10
THE WORLD’S MOST
DANGEROUS GANGSTER
Outside the small town of Ricany, near Prague, are two picturesque villas, an improbable setting for
one of the most dreaded mob families in the world to savagely murder its victims. The mob’s young
enforcers, trained by veterans of the Afghanistan war, are infamous for their brutality. Their quarry,
usually businessmen who have balked at extortion demands, are stabbed, tortured, and mutilated
before being butchered. The carnage is so hideous that it has succeeded in frightening even the
competing crime groups in the area.
The torture chambers are run by what international police officials call the Red Mafiya, a
notorious Russian mob group that in only six years has become a nefarious global crime cartel.
The enigmatic leader of the Red Mafiya is a fifty-four-year-old Ukrainian-born Jew named
Semion Mogilevich. Known as “the Brainy Don,” he holds an economics degree from the University
of Lvov. But hundreds of pages of classified FBI, British, and Israeli intelligence documents, as well
as statements by a key criminal associate and dozens of law enforcement sources in the U.S. and
abroad, describe him as a malevolent figure who has become a grave threat to the stability of Israel,
Eastern Europe, and North America.
“He’s the most powerful mobster in the world,” crowed Monya Elson, who is listed in the
classified documents as one of Mogilevich's closest associates and partners in prostitution and money
laundering rings. “You can’t imagine what kind of power this guy has. He has more power than
Yeltsin.”
When Elson was forced to flee Brighton Beach, it was Mogilevich who spirited him out of the
country and set him up in a massive money laundering scheme in Fano, Italy. “If I tell on Mogilevich,
Interpol will give me $20 million,” boasted Elson, who as of March 2000 was still awaiting trial. “I
lived with him. I’m his partner, don’t forget. We are very, very close friends. I don’t mean close, I
mean very, very close. He’s my best friend.” Nevertheless, the irrepressible Elson ultimately
confirmed some of the details about Mogilevich contained in the classified FBI, British, and Israeli
reports, which extensively detail the full array of Mogilevich’s criminal activities: he traffics in
nuclear materials, drugs, prostitutes, precious gems, and stolen art. His contract hit squads operate
freely in the United States and Europe. He controls everything that goes in and out of Moscow’s
Sheremetyevo International Airport, which is a “smugglers’ paradise,” according to Elson.
There is apparently no deal that the godfather of the Red Mafiya considers beneath consideration.
An FBI informant told the bureau that one of Mogilevich’s chief lieutenants in Los Angeles met two
Russians from New York City with Genovese crime family ties to broker a scheme to dump American
toxic waste in Russia. Mogilevich’s man from L.A. said the Red Mafiya would dispose of the
material in the Chernobyl region, “probably through payoffs to the decontamination authorities there,”
stated a classified FBI report.
Mogilevich represents a novel and especially fearsome variety of Russian gangster, the prototype
don of the new millennium. He has created a global communications network through secure satellite
telephones, cellular clone phones, encrypted fax machines, e-mail systems, and state-of-the-art
computers, all of which are conducted by a host of Ph.D.’s he employs. Relaxed travel restrictions
and the greatly increased volume of international trade have enabled Mogilevich to extend his
operations throughout the world, setting up a welter of legal and illegal companies that have helped
him to penetrate international banking systems and stock exchanges, where he has planted top aides.
He is protected by a web of relationships with high-ranking officials of international security
services, highflying financiers, and politicians. His licit and illicit concerns are administered by loyal
white-collar managers and dozens of “soldiers,” who “take care of all his business so that he himself
keeps his hands clean and has no criminal record,” says a classified Israeli intelligence report. He
has built a highly structured criminal organization in the mode of a “classic” American Mafia family
in which blood ties bind central figures: many of the organization’s three hundred core members are
his relatives, mistresses, and in-laws. The organization has a defined chain of command, with
selected individuals within the group appointed to manage specific criminal activities, such as
weapons trafficking or prostitution, while others are responsible for particular geographical regions.
His strong leadership qualities, his acute financial skills, his talented associates, and his political
connections have effectively made the Brainy Don impervious to prosecution.
Mogilevich, who is bald, weighs nearly three hundred pounds, and favors florid shirts and luminous pinky rings, was first exposed to the world at large in a profile I wrote that appeared in The Village Voice on May 26, 1998. He became internationally notorious, however, when federal authorities accused him of perpetrating the biggest money laundering scheme in U.S. history, washing an astonishing $7 billion through the venerable Bank of New York. In the media storm that followed, Mogilevich denied the allegations, telling a Hungarian news magazine that he just couldn’t understand why he was being accused of such heinous crimes, since he is, after all, nothing more than a humble grain merchant. The only money he ever laundered, he quipped, was a five-dollar bill that he forgot to retrieve from his shirt pocket before it went to the cleaners.
Little is known about Semion Mogilevich’s early years. He was born in Kiev and his mother was a podiatrist and his father the manager of a large state-owned printing company. Legend has it that as a young man, he ran a small fruit stand in Moscow, despite the Soviet Union’s strict laws against private enterprise. Soviet authorities first learned of his criminal activities in the early 1970s, when he was a member of the Lyubertskaya crime group, which operated in the Moscow suburb of the same name. He was involved in petty theft and counterfeiting, and was later convicted for illegal currency speculation in Ukraine, for which he spent eighteen months in prison. A few years later, he was again arrested for dealing currency on the black market, and received a four-year prison term.
But Mogilevich made his first millions fleecing fellow Jews. In the mid-1980s, when tens of thousands of Jewish refugees were hurriedly emigrating to Israel and America, Mogilevich made deals to cheaply buy their assets—rubles, furniture, and art—with the promise of exchanging the goods for fair market value and sending refugees the proceeds in hard currency. Instead, he simply made the sales and kept the considerable profits.
In early 1990, Mogilevich fled Moscow, as did many other dons, to avoid the gangland wars that were then roiling the capital. With his top henchmen he settled in Israel, where they received citizenship. In Israel, which does not extradite its citizens, Mogilevich kept a low profile, preferring to maintain the Jewish state as a place where he could move without restriction, rest, or find refuge in times of trouble, according to an Israeli intelligence report. Yet he “succeeded in building a bridgehead in Israel” and took “advantage of his Israeli citizenship and Jewishness, that allows him to travel freely in and out of that country,” says the report.
Keeping a low profile did not, however, preclude “developing significant and influential [political and business] ties,” according to the report. He forged contacts with Russian and Israeli criminals, and maintained control of several businesses through proxies, such as an international kosher catering service, a tourism company, and a real estate firm. “Since 1991 he has opened bank accounts in Israel in the names of various companies, and has attended gatherings in Israel with other known criminals,” revealed the Israeli report. In addition, an Israeli bank, with branches in Moscow, Cyprus, and Tel Aviv, was “allegedly owned by Mogilevich, who is reportedly laundering money for Colombian and Russian Organized Crime groups,” according to a classified FBI document. Mogilevich also unsuccessfully tried to gain control of the giant kosher distillery Carmel Mizrachi, according to Israeli intelligence.
Mogilevich, however, became disenchanted with living in Israel. “There are too many Jews in Israel,” he told the National Post of Canada. “Too much arguing. Everybody is talking all the time and their voices are so loud.” In 1991, Mogilevich married Katalin Papp, a Hungarian national, a union that allowed him to legally reside in Budapest, where he moved and began to build the foundations of his global criminal empire. He bought a string of nightclubs called the Black and White Clubs—with locations in Prague, Budapest, Riga, and Kiev—that became one of the world’s foremost centers of prostitution. Mogilevich primarily used German and Russian women in these venues, providing cover jobs for them as well as bodyguards. In 1992, he cemented his ties to other Russian and Eurasian organized crime groups by selling partnerships in the prostitution business to the Solntsevskaya and Ivankov organizations. Monya Elson was also a partner, according to his own admission and classified FBI documents. The Black and White Club in Budapest became the hub of Mogilevichs worldwide operations, and he added a casino in Moscow and nightclubs in Eastern Europe as a way to account for the excessively high cash inflow from his criminal activities.
Mogilevich also fortified his organization by coordinating activities with non-Russian crime groups such as the Japanese Yakuza and the Italian Camorra. His mutually beneficial relationship with the Camorra, arguably the cleverest, most cunning, and most violent of the four Mafia families in Italy, gave him much cachet in the underworld. In one oft-repeated swindle, the Italians passed counterfeit American hundred-dollar bills (which had been made from bleached one-dollar bills) to the wily Russians, who passed the fake currency from their bases in dozens of countries. In turn, Mogilevich provided the Camorra with large quantities of synthetic narcotics along with expert money laundering services to wash the profits. The close ties between Mogilevich and Italian Camorra strongman Salvatore DeFalco particularly unsettled law enforcement authorities as they watched the Italian and the Eurasian crime bosses venture into new frontiers. The Italian authorities surveilled Camorra members operating in the Czech Republic in concert with Mogilevich, where they primarily trafficked in weapons. Meanwhile, Mogilevich made staggering sums smuggling huge amounts of cocaine and heroin into Russia from the United States and Canada. “The profits were then introduced into the banking system and moved across the world via the UK,” states a confidential British intelligence report. Mogilevich even bought a bankrupt airline in the Central Asian former Soviet republic of Georgia for millions of dollars in cash so that he could ship heroin out of the Golden Triangle into Europe. Some of the drugs were to be allegedly smuggled into England by sea, says an Israeli intelligence report.
Mogilevich's organization was augmented dramatically with the creation of layer upon layer of sham companies that spanned every conceivable business. He had already established two such businesses in Alderney, one of the Channel Islands, which are well known as tax havens. One, Arbat International, was a petroleum import-export company, of which Mogilevich owned 50 percent. His friend Ivankov held a quarter share of the company. Mogilevich’s other partners in Arbat—who jointly had a 25 percent share—were Solntsevskaya crime lords Sergei Mikhailov and Viktor Averin.
The other, a holding company called Arigon Ltd., became the heart of his criminal empire. Initially, it had seven investors; each owned approximately 14 percent of the stock, which cost one pound sterling. The Budapest branch of Arigon was allegedly managed by the wife of Solntsevskaya kingpin Sergei Mikhailov, according to Israeli intelligence.
Mogilevich was particularly intrigued by art fraud, and in early 1993 reached an agreement with the leaders of the Solntsevskaya crime family to invest huge sums of money in a joint venture: acquiring a jewelry business in Moscow and Budapest. According to classified FBI documents, the company was to serve as a front for the acquisition of jewelry, antiques, and art that the Solntsevskaya mob had stolen from churches and museums in Russia, including the Hermitage in St. Petersburg. The gangsters also robbed the homes of art collectors and even broke into synagogues in Germany and Eastern Europe to steal rare religious books and Torahs.
In another joint venture with the Solntsevskaya gang, Mogilevich purchased a large jewelry factory in Budapest where Russian antiques, such as Fabergé eggs, were sent for “restoration.” Mogilevich’s men shipped the genuine Fabergé eggs to an unwitting Sotheby’s auction house in London for sale, and then sent counterfeits as well as other “restored” objects back to their original owners in Moscow.
Mogilevich also acquired a giant vodka plant in Russia and a plant for manufacturing hard liquor in Hungary, which he used to become a major smuggler of alcohol, claims a secret Israeli intelligence report. In 1995 alone, he smuggled 643,000 gallons of vodka out of Hungary. On May 5, 1995, twelve railroad cars filled with Mogilevich’s vodka were seized by Hungarian authorities as he tried to slip the hooch past customs without paying duty.
More ominously, Mogilevich set his sights on the arms industry. He had already sold $20 million worth of pilfered Warsaw Pact weapons, including ground-to-air missiles and twelve armored troop carriers, to Iran, according to the classified Israeli and FBI documents, and a top-level U.S. Customs official. However, to the even greater consternation of international law enforcement officials, Mogilevich began to legally purchase virtually the entire Hungarian armaments industry, jeopardizing regional security, NATO, and the war against terrorism. The companies he bought include:
• Magnex 2000, a giant magnet manufacturer in Budapest. Solntsevskaya crime boss Sergei Mikhailov allegedly served as its deputy director, asserts Israeli intelligence.
• Army Co-op, a mortar and antiaircraft gun factory. Army Co-op was established in 1991 by two Hungarian nationals, both in the local arms industry, who were looking for a partner. Mogilevich bought 95 percent of Army Co-op through Arigon Ltd., which also deals extensively with Ukraine,selling oil products to the Ukrainian railway administration.
• Digep General Machine Works, an artillery shell, mortar, and fire equipment manufacturer. Mogilevich financed the company with a $3.8 million loan from the London branch of Banque Française De L’orean. The loan was secured by the Mogilevich-controlled company Balchug, which manufactures and sells office furniture.
In 1994, Mogilevich purchased a license permitting him to buy and sell weapons through Army Co-op and other Hungarian arms companies, which established him as a legitimate armaments manufacturer. A Mogilevich company participated in at least one arms exhibition in the United States, where it displayed mortars modified by Israel.
Like mob bosses everywhere, Mogilevich would have been unable to sustain the growth of his empire without police and political confederates. In Europe and Russia, the “corruption of police and public officials has been part of the Semion Mogilevich Organization’s modus operandi,” says a classified FBI document. In Hungary, two former policemen serve as security coordinators for the Red Mafiya’s formidable combat brigades. “When his back is up against the wall, he’s got a very effective bodyguard force that keeps him alive,” says former FBI agent Robert Levinson. Mogilevich’s lieutenants are trained in intelligence operations and countersurveillance, and provide warnings of impending police actions against the organization. Law officers in Hungary and elsewhere keep him apprised of police efforts to penetrate his organization.
“He also ingratiates himself with the police by providing information on other [Russian crime] groups’ activities, thus appearing to be a cooperative good citizen,” a classified FBI report asserts.
In fact, Mogilevich has used precisely that ploy to compromise other European intelligence services. On April 28, 1998, the German national television network ZDF reported that the BND (the German intelligence agency) had entered into a secret contract with Mogilevich to supply information on rival Russian mob groups. The charges were made by several sources, including Pierre Delilez, a highly regarded Belgian police investigator who specializes in Russian organized crime. If the television report is accurate, one possible motive for BND’s deal, believes a U.S. law enforcement expert on the Russian mob, is that the Germans faced an intelligence gap after having “pulled their people out of Moscow in 1998 because they didn’t like the level of cooperation they were getting from the Russian authorities on the Russian mob.” Because of the deal with the BND, police in Belgium, Germany, and Austria have complained that it is now impossible to investigate the Brainy Don.
Mogilevich also developed substantial and well-concealed political connections, particularly in Israel, according to reports by Israeli intelligence, which notes the mysterious and unexplained disappearance of Mogilevich’s Ministry of Interior file. In Brussels, Mogilevich’s man Anatoly Katric, a Ukrainian-born Israeli citizen who spent much of his time entertaining international diplomats for the Red Mafiya, approached Philip Rosenberg, the head of the far-right, anti-immigrant National Front Party, which held 5 percent of the seats in the Brussels parliament. Katric offered Rosenberg 3 billion Belgian francs to obtain Mogilevich Belgian citizenship. Rosenberg allegedly agreed, but was indicted on corruption charges and fled to Papaya, Thailand, before the deal could be consummated. Investigators found suspected bribe money in a Swiss bank account, which Katric ultimately admitted to the Belgian police came from Mogilevich.
In France, Mogilevich approached Alferd Cahen, a recently retired high-ranking Belgian diplomat who had been ambassador to the Belgian Congo and France. Cahen had just been named secretary of the North Atlantic Treaty Association, the lobby group for NATO in Paris. Mogilevich, banned from entering France, wanted Cahen to arrange a meeting with French intelligence so he could propose passing political and gangland information to them in exchange for surreptitious access to the country. Cahen agreed to make the introductions, and both sides were apparently satisfied with the results, said Pierre Déliiez. A disturbed Déliiez had warned French intelligence against working with the mobster, for, “The more that these agencies use Mogilevich’s services, the more trouble it will be to prosecute him.” Cahen himself wasn’t prosecuted, as there was no proof that money had changed hands, although investigators later found $180,000 in a bank account belonging to Cahen’s son, which they suspected came from Mogilevich.
Extending his operations from his base in Budapest, Mogilevich had, in just a few years, forged a far-flung criminal empire with thousands of employees and an unprecedented reach from Great Britain to New Zealand. He had taken over all the black markets from the former Soviet republics through the Czech Republic, cornered the legal and illegal weapons market, and trafficked tons of drugs and precious stones, said a December 1994 British intelligence report.
Mogilevich has also sent contract hit teams throughout the world, including the United States, where the assassins arrive from Russia under tourist visas arranged by Vladimir Berkovich, the owner of the Palm Terrace restaurant, a watering hole for Russian gangsters in Los Angeles. Berkovich also supplied the mobsters with weapons and arranged for their return to Russia, according to a classified FBI document. (Berkovich said the government’s charges are “total bullshit.”)
Mogilevich’s spectacular invasion of the North American financial markets began in 1993. That year, a company called YBM Magnex International in Newtown, Pennsylvania, was infused with some $30 million from Arigon Ltd. By then, the Brainy Don had already set up dozens of shell companies in the United States to launder proceeds obtained from criminal activities. Typically, many of the “businesses” were located in the residences of organization members. Numerous wire transfers of funds from Arigon Ltd. and other Mogilevich accounts overseas were transferred to these entities in amounts ranging from under $10,000 to more than $1 million.
But Mogilevich had particularly grand plans for YBM, which was merged with Magnex 2000, his Hungarian company that sold industrial magnets and military hardware. He appointed his brilliant, trusted, childhood friend and adviser Igor Fisherman as YBM’s chief operating officer. Fisherman, who lived in Budapest, served as the coordinator of Mogilevich’s criminal activities in Ukraine, Russia, the United States, the United Kingdom, the Czech Republic, and Hungary, according to FBI documents. A trained mathematician, Fisherman had once been a consultant to Chase Manhattan Bank in New York City.
Mogilevich and Fisherman discovered a fact that Canadian financial criminals had long known— the poorly regulated Canadian stock exchange was a convenient entry point into the North American markets, one where the mob’s substantial funds could be hidden under the umbrella of a publicly held company. Mogilevich chose Jacob Bogatin, a fifty-one-year-old professor of physical metallurgy, to prepare a public stock offering for YBM. Born in Saratov, Russia, Bogatin, YBM’s group vice president, and the company’s largest initial shareholder, had served on the board of Arbat and Magnex in Budapest.
Under the watchful eye of Mogilevich and Fisherman, Jacob Bogatin traveled to northern Canada in 1995 to initiate the YBM plot by creating a legal shell company on the Alberta Stock Exchange. Christened Pratecs Technologies Inc., the company was a blind pool, or a business without assets. Blind pools are given eighteen months to come up with a major acquisition to capitalize themselves, otherwise they are delisted. Pratecs then began the process of acquiring YBM, which had already purchased Mogilevich’s Channel Island holding companies, Arigon and Arabat. Pratecs subsequently issued 10 million shares of the company at 20 cents each, and prepared the YBM transaction for completion.
But on June 19, 1995, just a few months before the transaction to acquire YBM was to close, the Alberta Stock Exchange halted trading in Pratecs’s stock. The company cryptically explained the suspension as a response to “allegations made in London, England, against two individual shareholders of YBM,” whom they identified as a pair of British companies and their lawyers. “The companies are in no way related to YBM or its subsidiary, Arigon,” an obscurely written press release stated.
In truth, both Canadian regulators and Bogatin himself were aware that British intelligence had spent three years investigating Mogilevich’s racketeering empire, traveling across the globe to gain knowledge of its structure, according to British intelligence documents and sources on the Alberta Stock Exchange. The Canadian authorities were told that YBM and Pratecs were not only controlled by Mogilevich, but that the probable intention of obtaining Pratecs a listing on the exchange was to have a vehicle to launder dirty money, manipulate stock shares, and bilk legitimate investors.
By the summer of 1995, British intelligence was ready to strike against Mogilevich and his network of companies in Great Britain, which they suspected as fronts for drug trafficking, stolen goods, and money laundering. In an action code-named Operation Sword, British police raided Arigon’s offices in London, as well as the offices of its attorney, Adrian Churchward, who was arrested and interrogated. Documents found in Churchward’s office showed that over a three-year period the lawyer had used clients’ accounts to launder more than $50 million in criminal proceeds on behalf of Mogilevich. The funds, laundered through the Royal Bank of Scotland with the help of a solicitor, “originated from a variety of dubious sources in the former Soviet Union,” says a British intelligence report, which describes the money as “largely the proceeds of Russian organized crime in Eastern Europe from the Mogilevich and Solntsevskaya organization.”
The High Court of Justice in London issued orders freezing the assets of Arigon and several of its shareholders, including Churchward and his wife, Galina, Mogilevich’s onetime paramour. She had an eleven-year-old son with Mogilevich who was being educated at a private school at Kent.
But the criminal cases against Mogilevich, Churchward, and others had to be dropped after Russian prosecutors deliberately refused to turn over evidence, according to British intelligence. Mogilevich didn’t escape unscathed, however, for he was banned from entering the U.K. His British businesses were shut down, his solicitor’s reputation was ruined, Churchward was disbarred, and the Royal Bank of Scotland was subjected to a high-level internal inquiry by the Special Investigation Unit of the Bank of England.
The British affair was not the only incident that nearly thwarted Bogatin’s attempt to gain a foothold in Alberta. In May 31, 1995, Czech police stormed a summit meeting of Eurasian mob chieftains at the U Holubu restaurant in Prague, which Mogilevich had bought in 1991 to use as a prime money laundering center, according to FBI and Israeli intelligence reports. The gangsters were meeting on the occasion of Sergei Mikhailov’s birthday to discuss carving up criminal jurisdictions and to iron out turf disputes between Mogilevich and Mikhailov’s Solntsevskaya organization. After years of cooperation, the men had come to despise each other. Mikhailov had tried to shake down Mogilevich for $3.5 million. There had been shouting matches, and then bombing attacks.
On the eve of the conclave, an unidentified Russian delivered an anonymous letter to the chief of police in Budapest, stating that Mogilevich was to be assassinated at the celebration. “Mogilevich knew he was dealing with some very, very treacherous people,” said former FBI agent Robert Levinson. “They’d kill him in an instant.”
After receiving the tip, the Czech prosecutor dispatched hundreds of cops to the restaurant, where they arrested, photographed, and fingerprinted two hundred partying mobsters. Their diaries, journals, and other documents were confiscated for photocopying. Anticipating a bloody shoot-out, the Czechs had parked two large refrigeration vans outside the restaurant to store the bodies. But the mobsters surrendered quietly, and following their release from custody they returned to their homes in Germany, Hungary, Russia, and Israel.
Mogilevich himself was conspicuously absent from the celebration. “Mogilevich may have [sent in the] tip himself as a protective measure, or, having arrived late, noted the police presence and fled,” stated a classified FBI report. Whatever the case, five individuals were declared persona non grata by the Czech Republic following the police raid, including Mogilevich, Viktor Averin, and Sergei Mikhailov.
Although Canadian intelligence had been aware of both the Czech and British incidents, stock market regulators had only to inspect the rogues gallery that made up YBM’s initial shareholders list to guess at its true nature. According to the author’s analysis of the disclosure documents, Mogilevich and his confederates owned up to 90 percent of the shares. Among the major stockholders were the Brainy Don himself, his fifty-two-year-old Ukrainian-born ex-wife, Tatiana, and their twenty-eighty ear-old daughter Mila, a blue-eyed blonde, who lived on Wilshire Boulevard in Los Angeles, as well as Mogilevich’s ex-mistress Galina Grigorieva.
Despite the events of the previous months, on July 25, 1995, Pratecs publicly announced that it had received a clean bill of health. Canadian regulators in Alberta later acknowledged that, without any actual court convictions, they lacked the hard proof necessary to keep the company off the exchange. And so “after a six-week halt in Pratecs’ shares,” wrote the Vancouver Sun, “the Alberta Stock Exchange allowed Pratecs to merge with YBM, a move that allowed the company to transform itself from a shell whose only asset was its stock exchange listing into a manufacturing firm with plants in Hungary, Kentucky and ultimately a listing on the Toronto Stock Exchange in 1996.”
Touted by Bay Street underwriters, YBM quickly became the darling of the Toronto Stock Exchange, eventually being included in the prestigious TSE 300 Index, the Standard & Poor’s 500 Index of Canada. The company’s glossy brochures boasted about big international deals and amazing new technologies. Almost overnight, it became nearly a billion-dollar-cap company. To enhance its image, YBM soon dropped many of the Russians from the board of directors, and added, among others, the powerhouse lawyer David Peterson, the former premier of Ontario.
While YBM’s stock thrived, the Bay Street financial world continued to ignore the warning signs in the company’s operations. A November 1995 confidential report by Britain’s National Crime Squad concluded that Mogilevich had been transferring funds from Britain to Hungary, and from there to the United States and then on to Canada through YBM. Circulated throughout the top rungs of regulatory and financial circles by word of mouth, the report also asserted that Mogilevich was using the Canadian stock exchange listing “primarily to legitimise the criminal organisation by the floating on the stock exchange of a corporation which consists of the UK and USA companies whose existing assets and stocks have been artificially inflated by the introduction of the proceeds of crime,” including drug and arms trafficking and prostitution.
A spokesman for one of YBM’s major underwriters, First Marathon, later admitted that it had heard rumors about the company’s ties to the Russian mob, but its concerns were allayed after auditors Deloitte & Touche initially reported the business to be financially sound. Unlike the bulls on Bay Street, the FBI was more skeptical. YBM— whose home office remained in Newtown—listed a paltry projected gross sales of $8,573 on its 1993 U.S. tax returns. In 1995, at the time of the acquisition of YBM by Pratecs, it claimed net sales of $32.5 million, net income of $3.3 million, and stockholder equity of $17.5 million. Surveillance of a YBM facility in Pennsylvania by the FBI revealed that it occupied a small section of a former school building. The space, the bureau concluded, was not capable of supporting either the 165 employees or the $20 million in sales YBM claimed in its glossy published report.
Although by August 1996 YBM’s board was aware that the firm was being investigated by the U.S. Attorney’s Office in Philadelphia, as minutes of a confidential YBM board meeting confirm, the company never informed its investors of the fact. During that same period, Bogatin was even promoting the company to the New York Stock Exchange, and the company was waiting approval for a listing on Nasdaq.
Investors also had no way of knowing that YBM’s prestigious auditor, Deloitte & Touche, had issued a highly critical report, declaring that it had found irregularities and possible criminal fraud in the company’s 1997 annual report. It noted that “one or more illegal acts may have occurred which may have a material impact on [YBM’s] 1997 financial statements.” Among other problems, auditors discovered that $15.7 million in magnet sales to the Middle East and North America had been fabricated. Deloitte & Touche resigned when YBM failed to follow its recommendation to hire an outside forensic auditor to conduct a sweeping reevaluation of the company’s books and business methods. Several of YBM’s directors, meanwhile, sold millions of dollars of their shares in YBM stock after they received the report from Deloitte & Touche, but well before it was made publicly available.
The beginning of the end finally came on May 13, 1998, when at 10:15 A.M., U.S. Attorney Robert Courtney, head of the Organized Crime Task Force in Philadelphia, led some five dozen agents in a joint FBI, IRS, INS, Customs, and State Department raid on YBM’s offices in Newtown. Fax machines, computer hard drives, Rolodexes, bank statements, and shipping invoices were seized and loaded onto trucks. Citing the company’s alleged ties to Russian organized crime, the law enforcement agencies asserted that YBM was a vast money laundering machine for Mogilevich. Just twenty-three minutes after the raid, trading in YBM’s stock on the TSE 300 Index was suspended by Canadian authorities, but not before a quarter of its value had been wiped out.
In the months that followed the raid, a succession of bizarre revelations besmirched what was left of the company’s tattered reputation. The Financial Times of London reported that a “revolutionary” scientific process YBM claimed it had invented for desulfurizing oil, and which accounted for 20 percent of its revenues in 1997, didn’t even exist, according to the top earth scientists interviewed by the prestigious newspaper.
On September 22, 1998, irate institutional investors finally staged a coup after court documents filed in Alberta revealed that more than $20 million in cash was missing from YBM’s accounts. Five directors, including Fisherman, were fired. On November 23, Bogatin received a “target letter” from the Justice Department stating it had gathered sufficient evidence to indict him for money laundering. He resigned two days later.
The new board’s forensic investigators discovered what international police had strongly suspected all along—that Mogilevich had been directly involved in the affairs of YBM, siphoning money from the accounts of its subsidiaries, as well as using the company as a vast money laundering machine—with money passing through various front companies and banks in Moscow, the Cayman Islands, Lithuania, Hungary, and a Chemical Bank branch in Buffalo, New York. YBM received $270,000 from Benex, a shell company allegedly controlled by an associate of Mogilevich.
Investigators later claimed that Mogilevich, using Benex, had laundered huge sums through the Bank of New York. When YBM’s newly installed board sent Pinkerton men to visit the company’s plant in Budapest, they were turned away by brutish guards brandishing Berettas and Uzis. The board couldn’t even get a key to one of the foreign plants. In all, not only were tens of millions of dollars of reported YBM sales bogus, but customers and even entire product lines turned out to have been fabricated.
Finally, in late December 1998, the board announced that it expected YBM would be indicted and that it had no viable criminal defense. YBM was placed into receivership by an Alberta court. The government accused the company of fraudulently inflating the value of its securities by creating the appearance of record sales and revenues, while failing to disclose that it was run by a Hungarian based mob boss. On June 7, 1999, YBM pleaded guilty to one count of mail fraud and one count of securities fraud. It was fined $3 million and agreed to make restitution to the thousands of defrauded shareholders. The company admitted that its principals played a shell game for regulators and investors, setting up paper companies to hide its actual control. The U.S. Attorney’s Office has allegedly filed three sealed indictments against company insiders, one of which has the Brainy Don’s name on it. Belatedly perhaps, in November 1999, ten of YBM’s former board members, including David Peterson, were charged by Canada’s leading securities commission with violating the Ontario Securities Act for allegedly failing to disclose to investors that the company was being investigated by U.S. authorities for its ties to Russian organized crime. They deny the charges.
In the end, more than half a billion dollars in YBM’s market capitalization simply vanished. Perhaps billions more was made by mobsters manipulating the stock’s price, buying and selling blocks of shares on inside information. During its dramatic run on the Toronto Stock Exchange, YBM raised over $100 million in hard Western currency, and laundered hundreds of millions of dollars more. The casualties included many average investors, as well as groups like the Ontario Teacher’s Pension Fund, which was left holding $32 million of worthless shares. “It’s now clear that YBM’s only successful business was the laundering of criminal proceeds,” said shareholders in one of many class action suits filed against YBM’s former board of directors, Deloitte & Touche, and several law firms.
“This is the most significant and serious case of stock fraud that I’ve investigated in eighteen years,” said Adrian du Plessis, a respected analyst for StockWatch in Vancouver, and a private forensic stock investigator. “It represents a level of corruption of the marketplace that is unprecedented in its nature.”
The sensational size, sophistication, and sheer boldness of the YBM scam, however, should not obscure a fact that has continued to disturb many in law enforcement: namely, that it was hardly a unique event. “This is just one case,” says former FBI official James Moody, “but there are others just like it throughout the world.”
How accurate that assessment was was strikingly demonstrated when, two years after the YBM scandal broke, Mogilevich found himself in the middle of the biggest money laundering case in U.S. history. It had been discovered that, through a series of front companies spanning Russia, Europe, and the United States, he and others, primarily Russian businessmen evading local taxes, had laundered billions through the esteemed Bank of New York. The massive scale of the operation, combined with the fact that it had occurred on U.S. soil, was a startling embarrassment to U.S. law enforcement and the government. (While the bank has not been charged with any wrongdoing, some investigators believe that the money laundering could not have taken place unless senior bank officials were bought off or otherwise involved. Indeed, in February 2000, Lucy Edwards, a former vice president of the bank’s Eastern European division, and her husband, Peter Berlin, pleaded guilty to money laundering charges. Indictments of other bank officials are expected.)
Actually, Mogilevich had been making a mockery of law enforcement for a very long time. Although as early as the mid-1990s he had been publicly identified in congressional hearings as one of the top Russian mobsters in the world, prompting the U.S. State Department to bar him from obtaining a visa, the prohibition never stopped him from continually entering America under aliases on temporary traveler’s visas issued in Tel Aviv. Between December 1, 1995, and December 7, 1995, for instance, Mogilevich traveled to Toronto, Philadelphia, Miami, and back to Philadelphia. Well after the YBM affair had become headline news, the brazen don boasted to a Hungarian magazine that he traveled to Los Angeles in late 1998 to surprise his granddaughter on her birthday. In January 2000, Mogilevich slipped into Boston to conduct business, say top European and U.S. law enforcement officials.
Although he is also barred from entering seven European countries, Mogilevich travels extensively around the world in order to manage his business affairs. He has almost as many passports as he has aliases, which have included Semion Mogilevich, Senior Mogilevich, Semion Mogeilegtin, Semion Mobllerltsh, Seva Magelansky. Other members of his organization travel just as freely, often using forged passports of superior quality. Some of them are couriers who transfer large sums of cash from country to country, according to Israeli intelligence files.
Mogilevich still controls a variety of criminal activities from one American coast to the other. And while he has been careful not to defile his own hands with the blood of his gangland victims, he has not refrained from associating with known killers while in America, prime among them Elson and Ivankov, whom he regularly visited on one of his numerous fraudulent passports.
The Bank of New York scandal was not without its repercussions for Mogilevich, however. Perhaps most seriously, the man who had relied on his underlings to take responsibility for his crimes had lost his anonymity, one of his most valuable assets. In addition, the FBI—which ironically had built an international training academy just a short cab ride from Mogilevich’s Budapest headquarters in 1994—put intense pressure on the Hungarians to crack down on his operations there, and his homes and offices were raided by the Hungarian tax police. His presence in Budapest was costing too much blood, in any case; there had been more than 170 mob-related bombings in Budapest between 1994 and 1999, many of them directed at or initiated by Mogilevich.
Although Mogilevich has apparently abandoned Budapest as his base of operations, his global empire is still largely intact, and the Brainy Don spends much of his time flying between Moscow and Tel Aviv on his private jet. Mogilevich claims to feel secure in the Jewish homeland notwithstanding his feelings about his clamorous countrymen. When asked in September 1999 by a Hungarian reporter to respond to charges that he was a major Russian crime czar, he laughed, dismissing the accusation as the mad “ravings of the FBI.” That same month, he successfully won a libel case brought against a Hungarian television station that broadcast a report about his criminal activities. When asked why he didn’t likewise sue the American media for similar stories, he replied that he wasn’t really a rich man, and that, in any case, he joked darkly, he had just paid a hit man $100,000 to kill American reporter Robert I. Friedman.
Later that month, he complained to ABC News, “I have no business now. Who would do business with me?” he asked dejectedly as his underlings provided security, their faces hidden from the cameras. “I’ve lost my spark. Maybe I should tear my shirt off and prove my innocence, but I don’t even care anymore…. There is a saying in Russia, ‘if you tell a rabbit over and over that he is a pig, he’ll oink.’ Everybody says I’m a criminal. I’m used to it. And the public is, too.”
When questioned how the charges that he was a criminal had surfaced, he attributed them to a plot by the journalist Friedman and the American Justice Department. A few days after the TV interview, say reliable sources, he was trying to obtain a permanent residence permit in Spain so that he could operate his “humble grain business” from that country’s beautiful Costa del Sol and Barcelona.
In fact, intelligence officials and government leaders had known since the early 1990s the true state of affairs in the former Soviet Union. The CIA alone claims to have published more than a hundred reports since 1998 for the American foreign policy establishment documenting crime and corruption in Russia—a society where everything from submarines for the likes of Tarzan to fissionable material for Mogilevich was for sale. The agency reported that the Russian mob and its cronies in government and big business have looted the country into a condition resembling medieval beggary: the economy has declined every year since 1991. More than 40 percent of the country’s peasants are living in abject poverty, suffering through Russia’s third Great Depression this century. In the unforgiving fields, peasants are killing each other over potatoes. Social indices have plummeted. Workers’ minuscule paychecks come late or not at all. Horrific terrorist bombings, apparently the responsibility of rebellious Islamic republics, about which the authorities can seem to do nothing, are causing a further erosion of the public’s trust of the government.
At the same time on Moscow streets are more Mercedes per capita than any place on earth, and the number one concern of the city’s nouveau riche is how to avoid paying taxes and hide their fortunes offshore. They revel away nights in gaudy sex clubs and expensive restaurants, gorging themselves on South American jumbo shrimp washed down with vodka and cocaine. Disputes are settled with bursts of submachine gunfire. It is a classic fin de siècle society erected on a seemingly limitless supply of dirty money.
No post-Soviet institution has been immune from corruption, and even investigators have been investigated, often for good reason. Vladislav Selivanov, head of the Interior Ministry’s Organized Crime Division, admitted in a July 1998 press conference that a probe of the Federal Security Service, the successor to the old Soviet KGB, resulted in several criminal prosecutions and the dismantling of the service’s organized crime unit on the grounds that it had ties to the Russian mob. A few months later, during a bizarre news conference in Moscow, a group of mid-ranking FSB agents wearing sunglasses and ski masks declared that their once-vaunted agency harbored thugs, extortionists, and Mafiya hit men.
To make matters worse, the country’s few political reformers have been sacked or killed. The Duma is a den of thieves, as was Yeltsin’s inner circle. The same has even been alleged of Yeltsin and his family, who have purportedly taken a million dollars’ worth of kickbacks from a Swiss contractor that renovated the Kremlin. But corruption and influence-peddling are a national plague in Russia as old as the czars. No one in Russia can purchase anything of value without a cash-laden handshake.
Astonishingly, both the Bush and the Clinton administrations have unwittingly helped foster the Russian mob and the untrammeled corruption of post-Soviet Union Russia. When the CIA was asked in 1992 by Kroll and Associates, working on behalf of the Russian government, to help locate $20 billion that was hidden offshore by the KGB and the mob, the Bush national security policy team declined to cooperate. The Bush group rationalized, according to Fritz Ermath, a top CIA Soviet policy analyst writing in The National Interest, “that capital flight is capital flight. It doesn’t matter who has the money or how it was acquired even if by theft; so long as it is private, it will return to do good things if there was a market.”
Of course, that never happened, yet it did not prevent the Clinton administration from handing billions in aid to Russia without any accountability. With the vigorous support of the United States another $20 billion of International Monetary Fund loans has been deposited directly into Russia’s Central Bank since 1992. However well intentioned, the Clinton administration simply has no way to deliver “economic aid that will give benefits directly to the people,” as Brent Scowcroft, Bush’s national security adviser, has asserted. The chastened Russian Central Bank, admitting that it lacked any mechanism to monitor aid money once it was deposited, initiated an investigation to determine if the funds were stolen, and if so, whether they were part of the monies passed by Mogilevich and others through the Bank of New York.
Until the Bank of New York fiasco, the top rungs of the U.S. foreign policy establishment refused to acknowledge the Russian government’s staggering corruption. In 1995, the CIA sent Vice President Al Gore, who had developed a “special” relationship with then Russian prime minister Viktor Chernomyrdin, a thick dossier containing conclusive evidence of his widespread corruption. Gore’s friend had become a multi billionaire after he took over Gazprom, the giant natural gas monopoly, with holdings in banking, media, and other properties. The CIA said it cost $1 million merely to gain entry into Chernomyrdin’s office to discuss a business deal. It was also alleged, though Chernomyrdin denied it, that he was among the oligarchs who had been stealing the country’s resources after the fall of communism.
Gore angrily returned the report, scribbling a barnyard epithet across the file, according to the New York Times, and declared that he did not want to see further damning reports about Russian officials. It is unlikely, then, that he read the classified FBI file claiming that two colonels in the Russian Presidential Security Service had traveled to Hungary in 1995 to pay Mogilevich for information on the upcoming Russian political campaign, which was then allegedly passed on to Chernomyrdin. “The corruptive influence of the Mogilevich organization apparently extends to the Russian security system,” asserts the FBI report.
“The bottom line is that Clinton and Gore had lots of warning about Russian corruption under Yeltsin’s banner of reform,” wrote political columnist David Ignatious in the Washington Post. “And the question continues to be: Why didn’t the administration do more to stop it?”
The most charitable explanation, which now seems tragically ironic, is that they truly believed they were helping the ex-Soviet Union make a meaningful transition to democracy and a free market economy.
“The American political establishment didn’t want to hear about Russia’s corruption,” says Jack Blum. “They believe they’re looking at nascent capitalism, and they are flat-ass crazy. A bunch of thugs run the country. They have stolen everything that isn’t bolted down, moved it offshore, and then globalized their criminal business.”
It was only a matter of time before the Russian mob tried to buy its way into the American political system that has contributed to it so generously, if inadvertently. In New York, for instance, they almost succeeded. The invitations had been mailed, the menu prepared, and everything had been arranged down to the last detail for a $300 per couple, black-tie fund-raiser for then Governor Mario Cuomo on October 10, 1994, at Rasputin—the garish nightclub then owned by Monya Elson and the Zilber brothers. But on the eve of the event, the Cuomo campaign canceled. Officially, the explanation was a scheduling conflict; discreetly and quite unofficially, federal investigators had warned the Cuomo campaign that Rasputin was a bastion of the Russian Mafiya.
A few months before the Cuomo fund-raiser occurred, there was a similar misjudgment, and one that represented a serious lapse in national security. Grigori Loutchansky, a Latvian-born convicted felon and president of the Austrian-based NORDEX, a multinational trading company, had been implicated in everything from major money laundering to smuggling nuclear components. House Speaker Newt Gingrich once said that U.S. government officials believed Loutchansky had shipped Scud missile warheads to Iraq from North Korea. The ubiquitous Loutchansky was also a former business associate of both Chernomyrdin and Semion Mogilevich, according to the CIA and other Western intelligence officials. Yet somehow this enormously wealthy underworld rogue was invited to a private Democratic National Committee fund-raising dinner for Clinton in 1993. During coffee, Clinton turned to the mobster to ask a favor: would he pass a message along to the Ukrainian government requesting it to reduce its nuclear stockpile? Clinton then posed for a photograph with the grinning hood, which Loutchansky later liberally passed out among his cronies, greatly enhancing his stature among corrupt government officials and the criminal underworld. When the photo of the men shaking hands was eventually published in a Russian newspaper, the CIA analyzed it to see if it was a fake. When they discovered it was genuine, agency officials were aghast. “Loutchansky had one thing in mind: legitimization,” a congressional investigator probing Russian organized crime explained. “He wanted U.S. citizenship and he wanted to buy a U.S. bank.”
In July 1995, the DNC invited the mobster to a $25,000-a-plate fund-raising dinner for Clinton at the Hay Adams Hotel in Washington. At the last minute, the security services provided information on Loutchansky and the State Department denied him a visa, which he had obtained in Israel. He was subsequently banned from entering the United States, Canada, Hong Kong, and England.
The mobsters were not easily dissuaded, however. In September 1995, not long after the Loutchansky ban, his partner at NORDEX, Ukrainian mob boss Vadim Rabinovich, attended a Clinton-Gore fund-raiser at the Sheraton Bel Harbor Hotel in Miami. Rabinovich came as a guest of Bennett S. LeBow, the chairman of Brooke Group Ltd., parent of Liggett, a cigarette manufacturing company. (LeBow refused to comment.)
Rabinovich, who by his own account once served an eight-year jail term in Ukraine for theft of state goods, should not have even been in the United States, let alone attending a gala for the president, for he was on a State Department Watch List that bans aliens from entering the United States to commit crimes. Nevertheless, he, too, cleverly managed an all-important photo op, squeezing in between a smiling Clinton and Gore. That picture, too, appeared in the Eastern European press, greatly adding to the mobster’s reputation.
The Republicans have not been immune to the Russian mob’s advances, either. In March 1994, Vahtang Ubiriya, one of Mogilevich’s top criminal lieutenants, was photographed by the FBI at a tony Republican party fund-raiser in Dallas, says a confidential FBI report. Ubiriya, a high-ranking official in the Ukrainian railway administration, has a prior conviction for bribery in that country. A friend of Mogilevich for some twenty-five years, he has been involved with him in extortion, fraud, and illegal currency operations there.
This was not Mogilevich’s only attempt to manipulate the U.S. political system. After the INS and the State Department denied visas to YBM employees arriving from Budapest and Ukraine, Jacob Bogatin contacted the FBI office in Philadelphia for an explanation. Rebuffed, Bogatin—who had donated $2,250 to the National Republican Committee and an additional $500 to the National Republican Congressional Committee, a soft money account, between April 1996 and April 1998— called upon Pennsylvania Republican congressman Jim Greenwood for help obtaining the visas. “I remember when they came to visit me and they brought all those brochures, and I remember how impressed I was that such a high-tech enterprise was there in the Newtown industrial park,” Congressman Greenwood recalled. “And I remember thinking, ‘Gee, I wonder how they had escaped my attention.’ Normally when there is a particularly interesting high-tech industry in your district you become aware of it and often take a tour.”
Greenwood’s staffers petitioned the State Department on Bogatin’s behalf, requesting a reason for the denial of the visas. After it was “non-responsive, I then made personal calls to the State Department to get to the bottom of it, and I was essentially told that what I ought to do is talk to the FBI,” said Greenwood. “We arranged for FBI representatives to come to my office in Washington.” Greenwood recalled that the agents told him in confidence that Russian godfather Semion Mogilevich was running YBM and that it was under investigation for money laundering among other crimes. They also said that Bogatin “had to know” what was going on. “It took a hell of a lot of gall if Bogatin was aware of this and yet he sat with a U.S. congressman, demanding that our government allow their employees back into the country,” Greenwood angrily declared.
By the dawn of the new millennium Russian mobsters were lavishing millions of dollars in contributions on Democratic and Republican politicians. In New York City, commodities mogul and alleged wiseguy Semyon (Sam) Kislin has been one of mayor Rudy Giuliani’s top campaign supporters. Kislin, various relatives, and his companies, raised or donated a total of $64,950 to Giuliani’s mayoral campaigns in 1993 and 1997. A Ukrainian immigrant well known among the Russian Jewish community in South Brooklyn, Kislin has also made generous donations to Democratic Senator Charles Schumer as well as other state politicians.
According to a confidential December 1994 FBI report and underworld sources, Kislin is a member of the Ivankov organization. These sources say that Kislin’s New York commodities firm has been involved in laundering millions of dollars, and co-sponsored a U.S. visa for a man named Anton Malevsky, who is a contract killer and head of one of Russia’s most bloodthirsty Mafiya families.
Kislin’s donations to charities and politicians bore fruit in 1996 when he was appointed to be a member of New York City’s Economic Board of Development Corporation. On December 2, 1999, Giuliani reappointed Kislin to the board, stating in a letter that his “service is deeply appreciated.” Kislin has denied any ties to the Russian mob, insisting at a December 1999 press conference that “I have done nothing evil.”
Although the Russian Mafiya’s invasion of American politics is still in its infancy, it already poses a huge threat to U.S. national security interests abroad. The mob dominates Russia, and has Eastern Europe in a bear hug. It is also turning Western Europe into its financial satrapy, and the Caribbean and Latin America have quickly become sandy playpens for coke and weapons deals with Colombian drug lords. There are few nations where the Russian mob does not hold some influence, making efforts to combat it ever more difficult.
A striking example is Switzerland, where the Mafiya has been drawn by the country’s world renowned, highly secretive banking system. “There are three stages of Russian Mafiya penetration,” Jean Ziegler, a university professor in Switzerland has explained. “When the Soviet Union broke up, Switzerland was the laundering place for immense fortunes. Then Mafiya leaders started sending their children to expensive private schools here. Now we are in the third stage, where some of the Mafiya dons are transferring their operational headquarters to Switzerland—and that is very dangerous.” More than six hundred Russian dons have moved to Switzerland, and, according to Swiss court documents, more than $60 billion of Russian mob money has been laundered through its banks.
In one of Switzerland’s first strikes against a major Russian gangster, Sergei Mikhailov was arrested in October 1996 in Geneva for money laundering and for his leadership of the Solntsevskaya crime family. Headquartered in Moscow, the Solntsevskaya mob openly operated out of a stylish commercial office building at Leninsky Prospekt, where it controlled much of the city’s gambling, casino, and banking business, as well as prostitution, drugs, the city’s used car trade, and the Vnukovo airport, the city’s principal cargo terminal. It also owned real estate from Malaysia to Monaco, setting up a labyrinth of fictitious international firms and offshore accounts to launder money received from the sale of narcotics, arms, and extortion. At the time he was apprehended, Mikhailov was living in a quaint château outside Geneva, where he drove around in a blue Rolls-Royce, maintained a $15,000-a-month clothing budget, and doted on his wife and two children. He traveled on a Costa Rican diplomatic passport and had been appointed that country’s honorary consul to Moscow.
Inside Mikhailov’s lavish home, police found sophisticated Israeli military devices that allowed him to eavesdrop on secret Swiss police radio communications and to tap telephones. They also discovered a trove of documents listing front companies he allegedly used to launder money from drugs and arms sales. Investigators learned that Mikhailov had invested millions of his laundered dollars in America: he had bought a Brighton Beach disco called Nightflight, which he owned with Ivankov. He acquired another club in Los Angeles. He also purchased a car dealership in Houston with a local who agreed to send red Jeep Cherokees to him in Geneva so he could give them as gifts to friends. The Texan had no idea of the danger to which he was exposing himself when he began to pocket Mikhailov’s money, and though the furious gangster sent a hit man to Houston, the killer was captured by the police.
Investigators learned that apart from the tranquil Geneva suburbs, Mikhailov’s favorite hangout was Miami. After his men committed murders in Europe and Russia, they would check into the Fontainebleau Hotel “where they would stay by the beach and wait for the heat to cool off,” according to retired FBI agent Robert Levinson. But before hitting the soft white sand, the mobsters liked to stop at a nearby Sports Authority, where they bought snazzy jogging outfits to preen for South Beach’s glamorous models.
Although Mikhailov insisted, typically, that he was a simple businessman, he is a career criminal with an excellent strategic mind. Born on February 7, 1958, in Moscow, the onetime waiter was first convicted in the Soviet Union in 1984 of theft and perjury, according to a classified Russian document. He was later investigated for murdering a casino owner and a banker. In 1989 he was arrested for extortion, but the victim found it judicious to recant.
The Swiss authorities were confident that they had an excellent case against the mobster, but on the eve of Mikhailov’s Swiss trial, a Dutch father and son who had engaged in some questionable business dealings with Mikhailov in Moscow were executed gangland-style. The father was stabbed in the eye and bled to death; his son was gunned down. Soon afterward, Moscow’s chief of police sought political asylum in Switzerland, claiming he was threatened by Mikhailov’s men. The press was targeted, too. Veteran Russian mob reporter Alain Lallemand of Le Soir in Brussels was threatened after he wrote a series about Mikhailov that apparently displeased the mobster. Lallemand was warned by several intelligence services that Mikhailov had scheduled his assassination, and the reporter and his family went underground for a month. The police captured an ex-Belgian gendarme in Brussels who was about to carry out the contract.
Despite these intimidation tactics, the trial went forward, with a total of ninety witnesses being issued protective vests and placed under close guard. The key witness against Mikhailov was Robert Levinson, the ex-FBI agent based in Miami who specialized in the Russian Mafiya. Some foreign intelligence agents, however, were dismayed when they saw his briefing book, which seemed to primarily consist of warmed-over FBI gossip. Why hadn’t the bureau dispatched active agents with more current material that would hold up as evidence? asked Pierre Delilez. “They are always telling the European intelligence agencies to share. They share nothing.” Lallemand, however, insists that the FBI’s material was excellent, though the best of it never made it into evidence.
Meanwhile, Mikhailov had succeeded in securing a high-profile paid expert witness for his defense: former U.S. Attorney General Ramsey Clark. Clark has become something of a heretic for having taken on a series of unpopular cases like representing a German SS guard who the U.S. government said massacred Jews during World War II and then illegally gained citizenship.
Clark was first approached by a young Russian lawyer representing Mikhailov, who thought an American with his prestigious legal pedigree would be of great help to his client. Clark politely declined, but Mikhailov’s men persevered over the next several months. A group even came to his downtown Manhattan office and asked him to slam the FBI with a “slap suit” that would keep their evidence out of Swiss court. Clark informed them that they didn’t have a legal theory that would stand up in an American courtroom.
Finally, Mikhailov’s lawyers convinced Clark to look at Levinson’s FBI briefing book and some documents that they had obtained in discovery. After reading the material, Clark changed his mind. The FBI reports reminded him of the kind of malicious, untested gossip the bureau had used when it wanted to bring down civil rights leaders. “It was American criminal imperialism,” he stated.
Even though the burden of proof was on Mikhailov— under Swiss law, he had to prove that he was not the head of a mob family—Clark skillfully helped dismantle Levinson’s testimony, not only showing its inconsistencies, but arguing effectively that the bulk of it was built on rumor, hearsay, and derived from unverifiable anonymous sources. Levinson could neither read nor write Russian, Clark declared, but more importantly, the ex-FBI man’s intelligence files—or information culled from them —would almost certainly never be allowed into evidence in a U.S. court of law.
Yet Clark’s defense alone could not have vindicated the mobster. At least as damaging to the Swiss authorities’ case was the fact that several Russian prosecutors working with the Swiss were suddenly and inexplicably fired, after which the Russian government reneged on its previous promises to send crucial documents to Geneva.
Mikhailov, who had been held in a Swiss prison for two years, was acquitted in December 1998. “My heart is full of gratitude,” he announced at an airport press conference. “I love you.” He was then quietly deported to Moscow aboard an Aeroflot jet. The acquittal was a devastating blow to both Swiss and international law enforcement who had been battling the Russian mob, and it was followed by the usual round of finger pointing. “The next time we try a major Russian mob boss, we are going to need a watertight case,” said Pierre Delilez, who believes that the FBI intentionally fumbled the case, perhaps in order to be able to use Mikhailov as an intelligence agent. James Moody, meanwhile, blamed Levinson for a poor performance. In truth, it was Mikhailov’s power, money, and international connections that had succeeded in winning his release and enabling him to continue his glorious criminal career.
The Swiss, meanwhile, are still struggling with the intractable problem of the Russian mob. Ziegler says the only way to derail their inexorable advance is to ban Russian banks from operating in Switzerland, since most of them are controlled by gangsters. Some Swiss banks have already adopted a blanket policy of not accepting any Russian clients. On September 3, 1999, Swiss authorities announced that they had frozen fifty-nine bank accounts, and asked Swiss banks to provide information on the two dozen Russians who held them. Yet in a country where it is not illegal to bribe a public official, the Swiss skirmish against the Russian mob smacks of the Marx Brothers going to war against a mythical kingdom in Duck Soup.
Of all the nations where the Russian mob has established a presence, none has been more deeply compromised than the State of Israel, America’s staunchest ally in the volatile Middle East. More than 800,000 Russian Jews have made aliyah or settled in Israel since the first massive wave of immigration in the 1970s. The Russians took advantage of Israel’s most sacred law—the Right of Return, which guarantees Jews the right to return to their ancestral homeland, where they would receive citizenship and live as free men and women outside the odious yoke of anti-Semitism. “The Russians are a blessing,’said Israel’s top political columnist Nachum Barnea, who stands in public awe of their brilliant intellectual gifts in a variety of fields.
But just as in Brighton Beach, Russian immigration to Israel has brought a more unwelcome element—the vor v zakonye and their criminal minions. Ten percent of Israel’s five million Jews are now Russian, and 10 percent of the Russian population “is criminal,” according to NYPD notes of a briefing in Manhattan by Israeli police intelligence official Brigadier General Dan Ohad.
“There is not a major Russian organized crime figure who we are tracking who does not also carry an Israeli passport,” says senior State Department official Jonathan Winer. He put the number at seventy-five, among whom are Mogilevich, Loutchansky, Rabinovich, and Kobzon.
Many of the mobsters who have Israeli citizenship, such as Eduard Ivankov and Sergei Mikhailov, are not even Jewish. In the mid-1990s, an Israeli police sting—code-named Operation Romance— netted, among others, a high-ranking Interior Ministry official who was taking payoffs from Mikhailov and convicted KGB spy Shabtai Kalmanovitch to issue passports to dozens of Russian gangsters, according to Brigadier General Hezi Leder, the Israeli police attaché in Washington, and classified FBI documents. (Kalmanovitch, after serving time in an Israeli prison for treason, became one of Moscow’s most notorious mobsters and frequently returns to Israel.)
Russia’s criminal aristocracy covets Israeli citizenship “because they know Israel is a safe haven for them,” said Leder. “We do not extradite citizens.”
“The Russians then use the safe haven to travel around the world and rape and pillage,” added Moody.
The country has also remained attractive to gangsters because “Israel is good for money laundering,” explained Leder. Under Israeli law, banks can accept large cash deposits with no questions asked. In one instance, a corrupt ex-deputy prime minister of Ukraine smuggled $300 million of illicit cash into Israel in several suitcases, and deposited it into a bank, as Israeli Minister of National Security Moshe Shahal told a gathering of intelligence heads in June 1996. “I’ve watched Russian mobsters exchange suitcases full of cash out in the open at the Dan Hotel’s swimming pool,” laughed an American underworld crime figure. “Israel is a country that encourages people to come and invest money,” said Leder. “There is no mechanism to check the origin of the money.”
Israeli police officials estimate that Russian mobsters have poured more than $4 billion of dirty money into Israel’s economy, though some estimates range as high as $20 billion. They have purchased factories, insurance companies, and a bank. They tried to buy the now defunct, pro-Labor Party Davar daily newspaper, and the pro-Likud Maariv, the nation’s second largest newspaper. They have even put together a koopa, or a pool of money, for bribes and other forms of mutual support. One of Leder’s greatest fears is that the Russians will compromise Israel’s security by buying companies that work for the military-industrial complex. The mobsters, in fact, attempted to purchase a gas and oil company that maintains strategic reserves for Israel’s military. “They could go to the stock market and buy a company that’s running communications in the military sector,” he complains.
Insinuating themselves throughout the country, Russian dons have bought large parcels of impoverished development towns, taking over everything from local charities to the town hall. For instance, Gregory Lerner, a major Russian crime boss who arrived in Israel with huge amounts of money, allegedly owns everything from fashionable restaurants to parts of several port city waterfronts.
“Do you know what Gregory Lerner did in Ashkelon?” Leder asked me during an interview in New York. “His mother was three times in the hospital there. He bought new medical equipment and dedicated it to his mother! It’s the way the mobsters wash their name.” They do so, he explains, in order to build up grassroots support and openly influence politicians—or even run for elective office. Leder worries that one day three or four Russian gangsters who have bought their legitimacy will win Knesset seats, take over a key committee, and be in an ideal position to stop an important piece of anti-crime legislation, such as a proposed bill to criminalize money laundering.
One of Leder’s worst fears came true when Russian gangsters hand picked several candidates to run for local and national offices, according to the minutes of a classified Israeli cabinet meeting held by the Committee of the Controller in June 1996. And in May 1997, Israeli police launched a probe into allegations that Lerner attempted to bribe former Prime Minister Shimon Peres, among other Knesset members and cabinet ministers. The investigation was inconclusive, however, and no charges were filed.
One politician already ensnared in the web of organized crime is Russian-born Natan Sharansky, the head of the Russian Yisrael Ba-Aliya and minister of the interior in the government of Prime Minister Ehud Barak. Because of his resistance to the Soviet regime and his strong and open identification with Judaism, he suffered a long, brutal confinement in the Gulag before international pressure led to his release. In Israel, the charismatic dissident was lionized by the Jewish people, and he became a power broker for the large and growing Russian émigré community, whom he helped integrate into a rigid society that sometimes seemed jealous of the talented new Russians.
However, Sharansky has publicly admitted that his party has accepted campaign contributions from NORDEX president Grigori Loutchansky. Officials from the U.S. Congress, the State Department, and the CIA pleaded with Sharansky to sever his ties to Loutchansky. “We told Sharansky to stop taking money from Loutchansky,” says Winer. “We told him about Loutchansky’s MO: bribery, influence peddling, that he was a bridge between foreign governments and traditional organized crime.”
Sharansky simply refused, arguing that he needed the money to resettle the tidal wave of Russian émigrés. “When we warned Sharansky,” says the congressional investigator, “to stop taking money from Loutchansky, he said, ‘But where am I going to put them,” referring to the huge influx of Russian Jewish refugees. “’How am I going to feed them? Find them jobs?’” He figures Loutchansky is just another source of income.
“Sharansky is very shrewd,” the congressional investigator continued. “He knows better. It was a cynical decision. He did take money. Then he asked, ‘Why shouldn’t I?’ The CIA warned him that Loutchansky was trying to buy influence through him and his party for the Russian Organized Crime/Russian government combine. We told Sharansky that Loutchansky is a major crook.” (Sharansky declined to comment.)
Ignoring all the warnings, Sharansky introduced Loutchansky to Benjamin Netanyahu prior to Israel’s 1996 national elections. The Israeli press reported that Netanyahu received $1.5 million in campaign contributions from Loutchansky, a charge the prime minister hotly denied. “The Likud is corrupt, and Bibi Netanyahu is disgusting,” says Winer. “He’s had meetings with Loutchansky and Kobzon—criminals promoting their own interests.”
Kobzon’s influence in Israel may exceed that of even Loutchansky and Mogilevich. “Kobzon has big political connections in Israel,” says Leder. For instance, in January 1996, Kobzon was detained upon his arrival at Israel’s Ben Gurion International Airport “because of his ties to the Russian Mafiya,” Labor Party Knesset member Moshe Shahal said in his cramped Knesset office in Jerusalem. Shahal, at the time the country’s security minister, intended to send the mobster back to Russia, but then the phones started ringing in the chambers of high government ministries. Kobzon’s friends in Israel petitioned the minister of the interior, the minister of transportation, and Foreign Minister Shimon Peres, who finally ordered the airport police to free Kobzon and let him enter the country. Peres, who was being pressed by the Russian ambassador, told Shahal that he relented to avoid a messy incident with the Russian government. (The following year, Kobzon flew to Israel in his private jet to pick up Marat Balagula’s eldest daughter, who lives in Netanya, to bring her back to Moscow to celebrate his sixtieth birthday.)
With two decades of unimpeded growth, the Russian Mafiya has succeeded in turning Israel into its very own “mini-state,” in which it operates with virtual impunity. Although many in international law enforcement believe that Israel is by now so compromised that its future as a nation is imperiled,its government, inexplicably, has done almost nothing to combat the problem. In June 1996 Leder, then chief of Israeli police intelligence, prepared a three-page classified intelligence assessment that concluded: “Russian organized groups had become a strategic threat” to Israel’s existence. He documented how they were infiltrating the nation’s business, financial, and political communities. Shahal used the report to brief Prime Minister Yitzhak Rabin, Shin Bet, Israel’s FBI, and Mossad, and provided his own recommendations on how to uproot the Russian mob. Before Rabin had a chance to act on the plan, he was assassinated by a right-wing Jewish religious zealot in Tel Aviv following a peace rally. Shimon Peres subsequently set up an intra-agency intelligence committee on the Russian mob after reading Leder’s report, but did little else. Leder’s report was shelved by Netanyahu, according to Shahal.
“Israel is going to have to do something,” says James Moody. “They could lose their whole country. The mob is a bigger threat than the Arabs.”
Leder agrees: “We know how to deal with terrorist organizations. We know how to deal with external threats. This is a social threat. We as a society don’t know how to handle it. It’s an enemy among us.”
Why should Americans be concerned about the global explosion of Russian organized crime and the concomitant corruption in Russia? The simple answer is that the nuclear-capable behemoth is on the verge of a political and economic meltdown. “The Russian people are deeply humiliated,” Brent Scowcroft, Bush’s national security adviser, has said. “They have lost their superpower status and they are turning against the U.S. and against the West.” In historical terms, the closest analogy to the financial situation in Russia is the Versailles Treaty at the end of World War I, when the Western allies demanded reparations from the Germans. Huge amounts of capital were forced out of Germany, so impoverishing the nation that it helped set the stage for Hitler. “That is the only parallel we have of a vast change in a society, accompanied by massive decapitalization—and look at the consequences,” said Jack Blum, who is consulting with the House Banking Committee in its investigation of Russian money laundering. “Russia is three times our size and has nuclear weapons. Why should we care? Excuse me. Common sense says you have to care mightily.”
It should also by now be abundantly clear that the Russian Mafiya is made up of multipurpose, entrepreneurial master criminals. “Once funded, once flush, with the billions of dollars they ripped off, these boys are in business doing every shape, manner, and form of crime globally,” Blum continued. “So it was Russians who were doing the gasoline daisy chains in New York, New Jersey, and Long Island, in which billions of dollars in excise tax was ripped off; it’s Russians who are screwing around with Colombians, figuring out how to deliver weapons to them. Should Americans not care about that? That’s going on right here.
“If nothing else, Americans should worry that they’ll drive up the price of real estate in the Hamptons,” Blum said with a sarcastic laugh.
“The Hamptons are filling up with Russians,” Mike Morrison, a criminal investigator with the IRS told me. “When we ask them where they got the money to purchase their house or business, they produce a document from Uncle Vanya in St. Petersburg who says it’s a gift. There is nothing we can do.”
Meanwhile, Russian mobsters move easily in and out of the United States on visas “that they get in Israel to dance through our clearance process,” says Blum. Or they obtain visas as employees of shell corporations like YBM, or as friends of NHL hockey players, or as “film consultants,” as Ivankov did. “So should we worry about that?” asks Blum. “Of course!”
America’s vast wealth will always be an irresistible target for the Russian Mafiya, and their most sophisticated scams are likely to cause the most damage: their devious financial machinations on Wall Street, their money laundering, their infiltration of prestigious institutions like the NHL. Should we worry about that? In a few years, predicts James Moody, the Russian mob will be bigger than La Cosa Nostra in America. And perhaps GE, and Microsoft, too.
Sommer’s gray metal desk is cluttered with case files. More than half are Russian mob-related. Arrayed across the criminal debris are glossy photos of dismembered Russian crime victims. “If you cut off the head, and the arms and feet are missing, too, you can’t get a positive identification on the torso. It’s brilliant,” he says dejectedly.
“You can’t work a homicide in Brighton Beach,” Sommer continues, gloom settling in his face like the pall of smoke after a heavy battle. “The Russians don’t talk. Someone could get whacked in a club in front of a hundred diners, and nobody would see anything. So they will kill with impunity.”
Russian organized crime incubated in Brighton Beach for twenty years before the city and federal government tried to stop it, he says angrily. By then, it had merged with even more powerful organized crime syndicates that prospered in Russia after perestroika. Sommer says he barely has a budget to pay for snitches. How is he supposed to stop a Byzantine global crime menace?
“Why are we being victimized by noncitizens who can run to Israel or Russia and can’t be extradited? The Russian gangsters have told me that they’ve come here to suck our country dry. My uncle died on the beaches of Normandy defending this country. How did the Russian mob become so entrenched? They are into Social Security, Medicare, and Medicaid fraud. Why is it that every ambulance service in Brooklyn is run by the Russian mob? Why are so many of their doctors practicing without a license? They have invaded Wall Street from boiler-room operations to brokerage houses. Nothing is too small for them to steal. Even the guys with the multimillion-dollar Medicare scam still have to have their food stamps. The first generation are all thieves. Maybe the second generation will become a little more American.”
A few blocks away, in one of the tidy Art Deco apartment buildings that line the seaward side of Brighton Beach Avenue in Brooklyn, a big Russian is sprawled on his back on a leather workout bench. A masseur kneads his lumpy body. The living room, where he spends hours every day, is decorated like the interior of a coffin, with wallpaper painted to resemble gathered gray satin. He watches a thirty-two-inch color TV in a mirror.
“The police steal the drugs and kill everybody,” he says, while a Russian-language movie blares in the background. “I’ve seen it before.”
The Russian has an enormous chest and huge belly, but his legs are spindles. The masseur helps him sit up. Two large craters are sunk deep into his fleshy white back. They were made by dumdum bullets that shattered his spine.
The Russian was once an imposing figure, standing over six foot four—a man who favored floor length black leather jackets with ermine collars. He was wearing his favorite jacket, a .45 concealed inside, when an assassin on a motorcycle shot him on a Brooklyn street corner in full view of a busload of schoolchildren several years ago. A one time heroin and arms trafficker, he says that an ex-business partner commissioned the hit to settle a score. Before the ambush, he had been one of the top gangsters in Brighton Beach. Even after the shooting, he was working, running an extortion ring at Kennedy Airport from his wheelchair. He “taxes” Russians $1,000 to retrieve their shipped goods from Aeroflot.
Lifted onto his bed by his son and the masseur, the Russian sighs, appearing more like a young Buddy Hackett than a notorious criminal. “Look what they did to me,” he says softly. “Look how everybody has to step over me. They ruined my life.”
Yet talking about the Russian Mafiya reinvigorates him. “The Russians are stronger than the Italians,” he says assuredly. He doesn’t mean tougher—yet. He means wealthier. “Saudi Arabia is small potatoes,” he boasts. “The U.S. goes into Moscow with $100 million of aid, and the mob walks out with $105 million. They have so much money it would take years to count it with a computer.”
The big Russian brags about the way the mob’s tentacles have spread around the world in a few short years. “For Russians, enough is never enough. If a Russian makes $20 million, he wants $40 million. They never know when to stop. There is a saying in Russia: ‘The house is burning and the clock is ticking.’ It means you have to keep making money every minute.
“Even Russian racketeers and crooks want their children to be doctors and lawyers. But some of the kids have learned that they can make more money by being crooks,” he says somberly. “Young Russian kids with MBAs are getting jobs on Wall Street. They are setting up all kinds of scams. They’ll hurt a lot of people. There’ll be a lot of suicides.
“In this country, it’s so easy to make money,” the Russian says. “I love this country. I would die for it.”
https://ia801603.us.archive.org/33/items/RedMafiyaHowTheRussianMobByRobertI.Friedman2000/Red%20Mafiya-%20How%20the%20Russian%20Mob%20by%20Robert%20I.%20Friedman%20%282000%29.pdf
Mogilevich, who is bald, weighs nearly three hundred pounds, and favors florid shirts and luminous pinky rings, was first exposed to the world at large in a profile I wrote that appeared in The Village Voice on May 26, 1998. He became internationally notorious, however, when federal authorities accused him of perpetrating the biggest money laundering scheme in U.S. history, washing an astonishing $7 billion through the venerable Bank of New York. In the media storm that followed, Mogilevich denied the allegations, telling a Hungarian news magazine that he just couldn’t understand why he was being accused of such heinous crimes, since he is, after all, nothing more than a humble grain merchant. The only money he ever laundered, he quipped, was a five-dollar bill that he forgot to retrieve from his shirt pocket before it went to the cleaners.
Little is known about Semion Mogilevich’s early years. He was born in Kiev and his mother was a podiatrist and his father the manager of a large state-owned printing company. Legend has it that as a young man, he ran a small fruit stand in Moscow, despite the Soviet Union’s strict laws against private enterprise. Soviet authorities first learned of his criminal activities in the early 1970s, when he was a member of the Lyubertskaya crime group, which operated in the Moscow suburb of the same name. He was involved in petty theft and counterfeiting, and was later convicted for illegal currency speculation in Ukraine, for which he spent eighteen months in prison. A few years later, he was again arrested for dealing currency on the black market, and received a four-year prison term.
But Mogilevich made his first millions fleecing fellow Jews. In the mid-1980s, when tens of thousands of Jewish refugees were hurriedly emigrating to Israel and America, Mogilevich made deals to cheaply buy their assets—rubles, furniture, and art—with the promise of exchanging the goods for fair market value and sending refugees the proceeds in hard currency. Instead, he simply made the sales and kept the considerable profits.
In early 1990, Mogilevich fled Moscow, as did many other dons, to avoid the gangland wars that were then roiling the capital. With his top henchmen he settled in Israel, where they received citizenship. In Israel, which does not extradite its citizens, Mogilevich kept a low profile, preferring to maintain the Jewish state as a place where he could move without restriction, rest, or find refuge in times of trouble, according to an Israeli intelligence report. Yet he “succeeded in building a bridgehead in Israel” and took “advantage of his Israeli citizenship and Jewishness, that allows him to travel freely in and out of that country,” says the report.
Keeping a low profile did not, however, preclude “developing significant and influential [political and business] ties,” according to the report. He forged contacts with Russian and Israeli criminals, and maintained control of several businesses through proxies, such as an international kosher catering service, a tourism company, and a real estate firm. “Since 1991 he has opened bank accounts in Israel in the names of various companies, and has attended gatherings in Israel with other known criminals,” revealed the Israeli report. In addition, an Israeli bank, with branches in Moscow, Cyprus, and Tel Aviv, was “allegedly owned by Mogilevich, who is reportedly laundering money for Colombian and Russian Organized Crime groups,” according to a classified FBI document. Mogilevich also unsuccessfully tried to gain control of the giant kosher distillery Carmel Mizrachi, according to Israeli intelligence.
Mogilevich, however, became disenchanted with living in Israel. “There are too many Jews in Israel,” he told the National Post of Canada. “Too much arguing. Everybody is talking all the time and their voices are so loud.” In 1991, Mogilevich married Katalin Papp, a Hungarian national, a union that allowed him to legally reside in Budapest, where he moved and began to build the foundations of his global criminal empire. He bought a string of nightclubs called the Black and White Clubs—with locations in Prague, Budapest, Riga, and Kiev—that became one of the world’s foremost centers of prostitution. Mogilevich primarily used German and Russian women in these venues, providing cover jobs for them as well as bodyguards. In 1992, he cemented his ties to other Russian and Eurasian organized crime groups by selling partnerships in the prostitution business to the Solntsevskaya and Ivankov organizations. Monya Elson was also a partner, according to his own admission and classified FBI documents. The Black and White Club in Budapest became the hub of Mogilevichs worldwide operations, and he added a casino in Moscow and nightclubs in Eastern Europe as a way to account for the excessively high cash inflow from his criminal activities.
Mogilevich also fortified his organization by coordinating activities with non-Russian crime groups such as the Japanese Yakuza and the Italian Camorra. His mutually beneficial relationship with the Camorra, arguably the cleverest, most cunning, and most violent of the four Mafia families in Italy, gave him much cachet in the underworld. In one oft-repeated swindle, the Italians passed counterfeit American hundred-dollar bills (which had been made from bleached one-dollar bills) to the wily Russians, who passed the fake currency from their bases in dozens of countries. In turn, Mogilevich provided the Camorra with large quantities of synthetic narcotics along with expert money laundering services to wash the profits. The close ties between Mogilevich and Italian Camorra strongman Salvatore DeFalco particularly unsettled law enforcement authorities as they watched the Italian and the Eurasian crime bosses venture into new frontiers. The Italian authorities surveilled Camorra members operating in the Czech Republic in concert with Mogilevich, where they primarily trafficked in weapons. Meanwhile, Mogilevich made staggering sums smuggling huge amounts of cocaine and heroin into Russia from the United States and Canada. “The profits were then introduced into the banking system and moved across the world via the UK,” states a confidential British intelligence report. Mogilevich even bought a bankrupt airline in the Central Asian former Soviet republic of Georgia for millions of dollars in cash so that he could ship heroin out of the Golden Triangle into Europe. Some of the drugs were to be allegedly smuggled into England by sea, says an Israeli intelligence report.
Mogilevich's organization was augmented dramatically with the creation of layer upon layer of sham companies that spanned every conceivable business. He had already established two such businesses in Alderney, one of the Channel Islands, which are well known as tax havens. One, Arbat International, was a petroleum import-export company, of which Mogilevich owned 50 percent. His friend Ivankov held a quarter share of the company. Mogilevich’s other partners in Arbat—who jointly had a 25 percent share—were Solntsevskaya crime lords Sergei Mikhailov and Viktor Averin.
The other, a holding company called Arigon Ltd., became the heart of his criminal empire. Initially, it had seven investors; each owned approximately 14 percent of the stock, which cost one pound sterling. The Budapest branch of Arigon was allegedly managed by the wife of Solntsevskaya kingpin Sergei Mikhailov, according to Israeli intelligence.
Mogilevich was particularly intrigued by art fraud, and in early 1993 reached an agreement with the leaders of the Solntsevskaya crime family to invest huge sums of money in a joint venture: acquiring a jewelry business in Moscow and Budapest. According to classified FBI documents, the company was to serve as a front for the acquisition of jewelry, antiques, and art that the Solntsevskaya mob had stolen from churches and museums in Russia, including the Hermitage in St. Petersburg. The gangsters also robbed the homes of art collectors and even broke into synagogues in Germany and Eastern Europe to steal rare religious books and Torahs.
In another joint venture with the Solntsevskaya gang, Mogilevich purchased a large jewelry factory in Budapest where Russian antiques, such as Fabergé eggs, were sent for “restoration.” Mogilevich’s men shipped the genuine Fabergé eggs to an unwitting Sotheby’s auction house in London for sale, and then sent counterfeits as well as other “restored” objects back to their original owners in Moscow.
Mogilevich also acquired a giant vodka plant in Russia and a plant for manufacturing hard liquor in Hungary, which he used to become a major smuggler of alcohol, claims a secret Israeli intelligence report. In 1995 alone, he smuggled 643,000 gallons of vodka out of Hungary. On May 5, 1995, twelve railroad cars filled with Mogilevich’s vodka were seized by Hungarian authorities as he tried to slip the hooch past customs without paying duty.
More ominously, Mogilevich set his sights on the arms industry. He had already sold $20 million worth of pilfered Warsaw Pact weapons, including ground-to-air missiles and twelve armored troop carriers, to Iran, according to the classified Israeli and FBI documents, and a top-level U.S. Customs official. However, to the even greater consternation of international law enforcement officials, Mogilevich began to legally purchase virtually the entire Hungarian armaments industry, jeopardizing regional security, NATO, and the war against terrorism. The companies he bought include:
• Magnex 2000, a giant magnet manufacturer in Budapest. Solntsevskaya crime boss Sergei Mikhailov allegedly served as its deputy director, asserts Israeli intelligence.
• Army Co-op, a mortar and antiaircraft gun factory. Army Co-op was established in 1991 by two Hungarian nationals, both in the local arms industry, who were looking for a partner. Mogilevich bought 95 percent of Army Co-op through Arigon Ltd., which also deals extensively with Ukraine,selling oil products to the Ukrainian railway administration.
• Digep General Machine Works, an artillery shell, mortar, and fire equipment manufacturer. Mogilevich financed the company with a $3.8 million loan from the London branch of Banque Française De L’orean. The loan was secured by the Mogilevich-controlled company Balchug, which manufactures and sells office furniture.
In 1994, Mogilevich purchased a license permitting him to buy and sell weapons through Army Co-op and other Hungarian arms companies, which established him as a legitimate armaments manufacturer. A Mogilevich company participated in at least one arms exhibition in the United States, where it displayed mortars modified by Israel.
Like mob bosses everywhere, Mogilevich would have been unable to sustain the growth of his empire without police and political confederates. In Europe and Russia, the “corruption of police and public officials has been part of the Semion Mogilevich Organization’s modus operandi,” says a classified FBI document. In Hungary, two former policemen serve as security coordinators for the Red Mafiya’s formidable combat brigades. “When his back is up against the wall, he’s got a very effective bodyguard force that keeps him alive,” says former FBI agent Robert Levinson. Mogilevich’s lieutenants are trained in intelligence operations and countersurveillance, and provide warnings of impending police actions against the organization. Law officers in Hungary and elsewhere keep him apprised of police efforts to penetrate his organization.
“He also ingratiates himself with the police by providing information on other [Russian crime] groups’ activities, thus appearing to be a cooperative good citizen,” a classified FBI report asserts.
In fact, Mogilevich has used precisely that ploy to compromise other European intelligence services. On April 28, 1998, the German national television network ZDF reported that the BND (the German intelligence agency) had entered into a secret contract with Mogilevich to supply information on rival Russian mob groups. The charges were made by several sources, including Pierre Delilez, a highly regarded Belgian police investigator who specializes in Russian organized crime. If the television report is accurate, one possible motive for BND’s deal, believes a U.S. law enforcement expert on the Russian mob, is that the Germans faced an intelligence gap after having “pulled their people out of Moscow in 1998 because they didn’t like the level of cooperation they were getting from the Russian authorities on the Russian mob.” Because of the deal with the BND, police in Belgium, Germany, and Austria have complained that it is now impossible to investigate the Brainy Don.
Mogilevich also developed substantial and well-concealed political connections, particularly in Israel, according to reports by Israeli intelligence, which notes the mysterious and unexplained disappearance of Mogilevich’s Ministry of Interior file. In Brussels, Mogilevich’s man Anatoly Katric, a Ukrainian-born Israeli citizen who spent much of his time entertaining international diplomats for the Red Mafiya, approached Philip Rosenberg, the head of the far-right, anti-immigrant National Front Party, which held 5 percent of the seats in the Brussels parliament. Katric offered Rosenberg 3 billion Belgian francs to obtain Mogilevich Belgian citizenship. Rosenberg allegedly agreed, but was indicted on corruption charges and fled to Papaya, Thailand, before the deal could be consummated. Investigators found suspected bribe money in a Swiss bank account, which Katric ultimately admitted to the Belgian police came from Mogilevich.
In France, Mogilevich approached Alferd Cahen, a recently retired high-ranking Belgian diplomat who had been ambassador to the Belgian Congo and France. Cahen had just been named secretary of the North Atlantic Treaty Association, the lobby group for NATO in Paris. Mogilevich, banned from entering France, wanted Cahen to arrange a meeting with French intelligence so he could propose passing political and gangland information to them in exchange for surreptitious access to the country. Cahen agreed to make the introductions, and both sides were apparently satisfied with the results, said Pierre Déliiez. A disturbed Déliiez had warned French intelligence against working with the mobster, for, “The more that these agencies use Mogilevich’s services, the more trouble it will be to prosecute him.” Cahen himself wasn’t prosecuted, as there was no proof that money had changed hands, although investigators later found $180,000 in a bank account belonging to Cahen’s son, which they suspected came from Mogilevich.
Extending his operations from his base in Budapest, Mogilevich had, in just a few years, forged a far-flung criminal empire with thousands of employees and an unprecedented reach from Great Britain to New Zealand. He had taken over all the black markets from the former Soviet republics through the Czech Republic, cornered the legal and illegal weapons market, and trafficked tons of drugs and precious stones, said a December 1994 British intelligence report.
Mogilevich has also sent contract hit teams throughout the world, including the United States, where the assassins arrive from Russia under tourist visas arranged by Vladimir Berkovich, the owner of the Palm Terrace restaurant, a watering hole for Russian gangsters in Los Angeles. Berkovich also supplied the mobsters with weapons and arranged for their return to Russia, according to a classified FBI document. (Berkovich said the government’s charges are “total bullshit.”)
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Mogilevich’s spectacular invasion of the North American financial markets began in 1993. That year, a company called YBM Magnex International in Newtown, Pennsylvania, was infused with some $30 million from Arigon Ltd. By then, the Brainy Don had already set up dozens of shell companies in the United States to launder proceeds obtained from criminal activities. Typically, many of the “businesses” were located in the residences of organization members. Numerous wire transfers of funds from Arigon Ltd. and other Mogilevich accounts overseas were transferred to these entities in amounts ranging from under $10,000 to more than $1 million.
But Mogilevich had particularly grand plans for YBM, which was merged with Magnex 2000, his Hungarian company that sold industrial magnets and military hardware. He appointed his brilliant, trusted, childhood friend and adviser Igor Fisherman as YBM’s chief operating officer. Fisherman, who lived in Budapest, served as the coordinator of Mogilevich’s criminal activities in Ukraine, Russia, the United States, the United Kingdom, the Czech Republic, and Hungary, according to FBI documents. A trained mathematician, Fisherman had once been a consultant to Chase Manhattan Bank in New York City.
Mogilevich and Fisherman discovered a fact that Canadian financial criminals had long known— the poorly regulated Canadian stock exchange was a convenient entry point into the North American markets, one where the mob’s substantial funds could be hidden under the umbrella of a publicly held company. Mogilevich chose Jacob Bogatin, a fifty-one-year-old professor of physical metallurgy, to prepare a public stock offering for YBM. Born in Saratov, Russia, Bogatin, YBM’s group vice president, and the company’s largest initial shareholder, had served on the board of Arbat and Magnex in Budapest.
Under the watchful eye of Mogilevich and Fisherman, Jacob Bogatin traveled to northern Canada in 1995 to initiate the YBM plot by creating a legal shell company on the Alberta Stock Exchange. Christened Pratecs Technologies Inc., the company was a blind pool, or a business without assets. Blind pools are given eighteen months to come up with a major acquisition to capitalize themselves, otherwise they are delisted. Pratecs then began the process of acquiring YBM, which had already purchased Mogilevich’s Channel Island holding companies, Arigon and Arabat. Pratecs subsequently issued 10 million shares of the company at 20 cents each, and prepared the YBM transaction for completion.
But on June 19, 1995, just a few months before the transaction to acquire YBM was to close, the Alberta Stock Exchange halted trading in Pratecs’s stock. The company cryptically explained the suspension as a response to “allegations made in London, England, against two individual shareholders of YBM,” whom they identified as a pair of British companies and their lawyers. “The companies are in no way related to YBM or its subsidiary, Arigon,” an obscurely written press release stated.
In truth, both Canadian regulators and Bogatin himself were aware that British intelligence had spent three years investigating Mogilevich’s racketeering empire, traveling across the globe to gain knowledge of its structure, according to British intelligence documents and sources on the Alberta Stock Exchange. The Canadian authorities were told that YBM and Pratecs were not only controlled by Mogilevich, but that the probable intention of obtaining Pratecs a listing on the exchange was to have a vehicle to launder dirty money, manipulate stock shares, and bilk legitimate investors.
By the summer of 1995, British intelligence was ready to strike against Mogilevich and his network of companies in Great Britain, which they suspected as fronts for drug trafficking, stolen goods, and money laundering. In an action code-named Operation Sword, British police raided Arigon’s offices in London, as well as the offices of its attorney, Adrian Churchward, who was arrested and interrogated. Documents found in Churchward’s office showed that over a three-year period the lawyer had used clients’ accounts to launder more than $50 million in criminal proceeds on behalf of Mogilevich. The funds, laundered through the Royal Bank of Scotland with the help of a solicitor, “originated from a variety of dubious sources in the former Soviet Union,” says a British intelligence report, which describes the money as “largely the proceeds of Russian organized crime in Eastern Europe from the Mogilevich and Solntsevskaya organization.”
The High Court of Justice in London issued orders freezing the assets of Arigon and several of its shareholders, including Churchward and his wife, Galina, Mogilevich’s onetime paramour. She had an eleven-year-old son with Mogilevich who was being educated at a private school at Kent.
But the criminal cases against Mogilevich, Churchward, and others had to be dropped after Russian prosecutors deliberately refused to turn over evidence, according to British intelligence. Mogilevich didn’t escape unscathed, however, for he was banned from entering the U.K. His British businesses were shut down, his solicitor’s reputation was ruined, Churchward was disbarred, and the Royal Bank of Scotland was subjected to a high-level internal inquiry by the Special Investigation Unit of the Bank of England.
The British affair was not the only incident that nearly thwarted Bogatin’s attempt to gain a foothold in Alberta. In May 31, 1995, Czech police stormed a summit meeting of Eurasian mob chieftains at the U Holubu restaurant in Prague, which Mogilevich had bought in 1991 to use as a prime money laundering center, according to FBI and Israeli intelligence reports. The gangsters were meeting on the occasion of Sergei Mikhailov’s birthday to discuss carving up criminal jurisdictions and to iron out turf disputes between Mogilevich and Mikhailov’s Solntsevskaya organization. After years of cooperation, the men had come to despise each other. Mikhailov had tried to shake down Mogilevich for $3.5 million. There had been shouting matches, and then bombing attacks.
On the eve of the conclave, an unidentified Russian delivered an anonymous letter to the chief of police in Budapest, stating that Mogilevich was to be assassinated at the celebration. “Mogilevich knew he was dealing with some very, very treacherous people,” said former FBI agent Robert Levinson. “They’d kill him in an instant.”
After receiving the tip, the Czech prosecutor dispatched hundreds of cops to the restaurant, where they arrested, photographed, and fingerprinted two hundred partying mobsters. Their diaries, journals, and other documents were confiscated for photocopying. Anticipating a bloody shoot-out, the Czechs had parked two large refrigeration vans outside the restaurant to store the bodies. But the mobsters surrendered quietly, and following their release from custody they returned to their homes in Germany, Hungary, Russia, and Israel.
Mogilevich himself was conspicuously absent from the celebration. “Mogilevich may have [sent in the] tip himself as a protective measure, or, having arrived late, noted the police presence and fled,” stated a classified FBI report. Whatever the case, five individuals were declared persona non grata by the Czech Republic following the police raid, including Mogilevich, Viktor Averin, and Sergei Mikhailov.
Although Canadian intelligence had been aware of both the Czech and British incidents, stock market regulators had only to inspect the rogues gallery that made up YBM’s initial shareholders list to guess at its true nature. According to the author’s analysis of the disclosure documents, Mogilevich and his confederates owned up to 90 percent of the shares. Among the major stockholders were the Brainy Don himself, his fifty-two-year-old Ukrainian-born ex-wife, Tatiana, and their twenty-eighty ear-old daughter Mila, a blue-eyed blonde, who lived on Wilshire Boulevard in Los Angeles, as well as Mogilevich’s ex-mistress Galina Grigorieva.
Despite the events of the previous months, on July 25, 1995, Pratecs publicly announced that it had received a clean bill of health. Canadian regulators in Alberta later acknowledged that, without any actual court convictions, they lacked the hard proof necessary to keep the company off the exchange. And so “after a six-week halt in Pratecs’ shares,” wrote the Vancouver Sun, “the Alberta Stock Exchange allowed Pratecs to merge with YBM, a move that allowed the company to transform itself from a shell whose only asset was its stock exchange listing into a manufacturing firm with plants in Hungary, Kentucky and ultimately a listing on the Toronto Stock Exchange in 1996.”
Touted by Bay Street underwriters, YBM quickly became the darling of the Toronto Stock Exchange, eventually being included in the prestigious TSE 300 Index, the Standard & Poor’s 500 Index of Canada. The company’s glossy brochures boasted about big international deals and amazing new technologies. Almost overnight, it became nearly a billion-dollar-cap company. To enhance its image, YBM soon dropped many of the Russians from the board of directors, and added, among others, the powerhouse lawyer David Peterson, the former premier of Ontario.
While YBM’s stock thrived, the Bay Street financial world continued to ignore the warning signs in the company’s operations. A November 1995 confidential report by Britain’s National Crime Squad concluded that Mogilevich had been transferring funds from Britain to Hungary, and from there to the United States and then on to Canada through YBM. Circulated throughout the top rungs of regulatory and financial circles by word of mouth, the report also asserted that Mogilevich was using the Canadian stock exchange listing “primarily to legitimise the criminal organisation by the floating on the stock exchange of a corporation which consists of the UK and USA companies whose existing assets and stocks have been artificially inflated by the introduction of the proceeds of crime,” including drug and arms trafficking and prostitution.
A spokesman for one of YBM’s major underwriters, First Marathon, later admitted that it had heard rumors about the company’s ties to the Russian mob, but its concerns were allayed after auditors Deloitte & Touche initially reported the business to be financially sound. Unlike the bulls on Bay Street, the FBI was more skeptical. YBM— whose home office remained in Newtown—listed a paltry projected gross sales of $8,573 on its 1993 U.S. tax returns. In 1995, at the time of the acquisition of YBM by Pratecs, it claimed net sales of $32.5 million, net income of $3.3 million, and stockholder equity of $17.5 million. Surveillance of a YBM facility in Pennsylvania by the FBI revealed that it occupied a small section of a former school building. The space, the bureau concluded, was not capable of supporting either the 165 employees or the $20 million in sales YBM claimed in its glossy published report.
Although by August 1996 YBM’s board was aware that the firm was being investigated by the U.S. Attorney’s Office in Philadelphia, as minutes of a confidential YBM board meeting confirm, the company never informed its investors of the fact. During that same period, Bogatin was even promoting the company to the New York Stock Exchange, and the company was waiting approval for a listing on Nasdaq.
Investors also had no way of knowing that YBM’s prestigious auditor, Deloitte & Touche, had issued a highly critical report, declaring that it had found irregularities and possible criminal fraud in the company’s 1997 annual report. It noted that “one or more illegal acts may have occurred which may have a material impact on [YBM’s] 1997 financial statements.” Among other problems, auditors discovered that $15.7 million in magnet sales to the Middle East and North America had been fabricated. Deloitte & Touche resigned when YBM failed to follow its recommendation to hire an outside forensic auditor to conduct a sweeping reevaluation of the company’s books and business methods. Several of YBM’s directors, meanwhile, sold millions of dollars of their shares in YBM stock after they received the report from Deloitte & Touche, but well before it was made publicly available.
The beginning of the end finally came on May 13, 1998, when at 10:15 A.M., U.S. Attorney Robert Courtney, head of the Organized Crime Task Force in Philadelphia, led some five dozen agents in a joint FBI, IRS, INS, Customs, and State Department raid on YBM’s offices in Newtown. Fax machines, computer hard drives, Rolodexes, bank statements, and shipping invoices were seized and loaded onto trucks. Citing the company’s alleged ties to Russian organized crime, the law enforcement agencies asserted that YBM was a vast money laundering machine for Mogilevich. Just twenty-three minutes after the raid, trading in YBM’s stock on the TSE 300 Index was suspended by Canadian authorities, but not before a quarter of its value had been wiped out.
In the months that followed the raid, a succession of bizarre revelations besmirched what was left of the company’s tattered reputation. The Financial Times of London reported that a “revolutionary” scientific process YBM claimed it had invented for desulfurizing oil, and which accounted for 20 percent of its revenues in 1997, didn’t even exist, according to the top earth scientists interviewed by the prestigious newspaper.
On September 22, 1998, irate institutional investors finally staged a coup after court documents filed in Alberta revealed that more than $20 million in cash was missing from YBM’s accounts. Five directors, including Fisherman, were fired. On November 23, Bogatin received a “target letter” from the Justice Department stating it had gathered sufficient evidence to indict him for money laundering. He resigned two days later.
The new board’s forensic investigators discovered what international police had strongly suspected all along—that Mogilevich had been directly involved in the affairs of YBM, siphoning money from the accounts of its subsidiaries, as well as using the company as a vast money laundering machine—with money passing through various front companies and banks in Moscow, the Cayman Islands, Lithuania, Hungary, and a Chemical Bank branch in Buffalo, New York. YBM received $270,000 from Benex, a shell company allegedly controlled by an associate of Mogilevich.
Investigators later claimed that Mogilevich, using Benex, had laundered huge sums through the Bank of New York. When YBM’s newly installed board sent Pinkerton men to visit the company’s plant in Budapest, they were turned away by brutish guards brandishing Berettas and Uzis. The board couldn’t even get a key to one of the foreign plants. In all, not only were tens of millions of dollars of reported YBM sales bogus, but customers and even entire product lines turned out to have been fabricated.
Finally, in late December 1998, the board announced that it expected YBM would be indicted and that it had no viable criminal defense. YBM was placed into receivership by an Alberta court. The government accused the company of fraudulently inflating the value of its securities by creating the appearance of record sales and revenues, while failing to disclose that it was run by a Hungarian based mob boss. On June 7, 1999, YBM pleaded guilty to one count of mail fraud and one count of securities fraud. It was fined $3 million and agreed to make restitution to the thousands of defrauded shareholders. The company admitted that its principals played a shell game for regulators and investors, setting up paper companies to hide its actual control. The U.S. Attorney’s Office has allegedly filed three sealed indictments against company insiders, one of which has the Brainy Don’s name on it. Belatedly perhaps, in November 1999, ten of YBM’s former board members, including David Peterson, were charged by Canada’s leading securities commission with violating the Ontario Securities Act for allegedly failing to disclose to investors that the company was being investigated by U.S. authorities for its ties to Russian organized crime. They deny the charges.
In the end, more than half a billion dollars in YBM’s market capitalization simply vanished. Perhaps billions more was made by mobsters manipulating the stock’s price, buying and selling blocks of shares on inside information. During its dramatic run on the Toronto Stock Exchange, YBM raised over $100 million in hard Western currency, and laundered hundreds of millions of dollars more. The casualties included many average investors, as well as groups like the Ontario Teacher’s Pension Fund, which was left holding $32 million of worthless shares. “It’s now clear that YBM’s only successful business was the laundering of criminal proceeds,” said shareholders in one of many class action suits filed against YBM’s former board of directors, Deloitte & Touche, and several law firms.
“This is the most significant and serious case of stock fraud that I’ve investigated in eighteen years,” said Adrian du Plessis, a respected analyst for StockWatch in Vancouver, and a private forensic stock investigator. “It represents a level of corruption of the marketplace that is unprecedented in its nature.”
The sensational size, sophistication, and sheer boldness of the YBM scam, however, should not obscure a fact that has continued to disturb many in law enforcement: namely, that it was hardly a unique event. “This is just one case,” says former FBI official James Moody, “but there are others just like it throughout the world.”
How accurate that assessment was was strikingly demonstrated when, two years after the YBM scandal broke, Mogilevich found himself in the middle of the biggest money laundering case in U.S. history. It had been discovered that, through a series of front companies spanning Russia, Europe, and the United States, he and others, primarily Russian businessmen evading local taxes, had laundered billions through the esteemed Bank of New York. The massive scale of the operation, combined with the fact that it had occurred on U.S. soil, was a startling embarrassment to U.S. law enforcement and the government. (While the bank has not been charged with any wrongdoing, some investigators believe that the money laundering could not have taken place unless senior bank officials were bought off or otherwise involved. Indeed, in February 2000, Lucy Edwards, a former vice president of the bank’s Eastern European division, and her husband, Peter Berlin, pleaded guilty to money laundering charges. Indictments of other bank officials are expected.)
Actually, Mogilevich had been making a mockery of law enforcement for a very long time. Although as early as the mid-1990s he had been publicly identified in congressional hearings as one of the top Russian mobsters in the world, prompting the U.S. State Department to bar him from obtaining a visa, the prohibition never stopped him from continually entering America under aliases on temporary traveler’s visas issued in Tel Aviv. Between December 1, 1995, and December 7, 1995, for instance, Mogilevich traveled to Toronto, Philadelphia, Miami, and back to Philadelphia. Well after the YBM affair had become headline news, the brazen don boasted to a Hungarian magazine that he traveled to Los Angeles in late 1998 to surprise his granddaughter on her birthday. In January 2000, Mogilevich slipped into Boston to conduct business, say top European and U.S. law enforcement officials.
Although he is also barred from entering seven European countries, Mogilevich travels extensively around the world in order to manage his business affairs. He has almost as many passports as he has aliases, which have included Semion Mogilevich, Senior Mogilevich, Semion Mogeilegtin, Semion Mobllerltsh, Seva Magelansky. Other members of his organization travel just as freely, often using forged passports of superior quality. Some of them are couriers who transfer large sums of cash from country to country, according to Israeli intelligence files.
Mogilevich still controls a variety of criminal activities from one American coast to the other. And while he has been careful not to defile his own hands with the blood of his gangland victims, he has not refrained from associating with known killers while in America, prime among them Elson and Ivankov, whom he regularly visited on one of his numerous fraudulent passports.
The Bank of New York scandal was not without its repercussions for Mogilevich, however. Perhaps most seriously, the man who had relied on his underlings to take responsibility for his crimes had lost his anonymity, one of his most valuable assets. In addition, the FBI—which ironically had built an international training academy just a short cab ride from Mogilevich’s Budapest headquarters in 1994—put intense pressure on the Hungarians to crack down on his operations there, and his homes and offices were raided by the Hungarian tax police. His presence in Budapest was costing too much blood, in any case; there had been more than 170 mob-related bombings in Budapest between 1994 and 1999, many of them directed at or initiated by Mogilevich.
Although Mogilevich has apparently abandoned Budapest as his base of operations, his global empire is still largely intact, and the Brainy Don spends much of his time flying between Moscow and Tel Aviv on his private jet. Mogilevich claims to feel secure in the Jewish homeland notwithstanding his feelings about his clamorous countrymen. When asked in September 1999 by a Hungarian reporter to respond to charges that he was a major Russian crime czar, he laughed, dismissing the accusation as the mad “ravings of the FBI.” That same month, he successfully won a libel case brought against a Hungarian television station that broadcast a report about his criminal activities. When asked why he didn’t likewise sue the American media for similar stories, he replied that he wasn’t really a rich man, and that, in any case, he joked darkly, he had just paid a hit man $100,000 to kill American reporter Robert I. Friedman.
Later that month, he complained to ABC News, “I have no business now. Who would do business with me?” he asked dejectedly as his underlings provided security, their faces hidden from the cameras. “I’ve lost my spark. Maybe I should tear my shirt off and prove my innocence, but I don’t even care anymore…. There is a saying in Russia, ‘if you tell a rabbit over and over that he is a pig, he’ll oink.’ Everybody says I’m a criminal. I’m used to it. And the public is, too.”
When questioned how the charges that he was a criminal had surfaced, he attributed them to a plot by the journalist Friedman and the American Justice Department. A few days after the TV interview, say reliable sources, he was trying to obtain a permanent residence permit in Spain so that he could operate his “humble grain business” from that country’s beautiful Costa del Sol and Barcelona.
11
GLOBAL CONQUEST
When the international press, bankers, and law enforcement officials professed outrage at the
announcement that Red Mafiya boss Semion Mogilevich was allegedly behind the laundering of as
much as $7 billion through accounts at the Bank of New York, it recalled the scene in Casablanca
when the corrupt but worldly wise Vichy prefect masterfully played by Claude Rains told Humphrey
Bogart’s Rick that he was “Shocked, just shocked!” that gambling was going on in Rick’s cabaret. In fact, intelligence officials and government leaders had known since the early 1990s the true state of affairs in the former Soviet Union. The CIA alone claims to have published more than a hundred reports since 1998 for the American foreign policy establishment documenting crime and corruption in Russia—a society where everything from submarines for the likes of Tarzan to fissionable material for Mogilevich was for sale. The agency reported that the Russian mob and its cronies in government and big business have looted the country into a condition resembling medieval beggary: the economy has declined every year since 1991. More than 40 percent of the country’s peasants are living in abject poverty, suffering through Russia’s third Great Depression this century. In the unforgiving fields, peasants are killing each other over potatoes. Social indices have plummeted. Workers’ minuscule paychecks come late or not at all. Horrific terrorist bombings, apparently the responsibility of rebellious Islamic republics, about which the authorities can seem to do nothing, are causing a further erosion of the public’s trust of the government.
At the same time on Moscow streets are more Mercedes per capita than any place on earth, and the number one concern of the city’s nouveau riche is how to avoid paying taxes and hide their fortunes offshore. They revel away nights in gaudy sex clubs and expensive restaurants, gorging themselves on South American jumbo shrimp washed down with vodka and cocaine. Disputes are settled with bursts of submachine gunfire. It is a classic fin de siècle society erected on a seemingly limitless supply of dirty money.
No post-Soviet institution has been immune from corruption, and even investigators have been investigated, often for good reason. Vladislav Selivanov, head of the Interior Ministry’s Organized Crime Division, admitted in a July 1998 press conference that a probe of the Federal Security Service, the successor to the old Soviet KGB, resulted in several criminal prosecutions and the dismantling of the service’s organized crime unit on the grounds that it had ties to the Russian mob. A few months later, during a bizarre news conference in Moscow, a group of mid-ranking FSB agents wearing sunglasses and ski masks declared that their once-vaunted agency harbored thugs, extortionists, and Mafiya hit men.
To make matters worse, the country’s few political reformers have been sacked or killed. The Duma is a den of thieves, as was Yeltsin’s inner circle. The same has even been alleged of Yeltsin and his family, who have purportedly taken a million dollars’ worth of kickbacks from a Swiss contractor that renovated the Kremlin. But corruption and influence-peddling are a national plague in Russia as old as the czars. No one in Russia can purchase anything of value without a cash-laden handshake.
Astonishingly, both the Bush and the Clinton administrations have unwittingly helped foster the Russian mob and the untrammeled corruption of post-Soviet Union Russia. When the CIA was asked in 1992 by Kroll and Associates, working on behalf of the Russian government, to help locate $20 billion that was hidden offshore by the KGB and the mob, the Bush national security policy team declined to cooperate. The Bush group rationalized, according to Fritz Ermath, a top CIA Soviet policy analyst writing in The National Interest, “that capital flight is capital flight. It doesn’t matter who has the money or how it was acquired even if by theft; so long as it is private, it will return to do good things if there was a market.”
Of course, that never happened, yet it did not prevent the Clinton administration from handing billions in aid to Russia without any accountability. With the vigorous support of the United States another $20 billion of International Monetary Fund loans has been deposited directly into Russia’s Central Bank since 1992. However well intentioned, the Clinton administration simply has no way to deliver “economic aid that will give benefits directly to the people,” as Brent Scowcroft, Bush’s national security adviser, has asserted. The chastened Russian Central Bank, admitting that it lacked any mechanism to monitor aid money once it was deposited, initiated an investigation to determine if the funds were stolen, and if so, whether they were part of the monies passed by Mogilevich and others through the Bank of New York.
Until the Bank of New York fiasco, the top rungs of the U.S. foreign policy establishment refused to acknowledge the Russian government’s staggering corruption. In 1995, the CIA sent Vice President Al Gore, who had developed a “special” relationship with then Russian prime minister Viktor Chernomyrdin, a thick dossier containing conclusive evidence of his widespread corruption. Gore’s friend had become a multi billionaire after he took over Gazprom, the giant natural gas monopoly, with holdings in banking, media, and other properties. The CIA said it cost $1 million merely to gain entry into Chernomyrdin’s office to discuss a business deal. It was also alleged, though Chernomyrdin denied it, that he was among the oligarchs who had been stealing the country’s resources after the fall of communism.
Gore angrily returned the report, scribbling a barnyard epithet across the file, according to the New York Times, and declared that he did not want to see further damning reports about Russian officials. It is unlikely, then, that he read the classified FBI file claiming that two colonels in the Russian Presidential Security Service had traveled to Hungary in 1995 to pay Mogilevich for information on the upcoming Russian political campaign, which was then allegedly passed on to Chernomyrdin. “The corruptive influence of the Mogilevich organization apparently extends to the Russian security system,” asserts the FBI report.
“The bottom line is that Clinton and Gore had lots of warning about Russian corruption under Yeltsin’s banner of reform,” wrote political columnist David Ignatious in the Washington Post. “And the question continues to be: Why didn’t the administration do more to stop it?”
The most charitable explanation, which now seems tragically ironic, is that they truly believed they were helping the ex-Soviet Union make a meaningful transition to democracy and a free market economy.
“The American political establishment didn’t want to hear about Russia’s corruption,” says Jack Blum. “They believe they’re looking at nascent capitalism, and they are flat-ass crazy. A bunch of thugs run the country. They have stolen everything that isn’t bolted down, moved it offshore, and then globalized their criminal business.”
It was only a matter of time before the Russian mob tried to buy its way into the American political system that has contributed to it so generously, if inadvertently. In New York, for instance, they almost succeeded. The invitations had been mailed, the menu prepared, and everything had been arranged down to the last detail for a $300 per couple, black-tie fund-raiser for then Governor Mario Cuomo on October 10, 1994, at Rasputin—the garish nightclub then owned by Monya Elson and the Zilber brothers. But on the eve of the event, the Cuomo campaign canceled. Officially, the explanation was a scheduling conflict; discreetly and quite unofficially, federal investigators had warned the Cuomo campaign that Rasputin was a bastion of the Russian Mafiya.
A few months before the Cuomo fund-raiser occurred, there was a similar misjudgment, and one that represented a serious lapse in national security. Grigori Loutchansky, a Latvian-born convicted felon and president of the Austrian-based NORDEX, a multinational trading company, had been implicated in everything from major money laundering to smuggling nuclear components. House Speaker Newt Gingrich once said that U.S. government officials believed Loutchansky had shipped Scud missile warheads to Iraq from North Korea. The ubiquitous Loutchansky was also a former business associate of both Chernomyrdin and Semion Mogilevich, according to the CIA and other Western intelligence officials. Yet somehow this enormously wealthy underworld rogue was invited to a private Democratic National Committee fund-raising dinner for Clinton in 1993. During coffee, Clinton turned to the mobster to ask a favor: would he pass a message along to the Ukrainian government requesting it to reduce its nuclear stockpile? Clinton then posed for a photograph with the grinning hood, which Loutchansky later liberally passed out among his cronies, greatly enhancing his stature among corrupt government officials and the criminal underworld. When the photo of the men shaking hands was eventually published in a Russian newspaper, the CIA analyzed it to see if it was a fake. When they discovered it was genuine, agency officials were aghast. “Loutchansky had one thing in mind: legitimization,” a congressional investigator probing Russian organized crime explained. “He wanted U.S. citizenship and he wanted to buy a U.S. bank.”
In July 1995, the DNC invited the mobster to a $25,000-a-plate fund-raising dinner for Clinton at the Hay Adams Hotel in Washington. At the last minute, the security services provided information on Loutchansky and the State Department denied him a visa, which he had obtained in Israel. He was subsequently banned from entering the United States, Canada, Hong Kong, and England.
The mobsters were not easily dissuaded, however. In September 1995, not long after the Loutchansky ban, his partner at NORDEX, Ukrainian mob boss Vadim Rabinovich, attended a Clinton-Gore fund-raiser at the Sheraton Bel Harbor Hotel in Miami. Rabinovich came as a guest of Bennett S. LeBow, the chairman of Brooke Group Ltd., parent of Liggett, a cigarette manufacturing company. (LeBow refused to comment.)
Rabinovich, who by his own account once served an eight-year jail term in Ukraine for theft of state goods, should not have even been in the United States, let alone attending a gala for the president, for he was on a State Department Watch List that bans aliens from entering the United States to commit crimes. Nevertheless, he, too, cleverly managed an all-important photo op, squeezing in between a smiling Clinton and Gore. That picture, too, appeared in the Eastern European press, greatly adding to the mobster’s reputation.
The Republicans have not been immune to the Russian mob’s advances, either. In March 1994, Vahtang Ubiriya, one of Mogilevich’s top criminal lieutenants, was photographed by the FBI at a tony Republican party fund-raiser in Dallas, says a confidential FBI report. Ubiriya, a high-ranking official in the Ukrainian railway administration, has a prior conviction for bribery in that country. A friend of Mogilevich for some twenty-five years, he has been involved with him in extortion, fraud, and illegal currency operations there.
This was not Mogilevich’s only attempt to manipulate the U.S. political system. After the INS and the State Department denied visas to YBM employees arriving from Budapest and Ukraine, Jacob Bogatin contacted the FBI office in Philadelphia for an explanation. Rebuffed, Bogatin—who had donated $2,250 to the National Republican Committee and an additional $500 to the National Republican Congressional Committee, a soft money account, between April 1996 and April 1998— called upon Pennsylvania Republican congressman Jim Greenwood for help obtaining the visas. “I remember when they came to visit me and they brought all those brochures, and I remember how impressed I was that such a high-tech enterprise was there in the Newtown industrial park,” Congressman Greenwood recalled. “And I remember thinking, ‘Gee, I wonder how they had escaped my attention.’ Normally when there is a particularly interesting high-tech industry in your district you become aware of it and often take a tour.”
Greenwood’s staffers petitioned the State Department on Bogatin’s behalf, requesting a reason for the denial of the visas. After it was “non-responsive, I then made personal calls to the State Department to get to the bottom of it, and I was essentially told that what I ought to do is talk to the FBI,” said Greenwood. “We arranged for FBI representatives to come to my office in Washington.” Greenwood recalled that the agents told him in confidence that Russian godfather Semion Mogilevich was running YBM and that it was under investigation for money laundering among other crimes. They also said that Bogatin “had to know” what was going on. “It took a hell of a lot of gall if Bogatin was aware of this and yet he sat with a U.S. congressman, demanding that our government allow their employees back into the country,” Greenwood angrily declared.
By the dawn of the new millennium Russian mobsters were lavishing millions of dollars in contributions on Democratic and Republican politicians. In New York City, commodities mogul and alleged wiseguy Semyon (Sam) Kislin has been one of mayor Rudy Giuliani’s top campaign supporters. Kislin, various relatives, and his companies, raised or donated a total of $64,950 to Giuliani’s mayoral campaigns in 1993 and 1997. A Ukrainian immigrant well known among the Russian Jewish community in South Brooklyn, Kislin has also made generous donations to Democratic Senator Charles Schumer as well as other state politicians.
According to a confidential December 1994 FBI report and underworld sources, Kislin is a member of the Ivankov organization. These sources say that Kislin’s New York commodities firm has been involved in laundering millions of dollars, and co-sponsored a U.S. visa for a man named Anton Malevsky, who is a contract killer and head of one of Russia’s most bloodthirsty Mafiya families.
Kislin’s donations to charities and politicians bore fruit in 1996 when he was appointed to be a member of New York City’s Economic Board of Development Corporation. On December 2, 1999, Giuliani reappointed Kislin to the board, stating in a letter that his “service is deeply appreciated.” Kislin has denied any ties to the Russian mob, insisting at a December 1999 press conference that “I have done nothing evil.”
Although the Russian Mafiya’s invasion of American politics is still in its infancy, it already poses a huge threat to U.S. national security interests abroad. The mob dominates Russia, and has Eastern Europe in a bear hug. It is also turning Western Europe into its financial satrapy, and the Caribbean and Latin America have quickly become sandy playpens for coke and weapons deals with Colombian drug lords. There are few nations where the Russian mob does not hold some influence, making efforts to combat it ever more difficult.
A striking example is Switzerland, where the Mafiya has been drawn by the country’s world renowned, highly secretive banking system. “There are three stages of Russian Mafiya penetration,” Jean Ziegler, a university professor in Switzerland has explained. “When the Soviet Union broke up, Switzerland was the laundering place for immense fortunes. Then Mafiya leaders started sending their children to expensive private schools here. Now we are in the third stage, where some of the Mafiya dons are transferring their operational headquarters to Switzerland—and that is very dangerous.” More than six hundred Russian dons have moved to Switzerland, and, according to Swiss court documents, more than $60 billion of Russian mob money has been laundered through its banks.
In one of Switzerland’s first strikes against a major Russian gangster, Sergei Mikhailov was arrested in October 1996 in Geneva for money laundering and for his leadership of the Solntsevskaya crime family. Headquartered in Moscow, the Solntsevskaya mob openly operated out of a stylish commercial office building at Leninsky Prospekt, where it controlled much of the city’s gambling, casino, and banking business, as well as prostitution, drugs, the city’s used car trade, and the Vnukovo airport, the city’s principal cargo terminal. It also owned real estate from Malaysia to Monaco, setting up a labyrinth of fictitious international firms and offshore accounts to launder money received from the sale of narcotics, arms, and extortion. At the time he was apprehended, Mikhailov was living in a quaint château outside Geneva, where he drove around in a blue Rolls-Royce, maintained a $15,000-a-month clothing budget, and doted on his wife and two children. He traveled on a Costa Rican diplomatic passport and had been appointed that country’s honorary consul to Moscow.
Inside Mikhailov’s lavish home, police found sophisticated Israeli military devices that allowed him to eavesdrop on secret Swiss police radio communications and to tap telephones. They also discovered a trove of documents listing front companies he allegedly used to launder money from drugs and arms sales. Investigators learned that Mikhailov had invested millions of his laundered dollars in America: he had bought a Brighton Beach disco called Nightflight, which he owned with Ivankov. He acquired another club in Los Angeles. He also purchased a car dealership in Houston with a local who agreed to send red Jeep Cherokees to him in Geneva so he could give them as gifts to friends. The Texan had no idea of the danger to which he was exposing himself when he began to pocket Mikhailov’s money, and though the furious gangster sent a hit man to Houston, the killer was captured by the police.
Investigators learned that apart from the tranquil Geneva suburbs, Mikhailov’s favorite hangout was Miami. After his men committed murders in Europe and Russia, they would check into the Fontainebleau Hotel “where they would stay by the beach and wait for the heat to cool off,” according to retired FBI agent Robert Levinson. But before hitting the soft white sand, the mobsters liked to stop at a nearby Sports Authority, where they bought snazzy jogging outfits to preen for South Beach’s glamorous models.
Although Mikhailov insisted, typically, that he was a simple businessman, he is a career criminal with an excellent strategic mind. Born on February 7, 1958, in Moscow, the onetime waiter was first convicted in the Soviet Union in 1984 of theft and perjury, according to a classified Russian document. He was later investigated for murdering a casino owner and a banker. In 1989 he was arrested for extortion, but the victim found it judicious to recant.
The Swiss authorities were confident that they had an excellent case against the mobster, but on the eve of Mikhailov’s Swiss trial, a Dutch father and son who had engaged in some questionable business dealings with Mikhailov in Moscow were executed gangland-style. The father was stabbed in the eye and bled to death; his son was gunned down. Soon afterward, Moscow’s chief of police sought political asylum in Switzerland, claiming he was threatened by Mikhailov’s men. The press was targeted, too. Veteran Russian mob reporter Alain Lallemand of Le Soir in Brussels was threatened after he wrote a series about Mikhailov that apparently displeased the mobster. Lallemand was warned by several intelligence services that Mikhailov had scheduled his assassination, and the reporter and his family went underground for a month. The police captured an ex-Belgian gendarme in Brussels who was about to carry out the contract.
Despite these intimidation tactics, the trial went forward, with a total of ninety witnesses being issued protective vests and placed under close guard. The key witness against Mikhailov was Robert Levinson, the ex-FBI agent based in Miami who specialized in the Russian Mafiya. Some foreign intelligence agents, however, were dismayed when they saw his briefing book, which seemed to primarily consist of warmed-over FBI gossip. Why hadn’t the bureau dispatched active agents with more current material that would hold up as evidence? asked Pierre Delilez. “They are always telling the European intelligence agencies to share. They share nothing.” Lallemand, however, insists that the FBI’s material was excellent, though the best of it never made it into evidence.
Meanwhile, Mikhailov had succeeded in securing a high-profile paid expert witness for his defense: former U.S. Attorney General Ramsey Clark. Clark has become something of a heretic for having taken on a series of unpopular cases like representing a German SS guard who the U.S. government said massacred Jews during World War II and then illegally gained citizenship.
Clark was first approached by a young Russian lawyer representing Mikhailov, who thought an American with his prestigious legal pedigree would be of great help to his client. Clark politely declined, but Mikhailov’s men persevered over the next several months. A group even came to his downtown Manhattan office and asked him to slam the FBI with a “slap suit” that would keep their evidence out of Swiss court. Clark informed them that they didn’t have a legal theory that would stand up in an American courtroom.
Finally, Mikhailov’s lawyers convinced Clark to look at Levinson’s FBI briefing book and some documents that they had obtained in discovery. After reading the material, Clark changed his mind. The FBI reports reminded him of the kind of malicious, untested gossip the bureau had used when it wanted to bring down civil rights leaders. “It was American criminal imperialism,” he stated.
Even though the burden of proof was on Mikhailov— under Swiss law, he had to prove that he was not the head of a mob family—Clark skillfully helped dismantle Levinson’s testimony, not only showing its inconsistencies, but arguing effectively that the bulk of it was built on rumor, hearsay, and derived from unverifiable anonymous sources. Levinson could neither read nor write Russian, Clark declared, but more importantly, the ex-FBI man’s intelligence files—or information culled from them —would almost certainly never be allowed into evidence in a U.S. court of law.
Yet Clark’s defense alone could not have vindicated the mobster. At least as damaging to the Swiss authorities’ case was the fact that several Russian prosecutors working with the Swiss were suddenly and inexplicably fired, after which the Russian government reneged on its previous promises to send crucial documents to Geneva.
Mikhailov, who had been held in a Swiss prison for two years, was acquitted in December 1998. “My heart is full of gratitude,” he announced at an airport press conference. “I love you.” He was then quietly deported to Moscow aboard an Aeroflot jet. The acquittal was a devastating blow to both Swiss and international law enforcement who had been battling the Russian mob, and it was followed by the usual round of finger pointing. “The next time we try a major Russian mob boss, we are going to need a watertight case,” said Pierre Delilez, who believes that the FBI intentionally fumbled the case, perhaps in order to be able to use Mikhailov as an intelligence agent. James Moody, meanwhile, blamed Levinson for a poor performance. In truth, it was Mikhailov’s power, money, and international connections that had succeeded in winning his release and enabling him to continue his glorious criminal career.
The Swiss, meanwhile, are still struggling with the intractable problem of the Russian mob. Ziegler says the only way to derail their inexorable advance is to ban Russian banks from operating in Switzerland, since most of them are controlled by gangsters. Some Swiss banks have already adopted a blanket policy of not accepting any Russian clients. On September 3, 1999, Swiss authorities announced that they had frozen fifty-nine bank accounts, and asked Swiss banks to provide information on the two dozen Russians who held them. Yet in a country where it is not illegal to bribe a public official, the Swiss skirmish against the Russian mob smacks of the Marx Brothers going to war against a mythical kingdom in Duck Soup.
⚒⚒⚒⚒⚒⚒⚒
Of all the nations where the Russian mob has established a presence, none has been more deeply compromised than the State of Israel, America’s staunchest ally in the volatile Middle East. More than 800,000 Russian Jews have made aliyah or settled in Israel since the first massive wave of immigration in the 1970s. The Russians took advantage of Israel’s most sacred law—the Right of Return, which guarantees Jews the right to return to their ancestral homeland, where they would receive citizenship and live as free men and women outside the odious yoke of anti-Semitism. “The Russians are a blessing,’said Israel’s top political columnist Nachum Barnea, who stands in public awe of their brilliant intellectual gifts in a variety of fields.
But just as in Brighton Beach, Russian immigration to Israel has brought a more unwelcome element—the vor v zakonye and their criminal minions. Ten percent of Israel’s five million Jews are now Russian, and 10 percent of the Russian population “is criminal,” according to NYPD notes of a briefing in Manhattan by Israeli police intelligence official Brigadier General Dan Ohad.
“There is not a major Russian organized crime figure who we are tracking who does not also carry an Israeli passport,” says senior State Department official Jonathan Winer. He put the number at seventy-five, among whom are Mogilevich, Loutchansky, Rabinovich, and Kobzon.
Many of the mobsters who have Israeli citizenship, such as Eduard Ivankov and Sergei Mikhailov, are not even Jewish. In the mid-1990s, an Israeli police sting—code-named Operation Romance— netted, among others, a high-ranking Interior Ministry official who was taking payoffs from Mikhailov and convicted KGB spy Shabtai Kalmanovitch to issue passports to dozens of Russian gangsters, according to Brigadier General Hezi Leder, the Israeli police attaché in Washington, and classified FBI documents. (Kalmanovitch, after serving time in an Israeli prison for treason, became one of Moscow’s most notorious mobsters and frequently returns to Israel.)
Russia’s criminal aristocracy covets Israeli citizenship “because they know Israel is a safe haven for them,” said Leder. “We do not extradite citizens.”
“The Russians then use the safe haven to travel around the world and rape and pillage,” added Moody.
The country has also remained attractive to gangsters because “Israel is good for money laundering,” explained Leder. Under Israeli law, banks can accept large cash deposits with no questions asked. In one instance, a corrupt ex-deputy prime minister of Ukraine smuggled $300 million of illicit cash into Israel in several suitcases, and deposited it into a bank, as Israeli Minister of National Security Moshe Shahal told a gathering of intelligence heads in June 1996. “I’ve watched Russian mobsters exchange suitcases full of cash out in the open at the Dan Hotel’s swimming pool,” laughed an American underworld crime figure. “Israel is a country that encourages people to come and invest money,” said Leder. “There is no mechanism to check the origin of the money.”
Israeli police officials estimate that Russian mobsters have poured more than $4 billion of dirty money into Israel’s economy, though some estimates range as high as $20 billion. They have purchased factories, insurance companies, and a bank. They tried to buy the now defunct, pro-Labor Party Davar daily newspaper, and the pro-Likud Maariv, the nation’s second largest newspaper. They have even put together a koopa, or a pool of money, for bribes and other forms of mutual support. One of Leder’s greatest fears is that the Russians will compromise Israel’s security by buying companies that work for the military-industrial complex. The mobsters, in fact, attempted to purchase a gas and oil company that maintains strategic reserves for Israel’s military. “They could go to the stock market and buy a company that’s running communications in the military sector,” he complains.
Insinuating themselves throughout the country, Russian dons have bought large parcels of impoverished development towns, taking over everything from local charities to the town hall. For instance, Gregory Lerner, a major Russian crime boss who arrived in Israel with huge amounts of money, allegedly owns everything from fashionable restaurants to parts of several port city waterfronts.
“Do you know what Gregory Lerner did in Ashkelon?” Leder asked me during an interview in New York. “His mother was three times in the hospital there. He bought new medical equipment and dedicated it to his mother! It’s the way the mobsters wash their name.” They do so, he explains, in order to build up grassroots support and openly influence politicians—or even run for elective office. Leder worries that one day three or four Russian gangsters who have bought their legitimacy will win Knesset seats, take over a key committee, and be in an ideal position to stop an important piece of anti-crime legislation, such as a proposed bill to criminalize money laundering.
One of Leder’s worst fears came true when Russian gangsters hand picked several candidates to run for local and national offices, according to the minutes of a classified Israeli cabinet meeting held by the Committee of the Controller in June 1996. And in May 1997, Israeli police launched a probe into allegations that Lerner attempted to bribe former Prime Minister Shimon Peres, among other Knesset members and cabinet ministers. The investigation was inconclusive, however, and no charges were filed.
One politician already ensnared in the web of organized crime is Russian-born Natan Sharansky, the head of the Russian Yisrael Ba-Aliya and minister of the interior in the government of Prime Minister Ehud Barak. Because of his resistance to the Soviet regime and his strong and open identification with Judaism, he suffered a long, brutal confinement in the Gulag before international pressure led to his release. In Israel, the charismatic dissident was lionized by the Jewish people, and he became a power broker for the large and growing Russian émigré community, whom he helped integrate into a rigid society that sometimes seemed jealous of the talented new Russians.
However, Sharansky has publicly admitted that his party has accepted campaign contributions from NORDEX president Grigori Loutchansky. Officials from the U.S. Congress, the State Department, and the CIA pleaded with Sharansky to sever his ties to Loutchansky. “We told Sharansky to stop taking money from Loutchansky,” says Winer. “We told him about Loutchansky’s MO: bribery, influence peddling, that he was a bridge between foreign governments and traditional organized crime.”
Sharansky simply refused, arguing that he needed the money to resettle the tidal wave of Russian émigrés. “When we warned Sharansky,” says the congressional investigator, “to stop taking money from Loutchansky, he said, ‘But where am I going to put them,” referring to the huge influx of Russian Jewish refugees. “’How am I going to feed them? Find them jobs?’” He figures Loutchansky is just another source of income.
“Sharansky is very shrewd,” the congressional investigator continued. “He knows better. It was a cynical decision. He did take money. Then he asked, ‘Why shouldn’t I?’ The CIA warned him that Loutchansky was trying to buy influence through him and his party for the Russian Organized Crime/Russian government combine. We told Sharansky that Loutchansky is a major crook.” (Sharansky declined to comment.)
Ignoring all the warnings, Sharansky introduced Loutchansky to Benjamin Netanyahu prior to Israel’s 1996 national elections. The Israeli press reported that Netanyahu received $1.5 million in campaign contributions from Loutchansky, a charge the prime minister hotly denied. “The Likud is corrupt, and Bibi Netanyahu is disgusting,” says Winer. “He’s had meetings with Loutchansky and Kobzon—criminals promoting their own interests.”
Kobzon’s influence in Israel may exceed that of even Loutchansky and Mogilevich. “Kobzon has big political connections in Israel,” says Leder. For instance, in January 1996, Kobzon was detained upon his arrival at Israel’s Ben Gurion International Airport “because of his ties to the Russian Mafiya,” Labor Party Knesset member Moshe Shahal said in his cramped Knesset office in Jerusalem. Shahal, at the time the country’s security minister, intended to send the mobster back to Russia, but then the phones started ringing in the chambers of high government ministries. Kobzon’s friends in Israel petitioned the minister of the interior, the minister of transportation, and Foreign Minister Shimon Peres, who finally ordered the airport police to free Kobzon and let him enter the country. Peres, who was being pressed by the Russian ambassador, told Shahal that he relented to avoid a messy incident with the Russian government. (The following year, Kobzon flew to Israel in his private jet to pick up Marat Balagula’s eldest daughter, who lives in Netanya, to bring her back to Moscow to celebrate his sixtieth birthday.)
With two decades of unimpeded growth, the Russian Mafiya has succeeded in turning Israel into its very own “mini-state,” in which it operates with virtual impunity. Although many in international law enforcement believe that Israel is by now so compromised that its future as a nation is imperiled,its government, inexplicably, has done almost nothing to combat the problem. In June 1996 Leder, then chief of Israeli police intelligence, prepared a three-page classified intelligence assessment that concluded: “Russian organized groups had become a strategic threat” to Israel’s existence. He documented how they were infiltrating the nation’s business, financial, and political communities. Shahal used the report to brief Prime Minister Yitzhak Rabin, Shin Bet, Israel’s FBI, and Mossad, and provided his own recommendations on how to uproot the Russian mob. Before Rabin had a chance to act on the plan, he was assassinated by a right-wing Jewish religious zealot in Tel Aviv following a peace rally. Shimon Peres subsequently set up an intra-agency intelligence committee on the Russian mob after reading Leder’s report, but did little else. Leder’s report was shelved by Netanyahu, according to Shahal.
“Israel is going to have to do something,” says James Moody. “They could lose their whole country. The mob is a bigger threat than the Arabs.”
Leder agrees: “We know how to deal with terrorist organizations. We know how to deal with external threats. This is a social threat. We as a society don’t know how to handle it. It’s an enemy among us.”
Why should Americans be concerned about the global explosion of Russian organized crime and the concomitant corruption in Russia? The simple answer is that the nuclear-capable behemoth is on the verge of a political and economic meltdown. “The Russian people are deeply humiliated,” Brent Scowcroft, Bush’s national security adviser, has said. “They have lost their superpower status and they are turning against the U.S. and against the West.” In historical terms, the closest analogy to the financial situation in Russia is the Versailles Treaty at the end of World War I, when the Western allies demanded reparations from the Germans. Huge amounts of capital were forced out of Germany, so impoverishing the nation that it helped set the stage for Hitler. “That is the only parallel we have of a vast change in a society, accompanied by massive decapitalization—and look at the consequences,” said Jack Blum, who is consulting with the House Banking Committee in its investigation of Russian money laundering. “Russia is three times our size and has nuclear weapons. Why should we care? Excuse me. Common sense says you have to care mightily.”
It should also by now be abundantly clear that the Russian Mafiya is made up of multipurpose, entrepreneurial master criminals. “Once funded, once flush, with the billions of dollars they ripped off, these boys are in business doing every shape, manner, and form of crime globally,” Blum continued. “So it was Russians who were doing the gasoline daisy chains in New York, New Jersey, and Long Island, in which billions of dollars in excise tax was ripped off; it’s Russians who are screwing around with Colombians, figuring out how to deliver weapons to them. Should Americans not care about that? That’s going on right here.
“If nothing else, Americans should worry that they’ll drive up the price of real estate in the Hamptons,” Blum said with a sarcastic laugh.
“The Hamptons are filling up with Russians,” Mike Morrison, a criminal investigator with the IRS told me. “When we ask them where they got the money to purchase their house or business, they produce a document from Uncle Vanya in St. Petersburg who says it’s a gift. There is nothing we can do.”
Meanwhile, Russian mobsters move easily in and out of the United States on visas “that they get in Israel to dance through our clearance process,” says Blum. Or they obtain visas as employees of shell corporations like YBM, or as friends of NHL hockey players, or as “film consultants,” as Ivankov did. “So should we worry about that?” asks Blum. “Of course!”
America’s vast wealth will always be an irresistible target for the Russian Mafiya, and their most sophisticated scams are likely to cause the most damage: their devious financial machinations on Wall Street, their money laundering, their infiltration of prestigious institutions like the NHL. Should we worry about that? In a few years, predicts James Moody, the Russian mob will be bigger than La Cosa Nostra in America. And perhaps GE, and Microsoft, too.
POSTSCRIPTS
GOD BLESS AMERICA
It’s a warm summer day. Bobby Sommer looks like a shell-shocked grunt in a World War II movie. A
detective in the 61st Precinct in Brighton Beach, he is clearly on the verge of surrendering to a force
that has him outgunned, outfinanced, and outwitted. A Russian crime group bought the building
directly across the street from his station house, and the gangsters have been photographing detectives
as they saunter in with their snitches. It took the police about a year to wise up. Sommer is sometimes
followed by Russian thugs at the end of a shift. “I’m tailing them, and they are tailing me,” says the
fifty-something cop, who wears cheap leather boots and a worn expression. Sommer’s gray metal desk is cluttered with case files. More than half are Russian mob-related. Arrayed across the criminal debris are glossy photos of dismembered Russian crime victims. “If you cut off the head, and the arms and feet are missing, too, you can’t get a positive identification on the torso. It’s brilliant,” he says dejectedly.
“You can’t work a homicide in Brighton Beach,” Sommer continues, gloom settling in his face like the pall of smoke after a heavy battle. “The Russians don’t talk. Someone could get whacked in a club in front of a hundred diners, and nobody would see anything. So they will kill with impunity.”
Russian organized crime incubated in Brighton Beach for twenty years before the city and federal government tried to stop it, he says angrily. By then, it had merged with even more powerful organized crime syndicates that prospered in Russia after perestroika. Sommer says he barely has a budget to pay for snitches. How is he supposed to stop a Byzantine global crime menace?
“Why are we being victimized by noncitizens who can run to Israel or Russia and can’t be extradited? The Russian gangsters have told me that they’ve come here to suck our country dry. My uncle died on the beaches of Normandy defending this country. How did the Russian mob become so entrenched? They are into Social Security, Medicare, and Medicaid fraud. Why is it that every ambulance service in Brooklyn is run by the Russian mob? Why are so many of their doctors practicing without a license? They have invaded Wall Street from boiler-room operations to brokerage houses. Nothing is too small for them to steal. Even the guys with the multimillion-dollar Medicare scam still have to have their food stamps. The first generation are all thieves. Maybe the second generation will become a little more American.”
A few blocks away, in one of the tidy Art Deco apartment buildings that line the seaward side of Brighton Beach Avenue in Brooklyn, a big Russian is sprawled on his back on a leather workout bench. A masseur kneads his lumpy body. The living room, where he spends hours every day, is decorated like the interior of a coffin, with wallpaper painted to resemble gathered gray satin. He watches a thirty-two-inch color TV in a mirror.
“The police steal the drugs and kill everybody,” he says, while a Russian-language movie blares in the background. “I’ve seen it before.”
The Russian has an enormous chest and huge belly, but his legs are spindles. The masseur helps him sit up. Two large craters are sunk deep into his fleshy white back. They were made by dumdum bullets that shattered his spine.
The Russian was once an imposing figure, standing over six foot four—a man who favored floor length black leather jackets with ermine collars. He was wearing his favorite jacket, a .45 concealed inside, when an assassin on a motorcycle shot him on a Brooklyn street corner in full view of a busload of schoolchildren several years ago. A one time heroin and arms trafficker, he says that an ex-business partner commissioned the hit to settle a score. Before the ambush, he had been one of the top gangsters in Brighton Beach. Even after the shooting, he was working, running an extortion ring at Kennedy Airport from his wheelchair. He “taxes” Russians $1,000 to retrieve their shipped goods from Aeroflot.
Lifted onto his bed by his son and the masseur, the Russian sighs, appearing more like a young Buddy Hackett than a notorious criminal. “Look what they did to me,” he says softly. “Look how everybody has to step over me. They ruined my life.”
Yet talking about the Russian Mafiya reinvigorates him. “The Russians are stronger than the Italians,” he says assuredly. He doesn’t mean tougher—yet. He means wealthier. “Saudi Arabia is small potatoes,” he boasts. “The U.S. goes into Moscow with $100 million of aid, and the mob walks out with $105 million. They have so much money it would take years to count it with a computer.”
The big Russian brags about the way the mob’s tentacles have spread around the world in a few short years. “For Russians, enough is never enough. If a Russian makes $20 million, he wants $40 million. They never know when to stop. There is a saying in Russia: ‘The house is burning and the clock is ticking.’ It means you have to keep making money every minute.
“Even Russian racketeers and crooks want their children to be doctors and lawyers. But some of the kids have learned that they can make more money by being crooks,” he says somberly. “Young Russian kids with MBAs are getting jobs on Wall Street. They are setting up all kinds of scams. They’ll hurt a lot of people. There’ll be a lot of suicides.
“In this country, it’s so easy to make money,” the Russian says. “I love this country. I would die for it.”
https://ia801603.us.archive.org/33/items/RedMafiyaHowTheRussianMobByRobertI.Friedman2000/Red%20Mafiya-%20How%20the%20Russian%20Mob%20by%20Robert%20I.%20Friedman%20%282000%29.pdf
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