updated 11/8/2005 8:57:01 PM ET 2005-11-09T01:57:01

The nation's oldest bank, The Bank of New York, has agreed to pay $38 million in fines and adopt reforms to end a long-running federal investigation into fraud and money laundering, prosecutors said Tuesday.

In exchange, U.S. Attorney Roslynn Mauskopf of Brooklyn and U.S. Attorney Michael Garcia of Manhattan said they would not prosecute the bank for failing to enforce federally mandated anti-money laundering measures and other banking rules.

The agreement stems largely from an international scheme that U.S. authorities said involved $7 billion in illicit transfers from Russia in the late 1990s. The case resulted in a Bank of New York executive and her husband pleading guilty in 2000 to money laundering.

The bank will be required to forfeit $26 million to the government and $12 million to victims of fraud. It also will adopt reforms that will be monitored by an outside examiner for the next three years.

Mauskopf and Garcia said in a statement that as part of the agreement the bank admitted some of its officers intentionally deceived federal regulators by purposely failing to disclose evidence of crimes by customers and employees, as required by a previous agreement with the Federal Reserve Bank of New York. The result was at least $18 million in losses to victims, they said.

"Banks occupy a pivotal position of trust," Mauskopf said. "When that position of trust is knowingly violated at the highest levels of a financial institution, as happened here, fraud and other crimes continue unabated, victims suffer staggering losses and the integrity of our financial systems is seriously undermined."

Officials at the Bank of New York, founded in 1784, said they had already implemented many of the reforms, and had previously set aside $38 million to avoid any impact on future earnings.

"We are satisfied that reaching this agreement is in the best interest of the company and all our constituents," said Thomas A. Renyi, chairman and chief executive officer of The Bank of New York Company, Inc. "We are taking the right steps in today's environment to ensure sound business practices."

In a 2000 case in federal court in Manhattan, Lucy Edwards, the bank's former Eastern European Division vice president, and her husband, Peter Berlin, said they helped Moscow bankers launder billions to avoid taxes and conceal the money's connection to crimes _ including money used as ransom for a kidnapping in Russia.

A separate investigation in Brooklyn uncovered a multimillion dollar scheme by a Bank of New York branch manager to arrange fraudulent loans for a Long Island company that financed the leasing of medical equipment. Seven people, including the manager, have been convicted on charges including making false statements.

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