Global Policy Forum

By Timothy L. O'Brien and Raymond Bonner

Former executive of the Bank of New York and her husband told a federal judge yesterday that they helped a group of small but politically connected Russian banks create an elaborate money laundering scheme that moved billions of dollars out of Russia through the American bank.

After more than 18 months of investigation, federal authorities delivered Lucy Edwards, a former Bank of New York vice president, and her husband, Peter Berlin, to the United States District Court in Manhattan. They described how between 1996 and last year, more than $7 billion left Russia illegally and flowed through a network of front company accounts at the Bank of New York that were controlled by Mr. Berlin. From there, the money was transferred to offshore accounts.

The network, according to the couple, was designed by Russian bankers to whisk money electronically between Russia and the United States for three broad purposes: to evade Russian taxes on money from legitimate business transactions, to avoid Russian customs duties on imports, and to "wash" the profits of outright criminal enterprises through legitimate banks, including a $300,000 ransom payment in 1998 to the kidnappers of a businessman in Russia.

The couple, who said they were paid nearly $2 million for their services, said the scheme allowed Russian bankers to conduct illegal banking activities in the United States that circumvented the scrutiny of federal banking regulators and law enforcement officials.

"I closed my eyes to that fact," said Ms. Edwards, who worked in the Eastern European division of the Bank of New York. She said she "suspected the accounts were being used by many people for illicit purposes." The couple agreed to plead guilty to a series of federal crimes, which carry sentences of up to 10 years in prison and heavy fines, and to cooperate with investigators in a plea bargain that federal authorities hope will produce more charges. "More than one or two people had to turn the other way," an investigator said. "You don't transfer $7 billion through the spanking new Eastern European division without somebody knowing."

The Bank of New York, which has not been accused of any wrongdoing, declined to comment yesterday. It fired Ms. Edwards shortly after the federal money laundering investigation became public last August, and has been cooperating with the authorities.

After the remarkable courtroom appearance yesterday, the bank's culpability, and that of its directors and officers, is still not clear. Federal prosecutors have great discretion in deciding whether to pursue criminal charges against a bank when an officer breaks the law.

Court documents and the couple's oral confession named several Moscow banks as being part of the scheme. According to previously unpublicized documents and to Western financiers with direct knowledge of the banks' affairs, one of the banks, Sobinbank, is controlled by members of a powerful group of Russian financiers known as the oligarchs, who own much of Russia's wealth and have wielded enormous influence within the Kremlin.

The court confessions yesterday provided the first detailed public accounts by participants in the money laundering scheme, which had been under investigation since 1998.

Ms. Edwards, Mr. Berlin and three companies controlled by Mr. Berlin -- Benex, Bec International and Lowland -- pleaded guilty to laundering money to promote criminal activity and defraud the Russian Government; conducting unlicensed banking operations; establishing an unauthorized branch of a foreign bank; operating an illegal money transmitting business; bribing a bank employee; receiving illegal payments as a bank employee and laundering those payments abroad; tax evasion; and fraudulently obtaining visas for hundreds of Russians to enter the United States.

The New York Times reported on Wednesday that investigators had evidence that Ms. Edwards had bribed one of her superiors at the bank. No such evidence emerged in court yesterday, though Ms. Edwards admitted to making "corrupt payments to members" of her division.

Appearing calm and rested, and smiling occasionally at each other and their lawyers, Ms. Edwards and Mr. Berlin described the origins and purpose of the money laundering operation during a court appearance that lasted slightly longer than two hours.

Ms. Edwards, 41, a small, well-groomed woman who spoke with a soft Russian accent, said she was first approached in late 1995 by representatives of DKB, a Russian bank whose full name is Depozitarno-Kliringovy Bank, who were interested in using the Bank of New York's offices and technology to illegally move money out of Russia. During the following years, Ms. Edwards said, those activities came to include money laundering and other the schemes to which she pleaded guilty.

Russian banking during the 1990's has been a notoriously freewheeling affair, with allegations of extensive involvement in the banks by organized criminals. Ms. Edwards noted in her testimony that DKB's Moscow employees told her in 1998 that they were afraid to leave the bank's headquarters because "customers with machine guns were waiting for them."

The ransom money referred to in court yesterday relates to a 1998 request by the Russian government for the F.B.I.'s help in a kidnapping case. The ransom, it turned out, moved through a Benex account at the Bank of New York on its way to Russian organized crime figures, prompting the bureau to open its own inquiry.

Although the Bank of New York earned relatively small profits from its business in Russia, its aggressive pursuit of clients there held out the promise of potentially lucrative future deals.

Mr. Berlin, 45, testified that Benex, Becs and Lowland all had accounts at the Bank of New York that he opened on behalf of his overseers in Moscow. He said that the companies were staffed by DKB employees and that Ms. Edwards helped install Bank of New York computer software in the Forest Hills, Queens, office of a Benex affiliate to allow money to be moved electronically.

The couple said that DKB representatives told them in the fall of 1998 that they had acquired control of another bank, Flamingo, and wanted a new company created to move money from that bank through the Bank of New York. Mr. Berlin opened Lowland in Jersey City for that purpose.

According to a series of confidential financial audits, a Moscow bank controlled by Aleksandr Smolensky, SBS-Agro, owned sizable stakes in both Sobinbank and Flamingo Bank.

SBS-Agro, which largely collapsed during the Russian economic crisis in 1998, was part of a financial and oil empire controlled by Mr. Smolensky, Boris Berezovsky, a prominent Russian financier with long ties to former President Boris N. Yeltsin, and Roman Abramovich. The three financiers did not respond to repeated interview requests over the last few weeks regarding any involvement with Sobinbank and Flamingo.

For their cooperation with their handlers in Moscow, Ms. Edwards and Mr. Berlin received $1.8 million, which represented a percentage of the money moved through the Benex network. "We were paid substantial commissions for doing very little work," Ms. Edwards said.

Ms. Edwards and Mr. Berlin said that they directed that those funds be deposited in offshore bank accounts so they could avoid paying taxes on the money in the United States.

Ms. Edwards said she helped hundreds of Russians secure bogus visas for travel to the United States and that most of them worked in the Russian banking industry.

She also said that after the couple moved to London in 1996, they paid a Bank of New York employee, Svetlana Kudryavtsev, $500 a month to make sure the Benex accounts were operating properly. Ms. Kudryavtsev, a lower-level employee at the bank, is cited in the court charges for taking corrupt payments.

Ms. Kudryavtsev was indicted last month on charges of lying to federal investigators about whether she or her husband had received money or loans from Ms. Edwards. Her lawyer could not be reached for comment yesterday, but on Monday he described the charges as unwarranted. The indictment charges that Ms. Kudryavtsev received about $30,000 from Ms. Edwards and Mr. Berlin between 1995 and 1999.

Ms. Edwards and Mr. Berlin face a maximum of 10 years in prison for the charges against them when they appear at a sentencing hearing on May 3, but it is likely that their cooperation with the authorities will lessen the severity of any punishment against them.

"Lucy Edwards and Peter Berlin have come voluntarily to New York from their home in London to accept responsibility for their part in the illegal transfer of funds through the Bank of New York," T. Barry Kingham, the couple's attorney, said yesterday in Manhattan. "They have cooperated fully with the investigation being conducted by the F.B.I. and the U.S. Attorney's Office, and they will continue to do so."

The couple have surrendered about $1 million to the authorities, some of which was maintained in Swiss bank accounts, and they will be released from federal custody pending their posting of a $500,000 bail bond.

"Today's pleas starkly demonstrate the serious dangers of unlicensed and unregulated entities operating within the American banking system as cover for money laundering and other criminal activities," said Mary Jo White, the United States Attorney in Manhattan, in a prepared statement yesterday. "Evading and disregarding American laws in this manner significantly undermines the integrity of United States and foreign banking systems."

Lewis D. Schiliro, assistant director in charge of the F.B.I.'s New York office, said that the investigation "has followed a long, winding road throughout the United States and abroad" and that his agency is "determined to continue following the complicated trail of money and banking transactions until all those who have committed crimes are identified and charged."