Judge to determine if entrepreneur is swindler or victim
By SCOTT SHANE. Sun Staff. The Baltimore Sun. Originally published on December 24, 1998
ARLINGTON, Va. -- In this penthouse courtroom above a gourmet deli and a Metro stop, the name on the case is that of Alexandre Konanykhine, a post-Soviet business whiz kid U.S. immigration authorities want to deport.
But, in the battle of the experts weighing in on the immigration judge's excruciating dilemma, Russia itself is on trial.
From a seemingly routine accusation of a false statement on a visa application more than two years ago, the Konanykhine case has blown up into a major issue in law-enforcement relations between Russia and the United States. It has spawned a Justice Department investigation of possible misconduct by the Immigration and Naturalization Service.
And now Konanykhine's request for political asylum has posed a stark question to the court:
Is the United States simply helping the Russians bring to justice a swindler who fleeced his own bank of $8 million?
Or, as Konanykhine claims, is the United States unwittingly delivering to corrupt Russian authorities an honest entrepreneur whose businesses were muscled away from him by crooked former KGB officers in league with organized crime?
This month, from a parade of specialists on Russia, there was talk of hit men and torture, of billions drained from the Russian economy into bank accounts from Cyprus to Antigua. Witnesses included a former Soviet Communist Party disinformation specialist and an FBI expert on Russian organized crime.
At one hearing in the case, immigration Judge John M. Bryant suggested that only by penetrating the mystery of Russia, sometime adversary and sometime ally of the United States, could the court do justice in the Konanykhine case.
"Did a foreign government mislead you?" Bryant asked the lawyers for the INS. "Was the United States duped?"
No, INS attorneys argue. Seven years after the end of Communist rule, after elections and legal reforms, the official INS position is that the United States should treat criminal charges from Russia as they would charges from, say, France or Japan.
The lawyer for Konanykhine and his wife, Elena Gratcheva, called that position naive. Given the bottom-to-top corruption and murderous business climate in the new Russia, a case such as the one against Konanykhine might be as easily concocted for political reasons as in the darkest Soviet days, said attorney Michael Maggio.
While the United States has no extradition treaty with Russia, a deportation order could mean the couple would be forced to return to Russia if no other country agreed to take them. Bryant will not issue his decision before February, and either side could appeal.
Among the witnesses, Louise I. Shelley, who studies Russian organized crime at American University, offered the strongest support for the INS position. She suggested that the theft charges against Konanykhine appear legitimate and that he might get a fair trial in Moscow.
But some experts for the INS said the logic of the Russian case against Konanykhine is imperfect. They acknowledged that his conduct after fleeing Russia in late 1992 -- writing letters to newspapers and to Russian officials demanding an investigation of the bank he allegedly had looted -- was not exactly typical of a thief on the lam.
The INS experts did not dispute that the Russian Exchange Bank, founded by Konanykhine in 1991, collapsed in 1995 under the management of the ex-officers of the former Soviet intelligence agency and others who he says stole the bank from him, with a half-billion dollars of depositors' money evaporating in the process.
And they acknowledged that Russian justice reform is, to put it gently, incomplete.
"He's a whistle-blower," said Peter H. Solomon, an expert on the Russian legal system at the University of Toronto who was hired by the INS. "There's an element of reaction and revenge in this case."
Some experts said Konanykhine might not survive to face trial in Russia. Contract killings on the street are commonplace, and arranged murders by cellmates are a Russian tradition, they said.
"I would not recommend to an insurance company that they should insure his life," said Alec Sarkisian, a Soviet disinformation specialist, who defected in 1986 and advises the U.S. government on Russian affairs.
Konanykhine's life is a mirror of the tumultuous last 10 years in the history of Russia.
A brilliant student at Moscow's most prestigious physics institute, he was thrown out for turning a student construction brigade into a profit-making business. Then, as former Soviet President Mikhail S. Gorbachev began his reforms, he found the business legalized.
Konanykhine added a real estate arm, a commodities exchange, a security agency and finally the bank. At the age of 25, in a country where most families crowded into one-room apartments, he became a multimillionaire who built an eight-bedroom house with a gym and a pool. He helped finance President Boris Yeltsin's rise to power and was rewarded with a mansion previously occupied by Gorbachev and a limousine from Gorbachev's fleet.
His bank became one of the first to be licensed by the new Russian government to trade foreign currency. He brought former top Soviet officials onto the bank's board, hired about 150 former KGB officers as security men and managers, and issued his own coins, bearing his wife's profile.
Konanykhine, boyish-looking at 32, acknowledged in an interview that his success was a result not just of business talent but of the unregulated markets growing from the Soviet rubble.
"I'd trade rubles into dollars at 30 rubles to the dollar, then trade it back into rubles at 300 to the dollar," Konanykhine said. "Not to make some money in such a position would be a crime. I didn't commit such a crime."
This capitalist reverie came to an abrupt end in September 1992 when, by Konanykhine's account, he was lured from his Budapest hotel by two people claiming to be from the Hungarian security ministry. Under threat of violence, he was taken to an apartment and confronted by one of his bank colleagues and men who appeared to be mob enforcers, he says.
Konanykhine claims he was told that the KGB men he had hired were taking over his businesses and that if he resisted he would be killed. He says he turned over his passport but managed to flee with his wife on other passports in a hair-raising car ride to a Czech airport, from which they flew to New York.
The INS lawyers, John J. Mulrooney II and Suzanne McGregor, cast doubt on his account in court, producing documents showing Budapest police failed to find evidence the extortion plot occurred.
But they did not dispute that Konanykhine, within days of his arrival in the United States, began screaming that his bank had been stolen from him.
A letter he wrote to Yeltsin a few weeks after his arrival in 1992 declared that "a dangerous criminal situation has developed in a number of Russia's large-scale economic institutions." He demanded an investigation and government takeover of the bank.
An investigation began, but in early 1994, Russian military prosecutors -- in charge of the case because of the involvement of the paramilitary KGB -- turned the tables on Konanykhine, charging that he had stolen $8 million from the bank. Konanykhine has maintained that he took nothing.
Meanwhile, Konanykhine had become a long-distance vice president of another large Moscow bank, Menatep Bank, and had prepared to open an offshore branch in Antigua. When the Russian charges were filed, Menatep pulled out. With other investors, Konanykhine tried to turn the Antigua operation, called European Union Bank, into an Internet bank.
In July 1996, Konanykhine was arrested by INS agents at his Watergate apartment and jailed in Virginia. The official INS charge was a relative technicality -- a false statement on his visa application -- but the arrest pleased Russian prosecutors. FBI Director Louis J. Freeh had praised the Russians for their help in building the case against a Russian mobster in New York, and U.S. officials were eager to reciprocate.
But after Konanykhine had been held for 13 months, a U.S. federal judge freed him, saying he was disturbed by allegations of INS misconduct. A former INS attorney, Antoinette Rizzi, charged that her superiors had vowed to deliver Konanykhine to the Russians, no matter what the law said. Rizzi had been fired -- for resisting the railroading of Konanykhine, she said; for past problems paying her taxes, the INS said.
The conduct of the INS officials, who deny wrongdoing, is under Justice Department investigation.
About the time Konanykhine was released from jail, the Internet bank in Antigua collapsed amid allegations that it might have been intended to launder money. Konanykhine had not been involved for more than a year, but the association did not enhance his credibility.
Perhaps the most enduring puzzle of the case is Russian law enforcement's persistent, high-level attention to Konanykhine. Russian Procurator General Yuri Skuratov cited Konanykhine's case as a priority a year ago at his last meeting with his U.S. counterpart, Attorney General Janet Reno, complaining of U.S. "red tape."
In addition, the Russian minister of internal affairs told parliament last year that Konanykhine had stolen not $8 million -- the sum in the charging documents -- but $300 million. The minister, Anatoly Kulikov, also stated inaccurately that the stolen assets had been seized in the United States.
Konanykhine says he has become a convenient scapegoat for the looting of Russia. Moreover, he says, he has infuriated corrupt officials by denouncing what he calls the Russian "Mafiocracy" on his Web site (www.konanykhine.com). He says he is trying to move on with his life, and recently he launched two businesses here, an Internet advertising firm and a discount long-distance phone service.
In a break in recent testimony, Konanykhine had kind words for one of the witnesses against him, Jim E. Moody, a former top FBI official who oversaw many cases involving Russian organized crime.
Konanykhine said he found it remarkable that a former U.S. government official, being paid by the government for his testimony, would speak truthfully even when his observations helped the other side.
For instance, though Moody said the Russian charges against Konanykhine appear plausible, he also said he found it "peculiar" that an embezzler would write banking officials and politicians demanding an investigation.
"For someone who grew up in the Soviet Union," Konanykhine said, "that is very refreshing."