Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Capital Flight

Six years ago, a self-effacing Russian emigr? 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 company, Benex Worldwide Ltd., 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. 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 Edwards, who had previously owned a small home in upstate New York, bought a $500,000 apartment in central London and enrolled their 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 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 figures. But thus far, neither they nor British investigators have been able to figure out who this might be.

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. It is not known whether Edwards recruited clients for the money-moving businesses; 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 precisely 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, 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 has become an issue in upcoming U.S. and Russian presidential elections.

Berlin and Edwards - who was fired by the Bank of New York in September - are currently living in London, where their apartment is frequented by photographers and journalists seeking interviews. They and their lawyers have declined comment.

Two Long Roads From Russia

Edwards, born Ludmilla Pritzker in Leningrad, was the first of the two to make her way to the West. In 1977, 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 United States consulate in Leningrad, they moved to Illinois where their daughter, Amy, was born. The couple then settled in Colorado, where Edwards held a series of jobs as a bank teller and waitress. After the marriage fell apart in 1988, 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. Edwards joined the newly formed Eastern European Division in 1992 and became a loan officer two years later, moving for the first time into the executive ranks.

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 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. Edwards' verve in searching for clients immediately set her apart, associates say.

"What distinguished her from everyone was her energy, incredible energy,'' said a former colleague of Edwards'. "When others would see four or five clients a day, she would see 10 or 12.''

Edwards' road to Western success appears to have been smooth. But for Berlin, who left Russia about 10 years ago as communism was collapsing, there were some bumps along the way.

Records show that a man named Peter Berlin graduated from the Moscow Institute of Physics and Technology in 1978 with a degree in molecular chemical physics. According to the institute, Berlin lived in one of Moscow's better quarters, a quiet block of Stalin-era apartments with tree-lined streets.

Little is known about Berlin's early years in the United States. A trim, bearded man who stands about 175 centimeters, he may have lived in Indiana before he moved to New Jersey. His immigration status is not clear. He, like many Russians, may have entered the U.S. on a tourist visa and then stayed in the country illegally.

The Union: Lucy Meets Peter

In the summer of 1992, Berlin married Edwards, a union that would have solved many immigration problems. A relative would say only that they met and married in the same year. There was, she said, nothing unusual about it.

By 1993, Berlin was trying his hand at business. He founded Benex, which listed his apartment in Cliffside Park, New Jersey, 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 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, New York. 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, as she glided through the aisles of a Nordstrom department store in Edison, New Jersey, 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, New Jersey - this time, with 15-year-old Amy in tow. Edwards was arrested again and later pleaded guilty.

The Bank of New York, her employer, did not learn of either arrest until after federal investigators began scrutinizing the Benex accounts.

Records show that Berlin was also arrested for shoplifting. Six years ago he was charged in Fairview, New Jersey, for stealing sinus medicine from a local supermarket. He retained a lawyer, and the charges were dropped.

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.

People close to the Bank of New York said that Berlin initially represented Benex and Becs as tour companies. The bank did little digging of its own to learn anything more about the companies' operations.

Closer scrutiny by the bank would have revealed corporate records on file with the state of New Jersey showing that one of their employees, Edwards, was one of two officers at Benex (Berlin was the other). The bank's own records noted that Edwards had authority to withdraw money from the Becs account.

Both of these facts were red flags. 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. 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 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 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.''

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 cash offshore. 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 a small fee, 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.

A few months after Berlin opened his first account at the bank, Edwards was courted by a Moscow-based bank but was persuaded to stay at the Bank of NewYork with a prestigious promotion. She was sent to London and named a vice president, responsible for finding new business among Russian companies.

The couple enrolled their daughter in the American School in London and bought an apartment in a central London neighborhood. They sometimes spent weekends in Italy, a former colleague said.

"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 nondescript office building in New York, where a handful of people working with computers arranged hundreds of electronic transfers a day.

Russian investigators have told their American counterparts that 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. Federal investigators believe much of the money came from corporate clients trying to avoid taxes and customs duties. Some of it, they 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 emigr? 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: 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.

Investigators were startled by what they found. The records showed a dizzying array of transfers out of Russia and to dozens of countries. The trail led around the world.

British investigators began electronic surveillance of Berlin's and Edwards' conversations and the FBI received transcripts, according to American law enforcement officials.

In March, confronted with requests for additional information, 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 ofthe 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 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 in 1996 and 1997, and Berlin sometimes signed his name to tabs billed to 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. 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 of his ties to the diplomat. The plan was called off after the investigation was made public.

Today, with the federal investigation now a very public event, 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 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.

Recently, as 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.

Michael R. Gordon, Svetlana V. Melnik, Sophia Kiskovsky, Alan Feuer and David S. Koeppel contributed to this report.