Dirty Dollars: Money Laundering, Steel, and Toxins

By Jerri-Lynn Scofield, who has worked as a securities lawyer and a derivatives trader. She is currently writing a book about textile artisans.

The Pittsburgh Post-Gazette just published an expose that shocked even this cynical observer of money’s baleful influence on regulation of deadly toxins, Dirty Dollars: Trail of Deceit and Ruin.

It’s not just developing countries that must cope with companies that dump toxins that sicken workers and create mountains of hazardous waste.

The report documents how companies, using the services of a corrupt Ukranian bank alongside Deutsche Bank, laundered ill-gotten gains to purchase U.S. steel mills and real estate. Once the purchases were made,  American regulators and political figures at best looked the other way – and in some instances actively colluded – in exposing American workers to toxins and other hazardous working conditions  – and damn the consequences.

In a nutshell, per the Pittsburgh Post-Gazette:

Between 2008 and 2015, Ihor Kolomoisky and his partners allegedly embezzled $750 million from a Ukraine bank  – and then moved the money through a litany of bank accounts of companies set up in Cyprus and the Virgin Islands before transferring the funds into the United States through Deutsche Bank USA. Approximately $526.6 million was then transferred to Delaware companies controlled by Kolomoisky and his associates, where it was used to buy 18 properties, including nine steel factories, five skyscrapers (four in Cleveland, one in Louisville, Ky.), two office parks (both in Dallas), and a shuttered Motorola factory northwest of Chicago.

Kolomoisky is now the target of a federal investigation, according to the paper:

The 58-year-old billionaire, a powerful figure in Ukraine who was banned earlier this year from entering the United States by the State Department, is the focus of a federal investigation that tracked millions of dollars coming into the United States in a flow of money that nearly crippled the bank in Ukraine.

The money — at least $225 million — was moved back and forth between the West Virginia factory and other companies owned by Mr. Kolomoisky as part of a larger laundering scheme that helped the oligarch acquire factories and skyscrapers that grew into a real estate empire, prosecutors said.

The allegations against Mr. Kolomoisky and his partners have been raised in federal forfeiture actions and are now being taken up by a federal grand jury, the first investigation of money laundering in the U.S. steel industry, the Pittsburgh Post-Gazette has learned.

Readers are well familiar with companies offshoring formerly US-based production in order to avail themselves of less stringent environmental standards. In these latest examples, foreign owners were able to whisper the seductive sweet nothings – “Jobs, jobs, jobs” into the ears of congressional leaders, who in turn did their part to press U.S. regulators to go easy on these U.S.-based steel concerns. According to the Pittsburg Post-Gazette:<

There’s no indication the elected officials knew at the time the companies were steeped in an alleged laundering conspiracy, and public campaign reports do not show any of the officials received money from the owners.

But the help that key lawmakers lent to Mr. Kolomoisky’s companies underscores the lack of scrutiny by elected leaders at a time when warning signs of hazardous work conditions were escalating, and the government was supposed to be on guard against foreign operators investing in industries vital to the nation’s security.

“Unbelievable,” said Raymond Baker, a financial crimes scholar who has testified several times before Congress on money laundering. “They were going through all sorts of gymnastics not to ask the questions as long as money was coming into the economy.”

Jobs there may have been – at least a handful – but these came with a big health and safety cost. Per the paper:

The case also illustrates just how dangerous workplaces can become when they are used in financial crimes, leading to carelessness and cost-cutting that expose workers to even greater risks.

The following graphic summarizes the plethora of health and safety violations that followed:

The role played by Congresscritters in fending  off the Environmental Protection Agency (EPA) and allowing these violations at the Felman Production steel factory to continue, unimpeded, is despicable. According to the Pittsburgh Post-Gazette:

When the U.S. Environmental Protection Agency stepped in years later to push tough restrictions on the factory — after workers were found to have been exposed to emissions — the operators of the West Virginia facility turned to some of the most powerful members of Congress to fend off regulators and keep the doors open.

These powerful members of Congress included West Virginia Senators Joe Manchin and Shelley Moore Capito:

Sens. Joe Manchin and Shelley Moore Capito joined other lawmakers in firing off a letter to the agency in 2015, saying the plant in their home state and another in Ohio could shut down if they were forced to install expensive equipment and submit to testing under a strict deadline.

“It would be extremely disappointing if the companies were forced to stop operating,” the letter read.

The environmental violations were only part of the story. When we follow the money, we see the money laundering is the bigger story here – and indeed, the point of the entire exercise:

But as lawmakers were warning the agency the plan was risky for the factory, the owners were amassing a fortune that went far beyond what was told to the EPA.

The owners had been secretly pumping millions of dollars into the plant and other real estate — while fighting federal regulators — in a massive criminal scheme that was carried out across the country, federal prosecutors say.

Rather than doing anything about regulating plant operations, the company spent its money wisely on DC lobbying operations. Lest you think that West Virginia has a monopoly on being represented by politicians who have a monopoly on “business-friendly” shenanigans, the Pittsburgh Post-Gazette also discussed how Ohio politicians also joined in to lend some helping hands:

Along the way, the operators gained the help of the elected leaders and spent hundreds of thousands of dollars on Washington, D.C., lobbying firms to fend off regulators and keep operating in one of the most economically distressed areas of West Virginia.

After the letter was sent by Sens. Manchin and Capito, along with Sens. Sherrod Brown and Rob Portman of Ohio and four House members, the EPA eventually dropped part of its plan for Felman to put in a new pollution detection system.

In 2017, Ohio state attorney general Mike DeWine got involved, writing to then vice president Mike Pence, then-Senate majority leader Mitch McConnell, and then-House Speaker Paul Ryan, asking them to stave off emissions controls on Felman and another Ohio plant, again invoking the magical incantation of “jobs, jobs, jobs”:

“There is no doubt that protecting the public health from hazardous air pollution is critical, but a proper balance should be struck to prevent job losses, let alone a risk of closure to local businesses,” he wrote in 2017.

Dan Tierney, a spokesperson for Mr. DeWine, now Ohio’s governor, said Mr. DeWine was mostly focused on the facility in his home state and that the EPA plan appeared to be an overreach by the Obama administration.

“We can be strong on protecting public health and strong on promoting these jobs, which are critical to the U.S. economy,” he said.

Money Laundering: Role of Deutsche Bank

So as to keep to a manageable length, this post only provides a small taste of the issues covered by the full Pittsburgh Post-Gazette article, particularly some of the ins and outs as to how the money laundering worked in the United States. I can’t resist reproducing a snippet below.  I encourage interested readers to grab a cup of coffee and read that entire article in full. It isn’t paywalled. When a newspaper publishes a good old-fashioned expose, it deserves to have readers sample the full menu. On that money laundering issue:

Month after month, the workers inside the bank issued bogus loans to companies under the control of the oligarchs, the money moved through a labyrinth of bank accounts to make it more difficult to track, according to an audit by Kroll Inc., the global security firm hired by the Ukrainian government.

Once the funds arrived in the United States they were poured into real estate, including most of the steel factories, two office parks in Dallas, a sprawling manufacturing center in Illinois and four office towers in Cleveland, including a 31-story high rise with gleaming skylights and a sweeping view of the city.

In less than a decade, at least $750 million was moved into the country from Ukraine — all through Deutsche Bank, the global lender that has paid millions in fines to U.S. regulators in recent years over breakdowns in anti-money laundering.

“It’s extraordinary the amount of money that was flooding the U.S. markets,” said Lakshmi Kumar, policy director at Global Financial Integrity, a Washington, D.C., research group that tracks financial crimes.

Political Justification

I found it particularly amusing when the paper pressed back on issues of political expediency and outright hypocrisy – if not outright corruption, if you were inclined to look for signs – and asked politicians and their staff to elaborate on their support for these steel investments, especially their documented role in calling off regulators. Per the Post-Gazette:

Mr. Manchin, an influential centrist Democrat who has pushed back on President Joe Biden’s more progressive environmental plans, did not respond to questions from a Post-Gazette reporter on Tuesday near the Senate Chambers.

An aide accompanying the senator said he would accept questions emailed to the staff. Despite repeated messages, Mr. Manchin’s office did not respond to written questions but provided a statement:

“Senator Manchin has always fought to protect West Virginia jobs and worked in a bicameral, bipartisan way to protect the good-paying jobs at the Mason County facility,” said Sam Runyon, communications director.

The senior senator, who has been critical of foreign investment in the energy industry, appeared at the opening of Felman Production in 2006 as governor of West Virginia after the oligarch and his partners bought the factory out of bankruptcy for $20 million.

Ms. Capito, now the top Republican on the committee that oversees the EPA, said in a brief interview outside the Senate chambers that she was unaware of any controversy surrounding the factory despite national news stories about Mr. Kolomoisky, his steel plants, and an FBI investigation into his properties.

“I didn’t know anything about the ownership [issue],” said Ms. Capito.

Republican Sen. Portman declined to comment, while a spokesperson for Mr. Brown said the Democratic senator joined in the letter to advocate on behalf of the factory in Ohio, which is under different ownership.

Mr. Baker, once a member of a United Nations commission on foreign money laundering, said the lawmakers had a responsibility to know the owners of the facilities when they stepped in to help the two plants.

“You have to be able to identify who you are doing business with. To me, it’s elementary when you’re writing a letter in support of someone,” he said. “I want to know who I’m dealing with. Otherwise, don’t write the letter.”

Time and again, the operators of the West Virginia factory received help from Sens. Manchin and Capito to help swat away foreign steel competitors while the owners drained the bank in Ukraine in amounts that would later stun regulators in that country.

The Bottom Line

Let me close by recalling something IIRC Bill Black once said, in the context of discussions over financial reform legislation in the wake of the great financial crisis. Those talks eventually  produced the Dodd Frank Wall Street Reform and Consumer Protection Act.

Paraphrasing and extending on Black’s insight: the problem in America isn’t lack of an adequate statutory framework to pursue those guilty of financial crimes (or environmental and other health and safety violations, for that matter). In the past, prosecutors successfully went after the guilty – think the Savings and Loan crisis, and more recently, during the reign of Bush the younger, when  they claimed scalps at Adelphia, Enron, and WorldCom.

What’s now lacking is regulators and prosecutors willing to enforce the existing and perfectly adequate statutory framework. This is not just a Trump phenomenon and certainly dates back at least to Eric Holder’s tenure as attorney general. And also, I might add, it’s necessary for political figures to be willing to let regulators do their jobs, without the distraction of having to wave off political overseers, in the interests of a few “jobs, jobs, jobs” – or whatever other pro-corporate shibboleth is the particular fad of the day.

Prosecutors are now on the case and a grand jury has been convened. The time is more than ripe to hold the culpable accountable for both the environmental violations that the Pittsburgh Post-Gazette documents as well as the extensive money laundering, which appears to extend well beyond  one Ukranian oligarch and his cronies.

No one seems to fear the Department of Justice (DoJ) anymore -now sometimes derided as the Department of Jokes. Perhaps this case will make some difference to stemming if not outright reversing that trend.

While I’m not holding my breath, I’m happy to pass the popcorn!