Banker Admits Her Role in Laundering Scheme

The murky plot behind one of the largest money-laundering cases ever became clearer Wednesday when a former Bank of New York executive and her husband admitted in federal court they helped move billions of dollars out of Russia in a vast, secret scheme to avoid paying taxes and customs duties there.

Working at the behest of figures who controlled two Moscow banks, Lucy Edwards and Peter Berlin set up front companies, opened accounts and eased the way over four years for more than 160,000 electronic transactions worth more than $7 billion from banks in Russia to the Bank of New York and the rest of the world.

The scheme exploded into view last summer, when reports suggested that Russian organized crime was the source of the torrent of money moving through accounts maintained by a host of mysterious companies in the New York area. Federal officials acknowledged they were engaged in a sprawling worldwide search for clues.

The reality turned out to be somewhat less dramatic but nevertheless far-reaching. Banking regulators recognized that a group of Russian businesspeople here and abroad had taken advantage of technology and gaps in oversight to illegally transmit extraordinary amounts of money, in what prosecutors called “back-channel banking operations.”

Key to the arrangement was Edwards, a vice president in the Bank of New York’s Eastern European division. She helped set up the accounts and installed computer software at a modest office in Queens, enabling conspirators to move money around the globe. By working with the group, she hoped to drum up business for her bank.

Berlin formed a series of new companies and opened new accounts at the Bank of New York to try to obscure the money trail leading to his Russian masters, who controlled Depozitarno-Kliringovy Bank and, later, the Commercial Bank Flamingo.

When Edwards was transferred to London, the couple paid $500 a month to a low-level clerk to track the money flow through the shadowy network, so they could claim all the commissions they were due under the arrangement. The Russian bankers eventually paid the couple a total of $1.8 million, which was deposited in offshore accounts to hide it from the U.S. Internal Revenue Service.

In pleading guilty to conspiracy to commit money laundering and helping Russian banks conduct business illegally in the U.S., the couple on Wednesday bowed their heads and contritely, almost earnestly, acknowledged that they knew, or should have known, what they were doing was illegal.

As part of an arrangement with federal prosecutors, hammered out in weeks of negotiations in London, Edwards, 41, and Berlin, 45, admitted to a litany of illegal activity, including conducting an unlicensed banking and money transmittal business; operating an unauthorized branch of a foreign bank; laundering money in electronic transfers intended to promote criminal activity; evading the payment of income taxes; and fraudulently obtaining visas for Russian nationals.

Berlin also pleaded guilty on behalf of Benex International, Becs International and Lowland, which were charged with illegal money transmitting.

Edwards told U.S. District Judge Shirley Wohl Kram that her Russian associates never offered an explanation for the huge sums of money moving through the Bank of New York accounts until the shadowy network became public in August. Then the Russians acknowledged they were trying to avoid paying steep Russian taxes and customs duties.

Edwards said she understood before then, however, she and her husband were dealing with shady characters. “I was aware that personnel from DKB (Depozitarno-Kliringovy Bank) were on occasion in fear of their customers and afraid to leave the bank, because they said customers with machine guns were waiting for them,” Edwards said.

“I deliberately closed my eyes to what I knew was illegal activity,” said the diminutive Edwards, who stood shoulder-high to her attorney and spoke with a soft Russian accent. “They wanted me to help them.”

The resolution of the charges against Edwards and Berlin represent a major turning point in the FBI’s case, which has sparked investigations in Russia, Switzerland and worldwide.

But new information, released in court as part of the plea agreement arranged by prosecutors, suggests the case is far from over. Unresolved are questions about whether other officials at the bank participated in the scheme, and whether co-conspirators in Russia, who weren’t identified Wednesday, will be brought to justice. Investigators also want to determine how much of the money came from organized crime. Russian investigators haven’t indicated whether they are able or willing to help.

“This investigation has followed a long, winding road through the United States and abroad. Although these pleas are a significant development, much remains to be done,” said Lewis D. Schiliro, who runs the FBI’s New York office.

There is already fallout from the case. Last week, the Bank of New York signed an agreement with state and federal banking regulators to accept tighter audits and improve its oversight of suspicious transmitting activity.

Next month, Rep. James A. Leach (R-Iowa), chairman of the House Banking Committee, will resume hearings stemming from the investigation. Leach has proposed legislation that would tighten the rules governing the ties between U.S. banks and financial institutions in countries that often serve as conduits for money laundering.

In an interview Wednesday, Leach said he would subpoena Edwards to testify before his committee. “The Bank of New York story is seminally significant,” he said. “The repercussions are going to be long-lasting.”

Edwards and Berlin each face up to 10 years in prison and hefty fines. They may also have to pay restitution, including the $1.8 million they were paid in commissions. With the agreement of prosecutors, the couple will be released on $500,000 bail, pending a sentencing hearing in May.