Indictment Issued in N.Y. Bank Probe

Federal prosecutors on Tuesday announced the first indictment to arise out of an international probe of alleged money laundering at the Bank of New York, charging a former bank executive and two businessmen with illegally transferring about $7 billion over the last three years.

Filed under seal Sept. 16 in U.S. District Court in Manhattan, the indictment alleges that Lucy Edwards, a former vice president at Bank of New York who supervised Eastern European accounts; her husband, Peter Berlin; and another businessman, Aleksey Volkov, conspired to illegally transmit and receive funds through the bank from 1996 until August of this year.

Investigators said more charges are expected in the massive inquiry, which has raised questions about the bank’s supervision of its accounts at a time when organized crime and corruption have swamped Russia’s government and economy.

Much of the money that flowed through the bank may be capital legally sent out of the country by Russia’s business and political elite. But investigators are looking into whether some of it came from international aid money improperly diverted out of the country.

The probe is one of several that recently have touched the highest levels of the Russian government--under scrutiny in the Bank of New York case are two accounts there tied to Russian President Boris N. Yeltsin’s son-in-law, Leonid Dyachenko.

Perhaps most noteworthy in the indictment is what it doesn’t contain: It does not charge the defendants with money laundering. For that to happen, investigators say, they must show the money funneled through the bank came from a specific crime.

“Determining the origin of the funds and tracing the pathways of the maze of financial transactions that went through the Bank of New York are the primary focus of the FBI’s efforts” in the case, said Lewis D. Schiliro, assistant director of the FBI’s New York field office. “Unsealing this indictment will serve to facilitate the mutual flow of information necessary to resolve all the many questions surrounding this matter.”

Law enforcement sources said U.S. investigators will now be able to share evidence uncovered in America with their Russian counterparts.

Investigators are still sifting through thousands of transactions to determine how much, if any, of the billions that passed through accounts related to Benex International Co., of which Berlin is a director, came from criminal activities.

Still under federal scrutiny are ties between Benex and YBM Magnex Inc., a Philadelphia firm that pleaded guilty to conspiracy to commit securities fraud and is believed to be partly owned by Semyon Mogilevitch, a reputed Russian mobster. Mogilevitch has denied wrongdoing.

T. Barry Kingham, an attorney for Edwards and Berlin, said, “We cannot comment on the indictment except to say we will respond at the appropriate time in the appropriate forum.” He has said previously that the couple denies wrongdoing.

Volkov could not be reached for comment.

According to the indictment, Berlin opened separate accounts at the bank in the names of Benex and Becs International in 1996. Berlin and Edwards were signatories on the Becs account, and Berlin and Volkov were signatories on the Benex account.

In the last three years, about $4.85 billion passed through the Benex account and about $2 billion passed through the Becs account, the indictment states. Typically, there were hundreds of wire transfers in and out of the accounts each day. In most cases, the money was then immediately transferred to accounts at banks around the world.

The transfers were executed by Volkov’s company, Torfinex, “acting on instructions received from individuals in Russia,” the government said.

The transfers were illegal, the indictment said, because the defendants did not have a license to operate a money-transmitting business under New York state law.

If convicted of all charges, Berlin and Volkov each face up to 15 years in prison. Edwards, who is charged only in the conspiracy count, faces up to five years.

Berlin and Edwards reside in London, and it was unclear whether U.S. officials would seek to extradite them immediately. Volkov is believed to be in Russia, but his whereabouts could not be confirmed.

Prosecutors say the three companies, which also are named as defendants, all share the same address in Queens, N.Y. U.S. officials are seeking forfeiture of five accounts at the Bank of New York--two each in the name of Benex and Torfinex and one in the name of Becs--and an account at Whale Securities in New York, in the name of Highborough Services Inc. The accounts, which contain about $6.2 million, were frozen in August.

Since word of the probe surfaced in August, the bank has fired Edwards and a bank associate, Svetlana Kudryavtsev. The bank also has suspended Natasha Kagalovsky, a senior vice president in New York who supervised Eastern European accounts and recruited Russian clients. Her husband, Konstantin Kagalovsky, is a top executive at AO Yukos Oil Co. and previously served as Russia’s representative to the International Monetary Fund.

Bank officials declined to comment Tuesday.