"Cozy with the KGB"

On August 26th, 30-year-old Russian expatriate Alexandre Konanykhine was permitted by federal District Court Judge T.S. Ellis III to remove the electronic monitoring device attached to his ankle, thereby becoming a free man after more than a year of imprisonment.

Three days earlier the judge had ordered the Department of Justice to pay Konanykhine $100,000 in legal fees, which is a modest sum indeed in light of the fact that for more than a year, our government had detained Konanykhine at the behest of the KGB. In an evidentiary hearing held in late July, Judge Ellis stated that he found "credible and somewhat disturbing" the testimony of expert witnesses that the Immigration and Naturalization Service (INS) and the FBI had accepted tainted evidence from Russian officials to justify the arrest of Konanykhine, in anticipation of his delivery into the hands of Russian authorities, and that this had been done as a means of cementing a working relationship between U.S. and Russian law enforcement agencies.

"Mr. Konanykhine and I believe that the settlement is vindication of what he has been consistently saying for over one year now: He is a victim of Russian political persecution, and of U.S. government complicity in a deceptive effort to return Mr. Konanykhine to his Russian persecutors," declared John Nassikas, the Russian's court-appointed attorney. "We believe that the record now shows that the FBI and the INS trumped up charges of immigration fraud to cozy up to Russian military prosecutors and deceived a federal court about the real motivations for a de facto extradition to Moscow."

Who is Alexandre Konanykhine, that both the U.S. and Russian governments would take such interest in him? Depending upon one's perspective he is either a phenomenally successful entrepreneur -- the "Bill Gates or Michael Milken of the new Russia," according to one description -- or a "fugitive from justice, a draft dodger, a tax evader and a deadbeat dad," as INS prosecutor Eloise Rosas asserted in a July 1996 hearing.

The problem with the charges against Konanykhine, as the August 18, 1996 Washington Post pointed out, is that all of the evidence upon which the federal government based its case against Konanykhine "was provided to U.S. authorities by Col. [Alexandre] Volevodz, often translated and interpreted by him, and generally accepted at face value." Volevodz, who claims to have tracked Konanykhine across several continents, is an attorney in Russia's military procurate and a "former" KGB official.

Although Konanykhine himself is something of an enigma, his case provides disturbing evidence of the coziness that now prevails between federal law enforcement agencies and the KGB -- which remains committed to the subversion of America's political system.

Victor Yassman, a Russian expatriate who serves as an analyst for the American Foreign Policy Council, told The New American that "Alexandre Konanykhine is typical of the 'New Russians' who have been involved in building the country's banking sector. He was among the nouveau-riche who profited tremendously from the opening of the economy and made a very quick fortune over the course of a couple of years earlier this decade."

After studying thousands of pages of Russian-language legal documents dealing with the case, Yassman says, "I don't know whether Konanykhine is an honest man or a swindler. He claims to be an honest businessman who was deceived into entering a partnership with mobsters, found himself being squeezed out when he enjoyed financial success, and eventually fled in fear for his life. Russian authorities insist that he's an international criminal who has embezzled millions of dollars. It's possible that ... the truth lies somewhere in between. But there is no doubt that the business partners who have become his accusers were KGB officers from the Sixth Directorate." During the Soviet era, that Directorate was in charge of investigating economic corruption -- which meant any variety of unauthorized economic activity. In post-Soviet Russia, veterans of the Sixth Directorate are deeply entrenched in mobbed-up business enterprises.

From 1983 to 1986, Konanykhine was an outstanding student at the Moscow Physics and Technical Institute. "I was studying in the department of space at the Institute, and I planned to become a rocket scientist," Konanykhine recalled to The New American. "Like anybody else who wanted to go anywhere professionally, I joined the Komsomol [Communist Youth League] out of necessity. However, I was soon designated a 'class enemy' by the Komsomol and accused of 'exploiting' my classmates and countrymen." Konanykhine's "crime" was to take advantage of the modest relaxation of government controls that occurred under perestroika by starting a construction business. "My capitalist activities got me expelled from the Komsomol, which meant that I was also expelled from college," he explained. "As I wasn't a Party member, I found myself eligible for the draft, which would have meant serving in Afghanistan. I had no desire to shoot people to advance the cause of communism." He "dodged" the draft through a marriage of convenience.

During the late 1980s and early 1990s, Konanykhine's fortunes continued to rise: By age 25, he had amassed a constellation of 100 firms, including commodity and currency exchanges and -- most importantly -- the All-Russian Exchange Bank. He enjoyed the protection of government bodyguards and was a member of Boris Yeltsin's entourage during the Russian president's 1992 visit to Washington. However, by 1992 he found himself being threatened and blackmailed by the "former" KGB officers he had hired to protect the bank from the Russian mob.

As he recounts the story, Konanykhine sought refuge in Budapest, where he continued to run his businesses. However, on September 2, 1992, a group of armed men claiming to be agents of Hungary's security service seized Konanykhine and his wife, Elena Gratcheva, and took them to an apartment building. There they were greeted by several of his bank's senior employees, who ordered him to sign over most of his assets. Incentive for Konanykhine to comply was provided by a group of thugs who threatened to torture him with an electric iron.

Konanykhine pointed out to his captors that banking hours were over in Moscow and somehow persuaded them to allow him to return to his hotel until the next morning. He and his wife retrieved concealed passports and cash, drove to the Czech Republic, and caught a flight to New York. It's a tale out of a Frederic Forsythe novel -- one that Russian and American authorities insist was an artfully concocted cover story to conceal Konanykhine's illicit transfers of money from the bank to personal accounts in foreign countries. However, Konanykhine's first act upon arrival in the U.S. was to demand an investigation of the bank. "I am addressing this letter to warn you of a serious political danger -- the seizure of large commercial organizations by mafia-opposition circles that will stop at nothing to achieve their ends," Konanykhine wrote in a September 6, 1992 letter to Russia's Minister of Security. He issued similar statements to other senior officials and journalists in Moscow. Large-scale embezzlers, it should be noted, are not generally in the habit of drawing attention to themselves.

In early 1993, Konanykhine amplified his protests by writing a personal appeal to Boris Yeltsin. Much to his surprise, he quickly received a message from Colonel Volevodz's office asking for more information. Eager to cooperate, Konanykhine responded with a lengthy memo outlining his financial dealings and accusing his former employees of participating in a criminal conspiracy to oust him. Volevodz responded by inaugurating an investigation of Konanykhine and issuing a series of formal requests to the U.S. Attorney's Office in Washington for assistance in extraditing Konanykhine on a charge of embezzling $8.1 million from the All-Russian Exchange Bank.

Beginning in September 1994, Volevodz began to pressure the Justice Department to move against Konanykhine. At the time the expatriate businessman was cooperating, via legal counsel, with authorities in both the U.S. and Russia. However, the Justice Department pointedly warned Konanykhine not to reveal his whereabouts to anyone connected with the Russian investigation; one reason for this precaution was that -- as an FBI agent from Miami would later testify -- the KGB-aligned Russian mob that had kidnaped Konanykhine in Budapest had taken out a contract on his life.

Whatever Konanykhine had or hadn't done in Russia, it was his misfortune to become entangled in a test case for the new U.S.-Russian law enforcement condominium, which was created by Louis Freeh and KGB official Sergei Stepashin on July 4, 1994. [In 1991, the KGB was divided into two agencies, the Federal Security Service (FSB) and the External Security Service (SVR). At the time he signed the agreement with Louis Freeh, Stepashin was the head of the FSB, but for convenience both the FSB and SVR will be referred to as the KGB.] The ostensible rationale of the FBI-KGB partnership was the need for joint action against "international organized crime," particularly the Russian Mob.

Among that alliance's first achievements was the arrest on June 8, 1995 of Vyacheslav Ivankov, one of Russia's top organized crime leaders, who was forging links between mobsters in Brooklyn's "Little Odessa" and their counterparts in the former Soviet Union. At the time of his arrest, Ivankov was attempting to extort money from a Wall Street firm. The FBI pointedly expressed gratitude to Russian authorities for their assistance in bringing down Ivankov and fighting the Russian mob -- but the Russians apparently wanted something in return: Alexandre Konanykhine.

As a result of the July 4, 1994 FBI-KGB accord, the FBI stationed a legal attache (LEGAT) in Moscow. A December 4, 1995 teletype from the attache to FBI Director Freeh mentioned that Konanykhine's case "was one of the initial investigations wherein the Russian law enforcement authorities requested FBI assistance" and that Russian officials were hectoring the FBI about the matter at every opportunity: "On several occasions this matter has been raised as one of the most important cases referred to the FBI." Furthermore, when the FBI "requests assistance from the procurate, i.e. the Ivankov case, this matter is brought up as an example of bureaucratic and legal obstacles the Russian and American sides encounter in filling requests." Apparently the Russian side "is still treating the liaison process on a quid pro quo basis." In other words, the Russians had given the FBI Ivankov, and now expected Konanykhine in return -- and the FBI was willing to comply in order to preserve its liaison with the KGB.

"In the absence of an extradition law [i.e., a treaty with Russia], are there any immigration violations outstanding allowing immigration authorities to deport Konanykhine to Russia to stand trial for the aforementioned embezzlement?" the message to Director Freeh inquired. Thus was put in motion the mechanism whereby Konanykhine -- who had been cooperating with the FBI -- would find himself under arrest and facing what amounted to a death sentence in Russia.

Konanykhine had arrived in the U.S. in June 1992 with a B-1 business visa. A Habeas Corpus petition filed earlier this year (which was ultimately granted by Judge Ellis) states that the Russian mafia and KGB officers involved in kidnaping Konanykhine seized his assets and belongings in Russia and took control of his business enterprises. But Konanykhine was able to explore other business ventures in the U.S., including a position with the American subsidiary of Greatis, a multinational advertising firm. Konanykhine stated that he had previously worked as an executive for Greatis in Russia and Budapest. To take the position with Greatis USA (which has a small office two blocks from the White House), Konanykhine needed to revise his visa status; his application to do so was granted by the INS on February 26, 1993. At about the same time he also became a founding director of a murky venture in Antigua called the European Union Bank.

In June 1996, Konanykhine left the United States to conduct business in Antigua. As a legal resident alien, he sought and obtained travel authorization from the INS in the form of an "advance parole"; he returned without incident on June 13th. He made the trip amid assurances from the INS that no problems existed regarding his visa status. However, on June 27th a battery of INS and police agents conducted an armed raid on Konanykhine's apartment in Washington's Watergate building. As cameras rolled (for news broadcast in Russia the next day), Konanykhine and his wife were informed that they were under arrest for "overstaying" their visa and were to be deported.

Among those called upon to participate in the raid was Colonel Volevodz, who had been brought to the United States at the FBI's expense. Volevodz also participated in a June 27, 1996 joint press conference, and was awarded a "certificate of appreciation" from the INS. Most importantly, however, was that Volevodz -- a "former" KGB officer -- was paid by the Justice Department to carry out law enforcement initiatives in this country.

With Konanykhine in custody, the INS set about finding a way to deport him. The agency had already acted on the FBI's suggestion by instructing its representative in Moscow to cooperate with Volevodz on the case. That cooperation was curiously one-sided, however: Volevodz did not permit the INS to interview Russian witnesses or to be present during the interrogation of witnesses. Using the methods to which he was accustomed, Volevodz assembled the evidence that the INS would later use in accusing Konanykhine of lying about his employment history -- and thereby attempting to change his visa status through fraud.

The specific charge was that Konanykhine could not claim to be employed by the U.S. affiliate of the Greatis advertising agency, as no such affiliate existed and the Russian firm had no record of employing the young entrepreneur. The INS was quite satisfied with the dubious evidence provided by Volevodz -- in fact, it was willing to take drastic action to suppress exculpatory evidence.

Shortly after Konanykhine's arrest, Nickolai Menchukov, president of the Greatis firm, dropped by the Washington District office of the INS to meet with INS Assistant District Counsel Antoinette Rizzi. Menchukov informed Rizzi that Greatis USA is indeed a subsidiary of Greatis Russia, and that Konanykhine had been employed by the firm in Russia. The INS was anything but grateful to receive Menchukov's testimony. Court documents recount that "Assistant Director for Investigations James Goldman ... threatened Mr. Menchukov with arrest without so much as thinking of a pretext." That threat was reiterated a few weeks later when Menchukov testified on Kon-anykhine's behalf at Immigration Court.

Konanykhine claims that even sterner measures were used by the INS' "partners" to intimidate witnesses in Russia. "When you provoke the Russian mafia and the KGB, they don't just retaliate against you, they retaliate against your family and friends," he pointed out to The New American. Shortly after Menchukov came forward to speak on Konanykhine's behalf, his mother-in-law received a visit in Russia from the military procurate. Shortly after he testified, his brother-in-law was gunned down in Russia. "In Russia today, it is the same terror system of the old days, just with different people," Menchukov wearily informed the court.

Immigration Judge John Bryant heard evidence in Konanykhine's case from July 19th to August 2nd, 1996. According to the Washington Post, the INS presented an enormous pile of evidence, assembled in exhibits marked A to XXX -- nearly all of it compiled by Volevodz. In addressing the chief accusation -- that he had lied on his visa application by listing Greatis USA as his employer -- Konanykhine was able to produce documents proving that the firm had been incorporated in Delaware in 1992. Despite the threats from INS against him and Volevodz's intimidation of his family in Russia, Menchukov offered corroborating testimony regarding Konanykhine's employment. Also presenting testimony at the immigration hearing was Victor Yassman, who had reviewed Volevodz's evidence and found it less than convincing.

Yassman told The New American that he was asked if Konanykhine faced any risks if he were deported back to Russia. "I said that he faced no 'risk' at all, since it was all but certain that he would be killed," the Russian dryly recalled. That point was underscored by the testimony of an FBI agent from Miami, who confirmed that the Russian mob had indeed placed a price on Konanykhine's head.

Judge Bryant was unconvinced, however, and dismissed the defense's claims as "hypotheticals within hypotheticals." "This is such a stretch that it might be a novel by Tom Clancy," Bryant complained. "We've gone so far afield that I've got to say no." Eventually a deportation order was issued, and since the INS insisted that Konanykhine represented a "flight risk" he was remanded to a federal prison to await his appeal.

On July 22nd, Judge Ellis heard evidence regarding Konanykhine's petition for a writ of Habeas Corpus, which would end his incarceration while the immigration appeal was being processed. In that hearing, Konanykhine presented his strongest evidence yet to corroborate his contention that he was the victim of a conspiracy involving the Russian mob, the KGB, and the U.S. government -- namely, the testimony of an INS attorney who had initially prosecuted him, and an ex-KGB agent who had firsthand knowledge of Soviet disinformation tactics and the KGB's role in international organized crime.

Antoinette Rizzi had been present when Menchukov had interceded with INS officials on Konanykhine's behalf -- and had been threatened with arrest as a result. Rizzi witnessed other irregularities in Konanykhine's case and expressed misgivings to her superiors at the Justice Department. Rizzi claims that she was forced out of the INS in the fall of 1996 as a result of her whistle-blowing. Subsequent to her dismissal, Rizzi -- who has since entered private practice in Virginia -- received letters from INS warning her not to discuss the Konanykhine case.

Shortly after Konanykhine's arrest, INS District Counsel Eloise Rosas brought Rizzi into the case as the lead prosecutor. A memo from Rosas informed Rizzi and other INS officials involved in the matter that they were to find some way to deport Konanykhine to Russia, despite the absence of an extradition treaty, and a meeting was convened on June 26, 1996 to explore options. Two days later Rizzi met with Rosas and two Russians -- Colonel Volevodz and an associate -- to review U.S. immigration procedures. Laboring under the mistaken impression that the law had some relevance to the case, Rizzi informed the Russians that it would be difficult to mount a fraud case against Konanykhine, and that "it wasn't absolutely certain that Mr. Konanykhine, if he were excluded, would be going back to Russia, because the way the law is ... it has to be the country from whence the person came" -- and, in Konanykhine's case, the country would be Antigua.

But Rosas made it perfectly clear to Rizzi that the Justice Department wasn't interested in the law -- it sought only to placate the Russians. "I was interrupted by the district counsel [Rosas], who came in and who told them that despite that law, they would seek the authorization of the Attorney General to make sure that Mr. Konanykhine would be sent back to Russia.... So, that was the first time in my presence that the Russian prosecutors were promised that Mr. Konanykhine would be not only sent back to Russia, but they guaranteed that he would be kept in custody until that time occurred."

If Rizzi's testimony illustrates to what lengths the Justice Department was willing to go, the testimony of Yuri Shvets illustrates why the Department felt it necessary to go as far as it did. Shvets, author of Washington Station: My Life as a KGB Spy in America, retired from the KGB in 1990 and was granted political asylum in the U.S. in 1995. He was hired by the INS to analyze the evidence compiled by Volevodz against Konanykhine, on the assumption that his findings would buttress the case for the deportation of the Russian businessman. Rosas told Shvets that "the INS got instructions from the top to cooperate" on the Konanykhine case -- but what Shvets discovered was not welcomed by those "at the top."

"I seriously have concerns about my security, because I cannot doubt that the KGB is visibly present in this case," Shvets said at the beginning of his July 22nd testimony. "This is [a] serious case, and I know that KGB ... desperately wants to win this case, and everybody who won't step to their side would face problems." Such statements prompted Judge Ellis to interject: "I thought the KGB ceased to exist after the Soviet Union was dissolved. Is that not right?" "No, your honor, it is not correct," came Shvets' reply. "It exists, even though it has changed the name. The same people, the same tasks. The United States is, again, the main adversary. They are keeping spying on the United States, and this is the same repressive domestic agency." Just as importantly, Shvets pointed out, the KGB remains committed to "active measures" against the U.S. -- and the Konanykhine case is an outgrowth of such a campaign. "That is exactly what we called an active measure in the KGB. This is an operation designed to influence U.S. government officials in a way favorable to the KGB, a full-fledged active measure, a disinformation operation."

Shvets explained that at the heart of the Konanykhine affair was "a KGB classic operation of faking a front organization": "When they set [up a] front organization, they choose an individual, a potential scapegoat, a smokescreen, who makes no basic decision, who is not involved in running the most important functions of the organization, but who will be potentially held responsible for all negative consequences if the scheme [is exposed]. And this is exactly ... the role assigned to Mr. Konanykhine by the KGB."

The KGB officers who controlled the various business ventures behind the scenes took great pains to contain Konanykhine's influence, Shvets testified, since the businessman's role was limited to that of "potential scapegoat": "[T]he idea was ... to turn everything upside down, to expose a scapegoat, that is, Alexandre Konanykhine, to get him deported back to Russia and to punish him there."

Shvets testified that in July 1996, he was brought to the INS building in Arlington, Virginia to discuss Konanykhine's case with Rosas and other officials. Rosas inquired "what the military prosecutor was doing in the case [and] why there are a number of KGB people in the case, and how to explain what they were doing there, what was their role." Shvets was handed the file on the Konanykhine case, including a document entitled "Resolution" which contained the findings of Colonel Volevodz.

"I should tell [you] that these [Russian] documents, [the] initial documents I read, they were actually screaming about the lies, the fraud," Shvets informed the court. "So when we started the second meeting, I said: 'You are in big trouble with this case, because you ... got instructions to cooperate, but I saw in these files strong indications that the Russian side is just lying" about Konanykhine. But lies and fraud were only the beginning.

"From the documents I read, I saw strong indications that this is not [a] case about Alexandre Konanykhine," Shvets declared from the witness stand. "This is a case about a KGB covert operation, in which most probably hundreds of millions of dollars were smuggled by the KGB from Russia, [and] deposited under secret accounts in the West. And since Alexandre Konanykhine fled Russia, moved to the United States and went public and started writing petitions to different Russian institutions and top government officials ... the KGB, together with the Military Procurator's Office, made a decision to make a cover-up."

"I have a firsthand knowledge on similar operations conducted by the KGB," Shvets testified, since he had been "approached by the top bosses of the Central Committee of the Soviet Communist Party" in 1991 and offered a job as a courier for a currency-smuggling operation. Konanykhine had brought trouble on himself when he "started bringing charges against people who were involved with him in setting up and running commercial enterprises. They were KGB people," and they were "secretly smuggling from Russia hundreds of millions of dollars. It was a crime, a huge crime.... And the last straw, which I strongly believe led to ... initiating [a] criminal investigation against Konanykhine in Russia, was his letter petition to President Yeltsin."

Shvets explained to the court that the chain of economic enterprises described in Konanykhine's file had been created by the KGB as part of its design "to secure a financial basis for top KGB and Communist Party officials to conduct further political activity...." As he examined the evidence supposedly connecting Konanykhine to the theft of $5 million from the Russian Exchange Bank (a signature that Russian officials claim was forged by Konanykhine), Shvets came to the conclusion that "there is no way anybody could steal anything from this bank. KGB was aware of every penny on this account."

Shvets' analysis comports with what is known of the "invisible party economy" that was created by the Communist Party of the Soviet Union (CPSU) in 1990, shortly before it relinquished its constitutional monopoly on power. The framework for that system was set forth in an August 23, 1990 directive issued by CPSU Administrative Director Nikolai Kruchin entitled "Emergency Measures to Organize Commercial and Foreign Economic Activity for the Party." Kruchin instructed his co-conspirators "to systematically create structures of an 'invisible' party economy" and that "anonymous firms will have to be used disguising the direct ties to the CPSU." Those firms could either be created with assets controlled by the Party, with investment capital obtained from the West, or by obtaining control of genuinely private businesses through intimidation, blackmail, and murder.

Russian businessman Konstantin Borovoi has described the process through which the Russian mob and the KGB collaborate in order to obtain control over independent businesses. "First [comes] the racket, strong pressure, then a KGB proposal to 'help'" -- which takes the form of "penetration of KGB officers into the top leadership of the company, or the leadership of the company [is required to establish] close contact with the KGB." Eventually, a company under such duress will effectively cease to exist "as an independent commercial organization" and become just another in a chain of business interests controlled by the underground party and the KGB.

Alexandre Konanykhine makes a strong case that he was trapped in this same vicious mechanism. What makes his case unique is that the KGB was able to task the FBI and the INS to carry out its vendetta against Konanykhine.

Judge Ellis, in ruling in favor of Konanykhine's Habeas Corpus motion, stated that he found the testimony of Rizzi and Shvets -- both of whom had assisted the INS in its investigation of Konanykhine -- "credible and somewhat disturbing." He also recalled that in the course of Konanykhine's appeal, "I was repeatedly assured that there was no desire to deliver Mr. Konanykhine to the Russians" -- assurances that had been exposed as brazen lies. He instructed the Department of Justice to undertake an internal review of their actions in the case -- a development which Konanykhine's court-appointed attorney considers well overdue.

"I would hope that, at the very least, this would prompt some very serious internal scrutiny at the Department of Justice," Nassikas remarked to The New American. "This is a very important case study of what happens when we get in bed with a government whose veracity we simply cannot trust."

What of Konanykhine himself? Is he a con-man of singular capacity, who managed somehow to suborn perjury from an FBI agent, a former INS attorney, numerous material witnesses, and a former KGB agent? His background does remain somewhat enigmatic, and some of his business ventures (such as the offshore bank in Antigua) may be considered suspicious. He also described to The New American his efforts to create a new banking conduit linking East European business interests with Latin America -- an undertaking, linked to the dubious Menatep Bank, which could also provoke suspicions in light of Cold War history. His cultivated image as an entrepreneurial "whiz-kid" does conflict somewhat with the defense presented by Shvets -- that is, that he was essentially a front man and a scapegoat.

Additional misgivings arise from the fact that Konanykhine was happy to employ KGB personnel to provide security, and to be a business partner with KGB officials, until the chekists turned on him. It is possible that Konanykhine case is a dispute among former partners in plunder, rather than the persecution of an innocent anti-communist.

Having acknowledged all of this, however, it is difficult to dispute Konanykhine's conclusions about the ultimate significance of the case. "The same corrupt elite that ruled Russia for 70 years is still in power, and the KGB is still very much in business," he declared to The New American. "The nomenklatura may call itself communist, socialist, social-democratic, democratic, nationalist, or even fascist, but all they're interested in is power. And the KGB's sole reason for existing is to inflict maximum possible damage upon the United States, its system of government, and its national interests. Your system is good. Why are your leaders cooperating with those who seek its destruction?"

Why, indeed?

Copyright 1997 The New American