Russia's Ruble Shakedown

Natasha Gurfinkel had moxie. Nothing if not aggressive as a senior vice president in charge of the Bank of New York's East European division, the Russian-born, Princeton-educated businesswoman charmed and cajoled, wined and dined her way to the forefront of the correspondent banking business in the heady days of Russia's breakaway from communism. Muscling out American rivals through her web of Moscow connections, she turned the Bank of New York into the biggest U.S. servicer of Russian accounts, moving along the flood tide of cash rolling out of the ebullient new economy in return for lucrative bank fees. When she wanted to snatch the business of the rich Moscow-based Inkombank away from Republic National Bank in 1992, says Emanuel Zeltser, a lawyer who worked for the Russian outfit, "Natasha said the Bank of New York would not be so inquisitive" about Inkombank's massive money transfers through New York to obscure offshore companies. "This is how she got a lot of the Russian banks to do business with her," he says. "It was an open secret over there."

On April 23, 1996, under the letterhead of the venerable bank founded by Alexander Hamilton, which made the very first loan to the fledgling U.S. government in the 1780s, Gurfinkel wrote a fulsome letter to Federal Reserve chairman Alan Greenspan, urging the Fed to let Inkombank open a representative office in the U.S. Never mind that 14 months earlier some of the bank's largest shareholders had filed suit charging Inkombank with outright theft of $40 million in capital. Or that just a month before, the Russian central bank had issued a harshly critical audit of Inkombank irregularities.

Inkombank never got the license. But it was not until Republic National Bank turned the tables on Gurfinkel by filing a suspicious-transactions report on the extraordinary Russian cash flows through its bank to the Bank of New York in the summer of 1998 that anyone at Hamilton's respected house paid attention to what was going on. And it was not until last month, when the New York Times reported that an investigation was in progress, that the U.S. woke up to some ugly truths about Russia. With the bank's cooperation, the Feds are on the trail of at least $4.2 billion that may have flowed through these accounts.

The Bank of New York irregularity is only one on a list of scandals, involving alleged money laundering, mob operations and corruption in high places, that are suddenly in the spotlight. The stories are old news in Moscow, where the highway robbery that has stripped the country of assets and enriched a handful of crony capitalists has been going on ever since "reform" arrived in 1991. An impoverished, disillusioned populace long ago lost its capacity for outrage. With bombs exploding around their country, looming war in the Caucasus and rumors of a political crisis to worry about, Russians have written off the money scandals as dirty business as usual. But in the U.S. the corruption seems to symbolize reform gone wrong, a wholesale failure of Russia to transform itself into a working free-market democracy. And as the partisan Campaign 2000 machinery in Washington revs up, what better rallying cry for challengers than "Who lost Russia?"

So get ready for a spell of demagoguery. The question is both wrong and arrogant--Russia was never ours to lose--and the real issue is what to do now. But it's already a pundit's dream topic, since it's more fun to lay blame than confront facts and complexity. The "Who lost" phrase is custom cut for G.O.P. presidential contenders to score points against Democratic candidate Al Gore, tagging him as the front man in the Clinton Administration's "failed policy." Capitol Hill is aboil with hearings, beginning this week, aimed at flogging the Administration for everything that's gone wrong in Russia. And the Clinton folks are fighting back with high-spin verbiage, casting the debate as a stark choice between helping Russia and abandoning it, and shifting the focus to another emotional campaign sound bite: "We're safer now, aren't we?"

The Scandals
A number of cases with obscure names like Benex and Mabetex are under investigation in Russia, Switzerland and the U.S. They're not connected, but taken together they seem to illustrate the remarkable variety of ways in which Russia was looted. Most so far involve sparse, unproved allegations, and it will take years before anyone knows whether any laws were broken and by whom. All the individuals whose names have surfaced deny any wrongdoing.

The scandal that set off Washington's alarms was the one that touched home at the Bank of New York. Federal agents were tipped off in August 1998 that unusually large amounts of money were zooming through the bank from Russian sources. Over the next 11 months, with the bank's cooperation, the Feds watched while at least $4.2 billion passed through several accounts, notably belonging to a mysterious British company called Benex Worldwide, then out to a confusing array of other banks and companies.