Two diverse interesting chapters here,the first dealing with the challenges and ordeals faced by Russians playing in one of our Professional Sports Leagues,The National Hockey League,seeing that the Russian Mafiya has not gone away,I highly doubt the situation has changed here in 2018. Now the Second Chapter,ties in with my post last night on the political 'swindle' of the Soviet Union,and it deals with the criminal element which was involved both before and after the end of the 'cold war'. The reader will notice how this activity went into hyperdrive,after the politicians put on their theater production on for the world.You will also see the indifference on the part of American officials to the fleecing of Russia from 91-98,even though a major bank and player(you researchers out there see my request for help on the player,and a possible connection in South America,you will know when you see it)in New York,as well as other oddies that suggests certain Americans and agencies were in on the raping of Russia,take care of yourselves all....
PART TWO
COLONIZATION AND CONQUEST
8
POWER PLAY
Donetsk, a bleak industrial city in the southeast corner of Ukraine, is not known for producing
world class hockey players. And when Oleg Tverdovsky, a scrawny seven-year-old, tried out for a
local peewee team in 1983, he didn’t show much promise: his ankles were weak—the result of a
joint-swelling disease called Reiter’s syndrome—and he was one of the worst skaters in the bunch.
At first, he didn’t even like the sport much. Still, a coach spied some potential in him and encouraged
the boy to keep at it. He did. By sixteen, Tverdovsky had blossomed into one of the highest-scoring defensemen in Russia, playing for a team called the Soviet Wings. But with the fall of communism, Soviet hockey also began a steady collapse. Arena freezers frequently broke down, melting the ice. Stadiums that once drew five thousand fans were lucky to lure several hundred. “People had a lot of problems in their lives,” recalls Tverdovsky. “Hockey tickets are not very expensive, but if you can’t feed your family, well, you don’t think about going to a hockey game.”
Like most of Russia’s best players, Tverdovsky was eventually discovered by NHL scouts, and in 1994, at the tender age of eighteen, the Mighty Ducks of Anaheim made him their first-round draft pick. He had awesome power and blazing speed, drawing comparisons to Bobby Orr—all the right stuff, said the scouts, to become a superstar. “I was excited to get drafted,” he remembered. “To play with the best players in the world.” When he arrived in Anaheim, he bought himself a house and a sports car. After a fine rookie season, he was traded to the Winnipeg Jets and signed a three-year deal worth some $4.2 million, a staggering sum for a young man whose countrymen were earning an average of $74 per month.
Tverdovsky’s prosperity did not go unnoticed, however. One night, a former Russian hockey coach of Tverdovsky turned up on his California doorstep and demanded a share of his good fortune. The young phenom was terrified, for he knew, as did everyone in Russia, that hockey in the former Soviet Union was overrun by the Mafiya, and that it frequently brought its sadistic extortion methods to bear on successful players. “They’ll take out a whole family,” said a U.S. law enforcement official who specializes in the Russian mob. “But they’ll torture victims first to send out a message—they’ll cut off fingers, use acid, decapitate heads. It’s gruesome.”
In fact, the Russian mob’s sinister grip on sports in the Soviet bloc dates back to well before communism’s demise. In the Soviet era, sports stars—along with singers, artists, apparatchiks, and black marketeers—were all part of the Soviet Union’s privileged elite. In this heavily criminalized society top athletes and mobsters sought out one another’s company to mutually enhance their image and prestige. They ate at the same choice restaurants, vacationed together at luxurious spas, and dated the same women. They also did business together. “The Mafiya has made the sports business one of its sources of revenue,” a Russian sports historian has said. “Bribes, extortion, and killings are common.”
Hockey—one of Russia’s most popular sports—was no exception. From the small-town peewee leagues up to the powerhouse national teams, the Mafiya, by force or cooperation, had penetrated every level of the enterprise, just as it had most other businesses in Russia. “Many local teams in Russia are associated with the mob,” said a Western law enforcement source, noting that they often used them for money laundering, as well as for many other illicit profits that could be sucked from stadium contracts, concessions, equipment procurement, ticket sales, player and management salaries, and tens of millions of dollars of untaxed vodka and cigarettes that the government gave to the teams.
When communism fell, the former Soviet Union’s rich reservoir of hockey talent—the same players who had so often demonstrated their astonishing skills against the world in the Olympics— suddenly became available to the West. The NHL’s U.S. and Canadian teams went on a buying binge, snapping up the country’s current and future superstars, signing players like Tverdovsky to extraordinarily lucrative contracts. But the NHL teams discovered soon enough that they weren’t importing only expert skaters and stickhandlers; they were also importing the brutal extortionists and gun-toters of the Russian Mafiya who followed in their wake. “Hockey in the former Soviet Union is controlled by Russian organized crime,” said a top FBI official. “They control the players who play there and they control the players who play here. They can stay in Russia and make 2,000 rubles a year or kick back $1 million of a $2 million American contract.”
Although Tverdovsky was well aware that being in America did not guarantee his safety, he nevertheless refused the Russian coach’s demands to be paid off. But the gangsters did not come for him. Instead, on January 30, 1996, four goons—carrying a tear gas pistol, handcuffs, and a snapshot of Tverdovsky’s forty-six-year-old mother, Alexandra—seized his parents outside an apartment building in Donetsk, where they had gone to visit relatives. Tverdovsky received a message from his father: the gangsters wanted $200,000 for his mother’s safe return.
While his mother sat imprisoned in a dank apartment outside Donetsk, Tverdovsky suffered severe anxiety, causing his ankles to swell up. “I had a terrible time,” recalled the lanky, six-foot player during an interview at a Tex-Mex café across the street from the hockey stadium in Phoenix, where he then played for the Coyotes. “I didn’t have many details about what was going on.” Still, he didn’t inform team or league officials about his ordeal, nor did he reveal his problem to his own teammates, fearing that, if word leaked out, his mother would be killed. “We [Russian players] won’t even tell each other” about extortion plots, said Tverdovsky. “Not even our best Russian friends.”
A few days later the kidnappers escorted Alexandra Tverdovsky onto a train bound for Moscow, confident that they were on their way to make a trade for a few suitcases full of cash. Suddenly, in a rare case of Russian law enforcement competence, the police stormed the train and rescued the captive, arresting all four kidnappers in the process. Tverdovsky, however, wasn’t taking any more chances. He spirited his parents out of the country and hid them away in a house he bought for them in a town in California that to this day he will not name.
According to a May 1996 congressional investigation, as many as half of the league’s ex-Eastern bloc players have been forced to buy a krysha, or “roof”—the euphemism for protection. “All the NHL teams are aware of the extortion,” says an American law enforcement source. “It’s a huge problem,” Mike Smith, associate general manager of the Toronto Maple Leafs, has told the Vancouver Province. “There have even been players who have been roughed up.”
During the 1996 congressional hearings on the Mafiya, a Russian mobster who testified explained precisely how the system worked: “Often when a Russian criminal demands money, the threat is not explicit but is clearly understood,” he said, speaking from behind a black felt curtain. “Alexei Zhitnik used to play for the Los Angeles Kings. He showed up at a Russian club in Los Angeles one night with a new car, expensive clothes, and a beautiful woman. He was young and naive.
“A man named Sasha, whom I know is connected to a Russian organized crime group, approached Alexei and demanded money from him. Sasha was sending Alexei a warning, to make sure he thought about his future in Los Angeles. Alexei did not go to the police.” According to several knowledgeable sources, Alexei was later hauled under an L.A. pier and beaten. Eventually, the mob witness testified, “ Zhitnik went to a more powerful criminal group to take care of the problem.”
Zhitnik, for his part, tried to shrug off the incident. “It was not a big deal,” Zhitnik insisted. “It was a stupid accident. It was my mistake. I was not kidnapped.” When asked if he was beaten by thugs, he thundered, “Total bullshit!. Nothing happened in L.A.” On the other hand, he concedes: “I can’t say extortion doesn’t exist in the NHL. It exists.”
Almost without exception the FBI has failed to bring extortion charges against gangsters shaking down NHL players. “We can’t make a case unless somebody files a complaint,” explains the FBI’s John Epke, the head of the organized crime unit in Denver. But fearful ex-Eastern bloc hockey players, who often have the inherent distrust of the police that is a legacy of having grown up in a totalitarian state, are unwilling to go to the federal authorities. More significantly, like Tverdovsky, many of them still have vulnerable family members living in the former Soviet Union.
Even victims like Vancouver Canuck Alexander Mogilny are unwilling to acknowledge the presence of Russian organized crime in the NHL. Yet just a few years ago, Mogilny was abducted by two Russian goons who demanded that he deliver to them $150,000 in cash. As he drove to the bank, he picked up his car phone and called his agent, Mike Barnett, to ask what he should do. “Go to the FBI,’ urged Barnett. So he did: one of the extortionists fled the country; the other, thanks to Mogilny’s testimony, became law enforcement’s only successful conviction of a Russian NHL extortionist, and was subsequently deported. But today, when asked about extortion in the league, Mogilny says, “Why talk about it? It doesn’t exist. There is no such thing.” Oleg Tverdovsky has a similar response. “How can I say there is Russian organized crime in the NHL if I’ve not seen it? If you don’t know, you don’t know.”
“It’s their silence,” says a law enforcement official, “that has allowed the Russians to become easy extortion victims” and made the FBI’s attempts to convict the mobsters almost impossible.
Detroit’s Joe Louis Arena is a dilapidated, shambling facility abutting a river of green sludge. The defending champion Red Wings had just finished up an intense, two-hour practice, and the brooding, six-foot-one-inch, 215 pound Slava Fetisov sat on a black swivel chair next to his locker, still dressed in his pads and sweating heavily.
At forty he was the oldest player in the NHL, almost two decades older than some of the other Red Wings shuffling from the showers to their lockers. His forehead is deeply furrowed, and fissures run diagonally down his cheeks. It must have seemed like eons since the nine-time Soviet All-Star defenseman played in three Olympics, winning two gold medals and one silver. Many predicted 1998 would be his last season, and that he would return to Russia to run for political office. “I get lots of invitations to join political parties,” Fetisov acknowledged. His friend, chess grandmaster Garry Kasparov, has said unequivocally that Fetisov is so popular, he “could be the future president of Russia.”
However, Fetisov may need a bit of practice at handling tough questions from reporters. For he was ill-prepared when I stuck a tape recorder in front of him and asked what he knew about extortion in the NHL.
“I don’t know,” he replied curtly. “I have never heard of it.”
“To your knowledge it doesn’t exist?” I asked.
“I don’t want to talk about it,” he grunted, his dark eyes averting mine. “It’s not related anyhow to me and to anybody else in this room. It’s a made-up story, and I don’t want to talk about it.”
“Who would make it up?” I pressed.
“I don’t know,” he said, his anger mounting. “I have no idea.”
Fetisov’s teammates call him “the Godfather.” The nearly universal homage that other Russian NHL players accord him reflects not only on his skill on the ice, his sage advice, but on the fact that he was one of the first Soviet players to come to play in the league. According to law enforcement, it is also an allusion to the fact that he has long been in business with some of the most feared gangsters in the former Soviet Union.
His relationship with Kvantrishvili did not end when he left the country to play hockey in America for the New Jersey Devils. In 1992, Fetisov and Kvantrishvili were observed “engaged in serious conversation at a Russian discotheque in Moscow during which Fetisov was seen nervously signing papers,” states a classified FBI report. In addition, “he [Fetisov] began investing in various business enterprises in Moscow in 1993, and was believed to have paid protection money to Kvantrishvili.”
Kvantrishvili was assassinated by rival mobsters that summer. But where Kvantrishvili left off, Vyacheslav Ivankov picked up, and Fetisov, according to a classified FBI report, became the vor’s “close associate.” The year Ivankov arrived in America, he turned to Fetisov to fill a position in his global criminal empire. According to an FBI affidavit seeking a wiretap of his phones, Ivankov established a front company in New York called Slavic Inc. to conduct money laundering operations. But records filed with the New York Department of State show that on August 26, it was, in fact, Fetisov who signed the business incorporation papers, naming himself as president. It was notarized, and executed by two lawyers.
Though Fetisov was the only named corporate officer, FBI documents assert that Slavic Inc. was really run by Ivankov—a fact that even the mobster’s lawyer Barry Slotnick confirmed, although he insisted that the business was a legitimate import-export firm. In fact, according to the FBI, it was a giant Laundromat for dirty cash operating out of a storefront on Neptune Avenue in Brooklyn, as well as a front used to obtain fraudulent visas for mobsters and criminal associates. Illicit funds were passed through Slavic Inc.’s bank account to give it the veneer of legitimacy, “when in fact they weren’t conducting any commerce whatsoever,” said the FBI’s Raymond Kerr. According to Russian and American intelligence sources, the millions flowing into Slavic Inc. had already passed through a number of front companies in Russia and Europe before winding their way to Brooklyn, where they fueled the Russian mob in America. On August 20, 1996, just a month and a half after Ivankov’s extortion conviction, Fetisov signed the dissolution papers for the company, according to New York Department of State records.
Fetisov, of course, denied everything. He shifted uncomfortably in his seat, perhaps knowing Ivankov well enough not to get on his bad side. “Is it true that you were the president of Slavic Inc.?”
Fetisov turned away, visibly fighting to control his temper. “No,” he said. “That’s not true.”
“But your signature, in your handwriting, is on the documents, naming you the president of the company.”
“Are you trying to instigate something or what?” he asked.
“Is there a link between Slavic Inc., you, and Ivankov?”
“I’ve got nothing to do with this guy, this person, and with Slavic Inc. I have no relationship of any kind.”
“But your name is on the incorporation papers.”
“What incorporation?”
“The papers you filed with New York State.”
“I don’t want to talk about this right now,” he said. “I don’t want to talk about anything.”
Fetisov’s patience was wearing thin, so I tried another tack, asking him to explain his acquaintance with a New York art dealer and hockey fan named Felix Komorov—the man the FBI asserts in a wiretap affidavit and confidential documents is Ivankov’s “right hand man in New York,” “who was laundering money” for his group, while claiming to be second-in-command in the Brighton Beach area, in “control of all the extortionist activities of Russian émigré businessmen.” Though Komorov vehemently denies the allegations, he has admitted that he has been in telephone contact with Ivankov both before and after the vor was imprisoned.
What he cannot deny, however, is his avid courtship of Russian hockey players. Fetisov and several other Russian hockey players attended a reception at Komorov’s New York Russian World Art Gallery on Fifth Avenue, across from Central Park. Its walls were decorated with photographs of the jowly Russian shaking hands with a panoply of celebrities, including Al Pacino, Pierre Cardin, and New York City Mayor Rudolph Giuliani. Komorov also received permission from the NHL to make each member of the 1997 world championship Detroit Red Wings a solid silver hockey puck, engraved with the player’s name and the Stanley Cup logo, which he bestowed as gifts to the team.
“Some people like to give us presents,” said Fetisov with an annoyed shrug. “Do we have to say no? Do we have to check his background or what? I don’t know what you’re talking about anyhow.” Fetisov did admit, though, that he had “some business” with Komorov.
It is precisely such “business” connections with hockey players that worry law enforcement, for it is through them that people like Komorov can spread their influence, reaching into many levels of American society. Wall Street has been the Russian mob’s prime target. Gavin Scotty, for instance, is a senior vice president at Paine Webber, and a onetime pro basketball player who handles large portfolios for a number of Russian NHL players. When he decided the time was ripe for the company to do some business in Ukraine and Russia in 1998, he invited in some of these clients to ask who the leading Russian business guru in New York was. They unanimously identified him as Felix Komorov.
As it happened, Scotty already knew Komorov. “A couple of my players had won the Stanley Cup so we’ve been invited to parties that he’s thrown,” Scotty said. “I thought he was a legitimate, nice guy.” Scotty later met with Komorov at the Oyster Bar at Grand Central Station to inquire about potential business deals. The Russian had a number of ambitious plans, and was eager for Scotty to meet his associates in Kiev. After the meeting, Scotty was inclined to embark on some of the ventures Komorov proposed.
Then, by chance, he learned that his dining companion might in fact be a high-ranking member of the Russian mob. Scotty broke off contact. “I don’t want to be in the middle of problems,” he explained. “I’ve got a family, and I’ve got a big, big business, and I don’t need this.”
As the FBI’s Kerr pointed out, the possibilities available to men like Komorov through friendships with hockey players are almost limitless: they can provide introductions to valuable business contacts, to high flyers on Wall Street, to their personal money managers, to league coaches, general managers, and agents. Kerr suggests one possible scenario: With the threat of violence, a mobster forces a player to surrender a kickback on his sports endorsements. From there, the mobster could get an entrée into the sponsoring advertising firm, by having the player introduce a “friend” who’s ostensibly skilled at marketing. “[The friend’s] name is Svetlana.’ She’s an old KGB hand. And she works for the mob. She dates a married executive at the firm. The liaison takes place at a hotel, and lots of pictures are taken. Then the mob tells the ad executive what it wants him to do. This is how it’s done. This happens all the time. All the time. It’s as old as the KGB. Older,” the FBI man recounted with a chuckle.
In certain respects, Kerr says, the current level of corruption in the NHL is strikingly reminiscent of the old Jewish and Italian mobs’ infiltration of American society through their control of the garment industry and labor in the 1930s and 1940s. The mobs’ first step was to take over many of the unions, ranging from the truck drivers and longshoremen locals to the International Brotherhood of Teamsters. “Then the LCN bled millions and millions of dollars from the Teamsters’ pension fund, and built hotels in Las Vegas with this money,” explained Kerr. “That helped them get into the legitimate gambling business and the hotel business in Las Vegas.” These legal and quasi-legal operations were much harder for law enforcement to crack, and the vast sums of money made from them were later invested into other mob-controlled businesses. The FBI fears the NHL could similarly become not only one of the Russian mob’s biggest cash cows but also a stepping-stone into legitimate society and commerce.
Komorov, according to the FBI, is already involved in such schemes. But Fetisov refused to see the importance of the connection between Komorov’s relationship with NHL players and the FBI’s contention that Komorov is a high-ranking member of the Russian Mafiya. “I know that Komorov owns a nice little art studio, and he made presents for all the Red Wings players,” I said to Fetisov. “And according to the FBI, he’s Mafiya.”
“Why do you have to put all these things together?” Fetisov asked. “They are not related anyhow.”
“If you go to Brighton Beach,” I said, “and mention the name Komorov, it’s like saying John Gotti. Everybody knows who he is.”
Fetisov continued to insist that he has no criminal dealings with Komorov or Ivankov whatsoever, and called such charges “false allegations.” He was completely exasperated. “You’re probably not allowed to ask these kinds of questions, right?” Fetisov asked incredulously. “Are you allowed to ask any questions you want?”
“Sure. Yes. This is America.”
Fetisov realized there was only one escape: furious, he stood and ordered me to leave. “The interview,” he said, “is over.”
Had Fetisov been the only Russian NHL superstar to have befriended the Mafiya, law enforcement might not have such cause for alarm. But he is hardly alone. When Ivankov ordered his brother-in-law, and second-in-command, Vyacheslav Sliva, to move from Moscow to take over the Russian Jewish mob’s Canadian operation, Sliva turned for assistance to someone he considered an old friend— Valeri Kamensky, the left-wing All-Star for the Quebec Nordiques (which later moved to Denver to become the Colorado Avalanche).
Though Sliva had lied to immigration officials about not having a criminal past, and though he had been able to provide a forged government document backing up that claim, the feared crime lord still needed the endorsement of a respected citizen to help him through the visa process.
Kamensky obliged, asking the co-owner and president of the team, Marcel Aubut, to write a letter on Sliva’s behalf to the Canadian embassy in Moscow. “Please issue a visitor’s visa to a friend of one of our players, Valeri Kamensky,” wrote Aubut. The document succeeded and Sliva was granted an interview with Canadian immigration officials, at which he described himself as Kamensky’s longtime friend. “The only reason why I’m coming to Canada,” Sliva told the officials, “is to visit Kamensky.” In 1994, Sliva was awarded the visa.
“So Sliva comes over here on the strength of that invitation,” says a top Canadian law enforcement official. “Let’s just say that their relationship was more than just having dinner together. Sliva was interested in making sure that Kamensky’s career was going good and that he was looked after, that he wouldn’t have any problems. Then later down the road, Kamensky would owe Sliva.”
It didn’t take long for Sliva, based in Toronto, to dominate Canada’s thriving Russian Jewish mob. In the process, however, he drew the scrutiny of the Royal Canadian Mounted Police. “We covered Sliva like a blanket,” says the Canadian official. According to testimony by Canadian law enforcement, Sliva was recorded talking to associates in Russia and North America, making death threats, and discussing drug deals, extortion, and money laundering. Seven of the taped conversations were with Ivankov in which the gangsters talked about how to divvy up their proceeds. In conversations held between April 28 and May 5, 1994, they were overheard plotting to assassinate Igor Golembiovsky, the prominent Russian editor of the newspaper Izvestia, which had published an article on April 28 about Ivankov’s connection to some unsavory elements in the KGB.
But the Mounties say Sliva isn’t the only Russian crime lord that Kamensky is chummy with. More than one hundred phone conversations were monitored between Kamensky and Vatchagan Petrossov, whom the FBI contended is an Armenian vor vzakonye and the head of the Russian mob in Denver. According to law enforcement officials, the men are “very close,” and their friendship became even closer when the Nordiques moved to Denver.
Petrossov, asserts a classified FBI report, was allegedly Ivankov’s “strategic advisor” and involved with him in “drug trafficking and extortion.” Ivankov frequently traveled to Denver, where he stayed at Petrossov’s home, even using his address to apply for a Colorado driver’s license.
Denver may seem like an unlikely refuge for the Russian mob, but by one estimate the area boasts as many as sixty thousand Russian émigrés, many of them illegal. In addition, the relatively crime-free solitude of Denver offers a good cover for laundering money. In order to blend in, the Russian mobsters dress tastefully, drive Toyotas and an occasional late-model Mercedes, and live in fairly modest homes. They donate to charities and try to keep a low profile.
Petrossov has described himself as a philanthropist and a businessman, and an officer of a midtown Manhattan company called PetroEnergy International, which he claims develops new technology in oil production. However, PetroEnergy doesn’t have any customers yet, and prominent oil and gas research firms in New York and Houston say they could find no information about Petrossov’s purported company. The FBI, Customs, and the NYPD are looking into the enterprise.
One Petrossov business that did exist was a restaurant called the St. Petersburg, which he opened in the early 1990s in Glendale, a small, middle-class suburb of Denver. Ivankov was apparently a partner. (A business card identifying Ivankov as the owner of the St. Petersburg was found among his possessions when he was arrested in Brighton Beach.) The FBI and the IRS suspected that Petrossov and a Denver-based Russian partner constructed the restaurant to launder money: the more than $2 million it cost to build was wired into the personal bank accounts of both individuals at the First Interstate Bank in Denver in increments of $200,000 and $300,000. “All construction was paid for in cash, as were the land, their personal residences and cars,” the FBI report says. “Russian emigres working on the project have been treated roughly, with payments to them delayed.”
The sprawling restaurant covered over 16,500 square feet, featured a billiards room, and sported a state-of-the-art stage for Vegas-style floor shows. Despite its size and amenities, it was almost always empty, even on weekends, said federal law enforcement sources who surveilled the eatery. “The restaurant does not seem to generate enough business to pay the salaries of the employees brought from Russia to serve and entertain,” said the FBI report. Beefy Russian wiseguys seemed to be its only customers. “I know Ivankov was there,” Moody says. “Two or three other thieves-in-law that visited the United States stopped there, too.”
The source of the restaurant’s financing, the feds discovered, was apparently Intercross International, a company in Moscow in which “Thief-in-law’ Petrossov is a director,” according to a classified FBI report. Intercross’s income was derived from deals Petrossov made importing cigarettes from R. J. Reynolds Tobacco Co. in the United States and manufacturing polyester goods for sale in Russia. Much of the cigarette trade in Russia is untaxed contraband dominated by the mob, and Petrossov was reported to have been able to stay in business by making payments to a people’s deputy in the Russian government, says the FBI document. He also made contributions to political figures who allowed his shadowy company to operate unencumbered from a heavily guarded compound in Moscow.
It was no coincidence that the restaurant, which was partly owned by Petrossov’s wife and renamed Maverick’s Steak House in the mid-1990s, was Kamensky’s favorite hangout. He was apparently so taken with it that he appeared on Denver television commercials as Maverick’s pitchman. At one point, according to a well-placed law enforcement source, the Avalanche star was asked by the FBI if he knew Petrossov, or had any information about the extortion of Russian hockey players in the NHL. Kamensky denied all knowledge of both. “He lied through his teeth,” says the source. (Kamensky, traded to the New York Rangers in 1999, never responded to requests for an interview.)
In June of 1997 the Mounties were able to prove that Kamensky’s friend Sliva had forged the document averring his crime-free past—in fact, FBI records indicate that Sliva had spent ten years in the Gulag with Ivankov for extortion and torture. The Immigration Board, ruling that he posed a grave danger to Canada, deported the haggard-looking mobster via a jet bound for Moscow.
Unlike Sliva, Petrossov managed to sidestep an attempt in 1997 to deport him on visa fraud for failing to disclose his criminal past, which a confidential FBI document says included fifteen years in the Gulag for rape and inciting a riot. According to law enforcement sources, his lawyer convinced a judge not to give credence to the accusations of a corrupt communist regime, claiming that his client was set up by a prostitute, and that, moreover, his record was expunged by a Soviet court in 1989. Not surprisingly, one of Petrossov’s character witnesses at the Denver deportation hearing was Felix Komorov, who was identified in court as president of Rolls-Royce of Moscow.
Nevertheless, when Petrossov—Ivankov’s cousin by marriage—last tried to enter Canada on unspecified business in 1996, “we kicked his ass across the border,” beamed Glenn Hanna, a criminal intelligence officer of the RCMP’s Eastern European Organized Crime Division. He added that a computer check identified Petrossov as a thief-in-law and a major Russian gangster.
Despite Petrossov’s successful bid to remain in the United States, the FBI still considers him the leader of an increasingly active Russian mob in Denver. It has assigned one of its top agents—a veteran of the Oklahoma City bombing case—to reexamine the thief-in-law’s extensive file line by line.
Petrossov’s home is in leafy Glendale. One Friday afternoon in the winter of 1998, I decided to pay him a visit to ask about his relationship with Kamensky and Ivankov and extortion in the NHL. In a bit of a role reversal, I brought along an attorney built like a nose tackle, who is licensed to carry a concealed weapon and is black belt in Sambo, a form of Russian martial arts. Usually, it is a big Russian who knocks on a victim’s door; so when the freshly shaven and heavily perfumed Petrossov opened the door wearing an expensive Italian knit shirt, slacks, and shoes, he seemed a little taken aback. I introduced myself.
“Friedman, you are a bad man, a liar!” he barked— apparently, my reputation had preceded me. He accused me of persecuting the Russian people with fabricated stories about mobsters. His tirade was interrupted only when his pink shar-pei, Amy, darted out of the house and into the street, agitating him even more. “Amy, come back,” he pleaded to the pooch.
“It’s not proper,” he said. “You come without calling?”
“I’m sorry, Mr. Petrossov, but you have an unlisted number.”
Not surprisingly, he refused to answer any specific questions about whether he is involved with organized crime, has done time for rape, or is friends with Kamensky and Ivankov (although he attended Ivankov’s month-long extortion trial in Brooklyn, and defended him in an interview with the New York Daily News, calling him “a hero to the masses.” He still visits Ivankov in prison, and is allegedly the Armenian vor who handed Ivankov the suitcase stuffed with $1.5 million in cash when he arrived at Kennedy Airport).
“Why are you afraid to answer my questions, Mr. Petrossov?” I asked. “Law enforcement says you are a vor v zakonye.”
“What is law enforcement?”
“They say that you are a godfather,” I said, standing nose-to-nose and toe-to-toe with the dapper vor.
“I don’t know what you mean!” He shouted. Shaking with rage, he finally threw me off his property. As a parting gesture, he slammed the front door so hard that it bounced back open, barely missing his precious little Amy.
Pavel Bure is as slick as ice. Despite his many ties to Russian mobsters, the twenty-seven-year old four-time All-Star handles grilling like a veteran politician, claiming he has never heard of the Russian mob’s extortion of hockey players.
“People have problems everywhere,” said Bure with a shrug, as he sat, freshly showered and wearing a T-shirt and jeans, in the locker room of the spectacular Vancouver stadium that’s home to the Canucks, where he was then playing. “But I never heard somebody who had, like, problems with the Mafiya or whatever. I don’t know,” he continued with a smirk, “what’s Mafiya? It’s the criminal, right?”
Bure, with his soft, blond good looks, isn’t as innocent as he pretends, for he has never denied his close friendship with forty-nine-year-old Anzor Kikalishvili, the native Georgian the U.S. government considers one of Moscow’s top crime bosses. In addition, he has been seen in Moscow in the company of singer Joseph Kobzon who is, according to a classified FBI report, “the spiritual leader” of the Russian mob, and his stunning New York University-educated daughter. As early as 1993 the Vancouver Canucks had ordered Bure to stop his unseemly associations with Russian underworld figures, and though he agreed to the demand, he has in fact never honored it.
“I spoke to an agent who spent a lot of time in the former Soviet Union,” recounted a source close to the congressional investigation of the Russian mob and the NHL. “He said, This guy Bure, you just wouldn’t believe who he hangs out with over there. He’s constantly doing the town with the mobsters.
“In fact, Bure is also in business with them. He and Kikalishvili have recently reestablished the watchmaking concern of Bure’s great-great-great-grandfather, which was famous for the beautiful timepieces it made for the czars. They are “very, very expensive,” Bure said proudly. “I gave one to the mayor of Moscow.” Boris Yeltsin was also a recipient of one of the watches.
In early 1998 it was widely reported in Russia that Kikalishvili had named Bure president of his “nonprofit” company, the Twenty First Century Association—a promotion from Bure’s former title of vice president in charge of sports. Billboards throughout Moscow depict a beaming Bure and Kikalishvili promoting the Twenty First Century Association. While the FBI asserts this business is a Mafiya front that is worth at least $100 million in illicit funds, Kikalishvili insists it is a legitimate enterprise. The company has extensive interests in real estate, hotels, banks, and as many as ten casinos. According to FBI records, it also retains a combat brigade of fifty ex-athletes to protect it from other mob families and carry out criminal activities such as extortion and arms trafficking, including the sale of high-tech weapons to Iran.
Yet when I asked Bure if he is president of the Twenty First Century Association, he denied it. “How could I be the president if I play here in the U.S.?” he asked.
A few weeks later, in a telephone interview from his Moscow office, I asked Kikalishvili the same question.
“He was the vice president for sports and still helps,” replied Kikalishvili, carefully choosing his words. “So of course the vice president, when the president leaves, should assume the role of president.”
The relationship between the Russian Rocket and the Russian gangster dates back to Bure’s childhood. “I knew him when he was a boy and played on a children’s hockey team,” Kikalishvili acknowledged. A sportsman himself, he eventually became head of the Russian Youth Sports League and, later, the Russian Olympic Committee.
Kikalishvili, forty-nine, initially impressed his fellow gangsters as a pompous buffoon: he claimed to be a descendant of an ancient Caucasus prince named Dadiani, he used a royal crest, and he featured his own lordly visage on a vintage wine he produced. Over time, however, Anzor “demonstrated new maturity,” revealed a classified FBI report. During his sojourn in Miami in the mid-1990s, he was allegedly involved in the drug trade with South America, in bringing Eastern European prostitutes to the United States, buying tens of millions of dollars’ worth of real estate to establish a beachhead, and in extortion with Tarzan, according to an FBI wiretap affidavit and law enforcement sources. “People treated him like a god when he was in America,” says retired FBI agent Robert Levinson, who specialized in Russian organized crime.
Kikalishvili, of course, denied all criminal allegations. “In my whole life, I’ve never been in a police station, even as a witness,” he told me. “I’ve never stolen anything, not even a pack of gum.” He insists that he is merely a philanthropist, though few philanthropists are currently on the State Department’s watch list of organized crime figures. But even international law enforcement’s opinion of Kikalishvili apparently isn’t good enough for the Russian Rocket.
“I have to see the evidence with my own eyes, you know, to believe it,” said Bure, who was traded to the Florida Panthers in January 1999. “I know the guy. He’s really nice to me. So what am I supposed to say, ‘You’re not my friend anymore’? I don’t think it’s fair and I think it’s rude. There’s got to be a really big reason why I don’t want to be a friend with him. Like, if he does bad stuff, like… drugs or arms, some big deal, you know?”
While ex-Eastern bloc players like Pavel Bure have their own reasons to continue associating with the Russian mob, the real question is why the NHL tolerates its presence. Despite organized crime’s frightening penetration into the sport, the NHL, according to several sources, stood by idly, even stonewalling the 1996 congressional investigation into the situation. “We had subpoena power,” says the committee’s chief investigator, Michael Bopp. “We were a congressional committee, and still doors were just slammed in our faces at every turn [by top league officials].”
Bopp first contacted the league’s head of security, Dennis Cunningham, in the fall of 1995 for assistance. “He was all excited,” Bopp recalls. “He said, ‘Oh yeah, this is a problem. Players have come to me and told me about extortion attempts, actual extortion. I’m glad someone is looking into it. We’re going to do everything we can to help you out.’”
Although Cunningham has claimed that he attempted to help with the congressional investigation, Bopp says that, “Slowly… over the next few months, Cunningham’s demeanor changed 180 degrees, to the point where he was saying, ‘I don’t know why you are looking into this. This isn’t a problem.’ The league just didn’t want us poking around.”
The FBI, likewise, has had little success in dealing with the NHL. “The teams won’t let us talk to players about extortion,” says a frustrated FBI official. “And we’re here to protect them.”
As a result, federal authorities have come to fear that the NHL is now so compromised by Russian gangsters that the integrity of the game itself may be in jeopardy and that the most dreaded word in sports might possibly infect professional hockey: “fix.” “If you have a real high-powered scorer and you take him out of the game, it really helps out on the odds,” says former top FBI official James Moody. “Gangsters play the odds. If they can cut down on the odds by taking out the prime scorer, or if the player takes himself out by purposely getting into foul trouble and is banished to the penalty box, then the potential to fix a game is there.”
“Organized crime is in the gambling business,” says another top FBI official. “If they can handicap the game with their players they will beat the spread. Do we know that Russian organized crime has tried to fix games in the past? What’s the difference? That’s exactly where they are going.”
“That’s the biggest concern,” concurs Moody. “And I think as time goes on we’re seeing more and more of that.”
If the “fix” is in, the NHL isn’t doing much to stop it. “I get really irritated with the National Hockey League,” says another FBI agent in a large regional market with an array of pro sports teams. “Professional baseball, football, and basketball want us to be involved if we know of gambling, or dope, or anything that goes on with those leagues. But the National Hockey League, they don’t care.” Though the FBI office in New York has had some contact with the league, which has its headquarters there, the FBI man maintains, “I’ve never been asked to go talk to the National Hockey League [in my city], and as far as I know, none of our people has been asked to go to speak to any National Hockey League team.”
After I wrote an investigative article documenting the Russian mob’s infiltration of the NHL for Details magazine in May 1998, the league threatened to sue for libel and hired James Moody to look into the matter. Moody, who had left his position as the FBI’s head of organized crime in 1996 to set up a private investigative agency, was asked to verify the claims of player extortion and mob collusion and provide an analysis. Moody had already worked occasionally for the NHL, having been responsible for providing the security for the Stanley Cup when the Detroit Red Wings’ Russian players brought it to Moscow for a glittering celebration. To guarantee its safety, the cup was locked inside the KGB’s notorious Lubyanka prison.
In the course of his investigation, Moody re-interviewed some of the article’s off-the-record law enforcement sources, and tapped his considerable contacts in Russia. “Overall, the article was as fair and as accurate as it could possibly be,” the FBI’s John Epke told Moody.
Moody’s probe unsettled him. “You look at some of the players like Slava Fetisov and… his association with Ivankov, and Kamensky’s association with some of the thieves-in-law… [and] it is a cause for great concern.” As for Bure’s relationships with mob bosses, he says, “Anzor Kikalishvili and Kobzon have been ID’d before Congress as members of organized crime and if you ask anyone in Russia they’ll tell you the same thing.” Moody sent his report to NHL headquarters, and the league could no longer plead ignorance, for it confirmed a disturbing portrait of the mob’s insidious influence over the league. “Russian organized crime has a major foothold in the NHL,” said a top bureau source, “and we’ve talked to them and they say it doesn’t exist…. Then they hire one of the top experts in the world with the best sources in Moscow to prepare a report which said the piece in Details was letter perfect, and that the situation is actually quite worse. Moody has an unassailable reputation…. So now why wouldn’t they cooperate with law enforcement or start their own investigation?”
Of course, the NHL has never made the Moody report public. Nor has Bure, Fetisov, Kamensky, or any other player associated with Russian mobsters been officially reprimanded, censured, or suspended. The league’s corporate counsel has stated that he is not troubled by Fetisov’s and Kamensky’s alleged relationships with Russian crime bosses, and that Bure’s friendship with Kikalishvilli was not at the point “where we thought it was problematic, either to the image or integrity of our sport.” If it was, he said, “We would act on it.” Meanwhile, Moody’s confidential document is evidently gathering dust.
Since NHL commissioner Gary Bettman and head of security Dennis Cunningham both refused all requests for interviews, the reasons behind the NHL’s apparent lack of concern for its players can only be surmised. A mixture of fear and greed seems the most obvious explanation. “Russian organized crime has a stranglehold over the league, and for the NHL to acknowledge it would be a PR disaster,” said a top FBI official, noting that the league’s top brass probably fear that its advertising revenue, its $600 million deal with Disney to broadcast hockey over ESPN and ABC, and even its supply of raw Russian hockey players might vanish were it to challenge the Russian Mafiya. “The league would see it as an existential threat.”
Finally hockey’s critics say the league’s moral standards are simply lower than those of other major sports. For example, the National Football League and baseball have gone a long way to combat even the appearance of impropriety. New York Jets football legend Joe Namath was forced by the commissioner of the NFL to sell his popular Manhattan restaurant, which was frequented by mobsters, or give up his career. New York Yankees owner George Steinbrenner was banned from baseball’s American League for three years for having had a relationship with a gambler. Baseball great Pete Rose was banished from the sport for life for gambling on baseball.
Nevertheless, at the NHL, it is business as usual. Jittery NHL scouts, scouring the far corners of the ex-Soviet superpower for talent, are as vulnerable to mobsters as the players they are trying to sign. It is not uncommon for gangsters to demand that scouts pay protection money to be able to operate, international law enforcement sources say. If they’re lucky enough to sign a promising prospect, they may also be asked to pay a percentage of the player’s contract.
Meanwhile, the NHL is reportedly exploring the possibility of expanding the league to the ex-Soviet bloc at a time when hockey there has perhaps never been more corrupt. In April 1998, the Russian Ice Hockey Federation’s president, Valentin Sych, was gunned down near his country home by an assassin with a Kalashnikov assault rifle. Sych had been foolhardy enough to crusade against the presence of organized crime in sports. Just before he was killed, he charged that senior Russian hockey league officials are “the biggest thieves. All they’re concerned with is lining their own pockets. Our hockey is now so corrupt that I don’t see how we can ever clean it up.” In the wake of Sych’s murder, four hockey players were killed or grievously injured in the former Soviet bloc by assailants who demanded a piece of their salary. One, twenty-year-old Maxim Balmonchnykh, was stabbed while visiting his home in the industrial city of Lipetsk just after he had secured a multimillion-dollar contract with the Mighty Ducks of Anaheim, which is owned by Disney.
If the NHL plans to open franchises in the former Soviet Union, it will almost certainly have to negotiate with the Mafiya. Everyone who wishes to do business there, from Fortune 500 companies to adventurous entrepreneurs, “has to play the game to survive,” says Joel Campanella, the New York cop who worked on the Brokhin case and is now a senior intelligence specialist for the U.S. Customs Service. As long as the former Soviet Union provides such a rich reservoir of talent, the NHL is likely to continue its de facto accommodation of the mob. And as long as everyone from the league’s superstars to its own commissioner fails to speak out against it, the NHL will remain an irresistible opportunity for the world’s most powerful and ruthless criminal cartel.
9
THE MONEY PLANE
“Do I have to go?” Konanikhine asked.
“No,” said the woman. “We don’t have official orders. But it will save a lot of trouble and paperwork if you come with us.”
Konanikhine was driven to an ornate, five-story building in the center of downtown Budapest, several blocks from the security ministry. When the police ordered him inside, Konanikhine was suddenly terrified. He was the head of the All-Russian Exchange Bank, the largest commercial financial institution in the former Soviet Union. Ever mindful of the large number of Russian bankers who had been kidnapped and assassinated by mafiosi, he told his abductors that he had changed his mind and wanted to go back to the hotel.
“That’s too bad,” said the woman, a semiautomatic pistol protruding from her jacket. “We insist.”
Konanikhine was led into a large room, and then a smaller inner sanctum where V. B. Adeev, the All-Russian Exchange Bank’s chief of foreign investment, was standing inside the doorway. Adeev, twenty-five, was a massively built man with a Buddha belly. He was flanked by an even bigger Russian who was introduced as Sasha. “Most of the talking was done by Adeev,” Konanikhine recalls. “The big guy didn’t need to talk. Adeev wanted everything! My companies! All my money!”
Konanikhine, who was used to having his orders followed, and was irritated by Adeev’s insolence, snapped, “You cannot tell me what to do!”
“You want me to kill you?” Adeev sneered, threatening to toss the young banker into a scalding bathtub and have Sasha work him over. Sasha lumbered toward him brandishing an electric iron, an incarnation of brute force.
“I don’t want to die, Adeev,” Konanikhine whispered.
“No pain. Just sign everything over.”
“I was considered easy prey,” Konanikhine, now thirty-three, recalls without a trace of emotion. “I was young and had a baby face. I didn’t look dangerous. Many Russian businessmen have a very heavy look. They look like you don’t want to fuck with them. That’s the message and it was their protection.”
The next few moments, he knew, would be dicey. He either played along, or Sasha would kill him. But he feared that as soon as he signed away his assets, he’d be killed anyway, and then they’d go after his wife. So Konanikhine stalled for time.
“I said, ‘Fine. How do you want to do this?’ “
“Well, just call your bank and transfer your money,” Adeev instructed him. “I have a list of your accounts and business holdings.”
Konanikhine convinced his captors that he needed his own letterhead stationery, a notary, and an attorney in order to complete the transfers without arousing the suspicion of his Swiss bankers. The process, he said, would take several days. He haughtily demanded to be taken back to his hotel so he could begin the paperwork.
“They were extremely dangerous, but very stupid,” Konanikhine recounts. “I talked to them with a tone of authority. Russia and Eastern Europe are divided by social classes. They were from the subservient class used to taking orders from bosses.” Konanikhine shook hands all around, and praised them for their fine organization. “Their social position in Russia was much less than mine, so it was like a general complimenting a private.”
Konanikhine was driven back to the Aquarian, minus his passport and cash, which the group kept in order to prevent him from fleeing. Six guards were also posted in the hotel—one in the corridor near his room, the others in the lobby. Later that evening, Konanikhine calmly retrieved a second Russian passport with multiple business entries into the United States and some U.S. currency that he had earlier deposited in the hotel safe. He and his wife then somehow managed to slip out of the hotel by walking right out the revolving front door. Waiting for them was a friend with whom they had previously made dinner plans. “We jumped in our friend’s car,” Konanikhine remembered. “I told him to drive like crazy. He did. He was a businessman. He had the latest model of Volvo. The thugs tried to arrange a pursuit in a couple of Czech-made S codas. They had no chance. We outran them in about one minute. We flew top speed to Bratislava, which is just two hours away from Budapest.” There, Konanikhine and his wife boarded a plane bound for John F. Kennedy International Airport. “The next day we were walking in New York.”
While Konanikhine, relieved to land safely on U.S. soil, was stepping off the plane at JFK, a not unrelated event was unfolding at a terminal nearby. At Gate No. 14, the usual assortment of passengers milled about waiting to board Delta Flight 30 nonstop to Moscow: American businessmen prospecting the new Russian capitalism, Russian entrepreneurs returning from investor hunting, expatriates going home to visit family, tourists yearning for a glimpse of the once-closed Soviet land. One passenger, though, was a courier, and knew something none of the other passengers was aware of: that the plane would be carrying one million fresh hundred-dollar bills in its belly.
At about 5:00 P.M. a cream-colored armored truck drove up to the red, white, and blue Boeing 767. While Delta workers casually went about tossing luggage into the hold, two armed guards began placing large white canvas bags on a conveyor belt. In the bags were stacks of uncirculated new $100 bills, all still in their Federal Reserve wrappers, dozens to a bag. And there were dozens of bags.
The plane departed JFK at 5:45 P.M. Throughout the nine-hour flight, the unarmed courier, who worked for the Republic National Bank of New York, relaxed in the passenger cabin while the money sat “all by its lonesome” in the cargo hold, according to one law enforcement source. Upon arrival at Sheremetyevo airport at 10:55 A.M. Moscow time, the money was transported by a fleet of armored trucks to Russian banks, which purchased the $100 bills on behalf of clients, who typically paid for it with wire transfers from London bank accounts.
Rather remarkably, no one ever tried to hijack Delta Flight 30, even though it left JFK at the same time five days a week—rarely carrying less than $100 million and sometimes more than $1 billion. Since January 1992, federal authorities estimate more than $80 billion—all in uncirculated $100 bills, hundreds of tons of cash—was shipped to Russia. That amount far exceeds the total value of all the Russian rubles in circulation. The huge shipments of money remained safe only partly because of security; another reason was that anybody who might have been inclined to pull off such a heist was also well aware who is buying all those $100 bills.
“If you rip off Russian banks, you rip off the Russian mob,” says one Mafia source here in the United States. “And no one’s got big enough balls or a small enough brain to do that.”
The Russian mob, according to numerous well-placed law enforcement sources, has been using an unimpeded supply of freshly minted Federal Reserve notes to finance its international crime syndicate. Ironically, the cash is supplied to dirty banks in Russia with the full blessing of the Federal Reserve in an attempt to prop up the ruble and preserve Russia’s fragile free market economy. American C-notes have become the unofficial currency of Russia, and, of course, can get things done there that rubles cannot; but the hundreds are also being used to fuel the Russian mob’s flourishing dollar-based global drug trade, as well as to buy the requisite villas in Monaco and Cannes. The Russian Mafiya has also used laundered funds to set up operations abroad, including its American offshoot in Brooklyn’s Brighton Beach, and has begun investing in legitimate businesses across Europe and in the United States.
In his speech to the United Nations in January 1995, President Bill Clinton declared money laundering a threat to national security. “Criminal enterprises are moving vast sums of ill-gotten gains through the international financial system with absolute impunity,” he said, signing a presidential directive ordering the attorney general and the Treasury to identify individuals and organizations involved in global financial crime and seize their assets here and abroad.
When the Soviet Union collapsed in 1991, so did the entire government-controlled banking system. Replacing the government banks were private institutions chartered and supposedly regulated by the new Russian Central Bank. But as Major General Alex Gromov of the Russian tax police told a 1994 international conference on Russian organized crime, the “application” to charter a new bank typically consisted of making a $100,000 bribe to a banking official. “A grossly underregulated banking sector sprang up virtually overnight,” says Harvard economist Jeffrey Sachs. “Now you have two thousand banks, many of which are deeply undercapitalized, and therefore everything is possible.”
No one saw the possibilities more clearly than the mob. On July 2, 1993, two chartered jets touched down in Yerevan, the capital of the Republic of Armenia, and disgorged a panoply of wiseguys from the United States, Germany Turkey Italy and South America. They had been summoned by Rafik Svo, the gangster equivalent of an international diplomat, who had tried to broker the peace accord between Elson and Nayfeld. Svo was determined to bring order and mutual prosperity to the Thieves’ World by ending destructive turf wars and forging alliances between the Sicilian Mafia, the Brighton Beach Organizatsiya, and Colombian drug lords, all of which sent emissaries. At the meeting it was decided that the Russian banking system, new and vulnerable, would be used to launder funds, make favorable loans to “friends,” and supplant Zurich as a haven for dirty money The big joke at the Armenian conclave was, “Why rob a bank when you can own one?”
While initially the mob used Russian banks just to park their money, they soon began to “buy banks, to find out who had big deposits so they knew who to kidnap,” said Jack Blum, a Washington lawyer who directed congressional investigations into money laundering and who broke open the Bank of Credit and Commerce banking scandal. Then, in collusion with politicians, government bureaucrats, black marketeers, and the KGB, the mob used the banks to facilitate the huge post perestroika looting of the former Soviet state. Profits from the sale of stolen raw materials, of weapons snatched out of military arsenals, and of assets stripped by insiders from newly “privatized” industries were all spirited out of the country into off-shore companies and bank accounts. U.S. officials privately complain that tens of millions of dollars in aid have gone into Russian banks, never to be seen again. In fact, within just two years after the fall of communism, untold billions’ worth of rubles, gold, and other material assets had already disappeared from the former U.S.S.R.
“Many of these Russians do not consider their activities to be criminal,” said a CIA official. “For them, it is just ‘business.’ Their sense of right and wrong is nonexistent.” Crime was the only growth industry in Russia, and the country had become, in the words of one former CIA director, a “kleptocracy.”
Of course, that illicit money was not applied toward capitalizing legitimate businesses. Almost all of it was used by the Mafiya to fund its international criminal activities, from extortion to drug trafficking to arms dealing. Mob-controlled Russian banks took in huge deposits of narco dollars from South America, converting them to rubles, then back into dollars through European and U.S. banks. Increasingly, they have purchased European companies with histories of legitimate banking activity, and then used them as a conduit to pass illicit funds into the international banking system. More ominously, they have acquired hidden control of banks in Austria, Germany, France, Switzerland, and England, according to U.S. law enforcement sources. In fact, in only eight years, the Russian banking system has already become one of the world’s leading money laundering centers, replacing Panama as the favored dirty-currency exchange of the Colombian cartels and the Italian Mafia.
“Almost all Russian banks are corrupt,” Major General Alex Gromov explained at the international conference, which was co-sponsored by the Financial Crimes Enforcement Network (FINCEN), which tracks money laundering for the U.S. Treasury. A 1994 classified CIA report identified ten of the largest Russian banks as mobbed-up fronts. And in a 1995 meeting in Moscow with State Department envoy Jonathan Winer, Viktor Melnikov, the Central Bank’s director for foreign exchange control, “expressed great concern about the state of the Russian banking system, citing estimates that anywhere from 50 to 80 percent of Russian banks were under the control of organized crime,” according to a State Department cable. FINCEN director Stanley Morris put it more bluntly: “Russia’s banking system is a cesspool.”
The Mafiya’s takeover of Russian banking has been shockingly easy. Since there are no regulatory controls over proprietorship, even felons are permitted to own banks. What’s more, there are no money laundering laws, regulatory agencies, or depositor insurance. The Russian Central Bank is notoriously lax in exercising control over the nation’s nascent financial system—a point some Russian central banking officials readily concede.
“It’s very difficult to tell from the outside what a transaction with a Russian bank really means,” says the State Department’s Winer. “There are not a lot of public documents. You can’t go to an SEC to look at a balance sheet for a Russian firm the way you can in the United States. You can’t go to a bank regulator and find out what kinds of loans have been made, what the underlying source of capital is, or any other number of key issues, let alone who their customers are.
“These are issues which the Russian Association of Bankers is concerned about, because they are not unrelated to the murder of the bankers.”
More than sixty Russian bankers have been killed by mobsters since 1994—one for simply having refused to make a loan. In a particularly grisly incident, Oleg Kantor, president of Moscow’s Yugorsky Bank and a gas and oil mogul, was found outside a luxury hotel on July 20, 1995, with a huge hunting knife plunged into his chest in what police called a contract killing connected to his bank’s business with a mobbed-up aluminum company. Kantor had been stabbed seventeen times, his throat was slit, and his chest slashed vertically in half. Many more bankers have been threatened. The deputy superintendent of the New York State Banking Department, Robert H. McCormick, has heard stories of Russian bank examiners being chased away from doing their jobs by a hail of gunfire.
“It’s very frightening,” says Dan Gelber, the former minority chief counsel of the Senate Subcommittee on Investigations. “What do you do with a bank that from top down is not honest? I mean, it almost creates a situation where there is no remedy.”
Russian banker Alexander Konanikhine was confident that America would provide a safe haven from the cruel forces that had dispossessed him. If he could make a mint in the motherland, why not in the U.S.A., where cunning could also turn dreams into fabulous fortunes?
Still, the loss of Konanikhine’s bank in Russia was a severe blow to the financial prodigy. He had grown accustomed to the lavish perks of Klondike capitalism. By 1992, he had controlled a Russian banking and real estate colossus with some 100 companies; his personal net worth was more than $300 million. The anchor of the whiz kid’s financial empire was the All-Russian Exchange Bank, the first commercial bank to be granted a government license to operate a hard currency foreign exchange. It was also permitted to issue unusual certificates of deposit in the form of specially minted sterling silver doubloons, bearing the aquiline profile of Konanikhine’s wife. “You can’t imagine what kind of wealth was produced,” Konanikhine boasted. “By the time I was twenty-three, there wasn’t a single hard currency in which I was not a millionaire. I was one of the richest entrepreneurs in Russia.”
Along with a score of other fabulously wealthy young capitalist princes, Konanikhine had helped to finance Boris Yeltsin’s successful 1991 presidential campaign. The election victory was followed by a failed coup by hard-liners, in which Yeltsin, like Lenin at Finland Station, rallied the masses from atop a tank. Fearing the return of totalitarianism and the end of an era that gave them the unfettered license to make money, Konanikhine, along with the other new capitalists, increased their support for the new president.
A grateful Yeltsin treated Konanikhine as a favored son, inviting him to join his delegation during his first official state visit to America. In addition, Yeltsin bestowed upon him a sprawling state residence that once housed Mikhail Gorbachev, as well as the former compound of Soviet World War II hero Marshal Zhukov, who led the Red Army into Hitler’s Berlin. Konanikhine also built his own showy dacha in a densely wooded area not far from Moscow with eight bedrooms, a private gym, a swimming pool, and a twelve-car garage—which hardly accommodated his fleet of sixty automobiles. The banker says he was protected around the clock by a praetorian guard of some 250 veteran KGB security men.
To protect his companies, Konanikhine claims he hired four KGB officials, including Adeev, placing them in top management positions. Later, he asserts, he discovered that the men were secretly running a multimillion-dollar money laundering ring through the All-Russian Exchange Bank. It was his attempt to fire them, he explains, that resulted in the kidnapping in Budapest, the home base for the Red Mafiya’s powerful crime lord Semion Mogilevich, whom the FBI believed had joined forces with the KGB men to chase Konanikhine out of his banking kingdom.
But Konanikhine couldn’t easily abandon all that he had worked for in Russia. After arriving in the United States, he initiated a furious letter-writing campaign to President Yeltsin and the Russian press, bitterly complaining about his abduction and the Mafiya’s seizure of his assets. He named names and demanded a police investigation.
His strategy backfired when Adeev filed a criminal complaint with federal prosecutors in Russia, charging that Konanikhine had embezzled $3.1 million from the All-Russian Exchange Bank. “[Konanikhine] has a persecution complex,” Adeev told Kommersant, a respected daily business newspaper in Moscow. “[He thinks] I am following him and that I want to kill [him]. But in all my affairs I follow the principles of economic expediency. And it tells me that this is not to our advantage to kill Konanikhine until the time when the bank gets the $3 million back. But as for me, I would not give a single dollar for the life of this man.” Adeev’s charges prompted Deputy Prime Minister Anatoly Kulikov to declare before the Duma that Konanikhine had actually embezzled an astounding $300 million from the bank, and a warrant was issued for his arrest.
Konanikhine and Khodorovsky had first met in Moscow where they were rival bank moguls. “I had a lot of respect for him,” Konanikhine admitted. “He had a lot of respect for me. I wound up here in the U.S. with not much to do, and he said: ‘Why don’t you help me turn Menatep into Russia’s first international bank? Russian banks don’t have much of a presence in foreign countries. They are very domestic.’ We made a lot of research, and I started implementing it.”
Konanikhine received a $1 million employment contract from Menatep, which he claims named him the company’s vice president. He soon resumed his lavish lifestyle, quickly acquiring a $315,000 condo in the Watergate Complex with a view of the White House, homes in Antigua and Aspen, a Mercedes 600SL, and a BMW.
High on the Russian bankers’ list of objectives, says Konanikhine, was to persuade the Federal Reserve to grant Menatep a license to open branch offices in New York and Washington, which would enable it to accept American deposits and make loans. Branch offices in the United States, with its iron-clad financial system and the respect it had earned in the international community, would immediately lend credibility and prestige to any bank, greatly facilitating its business anywhere in the world. Attorneys hired by Konanikhine made their case to the Fed, and were turned down immediately. Menatep subsequently took out full-page ads in the New York Times and the Wall Street Journal, hoping to counter its unsavory image. The Russian banking giant also paid $66,000 to PBS’s New York affiliate, WNET, to have its name and corporate logo appear in fifteen-second spots before and after The MacNeil/Lehrer NewsHour, which ran six times a week for almost a year.
After finding that opening a branch bank in the United States would be problematic, Konanikhine tried to help Menatep set up “false-flag” banks in Austria, England, and Uruguay. “The bank in Uruguay was supposed to become the financial bridge between South America and Eastern Europe,” Konanikhine explained.
In was in the Caribbean, however, that Konanikhine had his greatest success. In July 1994, Konanikhine and Khodorovsky discreetly founded an Internet bank in Antigua. The European Union Bank (EUB) was created, according to the CIA, with a $1 million investment from Menatep. The initial company filings in Antigua listed EUB as a subsidiary of Menatep and Konanikhine as the bank’s sole shareholder. The Bank of England later informed the Federal Reserve that Konanikhine had been in Antigua in 1995, “where he called on government officials to request their cooperation in keeping Menatep’s ownership of European Union Bank confidential,” according to a U.S. banking document. EUB’s prospects were helped by the fact that Clare Roberts, who became Antigua’s attorney general, registered it and was a member of its board. To lend EUB an air of international respectability, Lord Benjamin Murkoff, a member of the British House of Lords, was brought on board as founding chairman. (Murkoff bailed out when the Bank of England told him there was something “dodgy” about EUB.)
It was no accident that EUB was set up in Antigua, the center for dirty money in the Caribbean. Despite its tiny population of 66,000, the island has more than fifty banks, at least eleven of which are owned by Russian organized crime, according to the State Department’s Jonathan Winer. The country’s officials receive enormous bribes from gangsters willing to pay to operate quietly there. “Antiguan officials promise they’re going to clean it up, and as soon as I step on the plane and fly back to Washington, they open another mobbed-up bank,” the State Department’s Winer complained. In March 1997, the State Department called Antigua the “most vulnerable East Caribbean island to money laundering” and a “key transit zone” for drugs smuggled into the United States. [11 out of 50,that leaves 39 for the pond scum in New York,Washington and London DC]
Touted as the world’s first Internet bank, EUB thrived for a few glorious years. It offered fabulous rates on CDs, money wiring services, and credit cards, and quickly became, assert law enforcement sources, one of world’s premier money laundering facilities—a kind of crooked bankers’ Stargate, where gangsters using secret-coded accounts could hurtle funds around the globe in nanoseconds. Its elegantly designed Web site promised super-secrecy so that its cyber customers could conduct any number of transactions, such as laundering funds from fictitious companies, over the Internet. The Russian and Colombian cartels allegedly washed millions through the bank before U.S. law enforcement officials caught on. More embarrassing still, although EUB’s office was located above a noisy bar in Antigua, its computers were operated by Russian techies out of Konanikhine’s advertising agency located in Washington, D.C.’s, courtly Willard Hotel, just blocks from the White House. If a crime was being committed, therefore, it was under U.S. jurisdiction. But by the time the FBI woke up to the alleged money laundering operation, it had been shut down and the computers, the master server codes, and records had been shipped to Canada.
According to INS documents filed in Virginia, Khodorovsky responded to a Federal Reserve inquiry about Konanikhine’s and Menatep’s banking activities by admitting in a letter that Konanikhine was authorized “to carry out a study of American and offshore markets” for Menatep. Menatep’s lawyers, however, professed minimal involvement in establishing EUB, further stipulating in a letter to U.S. banking regulators that while Khodorovsky intended to serve on EUB’s board, he and Menatep severed their ties to Konanikhine shortly after EUB was chartered. For his part, Konanikhine claims to have sold his shares of the bank before it was shut down and went bad, though he refused to say to whom.
According to Canadian law enforcement officials, however, it was Vitali Papsouev, an eighth grade dropout and the son of a janitor, who bought the holding company. He happens to be one of Toronto’s top Russian organized crime figures, according to the RCMP.
Whatever the truth of the matter, EUB was merely a cog in the Russian mob’s money laundering colossus. Congressman Jim Leach, who heads the House Banking Committee, has asserted that billions of dollars may have been laundered out of Russia since 1995, and that dozens of Western banks have been used as conduits for this money. “Any time that dirty money can find its way into the U.S. financial system, it poses a risk to us,” said Jerry Rowe, the IRS’s chief officer of narcotics and money laundering.
The Russian mob’s monstrous growth has been aided considerably by its ability to quickly and easily launder its dirty criminal proceeds into clean—and now supposedly counterfeit-proof—U.S. hundreds. It is this money that has allowed the Russian dons to swagger into Miami and ratchet up prices on the luxury housing market by paying for million-dollar properties with minty new $100 bills, or to set up shell companies in Brighton Beach to sponsor U.S. visas for Russian gangsters, or to hire sophisticated money managers and lawyers in Los Angeles and Denver to invest in import-export companies. This money “can, in fact, give criminals an opportunity to operate in a legitimate arena,” said Rowe, “whether it be in the political arena or buying up businesses. I mean, we could end up with those companies in some way supporting political candidates that they think will help them in one way or another.”
In banking, reputation is everything. So when agents of the Criminal Investigation Bureau of the New York State Banking Department learned in 1993 that Republic National Bank was selling tens of billions of dollars’ worth of federal currency to as many as fifty corrupt Russian banks, they became particularly alarmed. “This posed a question to us: if there are legitimate reasons—and there very well may be—for this money to be going over to Russia, why is it being sent to entities which have been determined, rightfully or wrongly, and I believe rightfully, to be controlled by organized crime?” said a source close to the Banking Department’s investigation. “It just didn’t make sense to me. The analogy I always use is that it would be like sending money to John Gotti’s Bergin Hunt and Fish Social Club. Why are we doing that?”
New York State banking officials were so concerned by these findings, the source said, that they urged federal agencies to probe Republic’s banknote trade with Russia. But “right down the line” from the FBI to the CIA, “basically, the response that we were getting was, ‘Yeah, it looks like we’ve got a potential problem here, but you know what? It’s not our problem.’
“To us, it was like a sore on Cindy Crawford’s face! I mean, it was there. And I said, ‘Geez, isn’t someone curious about how that sore got there?’”
If American law enforcement was slow on the uptake, the Russians certainly knew what was going on. At the September 1994 conference in the United States, a Russian general was asked why Russian banks were buying billions of dollars in U.S. currency. According to a participant at the meeting, he chuckled, and said, “’Oh, that’s money laundering.’ Then he went, ‘Hey, we’re being ripped off in our country; the money is coming over here, being cleaned, and being brought back into the United States.”’
State Department officials explain that money laundering works something like this: Russian assets, such as oil, are stolen by underworld figures or corrupt plant managers and sold on the spot market in Rotterdam. The proceeds are wired through front companies on the Continent and deposited in London banks. Gangsters place an order for, say, $40 million in U.S. currency through a bank in Moscow. The bank wires Republic, placing a purchase order for the cash. Republic buys the currency from the New York Federal Reserve. Simultaneously, Republic receives a wire transfer for the same account from the London bank. Republic pockets a commission and flies the cash from New York to Moscow. It is then used by mobsters to buy narcotics or villas, or run political campaigns.
As far as Republic is concerned, if there was a problem with a customer, it was up to the banks in London or Moscow to warn it. According to a provision of the 1992 Annunzio-Wylie Anti-Money Laundering Act, American banks are required only to make sure that they’re not knowingly doing direct business with criminals or their agents. “All that’s incumbent upon the American bank is to see if the other bank is a duly constituted bank, recognized by the central bank of that country,” said the New York State Banking Department source. “To me, looking at it as someone who has been in law enforcement all my life, do I think maybe we might have some willful blindness here, or blinking, or looking the other way? I think so. Can I prove it? No. Republic’s guilty of willful blindness, though not in technical violation of any existing law…. It may be overly simplistic, but I’ll put it like this: if you identify bad guys, and you’re sending money to bad guys, I mean, to me that’s not good!”
“That money is used to support organized crime; it’s used to support black market operations,” agreed an official at the federal Comptroller of the Currency office, which regulates Republic. “In my personal opinion, this is an absolute abomination. It should not exist. Yet it appears that at least part of the federal government sees nothing wrong with it.”
One part of the government that has chosen not to address the problem is the U.S. Treasury, which stands to gain $99.96 from any $100 bill that leaves the country and never returns. The Federal Reserve is similarly, blissfully ignorant. “What do we know of Republic’s customers?” said New York Fed spokesman Peter Bakatansky. “We don’t. It’s their responsibility to know who they are sending it to.”
For the record, the Republic National Bank, which made millions from the currency sales, insisted it certainly was not knowingly selling $100 bills to mobsters. “That’s my responsibility, to make sure we don’t sell to the banks that have organized crime ties,” said Richard Annicharico, one of Republic’s compliance officials. “That’s the hardest thing to find. In fact, if you know of any, let me know.
“I’ve run out of places to check,” continued Annicharico, a retired IRS agent. “Someone tells me [the banks are corrupt] and gives me substantial reason why—you know, anything, really—we don’t sell to them. I mean, anybody who tells us not to, we’ll stop them tomorrow.”
Asked about a classified CIA report that named ten major Russian banks—among them many Republic clients—that are run by organized crime, Annicharico replied, “We looked at that, and we stopped doing business with some of those banks as a result of that.” In fact, Annicharico asserted, Republic would completely shut down the dollar trade if federal officials ever showed it hard evidence that its client banks in Russia are corrupt. “Believe me, I wish they would,” he said. “But you have a large faction of the U.S. government that thinks this is great! You have some of the law enforcement people who are negative on it. So you have a dual thing.”
Annicharico acknowledged that a federal money laundering task force had contacted him about Republic’s currency trade with Russia. “The task force told me that they think Russian organized crime is involved in money laundering. But so what?” he said. “Who? What? Who? No one’s been prosecuted. What’s the crime? Tell me—I’ll stop. I always tell them, ‘Tell me which banks, and we’ll stop.’ I can’t find them. I’m not being facetious.”
Despite the number of investigations, high-level meetings, and international conferences that seem to involve Republic, Annicharico insisted the bank has never been officially accused of selling money to a mobbed-up bank. “No. I never heard that,” he said. “But the innuendo is there because we sell to [Russia]. But so what?”
In the wake of all the attention Republic was attracting concerning its dollar trade with Russia, Anne T. Vitale, senior vice president and deputy counsel of Republic National Bank and a former assistant U.S. attorney, was assigned by Republic to investigate whether selling cash to banks in the former Soviet Union was potentially illegal. She turned to the FBI, to see if they would “give her a letter that everything Republic was doing was clean,” according to a former government official. The FBI refused, stating that while Republic’s sale of dollars to Russian banks is legal, it “doesn’t pass the smell test.”
Many law enforcement officials were not surprised that it is Republic that became the focus of concern regarding these controversial banking practices. “Republic has had a checkered past,” said a New York State Banking Department source. “They’ve been a subject of suspicion over the years…. People have sort of grinned when they heard Republic’s name linked to mobbed-up banks in Russia.” Buddy Parker, an assistant U.S. attorney in Atlanta who has prosecuted major money laundering cases, said: “Well, let’s say Republic always had some very interesting customers who find the government looking at them, more so than maybe other banks. I know that a number of customers of Republic Bank have been targets, some of which have been prosecuted, some of which haven’t….”
As for Republic’s dollar trade with mobbed-up banks, former U.S. commissioner of customs William von Raab said with characteristic bluntness, “That’s the smell that was always coming off Republic.”
https://www.vanityfair.com/culture/2000/12/dunne200012[Check this link for his interesting death,sounds familiar,no?DC]
Proclaimed by Institutional Investor to be “perhaps the most successful banking entrepreneur of
the postwar era,” Republic’s owner, Edmond Safra, built up a $50 billion global empire while
amassing a personal fortune exceeding $2 billion. A Lebanese-born Orthodox Jew descended from
generations of Syrian traders, Safra was also a financial prodigy. By the age of twenty-one he had
founded Banco Safra in Brazil, which became a magnet for Jewish-flight capital from the volatile
Middle East and later South America. In 1966, he founded Republic National Bank in New York with
a scant $11 million in capital and a single branch in a Manhattan brownstone. Republic quickly
became known on the street as a bank that would send an armored car to pick up large sums from its
customers with no questions asked. In the 1980s, Republic became the Russian bootleggers’ bank of
choice, and its suspect client accounts were subpoenaed by federal officials. Although Marat
Balagula and dozens of other Russians were subsequently convicted of gasoline bootlegging, by then, hundreds of millions of dollars of illicit bootleg money was already flowing through the U.S. banking
system, having been washed through a welter of shell companies.[I am hoping a reader will pick up the ball on this following account.A while ago,I seen a piece on 'Locked up abroad' on one of the cable networks dealing with an Orthodox Jew getting caught up in smuggling and selling cocaine.He ended up going to Brazil to meet the Orthodox Jew 'Godfather of this cocaine ring,he was not named in this show,but this short account above about Safra would make him a very possible fit for the Godfather part in the story.It would be great if a reader took a shot at looking into this, as this is not the first time I have come across this bank and man in my research.I will put it on my back burner, and get to it when I can, but some help would be great and appreciated DC] The bank grew rapidly and became the twentieth largest in the United States, with assets of $50.4 billion and some seventy branches in New York, California, and Florida. An arm of Safra’s Geneva based Trade Development Bank (TDB), Republic had a net income for the nine months ending September 30, 1998, of $143 million, though it lost a staggering $190.7 million on Russian securities trading.
Safra specialized in niches that most other banks eschew, such as trading gold and banknotes. Though Republic’s commission on banknote sales was not publicly divulged, “it’s always profitable,” Safra once told Institutional Investor. According to Charles Peabody, a banking analyst at UBS Securities, this kind of trade became “increasingly significant” to Republic’s revenue stream. “It’s a volume business, and it ties into the relationships they have with the central banks of the world… and I think Republic does have good relationships with the central banks of the world, probably built up through their gold-trading operation.” Republic controlled more than 95 percent of banknote sales to Russia.
In the mid-1980s, Safra became the victim of a smear campaign orchestrated by American Express, which had bought Republic’s Swiss parent, TDB, for $520 million in 1983. (Safra regained control of TDB five years later.) American Express hired a convicted felon to spread false stories in the international press depicting Safra as an unscrupulous operator involved in everything from the Iran-contra scandal to money laundering. Safra successfully sued two newspapers in France for libel and eventually won a public apology from American Express and $8 million, which he donated to four charities, including the International Red Cross and the Anti-Defamation League. Though Safra was stung by the accusations, they helped to inoculate his bank against subsequent money laundering allegations that were the result of legitimate law enforcement inquiries, as well as to scare away reporters. [big deal he donates to two fronts for intelligence agencies,almost seems like this was orchestrated with him getting the parent company back,and the caution it caused for law enforcement and reporters. I think the con was supplied with the material to set up the papers,or the papers were involved...real charity DC]
Ironically, at around the same time American Express was disseminating these malicious falsehoods, the DEA, Customs, and the Swiss police had begun investigating Safra’s banks in Switzerland and New York for laundering Colombian and Turkish drug money. “I can say on the record that the sense I got from the Customs agent with respect to Republic was that they were concerned about its activities,” said William von Raab, the U.S. commissioner of customs from 1981 to 1989. (Despised by the banking industry for his outspokenness, von Raab had accused bankers at a 1982 conference in Miami of knowingly washing cartel drug money, shouting, “I am ashamed of all of you. You and your banks are engaging in sleaze!” A few years later, the crusading von Raab helped draft America’s first money laundering law.)
Investigators had first been led to look into Republic’s business through a bizarre set of circumstances. On Thanksgiving Day 1987, two Armenian brothers arranged to fly from Los Angeles to Zurich on KLM, having checked their baggage through to Zurich on Pan Am. “The Pan Am people were panicky about a bomb,” Greg Passic, then a DEA supervisor and now with FINCEN, revealed. “The bomb squad put the suitcase in one of those blast containers, and exploded it, and $2.2 million went flying out of the thing.”
The suitcases were addressed to the Magharian brothers, who were major currency traders. They had been depositing drug money into Shakarchi Trading company of Zurich, which in turn had allegedly been wiring it, as well as the funds of many other drug dealers, into account number 606347712 at Republic. According to Newsday, the account was “the junction of two major narcotics-money-laundering investigations spanning four continents.” Customs agents were convinced that Republic was complicit. “The agents were really, really down on Republic,” a top-level Customs source says. “I think they just felt it was a rotten bank.”
A classified DEA investigative report prepared by a field agent in Bern, Switzerland, and approved by the DEA’s Passic, dated January 16, 1988, described the link between Shakarchi, Safra, and Republic: “Shakarchi Trading company of Zurich, Switzerland, operates as a currency exchange company and is utilized by some of the world’s largest trafficking organizations to launder the proceeds of their drug-trafficking activities. Its director, Mohammed Shakarchi, has been closely associated with the heads of these criminal organizations and assists those criminal organizations.
“Shakarchi Trading maintains accounts at the Republic National Bank of New York, a bank which has surfaced in several previous money laundering investigations.
“While he was alive, Mahomoud Shakarchi (Mohammed’s father) maintained a close relationship with Edmond Safra, owner of the Safra Bank and founder of the Trade Development Bank as well as owner of approximately 38 percent of the stock in Republic National Bank of New York. All of those banks surfaced in Mahomoud Sharkachi’s alleged drug laundering activities.”
In March 1989, the Magharians were indicted in Los Angeles for money laundering; two years later, Shakarchi’s records were subpoenaed by Swiss and American police, who also confiscated Shakarchi’s account at Republic, through which more than $800 million had passed over a five-year period. Neither Republic nor Safra nor Shakarchi was indicted, though Shakarchi later told Israeli journalist Rachel Ehrenfeld that he was convinced that the DEA was going after him to get him to testify against Safra.
The case against Shakarchi was quietly dropped in 1990, after the U.S. attorney for the Eastern District in New York concluded that there wasn’t enough evidence to prove the money in the Republic account consisted of drug proceeds, said Robert Cozzolina, deputy special agent in charge of the U.S. Customs Service in Manhattan. Ehrenfeld, who investigated the case, alleged in her 1992 book Evil Money that a corrupt U.S. government official purposely inserted errors in the subpoena so that Shakarchi’s attorneys could easily quash it and stop the investigation. To this day, Passic says he believes Shakarchi Trading was knowingly doing business with drug traffickers. Customs agents who have investigated Safra preferred not to talk about him because of his power. “If you go after somebody like Safra, you had better dot every i and cross every t,” asserted one of the Customs agents who worked the Shakarchi case.
Although Republic had become a convenient fulcrum to help U.S. policymakers deal with Russia, by supporting its economy with the sale of badly needed dollars, many officials in both law enforcement and the Treasury Department privately worried that their dollar trade was funding the mob and not a needy ally. Officially, the Treasury and the Fed back the sale of U.S. dollars to Russian banks, arguing that market forces and geopolitics—and not the priorities of law enforcement—should drive the trade. At a high-level meeting of Fed and Treasury officials convened in Washington in 1995, specifically to discuss the huge dollar sales by Republic to Russia, Fed officials defended the practice, insisting that, other than through direct loans, it was the best way to bulk up the sagging ruble and help Russia enter the global free market, according to one participant.
When one official at the meeting suggested that Republic might, in fact, be doing business with banks controlled by organized crime, another vigorously defended the institution, saying that it did a tremendous amount of due diligence to make sure that Russian banks were legitimately operated.
“And that in itself is a big laugh,” said the participant. “There is no possible way for anybody to conduct due diligence on a Russian bank. There were people there from the Fed who have no common sense at all.”
The dissent in the government reaches all the way to the Comptroller of the Currency’s office. When one senior official there was asked about Republic’s dollar trade, he replied, “What I understand is that they are aiding in organized crime activities out of the former Soviet Union through their so-called correspondent bank relationships.”
Indeed, an interagency federal task force on economic crime made a preliminary finding that Republic’s dollar trade with Russia was consistent with money laundering, according to the Comptroller of the Currency source and another investigator with knowledge of Republic’s activities. Drafts of working papers prepared by task force analysts stated this finding, but the charges were “tempered substantially” in the final drafts that went to senior policy-makers, said the official.
Although the early versions of the drafts did not explicitly use the term money laundering, “they indicate that the volume of new money being transferred out of Republic Bank into Russia is beyond that which is needed to support the normal use of U.S. dollars in the former Soviet Union, and that a further study needs to be made as to the actual use of those funds,” said the Comptroller of the Currency official. But then the individuals who are in charge of researching all that state that this is, in fact, used to support the black market and organized crime. But that does not appear in the final report that is submitted to the policy-makers.”
So far the most vigorous government action that has been taken regarding mobbed-up Russian banks has come at the state level in New York. “We frankly have had a number of expressions of interest from Russian banking institutions,” said Robert H. McCormick. However, McCormick said, “There is a whole potpourri of problems connected with the Russian banks, [including] money laundering activity and underworld connections. So we generally discourage Russian banks from applying for branch or agency licenses.” Because of strict state and federal licensing standards, only a few Russian banks have applied for even representative office status in New York, which would allow them to conduct public relations work, but not operate as banks; other Russian banks backed off, after learning they would have to submit to a rigorous investigation by the state and the Fed’s board of governors. “We have to be concerned about the competence of the people running the bank, their experience, their background,” said McCormick, “and sometimes when we check that very briefly, the news is not good.”
In 1992, Stolichny Bank, then one of Russia’s five largest private financial institutions and a major recipient of cash from Republic, met with New York’s banking officials to inquire about obtaining a charter. After being discouraged, it never followed up with an application. Stolichny has been identified in a classified CIA report as a front for organized crime; the respected Austrian newsweekly Wirtschafts Woche has cited police records that alleged Stolichny’s owner, Alexander Smolensky, was an international drug dealer in the top echelon of the Russian Mafiya. Two other allegedly mob-linked banks that bought cash from Republic—Inkombank and Promstroybank—also submitted New York applications. Promstroybank’s license to open a representative office was approved by the State Banking Department in June 1995, and later by the Fed. Inkombank’s April 24, 1995, application failed to pass either agency, and in October 1998 its license was revoked by the Central Bank of Russia for its inability to honor its loan obligations. The bank collapsed amid allegations that Russian underworld figures looted accounts and used the banks to launder dirty money. “Why is it that there are so few Russian banks that operate in New York?” asked the Banking Department source. “The primary reason is that none of them are trusted.”
But Russian mobsters have found a way around regulators. Instead of trying to bring Russian banks to the United States, they are buying stakes in privately held banks across the nation. Officials in California, for instance, are investigating the Russian mob’s penetration of the state’s privately held banks. As long as their investment remains under 10 percent, the mobsters do not have to file financial disclosure statements to the state or federal government. In some cases, several Russians acting in concert have allegedly bought sizable shares of California banks.
Although combating money laundering may have been stated to be a top priority of the Clinton administration, it’s virtually impossible to stop. There are about 700,000 wire transfers a day, totaling $2 trillion. Some $300 million of that—less than one sixtieth of one percent—represents laundered funds, which are hidden by the huge volume of legitimate transfers, said a September 1995 report by the Office of Technology Assessment. The report concluded that no existing technology is capable of identifying all but the most obvious trade anomalies. “There is no way you can program the system to say, ‘I want you out of these 700,000 transfers to look for dirty banks,” said Rayburn Hesse, a State Department senior policy adviser who chairs a federal task force on money laundering. “The result is that we have an international banking system that knows no horizons. It operates around the clock. Our laws, however, know horizons called national boundaries.” By 1999, law enforcement officials estimated that between $500 billion and $1.5 trillion (or 5 percent of the world’s gross product) was being laundered every year.
No one in government with even rudimentary knowledge about Russian organized crime doubts that it has penetrated the international banking system. Many insist that selling dollars to mobbed-up Russian banks is morally indefensible, regardless of whether the trade is sanctioned by the Federal Reserve. Equally, they believe that if the dollars are bought with wired funds derived from asset stripping, narcotics, stolen U.S. aid, or the black market sale of arms or nuclear materials, then the transaction should be considered money laundering. “Even though you can’t fault Republic as to the current interpretation of the law, it doesn’t necessarily mean that it’s legal,” said a Treasury source.
“It just means that some of the questions that you ask are ahead of where we have gotten,” adds the State Department’s Winer. “We are grappling with it. We are trying to put it together. But all of this has happened very quickly, and it’s taking us some time to get adequate answers.”
As part of that effort, the Treasury has helped the Russian Central Bank draft money laundering laws. But the legislation has stalled the Russian parliament, which has dozens of convicted criminals among its members.
Meanwhile, Russia’s lawlessness has become so rampant that it has virtually capsized the country’s banking system. In November 1998, Andrei Kozlov, the Russian Central Bank’s deputy chairman, announced that mobbed-up banks had stolen Western government loans and aid, contributing to the meltdown of Russia’s economy in August 1998, and leading to the insolvency of about one half of Russia’s remaining 1,500 commercial banks. Menatep, for one, became insolvent and lost its license. Audit Chamber, a Russian government budgetary watchdog, and the Prosecutor General’s office charged that Central Bank officials had made off with as much as $9 billion loaned to Russia by the World Bank and the International Monetary Fund. The looting had allegedly begun as early as 1992, but Central Bank officials and well-connected investors used the financial crisis of 1998 as an opportunity to seize even more funds, once they knew the ruble was about to be devalued. Amid the accusations, Central Bank chief Sergei Dubinin resigned. While denying any wrongdoing, he tried to quash the investigation, which is looking into allegations that he personally had stashed huge amounts of cash in Cypriot accounts. In September 1998, former deputy prime minister Anatoly Chubais admitted to the Kommersant Daily that he “conned” the International Monetary Fund out of more than $20 billion when he lied about the true state of Russia’s ailing economy.
Meanwhile, Alexander Konanikhine’s story continues to unfold. In June 1996, dozens of FBI and INS agents, accompanied by two ill-mannered Russian prosecutors, barged into Konanikhine’s condo at the Watergate to arrest him and his wife for visa fraud. At a press conference shortly thereafter, the government announced that it had captured a dangerous international fugitive, who had bilked his bank in Russia out of $300 million. “We lived in the Watergate for three years,” Konanikhine told me. “The building is full of Secret Service men, who protect all the politicians like Bob Dole who live there. It is the least likely place in the world for an international fugitive to hide. From my balcony, I can see the White House roof. It would be a hell of a place to start shooting. I was one of the few businessmen who tried to confront the Mafiya even before it was a serious problem. Then I’m declared an international money launderer, an international fugitive. If you want to find a crook, all you have to do is knock on any door of the Watergate. I hate the fact that the Mafiya is in control of my country.”[I found his book last night,and will start it after the next and final part of this account of the Russian Mafiya by Robert Friedman DC]
Konanikhine was placed into an INS jail in Winchester, Virginia, without bail; his wife was released on her own recognizance, pending the ruling on their deportation hearing by an INS judge. The couple applied for political asylum, arguing that Russian bankers as a social class were being persecuted by the Russian mob.
Federal authorities argued during Konanikhine’s INS case that the mob had used the All-Russian Exchange Bank to launder billions of dollars, and that despite Konanikhine’s vehement denials, it was implausible that he didn’t knowingly participate in the scheme—especially given how brilliant, meticulous, and controlling he is.
They further argued that, from the moment he arrived in America, he laundered money for the Russian Mafiya through EUB. The evidence for that, wrote the federal prosecutor in the government’s closing argument against Konanikhine, was “clear, compelling and uncontroverted.” Indeed, three of Konanikhine’s own expert witnesses testified that, in all likelihood, he is a skilled money launderer. No less of a money laundering expert than Jack Blum said that EUB “was a criminal fraud,” and that it was highly probable that Konanikhine was aware of the Mafiya’s ties to the institution. Seen in this light, said the prosecutor, the conflict between Konanikhine and his mobbed-up KGB comrades and ex-business partners in Moscow was nothing more than a falling out among thieves.
Miraculously, Konanikhine won his case for asylum on appeal, becoming the first Russian since the end of the Cold War to do so. He also succeeded in persuading the judge that the INS and the Russian prosecutors had fabricated evidence against him as part of a quid pro quo that the FBI had entered into for help on the Ivankov case. In fact, the Russians threatened to close the FBI’s office in Moscow unless the bureau handed Konanikhine over, according to memos sent from the FBI’s field office in Moscow to Washington. The Justice Department’s Office of Professional Responsibility is looking into the charges of misconduct by the INS and the FBI. Konanikhine, however, is now under investigation by the feds—for money laundering, a charge he denies. The Justice Department is also appealing the INS judge’s decision to grant him asylum.
Yet the banking wizard is still bullish about his future in America. Grinning over a fruit plate at the Waldorf-Astoria hotel in Manhattan in 1999, he boasted that his new advertising firm was doing landmark business. “In a year,” Konanikhine crowed, “I’ll be a billionaire again.”
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THE WORLD’S MOST DANGEROUS GANGSTER
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