By Larry Rohter, The New York Times, Aug. 20, 1997 published: “European Union Bank was founded in June 1994 as the East European International Bank by two Russians, Aleksandr P. Konanikhin and Mikhail B. Khodorovsky”. “Last year, the Bank of England reportedly issued a statement cautioning investors ''to be careful about putting any money into the EUB”
“When it opened for business here three years ago, the European Union Bank marketed itself as the first offshore bank on the Internet and claimed to be the wave of the future. But now the bank has collapsed, two of its Russian directors and depositors' money have disappeared, and the Government of Antigua has belatedly issued a fraud alert.
The scandal comes as little surprise to regulators in North America and Europe who have long warned that the Russian mafia, Colombian drug traffickers and other international criminals have been laundering money through Antigua's flourishing banking sector. More than 50 offshore banks are chartered here, many consisting of little more than a telephone and a computer behind a brass plate on an office door.
Dominated politically and economically by the Bird family since the mid-1940's, this former British colony 300 miles southeast of Puerto Rico has a reputation as a haven for intrigue and dubious businesses, notwithstanding the passage of money-laundering legislation last year. A recent State Department report describes Antigua, an island nation of 65,000 people, as ''a weak link in efforts to combat drug trafficking and money laundering'' and notes ''a surge in questionable banking operations.''
European Union Bank was founded in June 1994 as the East European International Bank by two Russians, Aleksandr P. Konanikhin and Mikhail B. Khodorovsky. In bank documents on file here, both described themselves as brokers of oil, metals and construction supplies and officers of the Menatep Bank of Moscow, which American and British officials have said is linked to Russian organized crime.
American officials said Mr. Konanikhin was arrested in the United States on visa violation charges and is accused of having embezzled more than $8 million from a Moscow bank. Both severed their formal connections with the European Union Bank, and two other Russians, Sergei Ushakov and Vitali Papsouev, who have disappeared, were listed as the bank's directors when it collapsed.
At the bank's office above a dentist's office and Nio's Bar and Restaurant, a notice on the locked door said, ''European Union Bank Inc. has been placed in receivership effective this 8th day of August 1997.''
On its now-dormant Internet site, www.eubank.ag, the bank had emphasized the benefits of the lax regulatory climate here. ''Since there are no government withholding or reporting requirements on accounts, the burdensome and expensive accounting requirements are reduced for you,'' the web page said.
Through the Internet, the bank allowed clients anywhere in the world to open accounts, transfer money, write checks by computer and obtain credit cards around the clock.
Citing confidentiality laws, Government officials here declined to say how many depositors the bank had had or how much money it had reported in accounts.
John E. St. Luce, the Minister of Finance, said he did not get directly involved ''in this sort of thing,'' and Keith Hurst, Financial Secretary, declined to discuss the collapse.
Bank records here, however, make it clear that the bank ran afoul of the rules almost from the beginning, but was allowed to stay in business until depositors began complaining recently that they no longer had access to their accounts. An official letter sent by the Ministry of Finance in October 1995 noted that the bank had failed to file an audited financial statement for 1994.
Those initial indications were followed by other, more public warnings. Last year, the Bank of England reportedly issued a statement cautioning investors ''to be careful about putting any money into the EUB,'' and in May the Idaho Department of Finance declared the bank to be operating illegally and ordered it to stop soliciting deposits from Idaho residents over the Internet.
''There was a lack of disclosure, a lack of information on the principals, a lack of any of the licenses or charters that would have allowed this bank to conduct business legally in this state or this country,'' Gavin Gee, director of the department in Idaho, said in a telephone interview from Boise. ''While the Internet is a wonderful means of obtaining information and doing business, it is also a means for fraud, and to the extent we have jurisdiction, we have a duty to protect our residents,'' he said.
In an interview here, Agnes James, permanent secretary of the Ministry of Finance, said the Government of Antigua had taken several steps to prevent similar cases, including ''a stricter watch on quarterly reports.'' She said there were also plans for the ministry's two bank inspectors to get additional help so ''they can go in on a monthly basis'' to ''check on the banks indicated for this type of treatment.''
Earlier this year, responding to pressure from Washington, Prime Minister Lester Bird said a thorough investigation would be made of about a half-dozen banks identified as being linked to Russian crime groups. But the inquiry remains incomplete.
As a result of the European Union Bank case, Mrs. James said, ''there will be some changes, some tighter sanctions as far as due diligence is concerned'' when applications to charter a bank here are made.
Mr. St. Luce, the Finance Minister, said: ''All that is needed has been set in motion. We have just passed very, very strong legislation, vetted by the Americans and the British, on money laundering. We have a committee looking into these things, and are getting everything that is needed operating.''- notes The New York Times in the article “New Bank Fraud Wrinkle in Antigua: Russians on the Internet”.
