In Unlikely Surroundings, a Russian Scandal Is Born

In this city of breathtaking Alpine peaks, medieval charm and world-class fashion, the little Fenini Shop is notable for being, well, uninspiring.

The family-owned clothing store, tucked into a mini-mall near a highway offramp, sells a ho-hum selection of Levis and casual sweaters. Neighbors say they’ve rarely seen a customer in the place, and some snicker that the shopkeeper spends most of her time drinking Campari in the bar on the corner.

It is, to say the least, not the kind of establishment one would expect to find at the center of an international scandal. But this unassuming shop is the purported linchpin of an alleged scheme to buy influence with one of the world’s most powerful men--Russian President Boris N. Yeltsin--by providing credit cards to him and his two daughters.

The credit card scheme is perhaps the most sensational of a stream of allegations over the last several weeks accusing top Kremlin officials of corruption and money laundering. Yeltsin is accused of at least tolerating, perhaps even encouraging, the unscrupulous activities of his aides.

Although it is not yet clear where the scandal will end, it is clear where it began: in 1990, in this venerable, Italian-speaking spa town, when the Fenini Shop’s owner, Franco Fenini, met a young Soviet emigre named Felipe Turover.

Fenini was a 39-year-old banker, an official with the Lugano-based Banca del Gottardo, which was looking to build up business in the collapsing Soviet Union. Turover, who had left the Soviet Union about seven years earlier, was about 25, savvy, energetic, spoke five languages and had connections in Moscow.

Fenini, now 48, says the two men became close friends despite their age gap. They took a trip to Mexico together in 1990 and over the next five years built up a lucrative debt collection business in Moscow.

Turover ran the Moscow end, tracking down assets in Russia and claiming them on behalf of customers of the bank. Fenini handled relations with the bank’s customers in Switzerland.

According to Fenini, the two men had a private pact, which broke the bank’s rules, under which they split the commissions from the reclaimed debts. Fenini says Turover decided in 1995 that he could continue the business on his own, disclosed the pact to the bank, and got Fenini fired. “I relied on him,” Fenini told The Times. “Perhaps I was naive.”

Turover tells a different story. He says that they were never friends and that Fenini was blackmailing him for those five years, demanding and receiving a total of $3 million in return for not revealing Turover’s income to Spanish tax authorities. Turover, a Spanish citizen, was avoiding taxes by declaring his tax residence as Russia.

And this is where, according to Turover, the Yeltsin credit cards come in. In 1995, in an effort to force him to pay more and keep quiet, Turover says, Fenini showed him three credit cards: an American Express card in the name of Boris Yeltsin and two Eurocards in the names of Yeltsin’s two daughters, Tatyana Dyachenko and Yelena Okulov.

“He wanted to show me how high he is connected,” Turover said in an interview.

Turover says Fenini also showed him some bill summaries indicating that purchases had been made on the cards, though he says he doesn’t recall how much or where.

“I can’t tell you the guy spent very much,” Turover said, referring to Yeltsin.

According to Turover, the bills run up on those accounts were mailed to the Fenini Shop and paid out of accounts belonging to a Lugano-based construction firm, Mabetex, or its officers. Mabetex has been the recipient of several contracts to refurbish Kremlin properties. Fenini handled Mabetex’s accounts at the bank and went to work for Mabetex after he was fired.

For his part, Fenini refuses to discuss the credit cards, answering every query with a curt “No comment.”

“All I can tell you is that the shop has never been used as a cover for bribery,” Fenini said.

Turover and Fenini are now suing each other in Swiss courts. Turover accuses Fenini of extortion and forgery. Fenini accuses Turover of making a false accusation.

Ex-Partners Queried by Investigators

Meanwhile, the Kremlin accusations have taken on a life of their own. Both men have been questioned by Swiss investigators, who are cooperating with the Russians to investigate whether Mabetex, through Fenini, tried to bribe Yeltsin or other Kremlin officials.

So far, despite all the scrutiny of the case, no one has leaked to the public documents such as receipts with Yeltsin’s signature. And there is no clear indication that Yeltsin knew about the cards or, even if he did, that he thought of them as anything other than a novelty or courtesy gift.

Russian prosecutors say that even if they reconstructed a paper trail linking Yeltsin purchases to Mabetex, it wouldn’t be possible to prove corruption unless it could be demonstrated that Yeltsin or his daughters knew Mabetex was paying the bills and that that was improper.

“They may not have known where the money was coming from, who was financing their purchases,” said suspended Russian Prosecutor General Yuri I. Skuratov, who oversaw the case until he was forced from office last spring. “They need to explain what they knew when they spent this money.”

That is something neither Yeltsin nor his daughters have done. The Kremlin press service has issued several statements denying that the Yeltsin family has bank accounts abroad, but there has been no official denial that the family has or has used foreign-issued credit cards.

Meanwhile, the allegations have focused ever more attention on Mabetex, headquartered in a posh, checkerboard-patterned pink marble building a few blocks from Lugano’s lakefront.

According to public records in Lugano, Mabetex was founded in 1990 by a bankrupt local contractor. The company’s flamboyant current director, Behgjet Pacolli, appears in public records as an officer of the company only in 1993. That was the same year that Pavel P. Borodin became manager of the Kremlin’s property department, which administers a vast network of government buildings, country homes, resorts and other facilities.

Borodin and Pacolli knew each other from Borodin’s earlier tenure as mayor of the Siberian city of Yakutsk, where Pacolli helped build a city hospital. The relationship continued after Borodin moved to the Kremlin, with Mabetex gaining six contracts to provide furniture and other materials for various renovations, including four presidential residences.

Borodin calls Mabetex a minor contractor for the Kremlin that has earned a total of $300 million over the past six years. He also denies reports that he serves as unofficial “treasurer” for the Yeltsin family.

“Yes, I have renovated the Kremlin, the [government headquarters], the country residences,” Borodin said. “But I never gave Yeltsin a ruble or a dollar.”

Swiss prosecutors have long kept an eye on Pacolli and Mabetex. As early as 1992, Pacolli was investigated for suspected money laundering, but the case was eventually dropped for lack of evidence, according to Luca Marcellini, a former prosecutor in the canton that includes Lugano.

In recent years, the high volume of transactions on Mabetex bank accounts attracted attention from Swiss authorities as possible money laundering. But they were unable to open a new probe without indications that the money was of criminal origin.

“First, you must have a crime,” explained Dominique Reymond, spokesman for the Swiss attorney general’s office. “Otherwise, you cannot have money laundering.”

The Swiss got the go-ahead after April 1998, when Russia and Switzerland concluded an agreement to tighten cooperation. Swiss Atty. Gen. Carla del Ponte went to Moscow to sign the pact and mentioned to Skuratov, her counterpart, that he might start looking into Mabetex.

Skuratov says he did and, in October 1998, he sent Del Ponte’s office an official request for assistance. Shortly thereafter, Del Ponte interrogated Turover, and on Jan. 22 she conducted a raid of Mabetex offices.

During the raid, some press reports say, investigators seized the Yeltsin credit cards from a safe in Fenini’s office--an assertion that Swiss prosecutors refuse to discuss but make a point of not denying. Fenini was detained by authorities at the same time and wound up spending 50 days in jail before being released pending trial on Turover’s charges.

Skuratov had also sent the Swiss a list of about two dozen names of Russians somehow linked to Mabetex, asking if they had Swiss bank accounts and whether there was suspicious activity on the accounts. On that list were Borodin and many of his associates and family members.

Daniel Devaud, the Geneva magistrate leading the money-laundering investigation, said in an interview that a few names have since been dropped from Skuratov’s list but that more have been added, including those of some offshore firms linked to the people on the list. He said many of the accounts have levels of activity that suggest money laundering.

“There are flows of money on the accounts of individuals and offshore firms that are sufficiently large, considering the position of these persons, to keep the investigation going,” Devaud said.

Russian Denies Any Swiss Accounts Are His

In Moscow, Borodin vigorously denies any wrongdoing. He has said that if there are Swiss bank accounts in his name, they were opened without his knowledge.

But according to current Swiss regulations, that would be all but impossible. To open an account, a bank must have a copy of the account owner’s passport. The Italian newspaper Corriere della Sera has published photocopies of Borodin’s passport along with a form, apparently carrying his signature, that opened an account at the Banca del Gottardo in his name. His daughter and Pacolli are listed on the form as having power of attorney over the account.

It is not known whether the Banca del Gottardo would have permitted Pacolli to use a power of attorney to open an account on Borodin’s behalf; both Pacolli and officials from the Banca del Gottardo declined to be interviewed.

New allegations seem to surface nearly every day. Last week, Corriere della Sera reported that Italian authorities are investigating the mysterious death of a Russian who is alleged to have carried cash--about $200,000 every other week--from Mabetex in Switzerland to an Italian subcontractor. That Italian furniture company is alleged to have channeled the money to bank accounts in Britain, Ireland and Canada.

As the speculation spins ever more widely, prosecutors in Switzerland and Russia urge calm. They insist that only a thorough investigation on both sides can determine if there was any criminal wrongdoing in any country, whether bribery, money laundering or tax evasion.

But in Russia, among Yeltsin’s critics, there is concern that a thorough investigation is not in the works. In fact, they accuse prosecutors of deliberately delaying the probe and point out that the chief investigator was taken off the case days before he was to go to Switzerland to help depose witnesses.

Reymond of the Swiss attorney general’s office acknowledges that disarray in Russia has posed problems but insists that the various investigations are still on track.

“Justice will be done sooner or later,” he said. “In Switzerland, we have time.”

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Times special correspondent Gabriella Broggi in Lugano contributed to this report.