It has all the trappings of a Hollywood blockbuster: billions of dollars missing, two successful female bank executives helping to move the money, and a old line New York bank hoping to make a fee from moving the loot.
Only, it's no movie. At least not yet.
Federal authorities are still trying to unravel what's been going on at the Bank of New York, an institution that dates back to Alexander Hamilton, and its office in Russia. Over the last week, there have been reports the bank was involved in moving billions of dollars out of the troubled country. Did the money come from organized crime, officials trying to get their money out, or legitimate business? So far, no one knows for certain. Call it the Mystery of the Missing Billions.
Later this month, the House Banking & Financial Service Committee will hold hearings on the case. It is likely to hear this is not an isolated incident.
Mafias from around the world have long formed "an unholy alliance" with banks to clean up money from prostitution, drugs, and other crimes. Now, even institutions with solid reputations are becoming ensnared. According to the Transnational Crime and Corruption Center (TraCCC) at American University in Washington, global money-laundering is now a $500 billion a year business.
"This is just the tip of the iceberg. There are more money laundering scandals just around the corner," says Keith Henderson, co-director of the TraCCC.
Investigating this latest scandal, however, is going to be difficult since both Russia and the US are holding presidential elections next year. There may be implications for politicians, and challenging candidates are already beginning to make it an issue. Yesterday, US presidential candidate Bill Bradley said US assistance and lending to Russia has been "misdirected and ineffective." Republican candidate Steve Forbes vows to run ads blaming Vice President Al Gore, who is co-chair of a commission on US-Russia relations.
And in Russia on Tuesday, three Rus- sian prosecutors were fired as they were looking at scandals involving a number of high level Russian officials.
"Many of us fear it will take on a political dimension to threaten the integrity of the investigation," says Mr. Henderson.
No matter what happens, almost everyone agrees the investigation will be a long- term affair. The FBI is urging patience until all the facts are known. It has also said some news stories are inaccurate.
IMF funds involved?
For example, there have been reports that some of the money flowing through the Bank of New York was IMF funds meant for Russian stability. However, this week, Thomas Dawson, director of external relations for the IMF, said, "We have absolutely no indication of any IMF money being diverted in association with the Bank of New York or any other investigation that might be under way."
Despite the denial, the IMF issue has raised hackles in Washington. On Tuesday, Treasury Secretary Lawrence Summers told USA Today that the US will not support the disbursement of additional IMF money until there are safeguards in place and past funds are accounted for. The IMF currently has a mission in Moscow to work on the next disbursement of $640 million.
Henderson says it's likely the billions that moved through the bank's offices came from a variety of sources, including the IMF. "It's almost certainly a mix of legitimate and illegitimate," he says.
Some of the money, for example, is likely to be flight capital as wealthy Russians moved their money out of the country. In a 1998 study of Russian flight capital, John Whalley, a professor at the University of Western Ontario in London, Canada, estimated Russians are moving about $17 billion per year.
Between Jan. 1, 1994 and Sept. 30, 1997, Mr. Whalley estimates, Russians moved $68 billion abroad - a sum exceeding the total flight capital from Mexico between 1979 and 1987. The study, done in conjunction with the Moscow-based Institute of Economics, suggests 33 percent of the money is illegal, 37 percent is semi-legal, and the rest is legitimate.
"To me the Bank of New York is not the key issue. It is just symptomatic of the key issue: capital flight," says Lt. Gen. William Odom, a senior fellow at the Hudson Institute and a former member of the National Security Council. "Why is money coming out while we're putting money in?"
Corruption high up
Some of the flight capital may be from corrupt officials moving the money into safe locations. So far, investigators are looking at banks in the US, Switzerland, Hungary, and the UK.
"The complicity of corrupt public figures, corporate executives, and others like accountants and lawyers is a growing problem," says Henderson.
The Bank of New York came to attention when UK officials noticed large sums of money moving through its accounts. Two female officers, both married to Russian men, were suspended. One of the officers has since been fired. The bank, in a statement, says it's cooperating with the on-going investigation.
"With the amount of money allegedly involved, it should have raised cause for concern by top officials," says Nick del Rosso, president of CDR International, which does investigations for banks.
However, Albert Tellechea, an Orlando lawyer who represents banks, says it's unfair to blame the bank since they were dealing with other Russian banks. "They were caught in a kind of Catch 22," he says. "They were so far removed from actual client who made the actual deposit."
Clever Russians aren't the only ones moving money. Law-enforcement officials believe a significant amount of money moving out of Russia comes from organized crime. John Connor Jr., portfolio manager of the Third Millennium Russia Fund, a mutual fund, says there are about 2,000 crime families or syndicates in Russia.
Mr. Connor thinks some of the money may also have come from officials stripping assets from companies. "That's stealing anywhere," he says and predicts some prosecutor - whether Russian or American may ultimately investigate. "They do have prosecutors in Russia and they do a good job," says Connor.
(c) Copyright 1999. The Christian Science Publishing Society