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Poisoned at the Source

When Times reporter Tim O'Brien took on a source in the Bank of New York scandal, he found himself in a strange new world in which the investigator became the investigated.


Making his way through the New York Times newsroom on the morning of August 19, 1999, Timothy O'Brien basked in congratulations. On the Times front page, under a byline he shared with veteran reporter Raymond Bonner, was a story revealing for the first time the Bank of New York's complicity in a staggering money-laundering operation -- perhaps $10 billion in all -- set up by corrupt Russian banks. It was the biggest financial scandal in a decade. For O'Brien, a stocky 38-year-old with a blunt-talking manner and a receding hairline, it was the high point in his eleven-year reporting career.

The moment must have been doubly sweet because it meant that he'd scooped the Wall Street Journal. Five years before, banking had been his beat at the Journal. But after he returned from a paternity leave, it had been given to another reporter, and he'd grown increasingly frustrated. Three years ago, he jumped to the Times, and now he'd beaten his former employers to a story in the heart of their own territory. The story, he knew, would set off a mad scramble to catch up in newsrooms around the city. But he and Bonner weren't about to let that happen.

In the middle of the morning, as O'Brien pushed ahead on a follow-up, he received a call from a stranger, a Russian-American journalist named Viktor Smolny. "I know this lawyer, Emanuel Zeltser," Smolny said. "He has all these documents about the Bank of New York. You should meet him."

O'Brien arranged to meet Zeltser at about two o'clock the same day, in Zeltser's office at West 57th and Broadway. The office turned out to be a dingy three-room suite decorated with prints of Russian art and framed certificates from Ronald Reagan's 1984 presidential campaign.

Zeltser was an unusual figure, to say the least. He was just under six feet tall, thick and balding, with intense eyes shadowed by a heavy brow. He appeared to be in his mid-fifties, although he turned out to be only 46. Throughout their talk, Zeltser guzzled Diet Coke and chain-smoked Marlboros, often forgetting to flick the ashes until they fell onto his shirt and tie. He lit his cigarettes with a lighter in the shape of a miniature blowtorch, leading to his Times-newsroom nickname: Blowtorch. An air purifier hummed ineffectually below his desk.

Zeltser told O'Brien that a number of years before, he'd done legal work for Inkombank, one of the largest and most corrupt Russian banks, before it became insolvent and collapsed. His work ended in 1993, however, and he became embroiled in a lawsuit over his payments. Inkombank countersued, alleging embezzlement. In the course of discovery, Zeltser explained, he had obtained reams of documents from inside Inkombank, which he would be delighted to share.

"I had created this Frankenstein monster by quoting this guy," says O'Brien. "I gave him credibility, and then everybody thought he was the key to breaking the Bank of New York story."

O'Brien's story had reported that Natasha Kagalovsky, a senior vice-president at the Bank of New York, was under suspicion in the scandal. Zeltser filled in further details about Kagalovsky's push for Inkombank's business. He handed over a 1995 memo from Kagalovsky to her superiors trumpeting her success. "Inkombank is our largest generator of fee income," the memo noted.

O'Brien was elated. "Sometimes," he says, "when you are chasing a story, you find these weird people who have documents. I thought it was one of those lucky days."

O'Brien checked his new discoveries and then filed his follow-up story. The piece, which detailed the eagerness of Bank of New York executives to do business with Russian financiers who were obviously crooks, quoted Zeltser by name while acknowledging that his personal quarrel with Inkombank gave him a motive to wish it ill.

The same day the second story appeared, he brought Ray Bonner up to meet their new source at his office. Zeltser thanked O'Brien for quoting him, O'Brien says, but then he asked for anonymity, citing his fear of the Russian mob. His new interest in keeping a low profile made O'Brien suspicious. And then, as the reporters sat on a leather couch and tried to gauge what he knew about the Bank of New York, Zeltser seemed to blunder badly.

Zeltser told the two he knew a key bank executive named Peter Berlin.
"What does he look like?" O'Brien asked. Zeltser, O'Brien says, described him as short and sandy-haired. As it happened, however, O'Brien knew Berlin from his investigations -- he was tall and thin, with a distinctive black beard. As far as O'Brien was concerned, the game was over. "To me he was a dead end," says O'Brien. "We just said, 'He smells,' and pushed him aside. Then Ray and I went off on a whole other big reporting trail."

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