The Peter Berlin-Lucy Edwards Story - How The Pair Went From Russia to Riches -NYT -19Oct99
Stefan Lemieszewski
http://www.nytimes.com/library/world/global/101999bank-inquiry.html
New York Times
October 19, 1999
SPECIAL REPORT: THE MONEY MOVERS
Tracking
How Pair Went From Russia to
Riches
By TIMOTHY L. O'BRIEN and LOWELL BERGMAN
Six years ago,
a self-effacing Russian emigre with scant business
experience
set up a modest New Jersey company that planned to
introduce entrepreneurs
from the new Russia to American capitalists.
Peter Berlin's
venture, Benex International Co., got off to a slow
start. But after
a few years of arranging shipments of stereos
and other electronic
products to Russia, Berlin hit on something
simpler and
more lucrative to move around the world: money.
It proved an
inspired choice. Nearly everyone in Russia with
any money, from
businessmen to gangsters, was searching for
ways to hide
their cash from onerous taxes or overly
inquisitive
investigators. Berlin offered a fast, discreet vehicle for
moving dollars
offshore -- lots of dollars.
Berlin's companies
opened accounts at the Bank of New
York, where
his wife, Lucy Edwards, was an executive, and
began whisking
billions of dollars a year out of Russia. Ms.
Edwards was
in an ideal position to help. Just as her husband
began his new
business in 1996, she was promoted to a
prestigious
job in London at the bank drumming up commercial
clients in Russia.
The couple prospered.
According to people involved in
an investigation
into the couple's finances, they earned millions of
dollars from
Benex's dealings, depositing the money offshore in
accounts in
Britain's Channel Islands and elsewhere. Berlin
and Ms. Edwards,
who had previously owned a small home
in upstate New
York, bought a $500,000 apartment in central
London and enrolled
her daughter in an expensive private school.
Associates say
little distinguished them from other Russian immigrants
aspiring to
upper middle-class success in the United States. The
diminutive Ms.
Edwards, who rose from an entry level job to executive in
just eight years
at the Bank of New York, was known for her diligence and
energy in recruiting
clients. Russian businessmen say Berlin had no
obvious links
to the titans of Russia's new market economy.
Nonetheless,
the couple is now at the center of the biggest federal
money laundering
investigation in history as law enforcement officials try
to sort out
how more than $7 billion sluiced through Berlin's companies
over three years.
Much remains unknown.
Federal investigators,
for example, suspect Berlin's transformation from
small-time businessman
to leader of a widely used company was
orchestrated
by someone in Russia with ties to leading business or
political leaders.
But so far, neither they nor British investigators have
been able to
figure out who that might be.
Ms. Edwards'
role remains equally unclear. British investigators who
raided the couple's
apartment in London in August found business cards
and stationery
for the Benex company that carried the Bank of New York
logo. Prosecutors
assert she was directly involved in expediting at least
one transfer
through Benex, and Western financiers say she ran financial
seminars in
Russia in which Benex's consulting services were promoted
using the Bank
of New York name.
Investigators
are still trying to unravel whose money washed through
Berlin's companies.
Some of the more than 87,000 electronic transfers,
they say, appear
to involve legitimate Russian companies financing the
purchase of
imported goods and evading taxes. Some has been linked
to Russian racketeers.
The Bank of New
York, which is cooperating with the investigation, has not
been accused
of doing anything wrong. In an indictment this month that
federal prosecutors
said was just the beginning of a far-reaching
international
inquiry, Berlin, Ms. Edwards and an associate were charged
with illegally
operating a money transfer business and taking deposits.
The case has
already had an impact few could have foreseen. It has
roiled relations
between Washington and Moscow, sparked a
congressional
inquiry, given new momentum to corruption investigations
into the financial
dealings of Russia's business titans and President Boris
Yeltsin's family,
and become an issue in upcoming presidential elections
here and in
Russia.
Berlin and Ms.
Edwards are still living in London where their apartment is
frequented by
photographers and journalists seeking interviews. They
and their lawyers
have declined comment. Ms. Edwards' London-based
lawyer has said
she has done nothing wrong and the bank had no
grounds for
firing her.
The Beginnings: Two Long Roads From Russia
Berlin and Ms.
Edwards came of age in a country in which banking was
depicted as
the glue holding together America's morally bankrupt
economic system.
Ms. Edwards,
born Lyudmila Pritzker in Leningrad, was the first of the two
to make her
way to the West. In 1977, Ms. Pritzker married Brad Edwards,
a 19-year old
American merchant seaman she had met at a club in
Leningrad. After
a civil wedding at the American consulate in Leningrad,
they moved to
Illinois where their daughter, Amy was born. The couple
then settled
in Colorado where Ms. Edwards held a succession of jobs as
a bank teller
and waitress.
After the marriage
fell apart in 1988, Ms. Edwards almost immediately
landed an entry-level
job handling commercial accounts at the Bank of
New York, one
of the country's oldest and most prestigious banks.
In 1988, the
Bank of New York took over Irving Trust, which was doing
extensive business
in Eastern Europe and the former Soviet Union. Ms.
Edwards joined
the new Eastern European Division in 1992 and became
a loan officer
two years later, moving for the first time into the executive
ranks.
Ms. Edwards'
bosses in the Eastern European unit were two
well-regarded
bank officers, Vladimir Galitzine, an American-born Russian
with a royal
pedigree, and Natasha Gurfinkel, an Ivy League-educated
woman who, like
Ms Edwards, was a Russian immigrant to the United
States.
The bank's strategy
was straightforward. It hoped to become a key
overseas player
in Russia by making it easier for Russian companies to
conduct business
overseas. Ms. Edwards' verve in searching for clients
immediately
set her apart, associates say.
"What distinguished
her to everyone was her energy, incredible energy,"
said a former
colleague of Ms. Edwards. "When others would see four or
five clients
a day, she would see 10 or 12."
Peter Berlin's
road to Western success appears to have been less
smooth.
Records show
that a man named Peter Berlin graduated from the Moscow
Institute on
Physics and Technology in 1978 with a degree in molecular
chemical physics.
Berlin left Russia about 10 years ago, just as
Communism was
collapsing.
A trim, bearded
man who stands about 5-foot-9, Berlin may have lived in
Indiana before
he moved to New Jersey. His immigration status when he
came to the
United States is not clear; he later became an American
citizen.
In the summer
of 1992, Berlin married Ms. Edwards, a union that would
have solved
many immigration problems. A relative would say only that
they met and
married in the same year.
By 1993, he was
trying his hand at business. He founded Benex, which
listed his apartment
in Cliffside Park, N.J., as its operating address. After
several years,
Berlin hooked up with a major, Moscow-based dealer in
consumer electronics
and began brokering sales of televisions and other
items.
As Ms. Edwards
rose through the ranks at the Bank of New York, the
couple's finances
modestly improved. They bought a $125,000 house in
Narrowsburg,
N.Y. Acquaintances say Berlin has a taste for fine art,
particularly
Impressionist paintings, but some found him, and his wife,
uninspiring.
"They were not
high-cultured and didn't seem to have much spiritual
value," said
Vadim Borshai, a Russian artist and a neighbor who lived
near them in
Narrowsburg. "There was no poetry in their soul."
The couple also
had brushes with local law enforcement. Seven years
ago, in a Nordstrom
department store in Edison, N.J., Ms. Edwards tried
to steal more
than $1,400 of clothing. She was arrested and pleaded
guilty, only
to repeat the offense two years later at a Bloomingdale's store
in Hackensack,
N.J. -- this time, with 15 year-old Amy in tow. Ms. Edwards
was arrested
again and later pleaded guilty.
The Bank of New
York, which was employing her, did not learn of either
arrest until
after federal investigators began scrutinizing the Benex
accounts.
Berlin was arrested
for shoplifting six years ago, records show, when he
was charged
in Fairview, N.J., with stealing sinus medicine from a local
A&P. He
retained a lawyer, and the charges were dropped.
The Companies: Red Flags Ignored By The Bank
On a winter day
three years ago, Berlin took a step that would change his
life: He strolled
into the Bank of New York's Wall Street headquarters and
opened an account
in the name of Benex International. Six months later,
in July, 1996,
he opened an account in the name of Becs International at
the same branch.
Closer scrutiny
by the Bank of New York would have revealed corporate
records on file
with the state of New Jersey showing that one of its
employees, Ms.
Edwards, was one of two officers at Benex (Berlin was
the other).
The bank's own records noted that Ms. Edwards had authority
to withdraw
money from the Becs account.
Both of those
facts should have been red flags at the bank. Banks
typically restrict
employees from playing a direct role in customers'
businesses.
The Bank of New York allows such arrangements only with
permission of
its chairman. Ms. Edwards formal links to her husband's
ventures, the
bank says, did not surface until late 1998, after the federal
inquiry began.
Bank employees
knew that Berlin and Ms. Edwards were married, but this
apparently only
served to shield the accounts from scrutiny. In
congressional
testimony last month, the bank's chief executive, Thomas
A. Renyi, said
that the fact that Berlin was married to "a well regarded
bank officer"
dissuaded bank auditors from looking more closely at the
money in the
accounts. He described that as "a lapse on the part of the
bank."
There was plenty
to look at. It is not clear precisely when the companies
began moving
money out of Russia, but by 1996, they had become one
of the more
heavily used pipelines for sending out cash. Millions of
dollars a day
coursed through the network, pouring through the Bank of
New York unchecked.
Banks do not
typically make much profit transferring money from one
country to another.
They charge their better clients as little as a few dollars
per transaction.
But federal investigators
say that in Russia's volatile economy, Berlin was
able to charge
a premium for a service that ran through the reliable,
prestigious
Bank of New York. His companies, investigators say, were
paid a percentage
of the total transferred, earning millions of dollars in
profits.
There were some
uniquely Russian forces fueling the demand for Berlin's
services. Russia's
high taxes and import tariffs give businessmen
powerful incentives
to hide the true costs of their deals, whether importing
goods, buying
property, or consummating routine deals. Offshore
accounts help
hide the volume of trade and commerce.
A few months
after Berlin opened his first account at the bank, Ms.
Edwards was
courted by a Moscow-based bank but was persuaded to
stay at the
Bank of New York with a prestigious promotion. She was sent
to London and
named a vice president, responsible for finding new
business among
Russian companies.
While both Berlin
and Ms. Edwards wore off-the-rack business suits, a
former colleague
said they sometimes spent weekends in Italy.
"Between 1996
and 1998, there seemed to be more money," the
colleague said.
'Peter was doing better, or that is what everyone
attributed it
to. But there was no ostentation, no high-priced clothing or
jewelry."
Berlin's companies
appear to have transacted much of their business
from a office
building in Queens, where a handful of people working with
computers arranged
hundreds of electronic transfers a day.
Russian investigators
have told their American counterparts they believe
crime groups
in Russia exercised some form of control over the
operation. American
officials say they have no evidence of that, but are
still trying
to understand how Berlin corralled so much money so quickly.
The customers
appear to have covered the entire range of Russian
commerce. Some
of the money, federal investigators say, was moved by
Russian criminal
groups. Italian prosecutors have found that Russian
gangs operating
out of northern Italy, for example, used Benex to transfer
several million
dollars out of Russia.
More than half
of the $7 billion handled by Berlin's companies moved
through the
accounts before any suspicions arose. But in early 1998,
investigators
in two countries, working on different cases, began asking
questions about
Becs, Benex and Berlin.
The Manhattan
district attorney's office, working with British officials on a
money laundering
and stock manipulation case, found that a Russian
emigre they
were investigating was moving $300,000 to $500,000 a week
through Benex
into the Bank of New York.
A few months
later, the Russian government separately asked the FBI for
help in tracing
the ransom in a kidnapping case. The money, 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.
The inquiry focused
more closely on Berlin in August 1998, after Republic
Bank told the
FBI that $10 million had passed from Russia through an
account controlled
by one of his companies.
Berlin's money
moving operations continued at full throttle through the fall
of 1998. But
something had changed. His companies were being
watched.
The Investigations: A Slow Start, Startling Disclosures
In its initial phases, the case did not make much of a stir.
Federal investigators
served a subpoena on the Bank of New York in
September 1998
for account records relating to Berlin's companies,
among hundreds
of such requests the bank receives each year.
Federal investigators
were startled by what they found. The records
showed a dizzying
array of transfers out of Russia and to dozens of
countries, including
in some cases back to Russia.
British investigators
began electronic surveillance of Berlin's and Ms.
Edwards' conversations
and the FBI received transcripts, according to
American law
enforcement officials.
In March, confronted
with requests for more information, the Bank of New
York officials
finally informed Renyi, the bank's chairman, that a problem
had arisen with
the accounts used by Berlin's companies.
"The interest
of the investigative agencies heated up in March and that's
when it went
to the CEO," said one person with knowledge of the
investigation
at the bank. "There were people who knew there was a
big-time amount
of money there after the first subpoenas came in
September of
'98. But it wasn't until six months later that it went to the
CEO."
There are conflicting views of how actively the FBI pursued the case.
Numerous officials,
including current and former members of the New
York Police
Department, the Federal Reserve, the New York state
Banking Department,
and Britain's National Crime Squad assert that the
bureau moved
too slowly.
Federal law enforcement
officials maintain that they made a choice, at the
outset, to investigate
the case covertly. Berlin's accounts, they say,
offered a rare
window into Russian financial chicanery, provided the
inquiry could
be kept secret.
Federal officials
were trying to determine whether the rapid-fire transfers
were money-laundering,
a difficult case to make because prosecutors
must prove that
the cash at issue was used in a crime such as drug
dealing, extortion
or fraud. The FBI, officials said, hoped to infiltrate the
organization
and find out more about how Russians launder their money.
"A lot of people
got frustrated because we were trying to do the
investigation
without letting the targets know we were doing it," said one
federal law
enforcement official. "We were actively investigating the
money laundering
case, but we restrained ourselves from doing anything
that would tip
them off. "
Berlin and Ms.
Edwards were surprisingly open about the links between
their two careers.
For example, brochures for Berlin's companies carried
the Bank of
New York logo. The couple traveled together to Russia and in
1996 and 1997
and Berlin sometimes signed his name to tabs billed to
Ms Edwards'
expense account at the Bank of New York.
That discrepancy
was eventually noticed by bank auditors in 1998, before
the federal
inquiry began, but it did not prompt a closer look at the
couple's financial
dealings, according to people close to the bank.
Federal investigators
were struggling to understand a case that was
largely unfolding
in Moscow. The leads, law enforcement officials said,
went in myriad,
sometimes unfruitful directions.
Federal investigators
at one point contemplated using an American
diplomat in
Moscow as an undercover agent. Ms. Edwards and Berlin
made contact
with the diplomat in 1998 in an attempt to secure American
government backing
for their plan to convert a Russian defense factory to
civilian uses.
Berlin was later
taped by British investigators as he boasted his ties to the
diplomat. The
plan was called off after The New York Times disclosed the
inquiry last
August.
Today, with the
federal investigation now a very public event, Ms.
Edwards and
Berlin, those investigating them, and the Bank of New York,
all face complicated
problems.
The FBI can no
longer conduct a covert investigation, leaving the bureau
with the more
difficult task of piecing the Benex puzzle together with help
from Russia,
or by persuading witnesses to come forward.
Even though the
Bank of New York has been cooperating with the
investigation,
federal authorities have indicated that they still plan to take a
hard look at
how the bank handled various issues surrounding Berlin's
accounts. The
Manhattan district attorney's office also has its own
investigation
underway.
And, with a federal
indictment hanging over their heads, and their bank
accounts frozen,
the pressure on Berlin and Ms. Edwards to cooperate
with the federal
investigation has intensified. But so far they have
remained silent,
declining all interview requests from authorities or the
press.
Last week, as
Ms. Edwards remained holed up in her London apartment,
she used her
building's intercom system to decline an interview request.
"I wish I could help you, but I can't," she said.
Additional reporting
for this article was done by Michael R. Gordon, Alan
Feuer and David
S. Koeppel.