Fool Me Twice - Russian money laundering scheme

Progressive, The, Dec, 1999 by Lucy Komisar

The Russian banking scandal should have come as no surprise

The sudden attention by U.S. government officials and the mainstream media to the $7 billion or more of Russian money laundered through the Bank of New York might make you think this is the first time that multimillions have been stolen from Russia--or elsewhere--and washed through the international offshore system. In fact, it's not even the first time for the Bank of New York.

Several years ago, the Bank of New York, Chemical Bank, Citibank, and Chase Manhattan Bank were used by money launderers in a case that has not received press coverage until now. A Russian named Alexander Yegmenov set up eight phony New York state companies, opened accounts in the banks, and helped officials of a government TV station in St. Petersburg steal $2 million. Mikhail Syroejine, a station procurement official, allegedly used Yegmenov's shell companies to receive a payment of $2 million for Sony equipment. Syroejine, who was living in St. Petersburg, was supposed to buy some equipment for the TV station. He allegedly put through a fake order to a phony company Yegmenov set up in New York, sent $2 million to the company, and moved to the United States, living first in New York and then Santa Monica. The station never received its equipment or its money.

On January 26, 1994, according to a grand jury indictment, Syroejine opened an account at Chase Manhattan Bank in Manhasset, New York, and transferred $1 million into it. On January 29 of that year, he allegedly opened an account at Citibank in Huntington, New York, with a deposit of $600,000 from Chase. In early February, a Citibank check for $500,000 was deposited in a Chemical Bank account.

Then the money began to move offshore. On March 2,1994, more than $1 million was wired from the Chase account to the Lloyd's Bank, U.K., account of Jojan Consultants Ltd., registered in Dublin, a city that guarantees corporate secrecy. The rest moved from one shell company account to another, including $238,000 wire-transferred from the V.N. Express account at Chemical Bank to Priority Assets at the Bank of New York on April 26, and then more than $207,000 wire-transferred on May 10 from Priority Assets at the Bank of New York to Palmira Technologies at Chemical Bank. An additional $430,000 went to Barclay's Bank in Limassol, Cyprus, and another $400,000 was sent to an account called Mand Stifftung at Verwaltung und Privatbank Vaduz in Liechtenstein. Cyprus and Liechtenstein are both offshore secrecy havens.

That was just small change for Yegmenov. Between 1993 and 1995, he set up thousands of companies for Russian criminals. The criminals used these accounts to launder millions of dollars to offshore banks, according to Tom O'Connell, an INS agent on the case.

"The first four or five bank statements I saw had hundreds of thousands of dollars going through them," says O'Connell, who saw the bank statements of hundreds of the shell companies. "Most were out of the Chemical Bank in Dag Hammarskjold Plaza in New York City. The money would be wired in from Russia and then go out to the Cayman Islands or the Isle of Man or Switzerland in two or three days. There's at least 1,000 of them, and in each one there's money being wired into the U.S.--hundreds of thousands of dollars."

According to O'Connell, one of Yegmenov's clients was Vyacheslav Kirillovich Ivankov, at that time the most powerful Russian organized crime leader in the United States. Ivankov was convicted of extortion in Brooklyn in 1996 and sent to federal prison for ten years.

Yegmenov got caught in 1995 when the INS became suspicious about the large number of visa applications he was handling as an agent for Russians who, already in-the United States, claimed that their companies needed them to remain to work for U.S. subsidiaries (that is, the shell companies Yegmenov had set up). Investigators tapped his fax machines and learned that Yegmenov had set up thousands of shell companies--4,000 in New York State, 1,000 in Delaware, a few hundred in Pennsylvania, Massachusetts, Ohio, and other states, and a couple of dozen in such secrecy havens as the Isle of Man and the Cayman Islands.

Yegmenov pleaded guilty to money laundering and visa fraud, served a year in jail, and was deported. Syroejine was arrested but beginning January 18, 1996, most court records in his case were sealed, including any that might indicate the disposition of his case.

The Russian scams are a window onto the seedy world of offshore banking. One-third of the wealth of the world's richest individuals--nearly $6 trillion out of $17.5 trillion--may be held in offshore accounts, according to Merrill Lynch & Gemini Consulting's World Wealth Report. There are about sixty offshore banking centers.

Some offshore practices are considered legitimate. U.S. financial services companies have offshore components as part of money management to avoid taxation on short-term holdings, to provide customers with interest-bearing overnight sweep accounts, and for Euro currency lending and deposit taking.