Ex-KGB in Russia probe
August 27, 1999: 10:07 a.m. ET
Russia's prosecutor orders security service to look into money-laundering
LONDON (CNNfn) - Russia's worst money-laundering scandal in history, already the subject of enough intrigue and innuendo to fill a Tolstoy novel, gained added urgency Friday as the successor to the Soviet-era KGB took up the trail of billions of dollars in missing cash.
Russia's Federal Security Service joined a growing contingent of U.S. and British law enforcers probing claims that the Russian mob, possibly with the complicity of senior politicians and businessmen, funneled $15 billion or more through an account at the U.S.-based Bank of New York.
Russia's acting chief prosecutor, Vladimir Ustinov, the equivalent of the U.S. Attorney General, ordered the security service to report back to his office on its findings.
Ustinov said he intends to use the report as a basis for determining whether he should launch his own investigation.
The move is a possibly risky gambit for Ustinov. Both his predecessors in the prosecutor's post were dismissed, critics believe, because they were seen by the administration of Russian President Boris Yeltsin as overly aggressive in pursuing claims of high-level corruption and graft.
At the time of his ouster, one of those ex-prosecutors, Yuri Skuratov, had been looking into allegations that a Swiss construction firm, Mabetex, paid bribes of around $1 million to Yeltsin in return for lucrative contracts to refurbish the Kremlin.
An Italian newspaper reported this week that Mabetex's boss also paid credit card bills for Yeltsin's daughters, Tatyana Dyachenko and Yelena Okulova.
The Kremlin has vigorously denied the allegations.
An electoral link?
The latest investigation centers on claims that a Russian crime syndicate diverted billions of dollars in ill-gotten gains to a Bank of New York account in order to "launder" the funds, or purge them of any trace of their elicit origins.
Reports both in Russia and abroad have speculated that the scheme may be tied to the parliamentary electoral ballot due in December, or to the presidential poll scheduled to follow in June 2000.
In the run-up to the vote, political groups have been fiercely jockeying for influence to wrest power from Yeltsin's powerful allies in the Kremlin.
"Money, a national organization, and access to the media are the things that you need to win an election, and this is what the oligarchs provide," said Eric Fine, a Russia analyst with Morgan Stanley Dean Witter in London. He was referring to an elite class of wealthy individuals that average Russians believe virtually control the country's political and economic life by dint of enormous personal resources.
Fine said, however, he doubted the latest money-laundering allegations directly involved Yeltsin or the country's most prominent oligarchs who, he noted, have legal means for safeguarding their cash.
"I view this as a sort of separate case that may have some tangential connection [to the oligarchs or the Yeltsin administration]," Fine said.
Boris Berezovsky, an oligarch with close ties to Yeltsin and his family, denounced the money-laundering allegations Friday as an "absolute provocation".
Berezovsky was quoted by the Russian-language Monitor news service as saying: "I myself find myself constantly under pressure and can perfectly understand that [this provocation] is aimed not at me, but at the president of Russia."
Berezovsky added he thought the "organizers of this provocation should be punished and answer for their actions in court."
Provocation or not, U.S. and British authorities were showing few signs of backing off the investigation Friday.
One figure reportedly at the center of the investigation is Konstantin Kagalovsky, the former deputy of the now-defunct Menatep Bank, which closed its doors after Russia's ruble crisis erupted in August 1998. Kagalovsky's wife, Natasha, who worked at the Bank of New York but has been suspended pending the investigation, also is being probed.
The show of determination in Moscow underscores official Russia's concern that another corruption scandal could scare off investors who are just trickling back into the country a year after a financial crisis sent its markets and banks reeling.
But they also apparently are eager to assuage the International Monetary Fund -- the country's biggest lender -- that its loans are safe in Russia. Recent reports have claimed that as much as $200 million has been diverted from these loans for laundering purposes.
The IMF has launched an investigation into the reports. The organization also conceded it plans to raise the issue with the Russians this week in Moscow. Russian officials, as well as the bank of New York, have denied any wrongdoing.
Ustinov, for his part, was quoted by a spokesman as saying he intends to take a hard line in the investigation.
"If any wrongdoing on the part of Russian citizens or organizations is established, then we will have to initiate criminal proceedings," he said.
-- from staff and wire reports