As First Published in the September, 1999 issue

Bank of NY Laundromat

The Bank of New York Scandal is a Window Into the Decay of The U.S. Economy and The "Biblical" Looting of Russia

TAKE IT TO THE BANK!

January 1, 2000 in Russia Will Be Deadly

by

Michael C. Ruppert

Over several months FTW has been covering issues illustrating how the entire U.S. economy is now sustained by drug profits and the profits derived from "organized crime." We have also been offering articles showing that there are profitable alternative methods for sustaining healthy economic growth. Nothing more clearly demonstrates this than the current scandal erupting around Alexander Hamilton's Bank of New York  - Address:  1 Wall Street, New York, NY.

Let's be detectives, shall we? Here are your clues. Pay attention.

Russia:

-   Gross Domestic Product (1997) = $450 billion. Gross Domestic Product (1999) = $167 billion. Two year decline = 64%  [Source: The NY Times]

-   1999 criminal activity (e.g. drug dealing) may account for another $80 billion. [NY Times]

-   The Ruble traded at 6:1 against the dollar in 1998. Today it trades at 25:1  [Knight-Ridder]

-   The number of Russians living in poverty climbed from 2 to 60 million in less than five years. [Knight-Ridder].

-   Russia has accumulated more than $150 billion of foreign debt, with the burden of debt service reaching 29% of export earnings.  [Mark Weisbrot - The Preamble Center, Washington, D.C. in Knight-Ridder papers 9-1-99]

-   The amount of money looted out of Russia and laundered through U.S. Banks could top $100 billion. This from a country that is one of the three most important military powers in the world [ Rep. Jim Leach - Chair of the House Banking Committee]

-   "The scandal could top $100 billion." [The London Times 9-1-99]

-   "Russian men can now expect to die in their fifties." -  [Weisbrot]

-   The amount of stolen and criminally originated money laundered through the Bank of New York alone could top $15 billion. [ AP, Reuters, Interpol, AFP].

-   According to AP (9-14-99) "The Gartner Group, Inc., an analyst firm in Stamford, Connecticut, last month identified Russia as the highest risk for Y2K failures, followed by India and a cluster of countries that included Venezuela, Norway, Japan, Taiwan and Finland. Principal areas of concern, from a number of sources: utilities, nuclear reactors and infrastructure.

-   The State Department's strongest warnings for Y2K failures center on Russia and the Ukraine. [http://state/travel.gov]

-   The British government has issued a travel advisory warning all of its citizens to stay out of the Ukraine over the New Year. [CNN]

-   "According to a study by Canadian and Russian economic institutes, capital flight from Russia totaled about $130 billion from 1992 to 1998." [NY Times 9/12/99]

The Bank of New York (BoNY)

-   In the current scandal the Bank of New York is suspected of laundering as much as $10-12 billion worth of Russian "organized crime" and capital flight money since 1995. The Bank of New York has admitted to investigators that, in addition to profiting from substantial increases in foreign deposits, it has charged as much as $250 million a month in "fees" for these transactions. [Sources: Wall Street Journal, New York Times, AP, Washington Post, etc.]

-   In testimony before the House on 9/22/99, BoNY Chairman Thomas Renyi stated that BoNY has relations with 160 Russian banks.  In the weeks leading up to the August 1998 financial crisis, which led to the devaluation of the ruble, BoNY exchanged from $3.2 - $3.8 billion per day with those banks.

-   Foreign deposits at BoNY in 1995 were $9.5 billion. At the close of 1998 they were $17.2 billion - an increase of  81% [Source SEC filings at www.sec.gov  - The "EDGAR" data base]

-   Domestic deposits in 1995 were $26.4 billion. In 1998 they were 27.5 billion - an increase of 4%. [EDGAR]

-   Average share price in 1995 = $12.19 [EDGAR]

-   Average share price in 1998 = $40.25 [EDGAR]

-   BoNY's stock has split 2 for 1, three times since 1994. [EDGAR]

-   Foreign deposits in BoNY increased by $2 billion in the first half of 1999 alone. [EDGAR]

-   Compensation Increases of  Directors and key execs  (salary + bonus) [EDGAR]:

-   Thomas Renyi (Chair & CEO) --  $1.23 million (1994) v. $7.38 million (1998)

-   Gerald Hassel (Pres.) -- $1.44 million (1996) v. $3.14 million (1998)

-   Alan R. Griffith (Vice Chr) -- $1.87 million (1996) v. $3.62 million (1998)

-   Deno D. Papageorge (Sr. Exec. VP)  $1.41 million (1994) v. $4.37 million (1998).

-   The single largest stockholder of BoNY is J Carter Bacot who owns 2,174,966 shares and has options to purchase an additional 1,166,556 shares. The exercise of those options could net him an instant profit, at press time, of more than $30 million. [EDGAR]

-   Under U.S. banking laws for each dollar on deposit a bank may lend nine dollars.

-   The increase in foreign deposits at BoNY in 1999 alone indicates that BoNY is capable of making $18 billion in loans based on foreign deposits received so far this year.

-   BoNY's lending is heavily weighted in the entertainment and mass media industries. In recent years much of BoNY's biggest lending has involved Viacom (which just purchased CBS), Tele-Communications, Inc., Universal/MCA and Black Entertainment Television. BET may have been the beneficiary of a 1998 $600 million transfer from overseas accounts into domestic investments.

The Prize Winning Statements of Witnesses and Suspects

-   "I have no doubt that some of this money ended up in the stock market." [ Rep. Jim Leach, quoted in the NY Times 9-1-99]

-      "The individuals who raised questions raised them without much vigor,"[BoNY Chairman Tom] Renyi told the (House Banking) Committee, "They took comfort that those accounts were referred by a very well-regarded bank officer, who happened to be Mr. Berlin's wife."

The Usual Suspects and More

Historically, the International Monetary Fund (IMF), "Washington's most powerful financial institution"- according to Weisbrot, has been an almost brutal rescuer of struggling economies around the world. Whenever an IMF bailout occurs, whether in Latin America, Asia or Europe, the IMF strings attached invariably include severe, even brutal application of monetary controls, which serve to suck liquid capital and wealth out of the country as payment. But in the case of Russia, there appears to be almost a kind of collusion which FTW believes, is a part of a larger plan to turn Russia into a non-industrialized, Third World colony. It also appears that the IMF worked in collusion with key Russian leaders to loan billions of dollars, which were immediately moved to BoNY and other institutions as the Russian elites cashed in.

As reported in Agence-France Presse (AFP), Reuters and USA Today, a key $4.8 billion IMF loan last summer immediately caused a flurry of bond speculation as more than 700 key Russian officials used the money to liquidate their positions in the ruble which collapsed as soon as they got their (IMF) money out of the country. Interpol leaders from Europe have been quoted as saying that the IMF money just passed through Russia on it's way back to the U.S., leaving Russia with all of the debt and no benefit. One Interpol source even hinted that Interpol didn't really know whom to contact in Russia because the highest levels of government were part of the looting.

Things begin to look a bit stinkier for BoNY when you consider that two key employees, implicated in the scandal are married to criminal suspects in the probe. Lucy Edwards, a BoNY Vice President operating out of London who has engineered many of the key Russian deposits is married to Peter Berlin, a (US) naturalized Russian who ran a company called Benex. According to various sources, Benex, and a series of other New York and U.S. shell companies, including General Forex - all connected to Berlin - were transparently moving hundreds of millions of dollars into BoNY accounts. Berlin's operations have been connected to Russian organized crime boss Semyon Mogilevich.

Another BoNY executive, a senior VP in charge of Eastern European operations, Natasha Kagalovsky is the wife of Russian Konstantin Kagalovsky who was Russia's representative at the IMF from 1992-5. Mr. Kagalovsky is now a Vice President of the Russian oil giant Yukos and had, after 1995 served as an executive of the Menetep Bank which handled some of the earlier IMF bailout funds.

The BoNY Board has fired Edwards and suspended Kagalovsky.

The Bank of New York is by no means the only institution involved in the looting of Russia. Additional news stories have revealed links to Massachusetts banking giants Fleet Financial and Bank of Boston. Other news stories have suggested connections to Russian organized crime operatives in San Francisco.  This story could go anywhere as evidenced by the fact that the FBI has now queried institutions in 45 countries and the Swiss government has frozen a number of accounts connected to the case. Additional leads are pointing to Israeli bankers and financial interests, which makes sense given the number of Russian Jews who have emigrated to Israel. As one observer noted, "Not all capital flight is illegal." No, but legal "flight" is also widening the hole below Russia's waterline. Nor should it be overlooked that during the Iran-Contra era, Swiss-Israeli financier Bruce Rappaport who reportedly held a large interest in BoNY, turned up in the mix of Ollie North's secret financial dealings. BoNY is clearly no ingenue in the world of dirty money.

Putting the Pieces Together

It is impossible to remove more than a hundred billion dollars in liquid wealth from a country like Russia and not destroy or seriously damage it. As far back as 1989, when then President George H. W. Bush dispatched career covert operative, drug dealer, and economic pillager Richard Armitage to the former Soviet Union as an economic adviser, this writer predicted that Russian organized crime, the drug trade and all related activities would suddenly explode. They did. As FTW documented in the April issue (Of Ducks and Dinosaurs), Armitage's appearances in an around Kosovo and Albania in 1996-7 presaged the economic looting of that region and the eventual military conflict that served as a major boondoggle for Wall Street. Just last month FTW warned that the appointment of former KGB operative Vladimir Putin presaged a move toward martial law in the event of complete economic collapse - probably triggered by Y2K.

Indeed, some experts have described the current process as the deliberate reversion of Russia to Third World status. Yet Russia has the largest stockpile of nuclear warheads outside of the U.S. Russians rightfully have a penchant for stuffing money in mattresses but what will they stuff in their heaters in the middle of a Russian winter?

Based upon dire Y2K predictions from official sources - a crisis that will involve primarily utilities and infrastructure - it is impossible to conceive of Russia's immediate future as anything less than cataclysmic. That prediction would fit nicely with the sudden rash of apartment bombings by so-called terrorist groups in Russia that are setting the stage for the approaching imposition of martial law by Putin. One can only wonder what the Russian people will do when they realize that their nation has been looted and colonized, in part, to sustain the U.S. stock market and economy. This is Kosovo but on a much larger scale and with potentially much more serious consequences.

Two other questions need to be asked. What is the largest politically stable industrial power close to Russia, which has financial security, a good Y2K posture and a strong military? Answer: Germany. What two countries fought against each other in World Wars I & II and sustained the heaviest loses? Answer: Russia and Germany. Germany might presume to intercede as a "peacekeeper," if for no other reason than to secure all the nukes. Ivan will not like that. Look at a map.

And there are equally serious consequences and implications here at home. On September 22, Treasury Secretary Anthony Summers, in testimony before the House Banking Committee, indicated that the Treasury Department was monitoring the situation closely and that it was important for Russia to reduce its indebtedness to the IMF. That can only be the signal for more capital flight, IMF looting and a more painful disaster for the Russian people. It also brings the United States Treasury closer to looking like organized crime itself.

Maxine Waters Speaks

In public comments on the scandal, California Representative Maxine Waters (D), Los Angeles, demanded that the Justice Department, which prosecutes money laundering, withdraw banking charters for institutions "convicted of the crime." Waters, who sits on the House Banking Committee, received a notable public response from Assistant Attorney General James Robinson who stated that such measures might be appropriate if the bank's upper management was aware of the activity.

Duh!

FTW doubts however, the willingness of the government as a whole to bite in measure with Waters' bark. Certainly not if Wall Street's overall health would be affected.  But that is the problem when the organized crime model takes over an economy as it has done here in the U.S. The model must change or else it must become increasingly more corrupt until it eats itself.

The Mission for FTW Readers

A list of the full Board of Directors of the Bank of New York is available at www.sec.gov using the EDGAR data base. The interrelationship of those directors, as well as BoNY's investment stake/loan exposure in many other firms can be mapped out from that point. An interesting case which merits further attention is that of BoNY Board member John C. Malone. Malone sits on many other boards including those of Tele Communications, Inc. where he served with chief Al Gore fundraiser Tony Cohelo for years. Malone also has connections to Viacom, which just bought CBS, and to Black Entertainment Television. Using Malone as an example, the following issue could be researched using the EDGAR and Federal Elections Commissions databases at their respective web sites: Which of the major campaign donors to Gore, Bradley and Bush sit on the boards of companies tied to the Bank of New York by interlocking directorates and/or financing, banking services or loans? Start at www.sec.gov  go to EDGAR, or try the back door, which works better, at www.freeEDGAR.com .

If you want to know MORE about this subject, may we recommend the following:

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