Has Dirty Money Polluted BNY?

0 Comments | Insight on the News, May 7, 2001 | by Kelly Patricia O'Meara

The Bank of New York's chairman/CEO and its board of directors are being sued for their alleged involvement in the laundering of billions of dollars stolen from Russia.

Last year Thomas Renyi, chairman of the board and chief executive officer (CEO) of the Bank of New York (BNY) received more than $20 million in salary and other compensation for his management of the nation's oldest financial institution. This represents a more than 50 percent increase from what Renyi received in 1999 -- the year in which he was called to testify before the House Banking and Financial Services Committee regarding allegations that BNY was involved in laundering at least $7 billion from what law-enforcement officials have described as dubious financial institutions and other entities in the former Soviet Union.

In the course of his testimony, Renyi told federal lawmakers that he was "dismayed" 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." The BNY chairman/ CEO then purred that he wanted to "set the record straight."

Rather than firmly state that the bank had no knowledge of and did not participate in any illegal activity, Renyi told committee members in carefully worded testimony that "no charges have been filed against the Bank of New York. No relevant authorities have asserted that the Bank of New York has engaged in money laundering or violated any other law." In fact, in the six pages of testimony read to lawmakers, not once did Renyi deny the allegations.

In September 2000-- the same year Renyi enjoyed a nearly $8 million increase from his previous year's compensation--Renyi and the BNY board of directors were sued by shareholders in both state and federal court for "systemic wrongdoing that occurred within the bank for over six years."

The New York law firm of Milberg Weiss Bershad Hynes & Lerach LLP filed a shareholder derivative lawsuit in the U.S. District Court for the Southern District of New York charging that, "at least as early as 1993, Renyi actively conspired, directly participated in and personally profited from schemes to illegally divert and steal Russian assets."

The federal lawsuit further contends that "the conduct of the board represents a wholesale abandonment of the critical management-oversight function directors are obligated to ensure. Despite facts brought to the board's attention, and despite its independent obligation to do so, the board failed to ensure the effective implementation of the most basic systems designed to ferret out the wrongdoing involved. The board recklessly permitted the endemic misconduct described herein to continue despite its clear and unequivocal power and obligation to halt it. Multiple internal reports were made regarding the wrongdoing, but no effective action was ever taken. By the end of 1997, the Bank had earned over $1 billion from wire-transfer processing fees, and the wrongdoing arising from the bank's Eastern European division continued unchecked."

New York attorney Richard Brualdi also filed a derivative lawsuit against Renyi and the board of directors in the Supreme Court of the state of New York on behalf of shareholders of BNY and the Bank of New York Co. Inc., charging that "the defendants have breached their fiduciary duties of due care and loyalty by inter alia participating directly, by conspiracy or by aiding and abetting one another."

Whether money was laundered through BNY is not in question. Lucy Edwards; former vice president of the Eastern European division of BNY, and her husband, Peter Berlin, pleaded guilty last year to money laundering and facilitating the movement of billions of dollars out of Russia through accounts with BNY.

The New York law firm of Sullivan & Cromwell is the lead counsel for the investment bank of Goldman Sachs -- which Robert Rubin cochaired before becoming secretary of the Treasury in 1995 during the major Russian money laundering -- representing that company and BNY in the lawsuits. Sullivan & Cromwell, however, deferred to a BNY spokesman, who insisted upon not being identified, before claiming to Insight that "the charges have no basis in fact and the bank will defend itself vigorously."

Brualdi and Mel Weiss, the lead attorneys for the plaintiffs in the state and federal civil lawsuits, say they are confident the facts will expose the board's wrongdoing. "We had to satisfy ourselves [that the facts are straight], and we would not have made the allegations if we did not think they were credible" explains Weiss. "All you have to do is look at his [Renyi's] testimony before Congress and then tell me if he's credible."

While neither of the law firms representing the shareholders is eager to discuss their cases in detail, Brualdi's take on the lawsuit is not unlike that of Weiss. "The Bank of New York," Brualdi explains, "will tell you he [Renyi] is doing a great job as CEO, but we think the facts will establish that he either knew or should have known that there was money being laundered."