The Looting of Russia

.

An FBI agent and an honest Moscow cop stop the plundering of the national treasury.

By David E. Kaplan

"Can you take a look at this?" asked Joe Davidson's supervisor at the FBI, handing him a file. Davidson cracked open the folder and was immediately intrigued. A year earlier, in late 1993, an informant had tipped the FBI that a handful of Russian immigrants were throwing huge sums of cash around San Francisco. And shortly after that, Customs had noted the same men bringing a Russian helicopter into San Francisco International Airport.

The men were diamond merchants, Davidson read, who had opened a state-of-the-art diamond center called Golden ADA. They had forged ties to politicians and city officials. They had posed for photos with Vice President Al Gore and Hillary Rodham Clinton. And their helicopter was a gift to San Francisco police — although Golden ADA held the right to use it to ferry shipments of Siberian diamonds from the airport to its center downtown.

A veteran FBI agent, Davidson, 39, had chased the Medellín cocaine cartel and the Gambino crime family. And here, he could see, something was not right. First, San Francisco had never been much of a diamond center. Second, two of the three owners were Armenian immigrants who only two years before had been painting sidewalk curbs. Davidson recalled an FBI seminar on Russian crime. It had focused on how high-ranking officials and mob bosses were looting the former Soviet Union of its precious resources. He walked back into his boss’s office. “I want this case,” he said.

Davidson, it would turn out, had stumbled across the systematic theft of tons of diamonds, jewelry, silver, and gold from the Russian national treasury. The scheme was abetted by corruption that reached the highest levels of the Russian government, perhaps into the office of President Boris Yeltsin. The story of its exposure resembles a real-life Gorky Park, with the FBI working hand in hand with honest Russian cops. For six months, U.S. News has followed the case, interviewing police, tracking down former Golden ADA officials, and combing through boxes of court records. With special access to investigators in San Francisco and Moscow, the magazine has pieced together the details of one of the grandest schemes of thievery in modern times.

The Kamov Ka-32 helicopter was hardly the kind of aircraft one expected to see landing in downtown San Francisco. The huge Russian chopper was designed for military transport, and yet here it was, alighting on a broad rooftop painted in the colors of the Russian flag. The air currents stirred by the Kamov’s two blades were so powerful that they smashed nearby windows as it landed.

Two days later, the helicopter was the centerpiece of a gala rooftop reception, with well-tailored guests milling around the big chopper. Among the hundred VIPs on hand were San Francisco Mayor Frank Jordan, his chief of police, state officials, and local CEOs. They snacked on caviar and sipped champagne while listening to speeches about how San Francisco would become a major player in the world diamond trade. It was February 1994, and the diamond center that would make all this happen — Golden ADA — was now open for business.

The proud owners of the new company were conspicuous in tuxedos: a Russian named Andrei Kozlenok and his two Armenian partners, the brothers Ashot and David Shagirian. The building itself was impressive: a four-story structure with black granite columns and a luminous glass-block facade. But it was the operation inside that people came to see. Behind bulletproof glass labored some of Russia’s finest diamond cutters and polishers, using state-of-the-art equipment from New York’s diamond district. As armed guards stood by, employees gained access to the gems after passing their hands across a palm-print reader. High-tech vaults, luxurious offices, and an exhibition room added to the dazzling effect.

A slender, elegant fellow in his early 30s, Kozlenok sported a $50,000 watch and handled himself with poise. The tall young Russian had arrived only months before from Moscow, boasting of connections to high-ranking officials and wielding an apparently bottomless checking account. Kozlenok had a degree in management, and back home he had peddled cognac, tires, and fine Ukrainian marble, offered security escorts to foreign businessmen, and set up a series of moneymaking ventures with the Moscow police department. One business, an export company that sent gas masks to Kuwait, had come under scrutiny because it had hired top police officials, and some of its funds had mysteriously disappeared.

But in San Francisco, the future looked bright for Andrei Kozlenok. He had arrived with signed contracts guaranteeing that Golden ADA would be supplied with Russian diamonds, and he had found in the Shagirians good partners who spoke fluent English and brought local contacts to the enterprise. So valued were the two Armenians that Kozlenok offered each a 20 percent stake in the company, with Kozlenok owning the rest. From the initials of their first names — Andrei, David, and Ashot — came the ADA in the company’s name.

At the reception, Kozlenok said that he had branch offices in Antwerp — center of the international diamond trade — and in Moscow, where the Russians controlled one quarter of the world’s diamond production. His mission, Kozlenok declared to associates, was to punch a giant hole in the De Beers diamond cartel. The South African concern has long controlled the production and distribution of diamonds worldwide, limiting availability of the stones and, critics say, keeping their price artificially high. Since the 1950s, when huge diamond deposits were found in Siberia, Moscow had played along, contracting to sell nearly all its gems to De Beers. But now, diamond rich and cash poor, Russia wanted more control.

By the time Kozlenok arrived in California, Moscow’s negotiations over a new deal with De Beers had bogged down, and growing numbers of Russian diamonds were being dumped on the open market. Golden ADA placed the Russians outside the major diamond centers of London, Antwerp, and New York, while offering access to the world’s largest diamond market — the United States. Sources say that De Beers officials watched the new firm with growing anxiety. Already, Australia had pulled out of the cartel, and vast numbers of diamonds were finding their way out of Angola. If the Russians were to bolt too, prices on the worldwide diamond market would probably plunge. De Beers hired private investigators to report on Golden ADA and warned the cartel’s buyers about likely Russian dumping. But the diamond cartel needn’t have worried. As it turned out, the men behind Golden ADA were after something other than market share.

Russian bureaucrats call it “the Closet.” It is the handful of underground repositories that hold the national treasury of the Russian Federation and, before that, the Soviet Union. One site, say officials, lies at a secret location deep in the Ural Mountains. Another stockpile sits 30 feet below the streets of Moscow. Hallway after hallway is lined with vaults; inside each, bags stuffed with diamonds sit on shelves reaching to the ceiling.

Unlike Fort Knox, which holds only gold bullion, the Russian depositories contain treasure of every sort: vast stores of diamonds, emeralds, and other gems; of silver, platinum, and more than 140 tons of gold. Rare coins and jewelry, too. Its exact worth, say Russian officials, is a state secret.

Even in the chaotic bureaucracy that rules Russia today, one cannot remove such treasure without approval from top officials. And the man with the key was a tough, shrewd bureaucrat named Yevgeni Bychkov, who just happened to be the mentor of Kozlenok. “Bychkov and Kozlenok were like father and son,” says Jack Immendorf, who was then a top adviser to San Francisco’s mayor and who would later be tapped to serve as CEO of Golden ADA. Bychkov had known President Yeltsin since the 1960s, when Yeltsin served as party boss in the Sverdlovsk region and where Bychkov later ran a smelting plant. In 1985, Bychkov, then 51, followed Yeltsin to Moscow and became head of the State Treasury, overseeing not only the depositories but also the mining and processing of gems and precious metals. According to the Russian press, Bychkov and his aides were repeatedly investigated for wrongdoing; twice he lost his job for apparent misconduct, including the 1990 loss of $22 million in expected revenues from secret diamond sales. But Bychkov survived and, after the fall of the Soviet Union, Yeltsin made him chairman of the Russian Federation’s new Committee on Precious Metals and Gems, with a rank equivalent to minister.

In 1992, Bychkov’s agency proposed a bold plan to escape De Beers’s control: Moscow would set up a diamond center in the United States and ship the firm — Golden ADA — a half-billion dollars of goods from the State Treasury. The treasure would be collateral to obtain a line of credit from the Bank of America — enough capital to finance the firm’s entry into the world diamond trade. But even Bychkov could not single-handedly authorize the transfer of so much national treasure. He obtained the agreement of the state budget director, officials from the foreign trade and customs bureaus and, ultimately, Finance Minister Boris Fyodorov, one of Yeltsin’s top “reformers.” That spring, Bychkov opened the Closet and began shipping its contents overseas.

In San Francisco, Kozlenok and his men soon were opening pouch after pouch of polished Siberian diamonds. There were thousands of the stones — 26,000 carats in all — enough to fetch nearly $20 million on the market. But diamonds were only part of the treasure. Crates arrived packed with fine silver: antique plates, tableware, and rare coins. Other boxes held assorted gems — amethysts, topaz, emeralds — some the size of a man’s fist. Still other crates held antique artwork: Fabergé-like eggs studded with gems; an angel with diamonds in its open hands; intricately carved elephants of ivory. There was jewelry of every sort: hundreds of rings and earrings, bracelets, brooches, and necklaces. And then there was the gold.

The gold arrived not by the pound but by the ton. And it came not in bricks or ingots but in coins. Out of the Russian treasury came thousands of collector’s gold coins — francs from pre-revolutionary France, hundred-year-old English pounds and American dollars, and coins from Czarist Russia bearing the image of Peter the Great. Remarkably, Bychkov and company were just getting started.

Some weeks after the shipments arrived, Golden ADA approached Nelson Colton, head of Unique Premium Metals, the top gold distributor in Los Angeles. Colton’s clientele includes many Russians, but what seemed odd was the amount this new company wanted melted down and sold: 5.5 tons of gold. Colton gladly obliged, eventually selling off over $50 million of gold for the Russians.

All told, Bychkov’s agency had shipped to Golden ADA a $90 million chunk of the Russian treasury. While this had been passed off in Moscow as the collateral for a bank loan, Kozlenok apparently saw it as something else: He and his partners embarked on a world-class buying spree. “Mind boggling,” says Charles Sims, a bankruptcy trustee who later saw the books. “I’d never seen anything like this.”

Typical of Kozlenok’s purchases was the Golden ADA building. The owner wanted $6 million; Kozlenok offered nearly $11 million — if the sale closed within a week. The overjoyed owner agreed. One afternoon in Beverly Hills, Kozlenok strolled into the showroom of a luxury car dealer and paid more than $1 million for a Rolls-Royce and two Aston Martins. During three days in Los Angeles, he and the Shagirians plunked down an additional $1.2 million for a trio of luxury yachts. Within weeks, they paid $3.8 million more for three posh homes in San Francisco. More boats followed, including a 40-foot high-speed cigarette boat and some 15 other vehicles. An $18 million Gulfstream twin-engine corporate jet was picked up, as was a chain of a half-dozen Bay Area gas stations. In all, the ADA bosses bought 18 pieces of property across Northern California, including five luxury condo sites on Lake Tahoe worth $4.4 million.

Whether Bychkov, Yeltsin’s gem commissioner, knew of this extravagance would later be a matter of dispute. “Bychkov . . . kept the company’s activity in the United States firmly under his control,” Kozlenok claimed. “Any decision demanded his personal consent.” Bychkov had flown to the grand opening in San Francisco, where he heartily approved of Kozlenok’s progress. And, investigators say, millions of dollars of Golden ADA funds were wired back to Moscow, where they disappeared into real estate, including a new dacha for Bychkov — a charge Bychkov denies.

Golden ADA also wired money to Belgium, Liechtenstein, and Israel, as well as Bermuda, where Kozlenok built himself a $5 million home. In San Francisco, he lived in an upscale East Bay suburb, in two adjacent buildings behind a gated entrance down a private cul-de-sac. Immendorf was astonished when he visited. “Did somebody plunder the Metropolitan Museum of Art?” he remembers thinking. There were paintings by Rembrandt and Picasso, Fabergé eggs, statues, and figurines. Immendorf was particularly struck by a pair of 5-foot clocks encased in gold, and a chess set made of silver and gold, with diamonds on every piece.

Kozlenok later said the expenditures were needed to project “a solid financial image” and that the luxury homes were for vacations for employees of Russian mining companies — “a reward for their hard work.” Most of the rewards, however, seemed to accrue to Kozlenok and his partners. In February 1994, Bychkov signed off on new shipments to Golden ADA, this time huge supplies of raw diamonds. Most would simply disappear. By then, however, police on both sides of the world had started asking questions.

Maj. Viktor Zhirov shook his head as he looked at the file before him. He had seen it all before. Zhirov had spent much of his lengthy career in Moscow at the financial-crimes division of the Interior Ministry. This new case had all the markings of, as he put it, “a swindling deal by thieves.” The original tip had come to Interpol when U.S. Customs asked if shipments of diamonds and gold to a California firm were legal, and for information about two Armenian fellows named Shagirian.

As Zhirov worked the case — largely alone — he found the going tough. Again and again, officials assured him that the diamonds were in good hands. Worse, Zhirov couldn’t gain access to key documents. Finance Minister Fyodorov, who had signed off on the deal, had classified everything tied to the company — contracts, correspondence, customs declarations. Still, police found enough evidence to raid Golden ADA’s Moscow offices. They seized papers detailing the shipment of $88 million of rough diamonds, authorized by Bychkov. So where was the loot now? Zhirov asked Mike di Pretoro, the FBI’s man in Moscow.

That the bureau even had a man in Russia was noteworthy. In the early 1990s, as Russian organized crime spread worldwide, the FBI realized it needed to deal effectively with law enforcement in the former Soviet Union. Being a cop in Russia is a thankless job: Pay is low, cars and basic gear like handcuffs are in short supply, and the work is unusually dangerous. In the past two years, more than 700 Russian officers have been slain in the line of duty, nearly three times the number slain in the United States during the same period. With street cops earning $300 per month, many police officers simply give up and freelance for the mob.

For the FBI, the key was to find reliable partners. Gradually, senior FBI agents built close relationships with officials at the Ministry of the Interior, home to Russia’s national police force. They asked them to develop a small, elite group with whom the Americans could work. The result was the formation of what might be called the Russian Untouchables.

Viktor Zhirov was one of them. So when Zhirov phoned Mike di Pretoro, the FBI agent paid close attention. Di Pretoro suggested Zhirov fly to San Francisco as the bureau’s guest, to see for himself. Zhirov started packing his bags.

The raw diamonds Bychkov sent to Golden ADA literally filled the firm’s new corporate jet. The gems arrived in two shipments, guarded by off-duty San Francisco cops. The diamonds were to be cut, polished, and sold, and the money wired to Moscow. But while a relative handful were indeed processed at the factory, most disappeared, according to court records. The majority were quietly hauled back across the Atlantic, to Golden ADA’s operation in Antwerp, where they were sold to companies controlled, ironically, by De Beers. The sales generated some $77 million, which investigators traced to Swiss accounts. As in San Francisco, the Antwerp Golden ADA reeked of corruption. False invoices declared the diamonds to be from Zaire, to avoid taxes and to mislead De Beers. “Everyone in Belgium got rich,” said one Belgian cop. Belgian police had begun their own probe.

In San Francisco, Davidson puzzled over Golden ADA, too. Kozlenok, he had learned, knew little about the diamond business; his partners, the Shagirian brothers, knew even less. The diamonds Bychkov sent, moreover, were far in excess of what Golden ADA’s three dozen employees could reasonably process. Bychkov had shipped nearly 90,000 carats of rough stones — enough for 45,000 engagement rings. At a major diamond processor in Russia, it took hundreds of workers a year to cut and polish the same number. Yet the firm lacked the classic signs of what cops call a bust-out fraud. Golden ADA spent millions to buy high-tech equipment and real estate and put it all in the company’s name; professional looters usually lease their fronts and hide their assets.

Davidson learned that the situation at the company was growing increasingly chaotic. Kozlenok had a falling-out with the Shagirian brothers and demanded they leave the firm. Kozlenok, they claimed in court records, offered them $5 million or “a bullet to the head.” The Shagirians took the money. Some of Kozlenok’s own employees flew to Moscow and begged Bychkov to fire him. While Bychkov was away, one of his deputies quietly slipped out of Moscow for a look at Golden ADA’s operation. He returned home shocked at the waste and extravagance. Stories soon surfaced in Moscow about a runaway U.S. diamond center set up by the national treasury.

When word reached Kozlenok that the FBI was asking questions, he was surprised; he thought he was well protected in San Francisco. He was skilled at creating a krysha — literally, a roof — which has come to mean the web of contacts and protection that enables one to get things done in Russia. That was why he had chosen Immendorf, who was both politically connected and a veteran private investigator, to oversee security. Kozlenok had made donations to local politicians, hired off-duty San Francisco cops, offered police his helicopter — all this was designed to build his krysha in America. But he seemed not to understand the United States. The Russian was puzzled at why Immendorf couldn’t tap into FBI and police files. “He thought you could get anything if you had the juice,” says Immendorf. “These guys thought they were still in Moscow.”

Worried that Golden ADA would be taken away from him, Kozlenok turned to Immendorf. He asked him to become CEO and straighten things out. Attracted by a million-dollar salary, the 54-year-old Immendorf agreed. He, in turn, hired as the firm’s general counsel State Sen. Quentin Kopp, another fixture in San Francisco politics. The two men were shocked when they got a close look at Golden ADA. The company was in chaos, with vaults filled with treasure, sets of double records, and money hemorrhaging everywhere. “I was squandering the company’s assets, and I couldn’t stop it,” Immendorf recalls. Immendorf brought in Arthur Andersen, the consulting firm, which found that the company had disbursed over $130 million with few clear records. After six months as CEO, Immendorf quit. “These guys were all stealing from each other,” he concluded.

Back in Moscow, Bychkov saw Golden ADA careening out of control. The original plan, say police, may have been to pressure De Beers with Golden ADA, while skimming enough off the top to satisfy everyone involved. But Kozlenok seemed to have gone crazy, in effect killing the goose that laid the golden — or diamond — egg. So Bychkov turned to a Russian businessman named Andrei Chernukhin, a man whom one FBI agent bluntly referred to as “the cleaner.”

Chernukhin was a short, stout fellow with a faint resemblance to Khrushchev and a reputation for cleaning up messy situations. His business card read simply: Consultant to the Russian Federation. Chernukhin called in Alex Security, among the largest of the Russian security firms that have proliferated in recent years. Composed heavily of ex-KGB and special-forces personnel, Alex guards soon appeared at Golden ADA dressed in green fatigues and armed with semiautomatic weapons. Chernukhin then turned his attention to Kozlenok, and he was not in a charitable mood. As he said to Immendorf: “Kozlenok betrayed us all.”

What happened next may never be known. Kozlenok claims he was kidnapped and taken to Mexico, where he was forced to sign over control of Golden ADA to one of Chernukhin’s associates, an Indian businessman. “They took all my shares and left me penniless, like an empty sack, in Costa Rica,” Kozlenok later said. Investigators, however, believe he was paid off and sent on his way. Whatever the deal, this much is known: In September 1995 he packed his belongings and made a hurried exit to Belgium.

As Kozlenok was fleeing San Francisco, Viktor Zhirov was just arriving. At the FBI’s field office, the Russian cop received a lukewarm reception: Davidson knew how deep the corruption was in Russia and wondered why Zhirov hadn’t yet solved the case. Zhirov was wary, too. He had heard that FBI counterintelligence opposed his visit. Zhirov was among the first Russian cops allowed into the United States to work a case, and some at the FBI thought him a security risk. “There are still a lot of guys who are fighting the cold war — on both sides,” said the FBI’s di Pretoro.

Although Zhirov spoke little English, Davidson watched the man’s facial expressions and listened carefully to his translated words. Zhirov seemed to be the real thing. Davidson noted that his guest wore the same suit all week and brought snacks so he could keep the per diem from the FBI. He soon understood why: Zhirov made only $400 a month.

In San Francisco, Zhirov found what he could not find in Moscow — property records, customs declarations — proof of how much treasure had been shipped, and then squandered, overseas. And from Zhirov, Davidson began to understand the full scope of the case. Zhirov identified key players in Moscow and outlined a conspiracy to loot the national treasury. When Davidson expressed his amazement, Zhirov tried to explain. “People worry the state could seize assets again,” he said. “They believe it is not enough to steal for you and your children. You must steal for your children’s children’s children.” Uncertain how high the scandal might go in Russia, the two men pondered what to do next. A wiretap might be useful, Zhirov suggested. He could provide intelligence and trace phone numbers from Moscow. The bureau agreed.

By the end of the visit, Davidson’s attitude toward Zhirov had gone from suspicion to trust — and then to worry. Shortly before Zhirov came to America, a thug had pulled a knife on one of his aides in the Moscow subway. “Stay away from Golden ADA,” the man said. Also, the Federal Security Bureau, successor to the KGB, had been asking pointed questions about Zhirov’s visit to San Francisco. “Aren’t you concerned?” asked Davidson. “I always carry my gun,” Zhirov responded. Besides, Zhirov confided, he had a letter from Yeltsin himself ordering that “the case must be pursued to its conclusion.” When Zhirov returned to Moscow, he ordered a major investigation. New detectives were added to the case, and his team began raiding offices tied to Golden ADA.

Several days later, while walking his dog, Zhirov was jumped by two men and savagely beaten. “Stop the Golden ADA investigation,” one yelled, “or next time we’ll kill you!” Zhirov ended up at the hospital, bloodied and with a concussion. In San Francisco, Davidson was shocked — and disappointed — at the news. “Well, he’s done,” Davidson remembers thinking. “That’s the end of the case.”

But the Russian cop was undeterred. He built up his team to 15 investigators and sparked probes by other investigators at the Finance Ministry and Tax Agency. Now the pressure was building on Bychkov, who had to explain the disappearance of $178 million in state treasure. Bychkov blamed Kozlenok and the Shagirians. In late September 1995, his agency filed suit against Golden ADA in U.S. federal court, alleging that the company had stolen the gold, diamonds, and other riches meant for its diamond-processing operation.

The FBI’s wiretaps, however, suggested a different story. As agents listened in, Bychkov discussed with “the Cleaner,” Chernukhin, how to stop the investigations into Golden ADA, according to federal officials. The two men agreed that Chernukhin would come to Moscow, investigators say, and get help from some of Russia’s most powerful people: Anatoli Chubais, then managing Yeltsin’s re-election campaign; Yuri Luzhkov, the mayor of Moscow; Alexander Korzhakov, head of Yeltsin’s Presidential Security Service, and Oleg Soskovets, deputy prime minister. Chernukhin’s calls not only went to top officials of the State Treasury but also to powerful ex-KGB officials, to the executive offices of the president in Moscow — even to Yeltsin’s own dacha. For the first time, FBI officials believed they saw evidence of a criminal cover-up reaching the highest levels of the Russian government. Bychkov calls such allegations “fantasy, however.” Chernukhin’s lawyer says his client is innocent and only tried to “right the ship.”

The FBI learned even more from its informants: Golden ADA was but one of a series of schemes to plunder Mother Russia. “One group was involved in stealing timber, oil, and precious metals,” said one agent. “Others were involved in gold and diamonds.” And at the center of it stood Kozlenok. The value of goods shipped to Golden ADA equaled $178 million. But taken together, the various scams added up to more than $1 billion, Kozlenok later told the FBI.

Immendorf recalls hearing of plans to import timber from Siberia and to fuel Golden ADA’s gas stations with gasoline from Russian stockpiles. Nelson Colton, who had melted down $50 million of coins for Bychkov, remembers his surprise that the Russian was uninterested in chatting about gold. “He talked about us distributing platinum and palladium for them,” says Colton. For a while, palladium was worth more than gold; two thirds of the West’s supply is Russian.

Clues to the scope of the scandal were found in the $40 million in wire transfers that investigators traced from Golden ADA to Moscow. Some $400,000 was headed to a presidential book fund, to finance the printing of Yeltsin’s autobiography, but somehow the cash disappeared along the way, investigators say. Some Moscow press accounts claim the money was funneled into Yeltsin’s re-election campaign. Immendorf remembers talk of money going to fund Yeltsin’s presidential security force. Investigators also note that Kozlenok typically made multiple purchases in California, buying sets of cars, boats, and condos — “as if preparing an early retirement for certain Moscow officials,” suggested one agent.

Golden ADA had become a potential political scandal, with implications for the United States and the rest of the world. Boris Yeltsin was up for re-election, and the opinion polls showed him trailing the Communist candidate. “What if this turned into Russia’s Watergate?” Davidson wondered. Yeltsin’s top aides already were mired in scandal; if his inner circle were tied to Golden ADA, it could throw the election to the Communists. In Washington, Justice Department officials briefed the staffs of the National Security Council and Vice President Gore, who was then deeply involved in U.S.-Russian relations. Davidson remembers feeling uneasy. “We were worried about political interference,” he says. The FBI’s team pressed on, amassing evidence of racketeering, theft, and money laundering. Davidson prepared a request for new wiretaps and asked Belgian authorities if he could question Kozlenok. Davidson thought the FBI-Moscow team had a chance to blow the case wide open.

But then came some very bad news.

Davidson’s supervisor was on the phone. “What do you know about the IRS raiding Golden ADA tomorrow?” his boss asked. Davidson was aghast. Without consulting him, prosecutors had given approval to the IRS to seize the company’s assets. This meant the end of the criminal case. Kozlenok already had fled; with tax agents on their trail, other Golden ADA figures were not likely to stick around. The wiretaps would be useless.

The two men headed to the Strike Force office, where they confronted the prosecutors. “How can you do this?” shouted Davidson’s supervisor. But the attorneys wouldn’t budge. Golden ADA’s assets, they said, were disappearing — the artwork, the gems, the Aston Martins — and getting evidence from Moscow promised to be tough at best. Why not seize what remained and let the Russians handle the prosecution, they argued. But Davidson felt betrayed.

The next day, a team of 50 IRS agents fanned out across Northern California, seizing Golden ADA’s headquarters and other assets. The IRS hit the company with what officials say is the largest civil lien in their agency’s history: a $63 million bill for unpaid taxes. As it turned out, the U.S. attorneys may well have been right. The IRS action managed to grab a huge shipment of gold, jewelry, and more than 3,000 diamonds that had just been sent to Switzerland — four fifths of Golden ADA’s remaining inventory. At the firm’s San Francisco office, IRS agents found dozens of automatic weapons, thousands of ammunition rounds, bulletproof vests, and 25 pounds of explosives. The IRS raids forced Golden ADA into bankruptcy. The firm left behind a tangle of lawsuits and a list of creditors 20 pages long, ranging from the Russian government to the local parking garage. Of the original $178 million in treasure, the IRS seized $40 million in assets. Under a deal struck last April, Russia will recover about $25 million, the IRS gets $10.5 million, and the rest goes to other creditors.

Still, Davidson refused to give up. He continued his work with Zhirov, who made two more trips to San Francisco. In an unprecedented show of cooperation, U.S. prosecutors allowed Zhirov and his team to go through 20,000 documents and question a dozen people tied to Golden ADA. Zhirov returned to Moscow with evidence that was difficult to ignore. In February 1996, while putting the final touches on a new contract with De Beers, a surprised Bychkov was arrested for “criminal negligence” and violating foreign-exchange law and was summarily fired by Yeltsin. Bychkov’s entire agency was disbanded, and control of the national treasury was turned over to the Finance Ministry. Thirteen others were indicted, including top officials on Bychkov’s staff and in the Ministry of Foreign Economic Relations. Facing a 10-year sentence, Bychkov admitted his guilt when, weeks later, along with eight others tied to the case, he was pardoned under a general amnesty that marked the 50th anniversary of the end of World War II. The ever resourceful Bychkov is now vice president of one of Russia’s largest banks and remains a power in the nation’s diamond industry. He blames his problems on Kozlenok, De Beers, and political enemies. “To act as Golden ADA acted, either you’d have to be stupid or else somebody powerful must have led them to do it,” he says without irony.

Kozlenok’s ex-partners, the Shagirians, fled the United States. Ashot was deported to San Francisco from the Caribbean and pleaded guilty to tax evasion last January. David is believed to be hiding in Europe. Chernukhin is wanted for questioning in Moscow and San Francisco; he is said to be ensconced at homes in Cyprus and Montreaux, Switzerland.

Kozlenok proved as poor a fugitive as he did a diamond merchant. After fleeing to Belgium, he traveled to Athens last January using a fake Greek passport and was promptly arrested. He pleaded not to be extradited: His knowledge of corruption among top Russian officials, he argued, put his life in danger. “It’s obvious that if I come back, I won’t live longer than two or three days,” he warned. In fact, only days later, one of his Moscow business partners was found hanged by his sweater in a prison cell. “He was suicided,” noted one Russian official dryly. But a Greek judge was unimpressed with Kozlenok’s legal appeals, and last month he was extradited to Moscow, where the big question is whether he will name names. “He’s a pawn being played by competing interests—those that want to use him to attack their enemies and those who want him dead,” an FBI source says.

As Viktor Zhirov’s investigation moves into its fifth year, he finds that his case is increasingly in the hands of prosecutors who may cave to political pressure. With Russia’s presidential election in 2000—and with the possibility that several contenders could be implicated—he fears that the case may well end up in dusty file cabinets.

Whatever happens, Zhirov and his Untouchables have set an enduring precedent. “They’ve lessened the bleeding,” a top FBI agent says. “And they’re getting better at it.” The small band of Untouchables has grown to more than 50, and their impact is being increasingly felt not only in Russia but in America. Today U.S. and Russian law enforcement agencies are cooperating on more than 300 investigations.

For his efforts in Golden ADA, Zhirov has been promoted to colonel. While he continues to monitor the Kozlenok case, he has shifted his focus to other criminal activities. “Golden ADA is only the first affair,” he says. “There are many such deals.”

—————————————————

Looting Mother Russia Experts say Russia is being plundered through the sale of its natural resources. In a typical scheme, a seller, aided by corrupt officials, sells Russian commodities overseas for high prices than he reports to the government, and pockets the difference. One scholar compared reports of such sales filed with the Russian government with known market prices of the same commodities. The difference, shown below, is the amount believed to have been stolen.

Estimated illegal profits from commodity sales [in $ millions]



Crude oil 1992: no net theft 1993: 61 1994: 972 1995: 828

Petroleum products 1992: 642 1993: 1,272 1994: 2,148 1995: 1,528

Natural gas 1992:364 1993: no net theft 1994: 885 1995: 1,152

Aluminum 1992:59 1993: 655 1994: 1,419 1995: 899

Sources: Vladimir Tikhomirov, Europe-Asia Studies

http://www.publicintegrity.org/1998/08/03/3349/looting-russia

Related:

Jewish Mobsters, Mayhem and Murder

The Judeo-Russian Mafia

 The Jewish Russian Mob