From: Mark Keesee <[EMAIL PROTECTED]> December 30, 1999 The Wall Street Journal Page One Feature The Improbable Cast of Capitalist Converts Behind the BONY Scandal By ANDREW HIGGINS, ANN DAVIS and PAUL BECKETT Staff Reporters of THE WALL STREET JOURNAL In the small hours of Aug. 19, Ivan Bronov, a 28-year-old foreign-exchange whiz at Russia's Depozitarno-Kliringovy Bank, groped for the phone from bed in Moscow. A panicked caller said an important account at Bank of New York Co. couldn't be accessed. Mr. Bronov hung up and dialed the cell phone in London of Lucy Edwards, a Bank of New York executive he knew well. "The police are here searching everything," she said, according to a person familiar with the conversation. "I don't know what's going on." The game was about over: The underground pipeline that siphoned about $7 billion from Russia through nine Bank of New York accounts connected to a company called Benex International Co. was in the hands of international authorities. Since then, the case has reverberated around the globe. Republicans have used the case to charge the Clinton administration with turning a blind eye to Russian corruption, since some of the transfers are believed to stem from organized crime. New money-laundering legislation is being weighed that could tighten restrictions on U.S. banks. And the International Monetary Fund has come under attack for not monitoring its disbursements to Russia more closely, based on suspicions that aid went astray. Through it all, however, little has been revealed about the obscure, and surprisingly amateurish, associates who concocted the money-transfer system that ultimately triggered the largest money-laundering investigation ever. Among them: Mr. Bronov and a pal, who hatched an idea to help Russian businesses, mostly tax-dodging importers, pay their bills abroad; Ms. Edwards, who suggested how to move the money; a Russian former fish merchant, and others in Moscow and California who made the system run like clockwork until that August night. The seeds of the system were planted in the late 1980s at a Moscow finance institute, where Mr. Bronov and fellow student Kiril Gusev became friends. A short, muscular Muscovite, Mr. Gusev toyed as a teenager with playing professional soccer. But he gave that up to enroll in finance and economics. He and Mr. Bronov shared many passions: sports, bars -- and money. After communism collapsed, Mr. Gusev landed a job at the Moscow Interbank Currency Exchange, the main forum for trading U.S. dollars. There, Mr. Gusev mastered the mechanics of settling accounts at the end of each trading session. In 1994, he met one of Western banking's rising stars in Moscow, when Bank of New York's Ms. Edwards installed software that plugged the currency exchange into the U.S. bank's settlement system. Mr. Bronov also went into the currency business, joining a private Moscow bank called Industriya Servis. Among its clients: Dial, one of Russia's biggest electronics importers, and Olbi-Diplomat, then a rising retail chain. Mr. Bronov, who likes to wear a black cap with a Nike logo over his blond hair, chatted with importers about Russia's thicket of tax, currency and customs regulations -- and about ways to skirt them. Mr. Bronov's work was lucrative enough for him to buy an apartment in London. He and Mr. Gusev vacationed together in England, France and the Caribbean. In Moscow, they sometimes went out on the town or to a country dacha with a friend they met through college buddies, Konstantin Gerashchenko, son of Russia's Central Bank president. [[Lucy Edwards]] But a plunge in the ruble in 1995 wiped out many small banks, including Industriya Servis. Mr. Bronov eventually joined Depozitarno-Kliringovy Bank, or DKB, which had been founded as an offshoot of a program funded by U.S. foreign aid. At DKB, Mr. Bronov handled the correspondent-banking business, which let the bank make international money transfers. He was soon joined by Mr. Gusev, who became a liaison with the bank's import-export clients. Working together for the first time, they would make DKB the linchpin of Benex. They would need help, however, from Aleksey Volkov. A mild-mannered dental-surgery graduate and former ambulance assistant, he had started a small business in 1992 by buying a few boxes of German herring. Soon he was trucking tons of fish into Russia through Poland, using Industriya Servis as his bank. He took free samples to Mr. Bronov and his colleagues. Recalls one recipient: "The place used to stink from his damned fish." Mr. Volkov, now 34, later switched to bringing pirated compact disks into Russia, acquaintances say. He moved to New York in 1994, but struggled -- until he met Dmitri Kochkin, a colleague of Mr. Bronov's at Industriya Servis. Mr. Kochkin had also come to the U.S. and, in 1994, formed a company called General Forex Corp., which became a prototype for Benex. Using little more than an account at Citibank and a mail drop on Long Island, General Forex began helping Moscow businessmen send payments abroad without attracting the attention of authorities. In 1995, Mr. Kochkin hired Mr. Volkov to run the business. Mr. Volkov leased a one-room office near his house in New York's Queens borough and outfitted it with computers. On the side, he did a few deals of his own, including shipping a Chevrolet Corvette back to Moscow for Mr. Gusev. But at the end of 1995, disaster struck: Citibank, alarmed by the volume of General Forex transfers, announced it planned to close the account, people familiar with the matter say. A Citibank spokesman declined comment. A lawyer for Mr. Volkov says his client "is a thoroughly decent young man with no criminal record anywhere." Mr. Volkov, say people who know him, went into a funk. So did Messrs. Bronov and Gusev, who had used General Forex to handle some of their overseas hard-currency transfers. The timing was terrible: Fearful that the Communists could regain the presidency in the 1996 elections, more and more Russians were desperate for a secure channel to move money abroad. Lucy Edwards offered a helping hand. Born Ludmilla Pritsker in Leningrad, she had joined Bank of New York's Eastern European division, which provided accounts for Russian banks to transfer dollars around the world, in September 1992. Ms. Edwards, 41, was an energetic marketer of Bank of New York's services in Russia. She carried two cell phones to ensure she didn't miss client calls. [[Peter Berlin]] In contrast to the self-starting Ms. Edwards, her husband and fellow Russian, Peter Berlin, needed help with his own business plans. He wanted to start a conference business helping Russian bankers navigate the U.S. financial system. But he didn't have the start-up money until Ms. Edwards's cousin put up a few thousand dollars. The couple declined to be interviewed. In the early 1990s, Ms. Edwards recommended her husband's conferences to Bank of New York clients, people familiar with the business say. And she didn't hesitate when, around late 1995, Mr. Gusev asked how he might revive the underground money pipeline. "You should meet my husband," she said, noting that his company, Benex, already had a Bank of New York account. "Otherwise you'll have to start everything from scratch. That won't be easy." Soon, Messrs. Gusev and Bronov sent the former herring merchant, Mr. Volkov, to meet Mr. Berlin. Agreements were struck. In early 1996, Ms. Edwards went to Mr. Volkov's former General Forex office to help install Bank of New York software that allowed transfers to and from the Benex account using a desktop computer, acquaintances say. The new Benex machinery was in place. In a small office on the fifth floor of the DKB bank building, Natalia Klimova fed the system from Moscow, where she worked New York hours. The experience of an importer of Chinese shoes was typical of how it worked, say people familiar with the transaction. First, on the main floor of DKB, he sent some of the payments he owed directly to his supplier in China; simultaneously, he wired a larger sum from an account in the name of a shell company -- a legally incorporated entity with few or no assets -- to Benex's Bank of New York account. Then, he walked upstairs to see Ms. Klimova. (She couldn't be reached for comment.) She took down the name of his supplier, its bank-account details and other information, then sent the data, often by e-mail, to workers in the one-room office in Queens leased by Mr. Volkov. A couple of employees there checked on cheap PCs to make sure transfers had arrived at the Benex account, people familiar with the operation say. Then, using the details Ms. Klimova provided, they forwarded money to the shoe supplier's foreign bank account, often the same day. The system employed a range of decoys to keep authorities from catching the shell companies for not paying proper taxes and duties in Russia. One approach was to constantly form new corporate shells and ditch the old ones. Another was to funnel payments through a separate money-transfer channel. Helping run that second channel was Andrey Mizerov, a former electronics trader and an early client of Mr. Bronov's at Industriya Servis. Mr. Mizerov, now 32, had moved to California and started a money-transfer business called Sinex Corp. By 1994, it was moving about $3 million monthly through Wells Fargo & Co., according to an accountant's report on Sinex. (Wells Fargo declined to comment.) Around 1996, Mr. Mizerov, through a partner, obtained a bank license from the tiny Pacific atoll of Nauru, an offshore banking haven. The entity created under the license, Sinex Bank, opened an account at Commercial Bank of San Francisco, a small bank with a large Russia-related business. Money from DKB in Moscow often came first to Sinex accounts before moving on to Benex, and sometimes went through Sinex accounts directly to its final destination, say people familiar with the operation. But Commercial Bank froze Sinex Bank's account when Sinex failed to confirm that it had renewed its Nauru license in 1998. Moreover, Mr. Mizerov, a burly graduate in quantum electrodynamics, spent more time playing basketball, tinkering with computers and partying than running Sinex, former associates say. California state records show that his driver's license was suspended after a drunk-driving violation in late 1998. He couldn't be reached for comment. "He should have stayed with physics," says one acquaintance of Mr. Mizerov's. By 1998, monthly volumes through the money-moving system set up by Ms. Edwards, Mr. Berlin and their allies often totaled more than $200 million. The flow generated about $400,000 in annual fees for Bank of New York. But Mr. Berlin had little knack for the nitty-gritty of running a business, several people who know him say. Though he fancied himself an entrepreneur and was the titular head of Benex, he brought in few clients, while taking a small cut of each Benex transaction as a fee, these people say. Bank of New York gave Mr. Berlin little reason to sit up and take notice. The bank never pointed out that Mr. Berlin might require a wire-transfer license for Benex, as U.S. prosecutors now allege he needed. The bank thought Mr. Berlin was running an import-export business, and didn't need such a license, people familiar with the matter say. The manager of the New York branch where the Benex-related accounts were housed, Robin Andersen-Ross, resigned in November. Her lawyer says she left to take a better-paying job at another bank. A bank spokesman declines to comment. Living in London after his wife received a promotion in mid-1996, Mr. Berlin began dabbling in other ventures, sometimes through offshore companies. Almost none of the ventures got off the ground, but Mr. Berlin and Ms. Edwards did well enough to buy a lakeside vacation home near the Catskills in New York and to bring her parents to live there. Neighbors recall wondering why Ms. Edwards and Mr. Berlin spent so much time walking out on the frozen lake, far from anyone. Yet Mr. Berlin may have missed indications of trouble brewing. In the summer of 1998, federal prosecutors from Philadelphia delivered two subpoenas to Benex in connection with a probe of YBM Magnex International Inc., a magnet maker suspected of Russian mob ties. Prosecutors had noticed suspicious transfers through Benex. Mr. Berlin wasn't worried, friends say; he handed over some documents, but told authorities he didn't have other material they requested. Then, in July, a FBI agent tracked Mr. Berlin down at John F. Kennedy International Airport as he was boarding a plane to London. The agent came bearing a subpoena requiring him to appear personally before the YBM Magnex grand jury. (Mr. Berlin was allowed to board the plane; his appearance has since been postponed.) People familiar with the matter say Mr. Berlin asked Ms. Klimova to search client lists in Moscow. She assured him she found nothing alarming. The next month, authorities from New York and Britain homed in. Hours after police confiscated disks and documents from Ms. Edwards's London flat that August night, the net closed. The office manager in Queens called Mr. Volkov to report a problem in the transfer service. They agreed to speak again later. When the assistant called back, he was in a panic: FBI agents brandishing a grand-jury subpoena had walked in demanding documents and disks. Mr. Volkov told him to give them whatever they wanted, people familiar with the matter say. In the weeks that followed, investigators in dozens of countries began tracing thousands of transfers that, over three years, went from Russia all across the globe, from Ecuador to China, through nine Benex-linked accounts. Among the thousands of recipients of transfers were some of the world's biggest companies. The probe has since ranged far beyond Benex and Bank of New York and uncovered questionable activity by former Russian officials at the IMF and the World Bank, and by people close to Russian President Boris Yeltsin. So far, no money-laundering charges have been filed. But investigators have found that a $300,000 ransom payment from a Russian kidnapping was sent through one of Mr. Berlin's accounts. In October, prosecutors in Manhattan unsealed charges that Ms. Edwards, Mr. Berlin, Mr. Volkov and three companies, including Benex, conspired to operate a wire-transfer business without a license. Mr. Volkov's attorney says that "these are technical regulatory charges which are rarely invoked," and that the indictment is unwarranted; lawyers for the other defendants have said their clients did nothing wrong. In London, in the wake of the indictments and of his wife's firing from Bank of New York, Mr. Berlin sank into despair. In Moscow, Messrs. Bronov and Gusev have kept a low profile. And Mr. Volkov, who learned from an evening newscast that he had been indicted and could face as much as 15 years in prison, skipped Moscow the next morning and went into hiding at a sanitarium. Since then, back in Moscow, he has taken up boxing and enrolled in a course in finance and economics. --Deborah Ball and William Boston contributed to this article. Write to Andrew Higgins at [EMAIL PROTECTED], Ann Davis at [EMAIL PROTECTED], and Paul Beckett at [EMAIL PROTECTED] Copyright © 1999 Dow Jones & Company, Inc. All Rights Reserved. --------------------------- ONElist Sponsor ---------------------------- Get great offers on top-notch products that match your interests! Sign up for eLerts at: <a href=" http://clickme.onelist.com/ad/elerts1 ">Click Here</a> ------------------------------------------------------------------------
