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 U.S.
LAWYERS HIRED AS SPIN DOCTORS FOR RUSSIAN
MOB
April 30,
1999. New York. A New York law firm,
Christy & Viener, is being sued in US
District Court (Southern District) by
Western shareholders and creditors of a
Russian bank, Inkombank.
Plaintiff-shareholders allege that the
firm's senior, 75 year old Arthur Christy,
helped Inkombank's management to defraud the
Western investors and launder their funds
through an elaborate network of offshore
companies. The motive? The best of them all
- Inkombank's boss, V. Vinogradov, grumbled
that last year alone Inkom paid Christy over
$1.5 million. Did Vinogradov get his
money's worth? Yes, Christy, a former US
Attorney, has been able to delay the
proceedings for almost three years
permitting Vinogradov and other Inkombank
chiefs to remove over $56 million from the
investors' reach and conceal their
whereabouts. Also believed to have aided and
abetted in laundering of shareholders' funds
are several partners and associates of the
firm, including Wayne Matus and Peter
Gallagher, according to Inkombank
shareholders.
Inkombank,
one of the ten largest banks in Russia, has
been the focus of media attention for the
past two years. As most larger Russian
banks, it is believed to be linked to
Russian and international organized crime
syndicates. Last year Russia's Federal
Security Service' (FSB) leaked information
of its investigation into financial ties
between the kingpins of Georgia's drug
network, who have been under surveillance of
the law enforcement agencies, and
Inkombank's Chairman, Vladimir Vinogradov
and other management figures. A special unit
of the Ministry of Security of Russian
Georgia provided data that Inkombank's
executives have been under the surveillance
of Georgian law enforcement agencies in
connection with investigation of organizers
of channels of drug trafficking into Russia
and Eastern and Western Europe. In
particular, Inkombank is being monitored
with respect to channels of drug trafficking
from the territory of Georgia to the West
through the seaport of Poti. Frequent
shipments of raw cotton financed by
Inkombank originate in this port. The
investigation revealed the channels of
cotton deliveries abroad are used by drug
dealers as a cover for drug trafficking.
Western law enforcement agencies also
monitor this activity and expressed a
special interest in receiving data
concerning certain Russian participants of
the "cotton" business, including
Inkombank. Western agencies in Tbilisi
(Georgian capital) offered the Georgian
Ministry of Security to exchange information
regarding participants of the financing and
transportation of illicit substances. The
Georgians were offered to be provided with
the materials regarding Semyon Mogilevich,
who controls the channels of drug
trafficking through the territory of Georgia
to Western Europe and the United States.
Magilevich's world-wide criminal empire is
believed to hold a significant stake in
Inkombank through a number of its offshore
companies.
Inkombank's
shareholders brought the lawsuit against
Christy & Viener under the American
Federal RICO law, alleging obstruction of
justice on the part of Inkombank's lawyers.
Western investors also contend that Arthur
Christy took an active part in coercing
witnesses into giving false testimony by
bribes and threats. The senior vice
president of the investment banking firm of
Smith Barney testified that Vinogradov
threatened to cut his throat. Other
witnesses in Inkombank's proceedings
testified that they were also intimidated by
Inkombank's agents who demanded that they
give false evidence.
Christy's
firm was unavailable for comment. In the
pleadings filed with the Federal Court and
the Disciplinary Committee, Christy
vehemently denied any mischief on his part.
Christy maintains that he has done nothing
wrong and only zealously advocated the
interests of his client Inkombank. Christy
& Viener alleges that Inkombank's former
lawyers conspired with Inkombank's Western
shareholders and their lawyers to bilk
Inkombank out of six million dollars.
However, the investors assert that Christy
does not even represent Inkombank as an
institution, and was retained by the mob
linked management faction which currently
controls Inkombank. Shareholders contend
that Arthur Christy's firm was retained not
for its legal expertise but because of
Christy's political clout. Christy's regalia
include a number of illustrious political
posts such as US Attorney for the Southern
District of New York and President of the
New York City Association of the Bar.
Shareholders maintain that Christy is now
parlaying his political capital for the
seven digit fees paid him by Russian
financial racketeers to thwart legal
proceedings against them in the US.
Says Boris
Kuznetsov, a prominent Moscow lawyer who
represents Hoverwood Limited, a party which
recently settled with the plaintiffs:
"Arthur Christy at first claimed to be
Hoverwood's attorney. He even accepted
service of process on Hoverwood's behalf and
then caused Hoverwood to default. Only after
Hoverwood filed a complaint against Mr.
Christy with the Disciplinary Committee of
New York's First Judicial Department, did he
completely change his tune and vigorously
deny ever being an attorney or taking any
action on behalf of Hoverwood." Mr.
Kuznetsov said that Hoverwood will file
other complaints against Christy &
Viener and also intends to bring legal
actions against them in the US and other
jurisdictions.
In the past
two years Russian organized crime's threat
to the West has been universally
acknowledged. The report of the recently
completed two year study of the Center for
Strategic and International Studies quotes
FBI Director Louis Freeh summarizing the
gravity of these concerns by "stat[ing]
bluntly that ROC [Russian Organized Crime]
'is the greatest long-term threat to the
security of the United States.'" The
study concluded that "the impact of
ROC on the future stability of democratic
Russia is the key threat for the United
States identified in this study. A second
serious threat is the transnational
activities of ROC groups which involves the
rapid and difficult-to-counter expansion of
their illicit operations
internationally."
Respecting
Russian organized crime's proliferation
within the Russian banking industry, the
study concluded that the "OC [organized
crime] shaped the post-communist [Russian]
banking industry and now manages ...
it." The report warns: "Further
complicating the economic experiment in
Russia is the systematic corruption within
the financial community ... Banks are
central components of ROC activity both as a
primary target for extortion and as the main
vehicle for extensive money laundering.
These activities are initiated on a
transnational basis as evidenced by the
appearance of ROC activity in Cyprus, the
Caribbean Islands, and other offshore
banking centers the world over."
The CSIS
Task Force emphasized that the Russian
mafia's expansion into Western Europe and
the US represents "a profound
challenge" to law enforcement in
the West, particularly in financial criminal
activity such as sophisticated fraud
schemes, bank and securities fraud and
manipulation and laundering of drug money.
The study points out that ROC, having gained
control over major Russian banks, bribed
officials and legislators to gain
preferential treatment or obstruct
unfavorable legislation, and have commenced
investments in the US with billions in
laundered money. FBI Director Freeh pointed
out that "the United States is
presented with a well-organized,
well-funded, sophisticated and brutal
conspiracy." CIA Director John
Deutch testified in 1996, that, "
... corrupt officials supply the crime
syndicates with export licenses, customs
clearances, tax exemptions and government
contracts .... Officials of law enforcement
and security services provide criminals with
protection from arrest and
prosecution."
Testifying before the House Foreign
Relations Committee on October 10, 1997, Mr.
Freeh stated that at the present time "...
the majority of [the Russian] banks are
controlled by organized crime" His
testimony was corroborated by Arnaud de
Borchgrave of CSIS who gave evidence that
two thirds of the Russian economy is "under
the sway of organized crime"
including most of its 1.740 banks; and by
Giovanni de Gennaro, Deputy Director of the
Italian National Police, who testified that
the "Italian organized mafia figures
[have been] investing money, operating in
St. Petersburg banks." In June of
1993, the St. Petersburg branch chief
Inkombank, Boris Yakubovich, was killed
execution style, for resisting the mob's
takeover of that major Russian bank.
Many larger
Russian banks, such as Inkombank, maintain a
fully staffed "department" called "Otdel
Polivaniya"- (Department of
Besmirching) which employs sophisticated
facilities and techniques in order to
corruptly influence public officials in
Russia and abroad, and to prejudice the
powers that be against anyone who threatens
to expose the unlawful endeavors of the mob
faction which controls the institution.
Backed by the virtually unlimited resources
of the Russian syndicates, the
"Departments'" activities range
from retaining "political" law and
public relations firms in the US, Cyprus,
and other Western countries to bribing
Russian and Western officials, fabricating
and planting bogus "documents" in
public files and coercing false testimony in
judicial proceedings world-wide.
Notably, top Russian public
officials openly acknowledge the problem of
the organized crime takeover of the Russian
economy. For example, Russian Minister of
Internal Security Kulikov, publicly admitted
to seeing no solution to the problem of
mafia control of the Russian banks but the
re-nationalization of privately owned banks.
Major Gromov of the Russian Tax Police told
a September 19, 1994, Conference of the
Financial Crimes Enforcement Network (FINCEN)
that "almost all Russian banks are
corrupt." Finally, Russian
President Yeltsin himself called his own
country "the biggest mafia state in
the world, the super power of crime that is
devouring the state from top to
bottom."
Organized crime proliferation and
domination of legitimate business and public
institutions is hardly new. The Italian Cosa
Nostra has built and managed the glitziest
hotels and casinos in Las Vegas and
controlled the largest New York labor
unions. Colombian drug cartels offered to
pay the Colombian national debt in exchange
for passing constitutional amendments
prohibiting extradition of Colombian "narcotraficantes."
However what sets the Russian mafia as a
breed apart is a unique sophistication and
understanding of the system and ability to
manipulate it via the use of US power
brokers such as "political" law
firms, major accounting firms, commercial
and investment banks, political lobbyists,
and prominent public relations image makers.
Of course none of these liaisons represent
the "Russian mafia" - they
represent "Russian banks." A
January 1996 cover story of New York
Magazine, titled "The Money
Plane", provides a broad perspective of
the threat to Western economies by the
organized crime takeover of Russian banks.
The report notes that "the more
savvy Russian hoods have hired sophisticated
money managers and international lawyers to
move their dirty money."
It is incredible says Kuznetsov,
that Americans commission these
multi-million dollar studies on the Russian
mafia and at the same time permit their
lawyers to lobby its cause in exchange for
exorbitant fees. As much as I do not want to
quote Lenin, smiles Kuznetsov, perhaps he
was right when he said that Capitalists are
willing to sell you the very rope with which
you'll hang them.
The controversy in the US courts
has been going on since late 1994 with no
end in sight. However whatever (and
whenever) the outcome will be, Inkombank's
image in the international banking community
has been severely tarnished. More
importantly, aspersions have been cast upon
the neophyte Russian commercial banking
system. Russian mass media reported an
apparent cover-up by officials of the
Central Bank of the Russian Federation,
Russia's principal banking regulatory body.
Allegations of corruption at the very top of
the Bank of Russia stemmed from the
enigmatic hushing of the findings of a
surprise audit of Inkombank by the Russian
Central Bank's investigators in 1996. The
report issued on June 7, 1996, revealed that
Inkombank "via use of various
bookkeeping machinations" attempted to
conceal losses amounting to 998,2 billion
rubles (approximately US$200 million) and
artificially inflated its retained earnings
by 1,35 trillion rubles (approximately
US$250 million). Investigators concluded
that Inkombank was virtually insolvent
largely due to bad loans to
"questionable entities."
Inkombank's chief, Vinogradov, attempted to
calm fears of the bank's potential failure
by stating that the Bank of Russia's report
was preliminary and that a subsequent report
was issued showing a more stable picture of
the bank's financial position. However
Vinogradov declined to make this
"subsequent" report public. This
unwillingness "to come clean",
combined with the allegations of Inkombank's
laundering cash for Russian-Georgian drug
cartels, increases concerns that Russia's
major financial institution has become a
ticking time bomb. END
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