNY accounts. Back in the Forest Hills office, the couple would sit at their computers and use a BNY software program called "micro/CA$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 U.S. federal prosecutors as a "shell bank in Nauru controlled by principals of DKB." Nauru was a popular financial Laundromat in the '90s.

All this time — these same U.S. federal prosecutors say in an annex to the "non-prosecution agreement" cosigned in 2005 by Thomas Renyi, 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 $1 million in simple transaction fees.

The Russian couple eventually plead guilty in 2000, admitting they'd been paid $1.8 million in commissions for their role in the wash. They paid fines and got five years' probation, but nothing in the way of jail time. The feds imposed record forfeitures — $38 million — on BNY and made all sorts of fierce noises in the 2005 agreement, but no BNY executive even 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.

The Russian Customs Service filed a $22.5 billion claim against the Bank of New York in May 2007. Its legal onslaught is based on the U.S. Racketeering Influenced and Corrupt Organizations Act, which clambered into the statute book in 1970. In civil cases, RICO imposes a triple penalty — hence the escalation from $7.5 to $22.5 billion.

Since court proceedings got underway in Moscow this year, BNY has 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. Alan Dershowitz similarly filed a supportive affidavit. The lawyers will reassemble in the Moscow court on July 28.

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 careful in the jurisdictions he visits, as no doubt will be George Bush and Dick Cheney once they quit office.

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