Russians Not Fazed by Shady Banks



For most Russians, banks are not symbols of stability. They exist not for lending or protecting money, but rather to serve the needs of business, which sometimes requires hiding income from the government.

This world, where banks appear and disappear, often to little notice by regulators, is the backdrop of a $7 billion money-laundering scandal.

The murky maze of Russian banking was on display last week in New York, where a former Bank of New York executive and her husband pleaded guilty to money-laundering charges.

Lucy Edwards, the bank�s former Eastern European Division vice president, and Peter Berlin admitted helping Russian bankers wash the billions through accounts at the bank in order to avoid Russian taxes and to cover up the money�s connection to crimes - including money used as ransom for a kidnapping in Russia.

The case also revealed the operations of so-called �pocket banks,� established to take care of the financial transactions of an individual company.

Prosecutors say Edwards, Berlin and unidentified Russian coconspirators offered to transfer money in and out of Russia via two such pocket banks, making it easier to avoid complying with currency control regulations.

In that case, customers were assured that funds would be transferred abroad without them having to open an account at an authorized bank or provide a contract, an import transaction passport, or a permit authorizing such a transfer.

Prosecutors say the funds were transferred abroad by two Russian banks, DKB and Flamingo, using correspondent bank accounts at The Bank of New York.

Russian businesses also directed customers to pay for goods or services by wiring funds to front companies set up by Berlin. They then received the proceeds in cash from DKB in Russia or had DKB wire the funds from the front companies� accounts to offshore accounts.

Oleg Solovov, former deputy manager at DKB, said his bank had done nothing wrong according to Russian law.

�If someone wants to send money abroad ... if they submit all the proper papers, the bank has no right not to conduct the transfer,� he told ORT television on Saturday.

The DKB and Flamingo banks have gone out of business, but the prominent banks that established them, Sobinbank and MDM, are still on the scene.

Alexander Mamut, who had close ties with former President Boris Yeltsin�s inner circle, was a Sobinbank board member who later took the helm of MDM. He has denied any wrongdoing. MDM says it had no dealing with either DKB or Flamingo since 1996.

Sobinbank officials could not be reached for comment Friday.

Last autumn police raided offices of both Flamingo and Sobinbank.

At Flamingo, they found $535,000 whose origin bank officials had trouble explaining. In Sobinbank�s vault, officials found $1.6 million and 13 pounds of gold ingots, hidden in a niche. The money�s owner, a top official in the state-controlled company that manufactures space rockets, said it came from a bank loan intended to help build a country home outside Moscow. He denied knowing where the gold came from.

Russian police said at the time that money suspected to have been channeled to Bank of New York via Flamingo came from Sobinbank, but no legal action has followed.

Nor have government promises to restructure the country�s banking system and introduce stricter regulations since a national financial crisis in August 1998.

A state agency charged with rebuilding the banking system after the crisis hasn�t had the power or determination to stop bank owners from siphoning off assets.

And Russian officials have so far kept mum on Edwards� and Berlin�s testimony.

Among the sea of questions left in the case is what affect - if any - it will have on acting President Vladmir Putin, who is running to keep his spot for good on March 26.

He has spoken often of his commitment to combating corruption and has worked to distance himself from his predecessor�s scandal-tinged administration. But his determination to investigate allegations against Yeltsin�s inner circle remains to be proven.

Nikolai Petrov, a political analyst with the Carnegie Endowment, said he believes Putin may sanction legal proceedings against some of the most controversial Russian tycoons in the run-up to the vote.

�As the former security chief, he definitely has plenty of evidence against any of them,� Petrov said in a telephone interview. �Every leading businessman here has somehow broken the law.�

Iran May Challenge Russia�s Caspian Hegemony

18 Feb (Stratfor)


Iran�s deputy foreign minister publicly stated Feb. 17 that Iran preferred �multi-polar peace� in the Caspian region, which �should envisage cooperation with the West and East.� The statement comes at a time when Russia is expanding its influence into the former republics of the Soviet Union. It indicates that Iran opposes future Russian advances and does not view the rest of the region as part of the Russian Federation. As Iran tries to break its international isolation, it may move closer to the West in order to counterbalance Russian influence in the Caspian region.


Iranian Deputy Foreign Minister Sayed Sadek Kharrazi met with Russia�s Deputy Chairman of the Federation Council Vladimir Platonov on Feb.17 in Moscow. In discussing cooperation between Iran and Russia in the Caspian area, Kharrazi pointed out that some countries in the Caspian basin seek closer association with the West. Kharrazi�s support for the countries� orientation toward the West implies that Iran would prefer Western influence on its northern border. His statement marks the first time in a long time that Iran has publicly stated its opposition to Russia asserting its control over the southern Caucasus.

Iran is effectively telling Russia that it opposes Russia�s reassertion of control over areas that Moscow considers to be in Russia�s sphere of influence. Presumably, Iran�s concerns extend to cover the Central Asian republics as well.

Kharrazi�s comments imply two possible motivations: Either Iran prefers the West in the South Caucasus or it prefers that Russia not be there at all. Iranian reformist President Mohammad Khatami�s desire to improve relations with the West explains Iran�s desire for a Western presence in the region. However, a Russian presence doesn�t hinder Iran from engaging the West, which highlights the second and more important reason for Iran�s concern.

Iran doesn�t want Russia dominating the southern Caucasus, because Russian influence on Iran�s northern borders threatens its security. Granted, Moscow and Tehran currently have warm ties. However, Tehran would prefer the Central Asian and Caucasian buffer zones to exist. Russia today is significantly different than the one that existed only a few months ago under former President Boris Yeltsin. Russia�s acting President Vladimir Putin has stirred up and capitalized upon Russian nationalism. The country has expanded its influence southward into the Caucasus, and it is unclear how far this expansion will go.

Iran has made clear its wishes for the Caspian region, but it is not yet clear how, or if, Iran plans to act upon these wishes. It is highly unlikely that Iran is ready to obstruct Russian influence in the Caucasus. It currently has neither the political will nor the military or economic means to do so. A gradual shifting of policy is more likely. This will not change the Iran-Russia relationship in the short-term but may have long-term repercussions.

In the short-term, Iran and Russia will continue to cooperate. Iran purchases a significant number of Russian arms, and Moscow is helping Tehran construct a nuclear facility. Russia needs money, and Iran needs Russian arms and technology. In the long-term, however, as reformist politics prevail in Tehran and as Iran breaks its isolation, it will eventually move closer to Western nations.

Before turning toward the West, however, we would expect to see Iran more actively pursue ties with Central Asian and Caucasian governments, tactfully urging them to resist Russian pressures. As the governments begin to fall under Russia�s sway, we would also expect to see Iran funding and arming insurgencies in the region. This would be done under the guise of protecting Islam, of course, but it would have concrete strategic implications.

Iran and Russia can maintain good relations, while Caucasian and Central Asian buffer zones exist. Kharrazi�s statements emphasize the strategic importance of that buffer zone to Iran-Russia ties. Iran so opposes Russian influence returning to the Caucasus that it actually prefers Western influence. However, Putin�s new policies directly challenge Western influence in the Caucasus and Central Asia. Iran will soon find itself trying to balance its relations with both sides. However, Tehran has made clear its preference. Iran will not sit idly by while Russian influence creeps closer to its borders.

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