September 23, 1999
US Tie to Russian Money Scam
By Robert ParryBetter late than never, the major U.S. news media has discovered that a major financial scandal has been brewing in the former Soviet Union.
To its credit, The New York Times picked up on earlier work by journalist Robert Friedman and reported on massive Russian money transfers into the Bank of New York.
But what has been missing from the coverage is a coherent history of the long-standing relationship between one of the bank's principals and U.S. intelligence activities.
On Aug. 22, the Times even published a lengthy profile on Bruce Rappaport, a Swiss-Israeli businessman behind the Bank of New York, but left out Rappaport's role in U.S. covert operations during the Reagan administration.
The Times profile began promisingly enough. "At the intersection of illicit Russian money and the Bank of New York is Bruce Rappaport, a Swiss banker who has had brushes with governmental investigators in the past and who has long had an important connection to the bank," the article stated.
"Together with the Bank of New York, Mr. Rappaport owns a bank in Switzerland that helped provide the American bank with important business contacts in Russia, according to Western bankers familiar with the operation."
The Times then wondered "why the Bank of New York, a conservative institution that is one of the nation's oldest banks, worked closely with a man who has frequently drawn the attention of government regulators and law-enforcement officials worldwide."
In an apparent effort to answer that question, the article sketched Rappaport's biography from his birth in Haifa, now part of Israel, through his founding of Inter-Maritime Bank in Geneva to his acquisition of the Bank of New York.
But left out was an important piece of the mystery: Rappaport's close relationship to Israel's Labor Party, the Reagan administration and U.S. intelligence.
That history makes for an interesting story in its own right, but also helps explain the network of powerful connections that Rappaport used to build his international financial empire and position his bank to profit off Russia's billions of dollars.
In the 1980s, Rappaport emerged as an important financial conduit for both Tel Aviv and Washington. Some of Rappaport's influence apparently stemmed from his personal relationship with CIA director William J. Casey. The two were frequent golfing partners.
By the end of the decade, Rappaport had been linked to some of the Reagan administration's most controversial actions.
These included: the Iran-contra affair; an Israeli bribery case that involved a U.S.-backed oil pipeline in Iraq; the scandal over the Bank of Credit and Commerce International; a curious shipment of weapons through a melon farm in Antigua to Colombian cocaine kingpins; and the October Surprise mystery, the allegations that the 1980 Reagan campaign sabotaged Carter's negotiations to free 52 American hostages held in Iran.
In BCCI-related testimony in 1991, President Carter's former budget director Bert Lance described a peculiar overture from Rappaport in the early 1980s.
Out of the blue, Rappaport sought Lance out and arranged a series of meetings. Rappaport left the impression that he "was interested in if I or anyone around Carter was pursing the October Surprise," Lance told a Senate investigation. [AP, Oct. 23, 1991]
In the late 1980s, as suspicions about the October Surprise caper grew, Rappaport entered the picture again. His Bank of New York cooperated with a politically sensitive Customs sting that entrapped and discredited several individuals familiar with Casey's activities during the 1980 presidential campaign.
The sting rounded up a small band of international businessmen on charges of plotting to sell 1,000 pistols to Chile, which was then on the U.S. embargo list because of human rights concerns.
The defendants argued that they were targeted because of past business dealings with Casey's close friend, John Shaheen, who had known Casey since World War II when both men served in the OSS, the forerunner of the CIA. After he died in 1985, Shaheen was identified as a key middleman for Republican overtures to the Iranian government in 1980.
Barry Brokaw, a Shaheen associate arrested in the Customs sting, said he was struck by the investigators' strong interest in what he and his wife, who had been Shaheen's secretary, "knew about Iran-contra or October Surprise."
Kenneth Walker, a Canadian nabbed in the sting, complained that he was arrested unfairly as part of a Bush administration effort to assess where Reagan-Bush insiders might be vulnerable from the October Surprise case.
In 1992, Walker filed suit in Canada naming the U.S. government and the Bank of New York as defendants. Walker charged that the Bank of New York supplied him with false information that convinced him the proposed gun sale was legitimate. [The Financial Post, Toronto, Feb. 6, 1993]
Rappaport also has been linked to secret money transfers through Switzerland during the Iran-contra affair. Special prosecutor Lawrence Walsh reported that his investigators received information in 1989 that the mysterious $10 million payment from the sultan of Brunei to Oliver North's Nicaraguan contra operation ended up in Swiss accounts controlled by Rappaport.
Also in 1989, retired Maj. Gen. John Singlaub told me that he had discovered from well-placed contacts in Switzerland that the $10 million had gone to Rappaport-controlled accounts and that -- after the money became a public issue -- the banker resisted demands that he return it. "This was no accident," Singlaub said about the delivery of the $10 million.
In October 1990, however, Rappaport testified under a grant of immunity and denied any knowledge of the deposit. Rappaport also produced a letter from Credit Suisse denying that the money had gone to a Rappaport-controlled account.
But Swiss authorities never divulged the recipient's identity and the mystery of the $10 million recipient has never been resolved. [See Final Report of the Independent Counsel for Iran/Contra Matters, Aug. 4, 1993.]
While North's Iran-contra operations were in full swing in the mid-1980s, Rappaport also was handling covert payments to the Israeli Labor Party as part of a strange plan to secure Israeli guarantees not to attack an Iraqi oil pipeline that the Reagan administration wanted built near the Israeli border.
From 1984 to early 1986, Rappaport met about the plan with senior Reagan administration officials, including Casey. But the pipeline ultimately was not built.
Rappaport came in for some more bad publicity in 1989 when Israeli arms merchants shipped 500 assault rifles and 200,000 rounds of ammunition from Israel to Antigua. The arsenal went to a military training base located on Rappaports property.
From there, the guns were picked up by the Medellin drug cartel and transported to Colombia. Later, after a gun battle that killed cartel kingpin Gonzalo Rodriguez Gacha, Colombian authorities confiscated 178 of the Galil assault rifles. [For details, see Dangerous Liaison by Andrew and Leslie Cockburn.]
Despite the incident, Rappaport retains close ties to Antigua, known as a money-laundering haven. At age 76, he is Antigua's ambassador to Russia.
Rappaport's name popped up, too, in the Senate's 1992 report on BCCI. A titled section on Rappaport described his connections to operatives from the corrupt Middle East bank.
"According to a former CIA agent, Rappaport had a business relationship with Abbas Gokal, whose shipping empire was financed by BCCI, and whose family acted as fronts for BCCI attempts to acquire banks in the United States," the report stated. [See The BCCI Affair, by Sens. John Kerry, D-Ma., and Hank Brown, R-Colo., Dec. 1992]
This history doesn't answer every question about the Bank of New York's descent into the murky world of international money-laundering.
But Rappaport's experience operating in that realm -- with the political protection of the CIA and the Reagan administration -- might explain why some bank officials thought they had a good chance of getting away with it.