Russia
Looting The Russian Economy
May 2001 – 45’
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CHRIS MASTERS (REPORTER): No-one can be certain how many hundreds of billions were stolen.
RAYMOND BAKER, CENTRE FOR INTERNATIONAL POLICY: What's happened in Russia represents the greatest theft of resources that has ever occurred in history in a short period of time.
CHRIS MASTERS: What is certain is the money was moved offshore with breathtaking ease.
JACK BLUM, UNITED NATIONS CONSULTANT: In today's world, the money moves instantaneously.
The money is an electron somewhere on somebody's hard drive and maybe it's on multiple hard drives, but it can bounce from here to there faster than any legal system can ever figure out where it went.
CHRIS MASTERS: A matter of pressing a few buttons and with the click of a mouse, it was gone.
STUART EIZENSTAT, US TREASURY DEPUTY SECRETARY 1999-2001: Money laundering, as we know it now, is very much one of the dark sides of globalisation.
CHRIS MASTERS: Through the 1990s, between $200 and $500 billion was stripped from the former Soviet Union.
In tonight's program, we look at Australia's role in the beggaring of a nation.
And we look at why nations, including Australia, have targeted money laundering and Russian organised crime.
How good are Russian organised criminals at financial crime?
EMANUEL ZELTSER: They're fantastic.
The best in the world.
MAN: The sums of money are vast.
And with greed and with unscrupulousness and with complete disregard to laws, our very institutions are in peril.
Our economy is at risk.
CHRIS MASTERS: Globalisation and electronic banking have forever changed the way we move money.
JACK BLUM: There is nothing quite like the speed and seamlessness with which money moves around the world, irrespective of national boundaries.
And it's that which has brought into focus the system of nation-states and how largely irrelevant they become in a globalised, international economy.
JOHN WALKER, CRIME TREND ANALYST: And you can see the big figures, here.
In Europe, North America and thirdly, in Asia.
CHRIS MASTERS: The International Monetary Fund estimates between 2 per cent to 5 per cent of global wealth is being leaked and laundered.
JOHN WALKER: Um, my best guess is US$2.8 trillion a year, which is rather more than the IMF, for example -- their estimate of US$1 trillion I believe is undercounting a lot and particularly in the areas of fraud.
They tend to focus on drug crime and trafficking generally.
RAYMOND BAKER, CENTRE FOR INTERNATIONAL POLICY: And it doesn't really matter in analytical terms whether the correct figure is, er, half a billion, half a trillion, or $2 trillion a year.
Ah, the analysis is still the same.
It is the biggest loophole in the free market system.
ELIZABETH MONTANO, DIRECTOR, AUSTRAC: Economically, it's really important for us as a country.
It's the largest unregulated industry in the world.
CHRIS MASTERS: At least half of the billions to disappear from the old Soviet Union have been tracked to the United States.
JACK BLUM: If you want to ask the question why some countries haven't developed, the answer is that the capital that could've allowed the development has just been pulled out of the country to be used somewhere else.
CHRIS MASTERS: 10 years beyond the collapse of communism, Russians continue to use up their famous patience in waiting for the appearance of a better life.
CONGRESSMAN JAMES LEACH, CHAIR, HOUSE BANKING COMMITTEE: Well, if you take Russia as a case model, capital flight has far exceeded foreign investment and so we've seen an implosion of -- in Russian society, where the country's actually a poorer society than it was under communism -- and communism has given away to a kind of corruptionism.
CHRIS MASTERS: Along the streets of Moscow, there are no queues at the ATMs.
The banks, seemingly on every corner, are empty, while the moneychangers on every other corner are full.
And every Russian, it seems, tells the same story.
Much of the money lost has been lost from the pockets of ordinary people.
RUSSIAN MAN (TRANSLATION): I don't trust the banks, because I lost all my money when the banking structure collapsed and I'm scared.
RUSSIAN WOMAN (TRANSLATION): Well, first of all, I don't believe in them because I've lost all my money.
And secondly, when I put another sum into a private bank, I lost that, too.
Honestly speaking, I don't believe in anything now.
CHRIS MASTERS: Except, perhaps, the US dollar.
The collapse of Russian banks and the rouble has made the currency of preference the greenback.
Russians have as much as US$70 billion circulating in cash.
As I saw for myself when I went shopping, roubles are used for official purchases, but your savings are kept in dollars.
CHRIS MASTERS: And how much is that a jar?
MARKET VENDOR: $150. Oh, $150.
CHRIS MASTERS: Roubles.
MARKET VENDOR: Yeah.
CHRIS MASTERS: Not dollars.
MARKET VENDOR: Yes.
CHRIS MASTERS: OK.
MARKET VENDOR: Sorry, sorry.
CHRIS MASTERS: That's alright.
So how much are they?
RUSSIAN DOLL SELLER: At five pieces, $10.
CHRIS MASTERS: Five pieces for $10.
MAN ON STREET: Don't think about it.
It's only -- it's only roubles.
IRINA YASINA: FMR RUSSIAN CENTRAL BANK SPOKESPERSON (TRANSLATION): It's impossible to check how much money is circulating around Russia because it's money not kept in banks.
It's impossible to check every mattress, cupboard, drawer or safe, take the money out and calculate.
It's impossible.
CHRIS MASTERS: Inkombank, Russia's largest private bank, folded in 1998 after allegedly stealing a reported $1.5 billion from its investors.
Emanuel Zeltser had worked for them in 1993.
EMANUEL ZELTSER: Inkombank in 1994 was taken over, as were most large, Russian banks, by various organised crime factions in Russia and at that point the legitimate shareholders of Inkombank were locked out, essentially, and, ah, the organised crime groups took over and ran Inkombank as a corrupt criminal organisation ever since.
RUSSIAN MAN: The amount of officials that are involved in this kind of business --
CHRIS MASTERS: Another bank employee from another collapsed bank believes government officials were complicit in the looting of his bank.
RUSSIAN BANK EMPLOYEE (TRANSLATION): I think, ah, the money was divided, between the owners, bank owners and the people who stand behind them and some, maybe, officials who was in charge for banking system for Russian Federation.
CONGRESSMAN JAMES LEACH: What's happened in Russia's society is that the assets of the society have come to be controlled by a very, very few people.
I mean, we have this great huge landmass with this enormous wealth looking more and more like the tiny Central American states where seven or eight families once controlled.
CHRIS MASTERS: The privatisation of Russia's massive resources sector advanced huge opportunities for corruption.
Assets were sold down and profits shipped offshore.
Another source of plunder was money coming in.
JACK BLUM, UNITED NATIONS CONSULTANT: The Federal Reserve in the early '90s told the major New York money centre banks, "Guys, you have a responsibility to get in there "and help them become capitalists.
"You're going to show them the way."
CHRIS MASTERS: When Russia changed from command economy to a free market, new, private banks went up overnight, well before legislation could be put in place to regulate them.
JACK BLUM: The notion that 'bank' in Russia means the same thing it means somewhere else, the notion that you might have, out of the blue, out of this communist period a government system that effectively regulates the banks, and at the same time, banks that behave in ways that are acceptable by Western norms, was mad, absolutely mad.
CHRIS MASTERS: When the old iron curtain was pulled aside, it was replaced by what's become known as the iron triangle.
The triangular alliance between gangsters, powerful business figures known as oligarchs and corrupt officials.
We saw for ourselves police soliciting bribes at one of Moscow's many roadblocks.
An army of underpaid civil servants routinely stand over long-suffering civilians.
IRINA YASINA (TRANSLATION): That's why unfortunately the populations of Russia doesn't like our government.
Because our government is full of thieving bureaucrats.
OLEG LURIE, JOURNALIST (TRANSLATION): The system in Russia is different from other countries' standards.
Because in other countries people achieve high rank and then become corrupt.
Here it is different.
First of all they are stealing money, laundering money, tricking bank depositors, and then they take high position in government.
CHRIS MASTERS: After journalist Oleg Lurie reported on corrupt public officials and money laundering, he was brutally beaten.
OLEG LURIE: When they need to get something done they pick up the phone, say some code words, and the assassin is ready to do whatever needs to be done.
CHRIS MASTERS: Russian organised crime does have a character all its own.
When crime bosses gathered for their own presidium at a Prague restaurant they met a rare challenge -- from Czech police.
Missing from the line-up because his plane was late, was Semion Mogilevich, the billion dollar don, a man nominated by the Russian Interior Ministry as a top crime boss.
Semion Mogilevich is not your average gangster.
This is a crook with an economics degree.
Financial crime is very much a Russian specialty.
EMANUEL ZELTSER, EXEC.DIR. AMERICAN RUSSIAN LAW INSTITUTE: Well, Semion Mogilevich was kind of background in this whole thing.
Um, his name did not appear on any official records.
CHRIS MASTERS: Mogilevich is suspected of being one of the architects of one of the schemes that made up this greatest theft in human history.
It began here, when established Moscow banks obtained licences for further banks, DKB and Flamingo.
When we found our way to the addresses of these banks, there was, unsurprisingly, not a teller in sight.
CONGRESSMAN JAMES LEACH: These are banks that are set up to launder money and so they're money-laundering platforms rather than institutions to serve society.
CHRIS MASTERS: The first virtual bank -- DKB, bought another virtual bank -- Sinex, which they registered in far-off Nauru.
Sinex then opened an account with a Sydney bank to give it a credible mailing address.
JONATHAN WINER, DEPUTY ASSISTANT SECRETARY US STATE DEPARTMENT 1994-99: Here's how you do it.
You go on-line. You say, "I'm a bank.
"I have $10 million in capital.
"Here's my statement -- my financial statement by my dog's auditing firm."
And you set that bank up in a jurisdiction which won't enquire and you pay them their licensing fee, which might be $1,000 or $5,000 or $10,000 on some small island somewhere.
They're not going to inquire in back of it.
You have your board of directors made up of fake people or your dogs or cats or goldfish.
CHRIS MASTERS: Nauru in the Central Pacific was, up until 1968, an Australian-administered United Nations protectorate.
The local currency is still the Australian dollar.
But now with phosphate reserves that have sustained them near exhaustion, a series of collapsed investments and bills to pay, Nauru is desperate for a new source of wealth.
JACK BLUM: People of Nauru are probably not getting very much out of setting up banks.
What they've done is they've had some politician say, "Hey, we're going to make some money on bank licensing fees."
And, "Don't worry about it -- "none of these banks are going to be here in Nauru doing business.
"They're all offshore banks."
And that's how this banking sector came about.
CHRIS MASTERS: Did you know this particular bank that's talked about, that was registered in Nauru -- Sinex?
TONY AUDOA, CHAIR, NAURA AGENCY CORPORATION: Sinex -- I have not heard of them.
CHRIS MASTERS: But isn't that one of the banks that's registered with your corporation?
TONY AUDOA: Well, I cannot say. It could be. But I'm new.
I've just been a chairman for the last two weeks and I'm still groping my way around.
CHRIS MASTERS: Nauru has gone the way of many small nations by establishing a virtual financial services industry.
This modest building -- the Nauru Agency Corporation, became a licensing agent for around 400 Russian banks.
So there's no real bank in that shack on the beach at Nauru?
JACK BLUM: No. There's no real banking.
You won't get a toaster when you open an account.
There are no depositors, no accounts, no nothing.
CHRIS MASTERS: Is there corruption in the Government of Nauru?
TONY AUDOA: Corruption? Yes.
I cannot say there is no corruption.
There is corruption and there is a lot of people who wants to fill up their own pockets.
That's why Nauru has become, uh -- media -- ..so much in the media.
CHRIS MASTERS: Is there corruption that's related to the business of the Nauru Agency Corporation?
TONY AUDOA: There is no corruption in terms of money laundering or things like that.
CHRIS MASTERS: According to the Russian Central Bank, in 1998 alone, more than $70 billion exiting Russia was distributed by virtue of this building -- Nauru's notorious billion-dollar shack.
JONATHAN WINER: The $70 billion moved through bank accounts licensed by Nauru, kept at big institutions in places like New York, London, Paris, Sydney. That's what really happened.
And the Australian authorities and the US authorities didn't see it because they weren't looking, at that point, at banks of Nauru.
And the Nauru authorities weren't paying any attention whatsoever.
CHRIS MASTERS: So you don't monitor the transactions at all?
TONY AUDOA: No. No, we don't.
CHRIS MASTERS: The Russian shell bank Sinex and the Nauru Agency Corporation provided the loophole that enabled the billions to pour into legitimate banks.
Although Sinex was not licensed to operate in the United States, it did so by capitalising on its correspondent relationship with credible US banks.
ELISE BEAN, US SENATE INVESTIGATOR: What we've found is that US banks were opening accounts -- they call them correspondent accounts.
These are accounts that they open for other banks.
Now, most people, when they think of a bank, they think of an established jurisdiction with a nice building and a bank president who's very cautious and prudent, but there are banks and there are banks.
And we've found that some of these accounts are being opened for banks that didn't even have a physical presence.
CHRIS MASTERS: The Nauru Agency Corporation, with a staff of five, had little capacity to know who their customers were.
While the US banks they were linked to had no such excuse, they also failed the 'know your customer' test.
CONGRESSMAN JAMES LEACH: The United States banking system has more regulators than the entire population of Nauru, and so there should be a greater capacity to look at these things within a society like our own and other places.
CHRIS MASTERS: The Sinex transactions, normally invisible, have now in part come to light, revealing how easy it is to rob the life savings of a nation.
STUART EIZENSTAT, US TREASURY DEPUTY SECRETARY 1999-2001: It was a classic example but there there were insiders, it appears -- in the bank itself -- who were facilitating the money coming through -- ..this bank from Russia.
CHRIS MASTERS: The Bank of New York, which gave an identified $7 billion of Russian assets its final rinse, had been infiltrated.
Lucy Edwards, a US citizen, was formerly Ludmilla Pritsker from Leningrad.
Shoplifting convictions and no obvious banking experience did not stop her rising to a senior position.
Lucy Edwards came to be a vice-president of that bank.
Was she well qualified for a job like that?
I mean, what, realistically were her qualifications?
EMANUEL ZELTSER: Being able to bring the business in, primarily.
CHRIS MASTERS: Lucy Edwards was tapped into New York's large Russian community.
Russian communities abroad are a common destination for capital flow.
Lucy's most important connection had an office here in Queens, between a cut-price department store and a coffee shop.
Between 1996 and 1999, Peter Berlin, a PhD graduate from a Moscow university, travelled to his Queens offices where he ran companies like Benex.
Despite all modest appearances, Benex had the cash flow of a multinational.
EMANUEL ZELTSER: Peter Berlin, prior to this whole business with the Bank of New York, was not particularly well-known.
Um, he was an American citizen --
Naturalised American citizen.
Obviously originally came from Russia.
And started at some point his company, Benex, which was meant to be something, er -- ..of a Russian version of, er, Western Union.
CHRIS MASTERS: Peter Berlin's wife was the same Lucy Edwards from the Bank of New York.
There, Berlin opened an account which enabled him to access the bank's software.
This meant that, without leaving his office, he could bounce these billions around the globe and into the pockets of their beneficial owners.
As we'll later show, some of it ending up in Australia.
JACK BLUM: The money is travelling, but not very far.
It's from one part of the hard drive to another.
Er, there could very well be 10 foreign banks in 10 countries -- all of which have accounts in the Bank of New York.
And when the money goes from Nauru to Vanuatu, from Vanuatu to Grenada, it's really moving bumpity-bump from one account to another.
One correspondent account to another in the same bank in New York City.
CHRIS MASTERS: Senior management of the bank came to refer to its electronic funds transfer business as the golden child of the bank.
JACK BLUM: Pure add-on profit to open a correspondent account when you have all that spare computer capacity.
So, they attracted a very large number of shell banks from all around the world.
And if you opened a correspondent account at the Bank of New York, you have the right piece of paper, you showed you were licensed somewhere, you would get a CD-ROM that gave you access to the Bank of New York's computers.
And you could then do your banking from wherever your portable computer sat.
CHRIS MASTERS: Edwards and Berlin were finally busted when British police, tracking kidnap money that had flowed through Benex, alerted the FBI.
JONATHAN WINER, DEPUTY ASSISTANT SECRETARY US STATE DEPARTMENT 1994-99: The reason I heard about it was the foreign law enforcement officials were tremendously worried that the United States was not being aggressive enough to respond.
And they told me because they wanted somebody to say -- to the Attorney-General of the United States, to the head of the FBI, to the head of the CIA, to whomever --
..the head of the Treasury -- "Do something about this!
This is a problem.
"All the money of Russia's going through this account -- stop it!"
CHRIS MASTERS: Following their arrest, Edwards and Berlin pleaded guilty.
They are currently co-operating with authorities intent on identifying the shadowy figures beyond them.
EMANUEL ZELTSER: They played a role but it was very small.
Er, a lot larger role was played by Russian oligarchs, by, er, corrupt Russian government officials.
CHRIS MASTERS: Just as clearly, United States financial institutions also played a role in cleaning the money.
The Bank of New York admitted to doing business with around 160 Russian banks.
RAYMOND BAKER, CENTRE FOR INTERNATIONAL POLICY: I would suggest that with that number of correspondent banking relationships, Bank of New York knew that it must have been receiving some amount of dirty money, criminal in origin.
That money comes in looking as though it is not criminal, but when you have that many relationships I think you have to take it that some fair part of it is.
CHRIS MASTERS: The hundreds of billions in capital outflow has as much as beggared a nation.
The United States, the principal destination for laundered wealth, might have understandably turned a blind eye to its improving fortune.
But here in Russia, both eyes are closed, the Russians proving uncooperative in recovering their own money.
CONGRESSMAN JAMES LEACH: No country has a greater vested interest from the people's point of view on co-operation with an American money laundering review than Russia.
And yet their government has chosen the opposite tack.
JONATHAN WINER: The response I got from the prosecutors was, "Well, you know -- sigh -- we're not a normal country yet."
CHRIS MASTERS: The economic adviser to former President Yeltsin was one of many to insist that most capital outflow was not black money.
ALEXANDER LIVSHITS, RUSSIAN FINANCE MINISTER (1996-97) (TRANSLATION): The reason for using this grey area to take capital out of Russia is high inflation and the negative climate for investors.
CHRIS MASTERS: Whether black, white or grey, the money lost from the people represents the savings and hope of a generation.
IRINA YASINA, FMR RUSSIAN CENTRAL BANK SPOKESPERSON (TRANSLATION): We were all born and raised in the system of concentration camps.
Now we have a new generation.
My daughter can't understand what the meaning of an empty shop is.
She's 12-years-old and she thinks I am joking when I tell her that when she was born there was nothing to buy in the shops.
PROF. VALERY SERGEEV, RUSSIAN BANKERS' ASSOCIATION (TRANSLATION): For us the process is extremely painful because we've been through a series of social experiments.
A whole generation has lost its optimism.
Some people don't even know how to work anymore.
CHRIS MASTERS: Outside Moscow, the stocks of hope are further depleted.
LOCAL RUSSIAN WOMAN (TRANSLATION): I don't have any money.
We've pretty poor.
Everything we have we spend on food.
CHRIS MASTERS: As is the way, the rougher the road, the gentler the kindness.
In the village of Pekhora, a pensioner living a mile below the Australian poverty line warmed us with tea and cake.
WOMAN FROM PEKHORA (TRANSLATION): I feel pain.
Lots of unfair things happen.
CHRIS MASTERS: The loss of capital has translated in the minds of many as final proof of the evils of capitalism.
WOMAN FROM PEKHORA (TRANSLATION): During the Khrushev era, you turned on the TV and the first picture would be a tractor.
moving across the field, it made you feel so good because you knew harvest was just about to start.
But now when you turn on the TV the only news you see is about bankruptcy and financial operations.
How can I trust the banks?
I put money into the bank, but it stole my money.
I've been left with nothing.
CONGRESSMAN JAMES LEACH, CHAIR, HOUSE BANKING COMMITTEE: Well, the current struggle, among other things, has some philosophical definitional aspects.
For example, to the degree that Russian people equate free markets and capitalism with theft.
CHRIS MASTERS: The theft is not confined to Russia.
Russian organised crime reaches far, as far as Nauru, and it follows Australia.
Nauru as much as operates from Melbourne, from Nauru House.
But as we discovered, government and business has ground to a halt.
Four Corners received no replies to written requests to interview the President.
Haven't they been sacking people right and left at the moment?
TONY AUDOA: They have -- There's no -- there's no -- there's no board of directors.
Come in.
You're welcome.
CHRIS MASTERS: Tony Audoa, a member of the parliament but not the government, showed us around.
The offices, like Nauru's coffers, were mostly empty.
The President was not in and the Consul General had been sacked.
But as far as the Nauru Agency Corporation goes, it appears it's business as usual.
TONY AUDOA: Firstly, it is our sovereign right to choose what business to go into.
And secondly, we see this is from the example of other countries' offshore finance centre that have done very well, we like to follow that example.
CHRIS MASTERS: Nauru had claimed that it stopped registration of Russian banks and suspended its arrangements with referees promoting its business -- which is clearly not so.
A former Russian bank worker showed us that for US$18,000, Nauru continues to promise to keep your bank secret and ensure records stay hidden.
FORMER RUSSIAN BANK WORKER: They have an office in Crows Nest in Sydney, Australia.
And the correspondence also goes to Australia.
And I believe these telephone numbers -- also Australian.
CHRIS MASTERS: So you go right around the world and find Nauru's secret banking service being sold from suburban Sydney.
Suite 201, they state -- which, as you can see, is hardly likely.
The grand offices of FX Consultants turned out to be a forwarding service.
Are you satisfied that the clients that you have had are honest people?
TONY AUDOA, CHAIR, NAURA AGENCY CORPORATION: So far, yes.
And whatever they do in their own country --
..that is not our jurisdiction to look into.
CHRIS MASTERS: Last year, the OECD made the bold move of blacklisting 15 countries slow to cooperate in the fight against money laundering.
Nauru has continued to resist reforms to banking secrecy.
Why not accept those transparency provisions?
TONY AUDOA: If we accept that, it will be just like signing our death warrant.
RAYMOND BAKER, CENTRE FOR INTERNATIONAL POLICY: Chris, I can't imagine that they have anything to contribute to the international financial system.
I would encourage the island to find other sources of wealth and income rather than trying to participate in a process that is criminal, that is destructive, and that will steadily be impinged upon as we address this issue more forthrightly.
CHRIS MASTERS: Considering the possibility of sanctions -- what changes would you be prepared to make as Chairman of the Nauru Agency Corporation to the way the NAC does its business?
TONY AUDOA: Our business at the moment is impeccable.
CHRIS MASTERS: Nauru and Russia in common on the OECD blacklist in common accuse the West of hypocrisy.
ALEXANDER LIVSHITS (RUSSIAN FINANCE MINISTER (1996-97) (TRANSLATION): Russians didn't create offshore banks.
We didn't even have the word 'offshore' in our dictionaries.
Russians didn't create corruption.
We didn't have that word before either.
CONGRESSMAN JAMES LEACH: What the Russians have simply done is allow a new class of kleptocrats to control and coming to control, they have a hard time giving up.
I believe at some point, this is going to collapse and there is going to be a reaction that's very severe.
And one of the great questions is whether this is going to be a reaction that is for clean and honest government, or whether it's going to be a reaction that's going to be very nationalistically angry.
CHRIS MASTERS: In the United States, there has been thousands of pages of soul searching into the world's biggest economy's own role in money laundering as revealed by the Bank of New York affair.
The complaint about, say, the Nauru Agency Corporation is that it simply doesn't know who it's dealing with.
Wasn't that the same with some of the banks in the United States?
ELISE BEAN, US SENATE INVESTIGATOR: Yes, it was.
We found, in a number of cases, when we went to US banks and told them about the foreign banks that they had as clients, they were really surprised and had no idea.
RAYMOND BAKER: It is not illegal for us to receive corrupt money from other parts of the world.
It is certainly not illegal to receive commercially tax-evading money.
A great deal of this money comes into our coffers and is facilitated by the Western banking and Western business systems including the United States.
CONGRESSMAN JAMES LEACH: Well, it's not been a happy episode for American banking.
But we have pretty firm laws, and the basic regulatory system, coupled with the fact that grand juries are meeting in New York, has implied that there will be accountability before long.
CHRIS MASTERS: In contrast, in Australia, there's been no public debate about the vulnerability of our identical correspondent relationships.
CHRIS MASTERS: Were Australian banks involved in any way in the transfer of moneys that went between Russian, Nauru and the Bank of New York?
RICK McDONELL, ASIA PACIFIC GROUP ON MONEY LAUNDERING: Er, I am not certain of that, but I think Nauru does not itself have any bricks-and-mortar banks on the ground there, apart from one small establishment, I think.
And the banks that do allow operations there are Australian banks.
So I would not be surprised if that had to be the actual vehicle for some transactions, yes.
CHRIS MASTERS: That Australian banks were a link in the chain?
RICK McDONELL: Yes.
Inadvertently, probably.
But as a part of it, probably yes.
CHRIS MASTERS: Four Corners has learned that a proportion of the Bank of New York/Benex billions bouncing around the globe did touch Australia.
Between $20 and $60 million passed through our banks, some of it remaining in Australia.
SENATOR CHRIS ELLISON, FEDERAL MINISTER FOR JUSTICE: I've asked the Australian Federal Police to have a look at this, and I really can't comment further on that.
It's an operational matter.
But suffice to say it has been a cause of concern for us, and we're -- we're looking at it.
And AUSTRAC, of course, are doing a review in a systematic --
system -- systemic sense of whether we need to take action to stop this sort of thing in the future, and I expect to have a report from AUSTRAC in the very near future.
CHRIS MASTERS: In Australia, we are told the big four banks all have correspondent accounts, some with shell banks.
AUSTRAC, the Federal Government's cash transaction monitoring program, analyses around 55 million transactions every day.
ELIZABETH MONTANO, DIRECTOR, AUSTRAC: We do a lot of monitoring, um, we pull up, make connections, and then that goes off to be further analysed.
So we can keep up with the race as far as you can see?
ELIZABETH MONTANO: Um -- I don't think any system ever is totally on top.
It's a question of -- a reasonable counter-measure is taken to deal with the issue.
If you really wanted to deal with everything, you would slow everything down.
And we can't do that.
We want open markets.
CHRIS MASTERS: When we asked who supervises correspondent banking in Australia, the Reserve Bank told us it was the Australian Prudential Regulation Authority.
APRA in turn told us it was AUSTRAC.
Both were wrong.
AUSTRAC does not monitor bank-to-bank dealings.
The banks largely self-regulate.
ELIZABETH MONTANO: I have to say, this is an area we don't get a lot of reports about, and it's something that we'd like to see banks do more thinking about.
RICK MCDONELL: I think it's an essential, fundamental weakness in the system.
SENATOR CHRIS ELLISON: Corresponding banks don't have that, er, that strictness, if you like, but they do have the obligation to report suspect transactions.
Now that is an overarching obligation for banks, and they should be meeting that obligation.
If they don't, then of course there are ramifications for the financial system and anti-money laundering strategies.
CHRIS MASTERS: So are they doing it?
Are they reporting a lot of suspicious bank-to-bank transactions?
SENATOR CHRIS ELLISON: Well, I think the review that we're conducting in relation to this New York bank case will definitely assist the Government in determining that question.
CHRIS MASTERS: Next month, the OECD tightens the noose on non-cooperative countries like Nauru, the Philippines and Russia.
RICK MCDONELL: At the highest level, there is talk about economic sanctions or reduction or cutting out of transactions altogether.
I'm not sure if it will get to that point, but that would be an extremely serious sanction.
CHRIS MASTERS: So if I'm hearing this correctly, there's a chance we're about to declare economic war on, among others, one of the world's most powerful nations.
EMANUEL ZELTSER, EXEC.
DIR.
AMERICAN RUSSIAN LAW INSTITUTE: Russia cannot be isolated by definition.
It's a country which still has 35,000 nuclear warheads.
So it certainly has to be kept within the community, even from the point of view that you have to keep your enemies closer than your friends.
Er, I don't believe that Russia will ever be isolated.
On the highest levels, there will always be financial support, even if the governments who provide that support fully understand that 90 per cent of it will go to the private pockets.
JONATHAN WINER, DEPUTY ASSISTANT SECRETARY US STATE DEPARTMENT 1994-99: It's potentially quite dangerous if you look at what's happened in Russia where the life expectancy continues to drop to levels not seen in this entire century.
That's happening, in part, because the country has been robbed blind by financial criminals.
And everything starts falling apart.
When that starts affecting 100 million people at a time, that begins to have an effect on the whole world, because you can't quarantine 100 million people.
You can quarantine 20,000, potentially, from the financial system, but you can't and shouldn't want to quarantine hundreds of millions.
And those are the kinds of numbers of lives that can be affected, in a significant way, by financial crime when it gets out of control.
CHRIS MASTERS: Across the global economy, legitimate and illegitimate streams of wealth proceed as if along two rails of the same track.
Anti-money laundering strategies are meant to confront both sides, attacking crime and defending our financial systems.
Through the National Crime Authority, AUSTRAC and the Australian Federal Police, Australia recognises money laundering as a law enforcement issue.
But unlike many nations, we've been slow to see it as a Treasury and revenue issue.
Slow to recognise that as the tracks merge, our legitimate institutions are corrupted.
JONATHAN WINER: Well, there is a dark side of globalisation, and this is a very substantial component of it.
If you think of all the wonderful goods and services that get moved around the earth every day, and the infrastructure that supports them -- the ships, the electronics, the communication systems, the telephone systems, the banking systems -- they move a ton of goods and services every day -- many, many tons -- that serve the billions of people on this earth.
But there is a dark side.
And there is illicit stuff moving through the same network, without barriers, and governments have been very slow to understand that they need common approaches to examining and understanding what is moving, er, through that infrastructure.
CHRIS MASTERS: The question for us is, when money flows into banks in New York and here in Australia, how good are we at calling a halt?
JACK BLUM: Through all history, crime is a bit of a race between the forces of good and the forces of evil.
Reporter: Chris Masters
Producer: Morag Ramsay
Research: Linda Larsen
Looting The Russian Economy
May 2001 – 45’
Suggested Link:
CHRIS MASTERS (REPORTER): No-one can be certain how many hundreds of billions were stolen.
RAYMOND BAKER, CENTRE FOR INTERNATIONAL POLICY: What's happened in Russia represents the greatest theft of resources that has ever occurred in history in a short period of time.
CHRIS MASTERS: What is certain is the money was moved offshore with breathtaking ease.
JACK BLUM, UNITED NATIONS CONSULTANT: In today's world, the money moves instantaneously.
The money is an electron somewhere on somebody's hard drive and maybe it's on multiple hard drives, but it can bounce from here to there faster than any legal system can ever figure out where it went.
CHRIS MASTERS: A matter of pressing a few buttons and with the click of a mouse, it was gone.
STUART EIZENSTAT, US TREASURY DEPUTY SECRETARY 1999-2001: Money laundering, as we know it now, is very much one of the dark sides of globalisation.
CHRIS MASTERS: Through the 1990s, between $200 and $500 billion was stripped from the former Soviet Union.
In tonight's program, we look at Australia's role in the beggaring of a nation.
And we look at why nations, including Australia, have targeted money laundering and Russian organised crime.
How good are Russian organised criminals at financial crime?
EMANUEL ZELTSER: They're fantastic.
The best in the world.
MAN: The sums of money are vast.
And with greed and with unscrupulousness and with complete disregard to laws, our very institutions are in peril.
Our economy is at risk.
CHRIS MASTERS: Globalisation and electronic banking have forever changed the way we move money.
JACK BLUM: There is nothing quite like the speed and seamlessness with which money moves around the world, irrespective of national boundaries.
And it's that which has brought into focus the system of nation-states and how largely irrelevant they become in a globalised, international economy.
JOHN WALKER, CRIME TREND ANALYST: And you can see the big figures, here.
In Europe, North America and thirdly, in Asia.
CHRIS MASTERS: The International Monetary Fund estimates between 2 per cent to 5 per cent of global wealth is being leaked and laundered.
JOHN WALKER: Um, my best guess is US$2.8 trillion a year, which is rather more than the IMF, for example -- their estimate of US$1 trillion I believe is undercounting a lot and particularly in the areas of fraud.
They tend to focus on drug crime and trafficking generally.
RAYMOND BAKER, CENTRE FOR INTERNATIONAL POLICY: And it doesn't really matter in analytical terms whether the correct figure is, er, half a billion, half a trillion, or $2 trillion a year.
Ah, the analysis is still the same.
It is the biggest loophole in the free market system.
ELIZABETH MONTANO, DIRECTOR, AUSTRAC: Economically, it's really important for us as a country.
It's the largest unregulated industry in the world.
CHRIS MASTERS: At least half of the billions to disappear from the old Soviet Union have been tracked to the United States.
JACK BLUM: If you want to ask the question why some countries haven't developed, the answer is that the capital that could've allowed the development has just been pulled out of the country to be used somewhere else.
CHRIS MASTERS: 10 years beyond the collapse of communism, Russians continue to use up their famous patience in waiting for the appearance of a better life.
CONGRESSMAN JAMES LEACH, CHAIR, HOUSE BANKING COMMITTEE: Well, if you take Russia as a case model, capital flight has far exceeded foreign investment and so we've seen an implosion of -- in Russian society, where the country's actually a poorer society than it was under communism -- and communism has given away to a kind of corruptionism.
CHRIS MASTERS: Along the streets of Moscow, there are no queues at the ATMs.
The banks, seemingly on every corner, are empty, while the moneychangers on every other corner are full.
And every Russian, it seems, tells the same story.
Much of the money lost has been lost from the pockets of ordinary people.
RUSSIAN MAN (TRANSLATION): I don't trust the banks, because I lost all my money when the banking structure collapsed and I'm scared.
RUSSIAN WOMAN (TRANSLATION): Well, first of all, I don't believe in them because I've lost all my money.
And secondly, when I put another sum into a private bank, I lost that, too.
Honestly speaking, I don't believe in anything now.
CHRIS MASTERS: Except, perhaps, the US dollar.
The collapse of Russian banks and the rouble has made the currency of preference the greenback.
Russians have as much as US$70 billion circulating in cash.
As I saw for myself when I went shopping, roubles are used for official purchases, but your savings are kept in dollars.
CHRIS MASTERS: And how much is that a jar?
MARKET VENDOR: $150. Oh, $150.
CHRIS MASTERS: Roubles.
MARKET VENDOR: Yeah.
CHRIS MASTERS: Not dollars.
MARKET VENDOR: Yes.
CHRIS MASTERS: OK.
MARKET VENDOR: Sorry, sorry.
CHRIS MASTERS: That's alright.
So how much are they?
RUSSIAN DOLL SELLER: At five pieces, $10.
CHRIS MASTERS: Five pieces for $10.
MAN ON STREET: Don't think about it.
It's only -- it's only roubles.
IRINA YASINA: FMR RUSSIAN CENTRAL BANK SPOKESPERSON (TRANSLATION): It's impossible to check how much money is circulating around Russia because it's money not kept in banks.
It's impossible to check every mattress, cupboard, drawer or safe, take the money out and calculate.
It's impossible.
CHRIS MASTERS: Inkombank, Russia's largest private bank, folded in 1998 after allegedly stealing a reported $1.5 billion from its investors.
Emanuel Zeltser had worked for them in 1993.
EMANUEL ZELTSER: Inkombank in 1994 was taken over, as were most large, Russian banks, by various organised crime factions in Russia and at that point the legitimate shareholders of Inkombank were locked out, essentially, and, ah, the organised crime groups took over and ran Inkombank as a corrupt criminal organisation ever since.
RUSSIAN MAN: The amount of officials that are involved in this kind of business --
CHRIS MASTERS: Another bank employee from another collapsed bank believes government officials were complicit in the looting of his bank.
RUSSIAN BANK EMPLOYEE (TRANSLATION): I think, ah, the money was divided, between the owners, bank owners and the people who stand behind them and some, maybe, officials who was in charge for banking system for Russian Federation.
CONGRESSMAN JAMES LEACH: What's happened in Russia's society is that the assets of the society have come to be controlled by a very, very few people.
I mean, we have this great huge landmass with this enormous wealth looking more and more like the tiny Central American states where seven or eight families once controlled.
CHRIS MASTERS: The privatisation of Russia's massive resources sector advanced huge opportunities for corruption.
Assets were sold down and profits shipped offshore.
Another source of plunder was money coming in.
JACK BLUM, UNITED NATIONS CONSULTANT: The Federal Reserve in the early '90s told the major New York money centre banks, "Guys, you have a responsibility to get in there "and help them become capitalists.
"You're going to show them the way."
CHRIS MASTERS: When Russia changed from command economy to a free market, new, private banks went up overnight, well before legislation could be put in place to regulate them.
JACK BLUM: The notion that 'bank' in Russia means the same thing it means somewhere else, the notion that you might have, out of the blue, out of this communist period a government system that effectively regulates the banks, and at the same time, banks that behave in ways that are acceptable by Western norms, was mad, absolutely mad.
CHRIS MASTERS: When the old iron curtain was pulled aside, it was replaced by what's become known as the iron triangle.
The triangular alliance between gangsters, powerful business figures known as oligarchs and corrupt officials.
We saw for ourselves police soliciting bribes at one of Moscow's many roadblocks.
An army of underpaid civil servants routinely stand over long-suffering civilians.
IRINA YASINA (TRANSLATION): That's why unfortunately the populations of Russia doesn't like our government.
Because our government is full of thieving bureaucrats.
OLEG LURIE, JOURNALIST (TRANSLATION): The system in Russia is different from other countries' standards.
Because in other countries people achieve high rank and then become corrupt.
Here it is different.
First of all they are stealing money, laundering money, tricking bank depositors, and then they take high position in government.
CHRIS MASTERS: After journalist Oleg Lurie reported on corrupt public officials and money laundering, he was brutally beaten.
OLEG LURIE: When they need to get something done they pick up the phone, say some code words, and the assassin is ready to do whatever needs to be done.
CHRIS MASTERS: Russian organised crime does have a character all its own.
When crime bosses gathered for their own presidium at a Prague restaurant they met a rare challenge -- from Czech police.
Missing from the line-up because his plane was late, was Semion Mogilevich, the billion dollar don, a man nominated by the Russian Interior Ministry as a top crime boss.
Semion Mogilevich is not your average gangster.
This is a crook with an economics degree.
Financial crime is very much a Russian specialty.
EMANUEL ZELTSER, EXEC.DIR. AMERICAN RUSSIAN LAW INSTITUTE: Well, Semion Mogilevich was kind of background in this whole thing.
Um, his name did not appear on any official records.
CHRIS MASTERS: Mogilevich is suspected of being one of the architects of one of the schemes that made up this greatest theft in human history.
It began here, when established Moscow banks obtained licences for further banks, DKB and Flamingo.
When we found our way to the addresses of these banks, there was, unsurprisingly, not a teller in sight.
CONGRESSMAN JAMES LEACH: These are banks that are set up to launder money and so they're money-laundering platforms rather than institutions to serve society.
CHRIS MASTERS: The first virtual bank -- DKB, bought another virtual bank -- Sinex, which they registered in far-off Nauru.
Sinex then opened an account with a Sydney bank to give it a credible mailing address.
JONATHAN WINER, DEPUTY ASSISTANT SECRETARY US STATE DEPARTMENT 1994-99: Here's how you do it.
You go on-line. You say, "I'm a bank.
"I have $10 million in capital.
"Here's my statement -- my financial statement by my dog's auditing firm."
And you set that bank up in a jurisdiction which won't enquire and you pay them their licensing fee, which might be $1,000 or $5,000 or $10,000 on some small island somewhere.
They're not going to inquire in back of it.
You have your board of directors made up of fake people or your dogs or cats or goldfish.
CHRIS MASTERS: Nauru in the Central Pacific was, up until 1968, an Australian-administered United Nations protectorate.
The local currency is still the Australian dollar.
But now with phosphate reserves that have sustained them near exhaustion, a series of collapsed investments and bills to pay, Nauru is desperate for a new source of wealth.
JACK BLUM: People of Nauru are probably not getting very much out of setting up banks.
What they've done is they've had some politician say, "Hey, we're going to make some money on bank licensing fees."
And, "Don't worry about it -- "none of these banks are going to be here in Nauru doing business.
"They're all offshore banks."
And that's how this banking sector came about.
CHRIS MASTERS: Did you know this particular bank that's talked about, that was registered in Nauru -- Sinex?
TONY AUDOA, CHAIR, NAURA AGENCY CORPORATION: Sinex -- I have not heard of them.
CHRIS MASTERS: But isn't that one of the banks that's registered with your corporation?
TONY AUDOA: Well, I cannot say. It could be. But I'm new.
I've just been a chairman for the last two weeks and I'm still groping my way around.
CHRIS MASTERS: Nauru has gone the way of many small nations by establishing a virtual financial services industry.
This modest building -- the Nauru Agency Corporation, became a licensing agent for around 400 Russian banks.
So there's no real bank in that shack on the beach at Nauru?
JACK BLUM: No. There's no real banking.
You won't get a toaster when you open an account.
There are no depositors, no accounts, no nothing.
CHRIS MASTERS: Is there corruption in the Government of Nauru?
TONY AUDOA: Corruption? Yes.
I cannot say there is no corruption.
There is corruption and there is a lot of people who wants to fill up their own pockets.
That's why Nauru has become, uh -- media -- ..so much in the media.
CHRIS MASTERS: Is there corruption that's related to the business of the Nauru Agency Corporation?
TONY AUDOA: There is no corruption in terms of money laundering or things like that.
CHRIS MASTERS: According to the Russian Central Bank, in 1998 alone, more than $70 billion exiting Russia was distributed by virtue of this building -- Nauru's notorious billion-dollar shack.
JONATHAN WINER: The $70 billion moved through bank accounts licensed by Nauru, kept at big institutions in places like New York, London, Paris, Sydney. That's what really happened.
And the Australian authorities and the US authorities didn't see it because they weren't looking, at that point, at banks of Nauru.
And the Nauru authorities weren't paying any attention whatsoever.
CHRIS MASTERS: So you don't monitor the transactions at all?
TONY AUDOA: No. No, we don't.
CHRIS MASTERS: The Russian shell bank Sinex and the Nauru Agency Corporation provided the loophole that enabled the billions to pour into legitimate banks.
Although Sinex was not licensed to operate in the United States, it did so by capitalising on its correspondent relationship with credible US banks.
ELISE BEAN, US SENATE INVESTIGATOR: What we've found is that US banks were opening accounts -- they call them correspondent accounts.
These are accounts that they open for other banks.
Now, most people, when they think of a bank, they think of an established jurisdiction with a nice building and a bank president who's very cautious and prudent, but there are banks and there are banks.
And we've found that some of these accounts are being opened for banks that didn't even have a physical presence.
CHRIS MASTERS: The Nauru Agency Corporation, with a staff of five, had little capacity to know who their customers were.
While the US banks they were linked to had no such excuse, they also failed the 'know your customer' test.
CONGRESSMAN JAMES LEACH: The United States banking system has more regulators than the entire population of Nauru, and so there should be a greater capacity to look at these things within a society like our own and other places.
CHRIS MASTERS: The Sinex transactions, normally invisible, have now in part come to light, revealing how easy it is to rob the life savings of a nation.
STUART EIZENSTAT, US TREASURY DEPUTY SECRETARY 1999-2001: It was a classic example but there there were insiders, it appears -- in the bank itself -- who were facilitating the money coming through -- ..this bank from Russia.
CHRIS MASTERS: The Bank of New York, which gave an identified $7 billion of Russian assets its final rinse, had been infiltrated.
Lucy Edwards, a US citizen, was formerly Ludmilla Pritsker from Leningrad.
Shoplifting convictions and no obvious banking experience did not stop her rising to a senior position.
Lucy Edwards came to be a vice-president of that bank.
Was she well qualified for a job like that?
I mean, what, realistically were her qualifications?
EMANUEL ZELTSER: Being able to bring the business in, primarily.
CHRIS MASTERS: Lucy Edwards was tapped into New York's large Russian community.
Russian communities abroad are a common destination for capital flow.
Lucy's most important connection had an office here in Queens, between a cut-price department store and a coffee shop.
Between 1996 and 1999, Peter Berlin, a PhD graduate from a Moscow university, travelled to his Queens offices where he ran companies like Benex.
Despite all modest appearances, Benex had the cash flow of a multinational.
EMANUEL ZELTSER: Peter Berlin, prior to this whole business with the Bank of New York, was not particularly well-known.
Um, he was an American citizen --
Naturalised American citizen.
Obviously originally came from Russia.
And started at some point his company, Benex, which was meant to be something, er -- ..of a Russian version of, er, Western Union.
CHRIS MASTERS: Peter Berlin's wife was the same Lucy Edwards from the Bank of New York.
There, Berlin opened an account which enabled him to access the bank's software.
This meant that, without leaving his office, he could bounce these billions around the globe and into the pockets of their beneficial owners.
As we'll later show, some of it ending up in Australia.
JACK BLUM: The money is travelling, but not very far.
It's from one part of the hard drive to another.
Er, there could very well be 10 foreign banks in 10 countries -- all of which have accounts in the Bank of New York.
And when the money goes from Nauru to Vanuatu, from Vanuatu to Grenada, it's really moving bumpity-bump from one account to another.
One correspondent account to another in the same bank in New York City.
CHRIS MASTERS: Senior management of the bank came to refer to its electronic funds transfer business as the golden child of the bank.
JACK BLUM: Pure add-on profit to open a correspondent account when you have all that spare computer capacity.
So, they attracted a very large number of shell banks from all around the world.
And if you opened a correspondent account at the Bank of New York, you have the right piece of paper, you showed you were licensed somewhere, you would get a CD-ROM that gave you access to the Bank of New York's computers.
And you could then do your banking from wherever your portable computer sat.
CHRIS MASTERS: Edwards and Berlin were finally busted when British police, tracking kidnap money that had flowed through Benex, alerted the FBI.
JONATHAN WINER, DEPUTY ASSISTANT SECRETARY US STATE DEPARTMENT 1994-99: The reason I heard about it was the foreign law enforcement officials were tremendously worried that the United States was not being aggressive enough to respond.
And they told me because they wanted somebody to say -- to the Attorney-General of the United States, to the head of the FBI, to the head of the CIA, to whomever --
..the head of the Treasury -- "Do something about this!
This is a problem.
"All the money of Russia's going through this account -- stop it!"
CHRIS MASTERS: Following their arrest, Edwards and Berlin pleaded guilty.
They are currently co-operating with authorities intent on identifying the shadowy figures beyond them.
EMANUEL ZELTSER: They played a role but it was very small.
Er, a lot larger role was played by Russian oligarchs, by, er, corrupt Russian government officials.
CHRIS MASTERS: Just as clearly, United States financial institutions also played a role in cleaning the money.
The Bank of New York admitted to doing business with around 160 Russian banks.
RAYMOND BAKER, CENTRE FOR INTERNATIONAL POLICY: I would suggest that with that number of correspondent banking relationships, Bank of New York knew that it must have been receiving some amount of dirty money, criminal in origin.
That money comes in looking as though it is not criminal, but when you have that many relationships I think you have to take it that some fair part of it is.
CHRIS MASTERS: The hundreds of billions in capital outflow has as much as beggared a nation.
The United States, the principal destination for laundered wealth, might have understandably turned a blind eye to its improving fortune.
But here in Russia, both eyes are closed, the Russians proving uncooperative in recovering their own money.
CONGRESSMAN JAMES LEACH: No country has a greater vested interest from the people's point of view on co-operation with an American money laundering review than Russia.
And yet their government has chosen the opposite tack.
JONATHAN WINER: The response I got from the prosecutors was, "Well, you know -- sigh -- we're not a normal country yet."
CHRIS MASTERS: The economic adviser to former President Yeltsin was one of many to insist that most capital outflow was not black money.
ALEXANDER LIVSHITS, RUSSIAN FINANCE MINISTER (1996-97) (TRANSLATION): The reason for using this grey area to take capital out of Russia is high inflation and the negative climate for investors.
CHRIS MASTERS: Whether black, white or grey, the money lost from the people represents the savings and hope of a generation.
IRINA YASINA, FMR RUSSIAN CENTRAL BANK SPOKESPERSON (TRANSLATION): We were all born and raised in the system of concentration camps.
Now we have a new generation.
My daughter can't understand what the meaning of an empty shop is.
She's 12-years-old and she thinks I am joking when I tell her that when she was born there was nothing to buy in the shops.
PROF. VALERY SERGEEV, RUSSIAN BANKERS' ASSOCIATION (TRANSLATION): For us the process is extremely painful because we've been through a series of social experiments.
A whole generation has lost its optimism.
Some people don't even know how to work anymore.
CHRIS MASTERS: Outside Moscow, the stocks of hope are further depleted.
LOCAL RUSSIAN WOMAN (TRANSLATION): I don't have any money.
We've pretty poor.
Everything we have we spend on food.
CHRIS MASTERS: As is the way, the rougher the road, the gentler the kindness.
In the village of Pekhora, a pensioner living a mile below the Australian poverty line warmed us with tea and cake.
WOMAN FROM PEKHORA (TRANSLATION): I feel pain.
Lots of unfair things happen.
CHRIS MASTERS: The loss of capital has translated in the minds of many as final proof of the evils of capitalism.
WOMAN FROM PEKHORA (TRANSLATION): During the Khrushev era, you turned on the TV and the first picture would be a tractor.
moving across the field, it made you feel so good because you knew harvest was just about to start.
But now when you turn on the TV the only news you see is about bankruptcy and financial operations.
How can I trust the banks?
I put money into the bank, but it stole my money.
I've been left with nothing.
CONGRESSMAN JAMES LEACH, CHAIR, HOUSE BANKING COMMITTEE: Well, the current struggle, among other things, has some philosophical definitional aspects.
For example, to the degree that Russian people equate free markets and capitalism with theft.
CHRIS MASTERS: The theft is not confined to Russia.
Russian organised crime reaches far, as far as Nauru, and it follows Australia.
Nauru as much as operates from Melbourne, from Nauru House.
But as we discovered, government and business has ground to a halt.
Four Corners received no replies to written requests to interview the President.
Haven't they been sacking people right and left at the moment?
TONY AUDOA: They have -- There's no -- there's no -- there's no board of directors.
Come in.
You're welcome.
CHRIS MASTERS: Tony Audoa, a member of the parliament but not the government, showed us around.
The offices, like Nauru's coffers, were mostly empty.
The President was not in and the Consul General had been sacked.
But as far as the Nauru Agency Corporation goes, it appears it's business as usual.
TONY AUDOA: Firstly, it is our sovereign right to choose what business to go into.
And secondly, we see this is from the example of other countries' offshore finance centre that have done very well, we like to follow that example.
CHRIS MASTERS: Nauru had claimed that it stopped registration of Russian banks and suspended its arrangements with referees promoting its business -- which is clearly not so.
A former Russian bank worker showed us that for US$18,000, Nauru continues to promise to keep your bank secret and ensure records stay hidden.
FORMER RUSSIAN BANK WORKER: They have an office in Crows Nest in Sydney, Australia.
And the correspondence also goes to Australia.
And I believe these telephone numbers -- also Australian.
CHRIS MASTERS: So you go right around the world and find Nauru's secret banking service being sold from suburban Sydney.
Suite 201, they state -- which, as you can see, is hardly likely.
The grand offices of FX Consultants turned out to be a forwarding service.
Are you satisfied that the clients that you have had are honest people?
TONY AUDOA, CHAIR, NAURA AGENCY CORPORATION: So far, yes.
And whatever they do in their own country --
..that is not our jurisdiction to look into.
CHRIS MASTERS: Last year, the OECD made the bold move of blacklisting 15 countries slow to cooperate in the fight against money laundering.
Nauru has continued to resist reforms to banking secrecy.
Why not accept those transparency provisions?
TONY AUDOA: If we accept that, it will be just like signing our death warrant.
RAYMOND BAKER, CENTRE FOR INTERNATIONAL POLICY: Chris, I can't imagine that they have anything to contribute to the international financial system.
I would encourage the island to find other sources of wealth and income rather than trying to participate in a process that is criminal, that is destructive, and that will steadily be impinged upon as we address this issue more forthrightly.
CHRIS MASTERS: Considering the possibility of sanctions -- what changes would you be prepared to make as Chairman of the Nauru Agency Corporation to the way the NAC does its business?
TONY AUDOA: Our business at the moment is impeccable.
CHRIS MASTERS: Nauru and Russia in common on the OECD blacklist in common accuse the West of hypocrisy.
ALEXANDER LIVSHITS (RUSSIAN FINANCE MINISTER (1996-97) (TRANSLATION): Russians didn't create offshore banks.
We didn't even have the word 'offshore' in our dictionaries.
Russians didn't create corruption.
We didn't have that word before either.
CONGRESSMAN JAMES LEACH: What the Russians have simply done is allow a new class of kleptocrats to control and coming to control, they have a hard time giving up.
I believe at some point, this is going to collapse and there is going to be a reaction that's very severe.
And one of the great questions is whether this is going to be a reaction that is for clean and honest government, or whether it's going to be a reaction that's going to be very nationalistically angry.
CHRIS MASTERS: In the United States, there has been thousands of pages of soul searching into the world's biggest economy's own role in money laundering as revealed by the Bank of New York affair.
The complaint about, say, the Nauru Agency Corporation is that it simply doesn't know who it's dealing with.
Wasn't that the same with some of the banks in the United States?
ELISE BEAN, US SENATE INVESTIGATOR: Yes, it was.
We found, in a number of cases, when we went to US banks and told them about the foreign banks that they had as clients, they were really surprised and had no idea.
RAYMOND BAKER: It is not illegal for us to receive corrupt money from other parts of the world.
It is certainly not illegal to receive commercially tax-evading money.
A great deal of this money comes into our coffers and is facilitated by the Western banking and Western business systems including the United States.
CONGRESSMAN JAMES LEACH: Well, it's not been a happy episode for American banking.
But we have pretty firm laws, and the basic regulatory system, coupled with the fact that grand juries are meeting in New York, has implied that there will be accountability before long.
CHRIS MASTERS: In contrast, in Australia, there's been no public debate about the vulnerability of our identical correspondent relationships.
CHRIS MASTERS: Were Australian banks involved in any way in the transfer of moneys that went between Russian, Nauru and the Bank of New York?
RICK McDONELL, ASIA PACIFIC GROUP ON MONEY LAUNDERING: Er, I am not certain of that, but I think Nauru does not itself have any bricks-and-mortar banks on the ground there, apart from one small establishment, I think.
And the banks that do allow operations there are Australian banks.
So I would not be surprised if that had to be the actual vehicle for some transactions, yes.
CHRIS MASTERS: That Australian banks were a link in the chain?
RICK McDONELL: Yes.
Inadvertently, probably.
But as a part of it, probably yes.
CHRIS MASTERS: Four Corners has learned that a proportion of the Bank of New York/Benex billions bouncing around the globe did touch Australia.
Between $20 and $60 million passed through our banks, some of it remaining in Australia.
SENATOR CHRIS ELLISON, FEDERAL MINISTER FOR JUSTICE: I've asked the Australian Federal Police to have a look at this, and I really can't comment further on that.
It's an operational matter.
But suffice to say it has been a cause of concern for us, and we're -- we're looking at it.
And AUSTRAC, of course, are doing a review in a systematic --
system -- systemic sense of whether we need to take action to stop this sort of thing in the future, and I expect to have a report from AUSTRAC in the very near future.
CHRIS MASTERS: In Australia, we are told the big four banks all have correspondent accounts, some with shell banks.
AUSTRAC, the Federal Government's cash transaction monitoring program, analyses around 55 million transactions every day.
ELIZABETH MONTANO, DIRECTOR, AUSTRAC: We do a lot of monitoring, um, we pull up, make connections, and then that goes off to be further analysed.
So we can keep up with the race as far as you can see?
ELIZABETH MONTANO: Um -- I don't think any system ever is totally on top.
It's a question of -- a reasonable counter-measure is taken to deal with the issue.
If you really wanted to deal with everything, you would slow everything down.
And we can't do that.
We want open markets.
CHRIS MASTERS: When we asked who supervises correspondent banking in Australia, the Reserve Bank told us it was the Australian Prudential Regulation Authority.
APRA in turn told us it was AUSTRAC.
Both were wrong.
AUSTRAC does not monitor bank-to-bank dealings.
The banks largely self-regulate.
ELIZABETH MONTANO: I have to say, this is an area we don't get a lot of reports about, and it's something that we'd like to see banks do more thinking about.
RICK MCDONELL: I think it's an essential, fundamental weakness in the system.
SENATOR CHRIS ELLISON: Corresponding banks don't have that, er, that strictness, if you like, but they do have the obligation to report suspect transactions.
Now that is an overarching obligation for banks, and they should be meeting that obligation.
If they don't, then of course there are ramifications for the financial system and anti-money laundering strategies.
CHRIS MASTERS: So are they doing it?
Are they reporting a lot of suspicious bank-to-bank transactions?
SENATOR CHRIS ELLISON: Well, I think the review that we're conducting in relation to this New York bank case will definitely assist the Government in determining that question.
CHRIS MASTERS: Next month, the OECD tightens the noose on non-cooperative countries like Nauru, the Philippines and Russia.
RICK MCDONELL: At the highest level, there is talk about economic sanctions or reduction or cutting out of transactions altogether.
I'm not sure if it will get to that point, but that would be an extremely serious sanction.
CHRIS MASTERS: So if I'm hearing this correctly, there's a chance we're about to declare economic war on, among others, one of the world's most powerful nations.
EMANUEL ZELTSER, EXEC.
DIR.
AMERICAN RUSSIAN LAW INSTITUTE: Russia cannot be isolated by definition.
It's a country which still has 35,000 nuclear warheads.
So it certainly has to be kept within the community, even from the point of view that you have to keep your enemies closer than your friends.
Er, I don't believe that Russia will ever be isolated.
On the highest levels, there will always be financial support, even if the governments who provide that support fully understand that 90 per cent of it will go to the private pockets.
JONATHAN WINER, DEPUTY ASSISTANT SECRETARY US STATE DEPARTMENT 1994-99: It's potentially quite dangerous if you look at what's happened in Russia where the life expectancy continues to drop to levels not seen in this entire century.
That's happening, in part, because the country has been robbed blind by financial criminals.
And everything starts falling apart.
When that starts affecting 100 million people at a time, that begins to have an effect on the whole world, because you can't quarantine 100 million people.
You can quarantine 20,000, potentially, from the financial system, but you can't and shouldn't want to quarantine hundreds of millions.
And those are the kinds of numbers of lives that can be affected, in a significant way, by financial crime when it gets out of control.
CHRIS MASTERS: Across the global economy, legitimate and illegitimate streams of wealth proceed as if along two rails of the same track.
Anti-money laundering strategies are meant to confront both sides, attacking crime and defending our financial systems.
Through the National Crime Authority, AUSTRAC and the Australian Federal Police, Australia recognises money laundering as a law enforcement issue.
But unlike many nations, we've been slow to see it as a Treasury and revenue issue.
Slow to recognise that as the tracks merge, our legitimate institutions are corrupted.
JONATHAN WINER: Well, there is a dark side of globalisation, and this is a very substantial component of it.
If you think of all the wonderful goods and services that get moved around the earth every day, and the infrastructure that supports them -- the ships, the electronics, the communication systems, the telephone systems, the banking systems -- they move a ton of goods and services every day -- many, many tons -- that serve the billions of people on this earth.
But there is a dark side.
And there is illicit stuff moving through the same network, without barriers, and governments have been very slow to understand that they need common approaches to examining and understanding what is moving, er, through that infrastructure.
CHRIS MASTERS: The question for us is, when money flows into banks in New York and here in Australia, how good are we at calling a halt?
JACK BLUM: Through all history, crime is a bit of a race between the forces of good and the forces of evil.
Reporter: Chris Masters
Producer: Morag Ramsay
Research: Linda Larsen