Investigators in Britain and the US yesterday confirmed that they are seeking information from Canada, Russia, Hungary and various countries in the Caribbean and Eastern Europe.
Money laundering is the process by which illegally obtained money is cleaned up by passing it through a series of companies and bank accounts. Any criminal's ability to wash money is greatly enhanced when he has people placed inside a bank - or several banks. That is what officers at the National Criminal Intelligence Service (NCIS) in Britain began to find two years ago when they looked into the activities of a company based outside Philadelphia called YBM Magnex, which appeared to be laundering money through London and the Channel Islands.
The British police informed the Canadian authorities about the company, and the man supposedly behind it. He is Semion Mogilevitch, described by Russian underworld figures as "the most dangerous mobster in the world". Yet despite the British warnings, YBM received a full listing on the Toronto Stock Exchange. Supposedly an international corporation dealing in magnets, forensic accountants now report that it was little more than a money laundering sink used by Mogilevitch to move funds out of the former Soviet Union. Those funds inflated YBM's share price, at one point putting the company's value at $1bn.
During the first four months of this year, Mogilevitch is believed to have sold large blocks of shares. In May, when the company was raided by a US federal law enforcement task force, effectively shutting it down, it appeared as if Mogilevitch might have got away with as much as $635m. In addition to investors' losses in Toronto, several YBM Magnex subsidiaries in the UK also went down, among them Crusteel Magnetics in Sheffield and two other magnet firms in Lancashire. The three had been joined together into YBM's British subsidiary, Crumax Magnetics.
The YBM investigation led NCIS to an off-shore company called Benex Worldwide, which held accounts with the BoNY's London branch. Between October 1998 and March 1999, investigators charted 10,000 transactions through just one Benex account, moving some $4.2bn. They believed they were seeing yet another Mogilevitch-related money-laundering scheme and alerted their US counterparts. Their inquiries led to the suspension first of a senior executive of the bank in the US, Natasha Kagalovsky, and then one of her senior London-based colleagues, Lucy Edwards.
The two women, both Russian born, worked in the Eastern European division of the bank. Kagalovsky's husband, Konstantin, served from 1992 to 1995 as Russia's representative at the International Monetary Fund. Edwards was granted US citizenship through a former marriage. She is now married to Russian-born businessman Peter Berlin. He is listed as the only shareholder and director of Benex Worldwide.
But the man at the centre of police inquiries is Mogilevitch. Born in the Ukraine and now in his early 50s, he holds a graduate degree in economics from the University of Lvov. Little is known of his earliest years, although he has been linked to a street gang involved in theft and counterfeiting. He next surfaced in the early 1970s when he allegedly set up a scam to defraud Jews on their way out of the Soviet Union. It is thought that Mogilevitch left Russia for Israel in 1993 and obtained a passport there, though he may not be Jewish.
From there he moved to Budapest, where he currently lives with his Hungarian wife. His former wife and his son are said to be living in Britain. In May 1995, an attempt was allegedly made on his life in Prague. Since then, Mogilevitch has not travelled widely outside Hungary. He is barred from entering the UK. Canadian and American authorities would hold him for questioning if he showed up there. And it is known that several EU member states would do the same.
From his heavily guarded office complex, he is alleged to undertake joint ventures with the Mafia in the US to ship toxic waste to Chernobyl, make deals in stolen art and religious artifacts, counterfeit money, financial instruments, Faberge eggs and icons, and run a chain of nightclubs and strip joints in Eastern Europe called Black and White.
Austrian authorities believe it is through those clubs that he runs prostitutes and drugs and launders money. American and Canadian law enforcers suspect him of running Moscow's Sheremetyevo International Airport, taking protection money for every freight shipment passing through. It is also suggested that he owns an airline operating in the central Asian republics and an armaments industry in Hungary which links him to a mammoth cache of Warsaw Pact weapons sold to Iraq. As one senior FBI agent puts it: "Mogilevitch is into more bullshit than you can shake a stick at."
While the US federal authorities have been quick to state that BoNY itself is not being investigated, they are believed to be interested in Kagalovsky's role in bringing new clients into the bank. In particular, they are looking into her relationship with the Russian-based Inkombank. A former lawyer for Inkombank has now come forward in New York to claim that in 1992 Kagalovsky promised that BoNY would be "less vigilant" and "more understanding" than the competition. In light of that, a 1995 memo has now surfaced in which Kagalovsky informed BoNY's president, Thomas Renyi, that "Inkombank is our largest generator of fee income." Inkombank is now said to be insolvent.
Also uncovered as a BoNY client was the Russian bank Menatep. That name crops up in several criminal investigations, including one surrounding the now-defunct European Union Bank. Licensed in the island of Antigua as "the internet bank", EUB turned out to be nothing more than cyberspace fraud, managed by a Russian living in Canada. Some $12m disappeared. Paperwork has since surfaced in Antigua suggesting that EUB was an offshore subsidiary of Menatep. That prompted a look into Menatep's links with Russian organised crime. Investigators are asking questions about Kagalovsky's relationship with Menatep - her husband Konstantin has been named as a former Menatep executive.
The size and scope of the suspected money laundering - which will go beyond the reported $10bn - greatly concerns the Americans because, they say, it clearly points up weaknesses in the system. Cash deposited in the City of London is only reported if it is "suspicious". And the determination of what constitutes suspicion is made by the banker taking the cash. By contrast, in the US, all cash deposits over $10,000 must be reported. Jeffrey Robinson's book, 'The Merger - How Organised Crime is Taking Over the World',was published last week by Simon & Schuster, pounds 16.99.
WHAT IS MONEY LAUNDERING?
Money laundering is the process by which illegally obtained money is made to seem legitimate.
"Shell" companies - which can be set up for a nominal fee - are registered in off-shore centres like the Cayman Islands, the Channel Islands and Luxembourg.
Criminals create a chain of shell companies so that one, say in the Bahamas, owns one in Jersey which owns one in Gibraltar and so on. Because police jurisdiction to investigate ends at national borders, it becomes virtually impossible for detectives to track down the original source of the funds.
By wiring the money across borders the illegally gained profits are eventually brought out at the other end of the cycle disguised as "clean", or legally obtained funds. Attempts by the European Union to harmonise money-laundering rules have failed because of resistance from governments with off-shore centres such as France, the UK and Austria. These centres rely on banking for their economic survival.
Shell companies are widely used by legitimate business for tax avoidance purposes.