Viktor Chernomyrdin, a former Prime Minister, Anatoly Chubais, a former Deputy Prime Minister, and other members of the elite have denied any wrongdoing. But The Observer can reveal that Russian intelligence has established links between Chubais's business empire and a former Channel Islands company at the centre of 'maffiya' money-laundering.

Gazprom - the world's biggest gas company, which Chernomyrdin now chairs - has also come under investigation for spiriting hundreds of millions of dollars offshore via a network of shell companies in Eastern Europe, Cyprus and Italy.

When the Bank of New York scandal broke last month, the story seemed shocking but simple enough. Two senior Russian-born executives in London and New York had allegedly connived with Semion Mogilevich - an underworld godfather dubbed 'the most dangerous man in the world' - to launder $10 billion through a web of companies run from north London.

Konstantin Kagalovsky - husband of Natasha Kagalovsky, the Bank of New York executive suspended in the US - is a senior establishment figure in the pro-Yeltsin camp, to which Chubais and Chernomyrdin belong. A former Russian envoy to the IMF, he was expected to head Chernomyrdin's campaign to succeed Yeltsin next year. His mentor is Chubais, who headed Russia's debt negotiations with the West until 1998's crash.

He was deputy chairman of Menatep, once Russia's sixth largest bank, which has now had its licence withdrawn. He is a director of Yukos, one of Russia's biggest oil companies. Both belong to the business empire of Mikhail Khodorkovsky, one of Russia's controversial 'oligarchs', who amassed vast riches from the give-away privatisation programme kicked off by Chubais eight years ago.

The Observer can reveal that according to Russian intelligence sources a 'maffiya'-controlled firm, Arbat International, is a 20 per cent shareholder in TEMBR bank, the clearing bank of UES, the electricity group which Chubais runs. Chubais's financial relationship with TEMBR - in which UES also has a 30 per cent stake - has also been monitored, sources say.

Arbat International is where the police investigations began that led to the discovery of the Bank of New York scam. Set up by Mogilevich in Hungary and Alderney in the early 1990s, it actually belongs, according to Russian intelligence sources, to Sergei Mikhailov, head of Moscow's Solntsevo crime gang and the leading Russian godfather, and one of his Budapest-based deputies, Viktor Averin. 'Seva [Mogilevich] provides the brains and Mikhas [Mikhailovich] and Avera [Averin] the muscle,' one source said.

Mogilevich first attracted the attention of Britain's National Criminal Intelligence Service through the money-laundering operations of Arbat and an associated firm, Arigon. As The Observer exclusively revealed at the time, the probe - code-named Operation Sword - led to the arrest of three people, including two City solicitors in 1995, and the Alderney operations were shut down. The National Criminal Intelligence Service also tipped off the FBI about links with YBM Magnex, a major US money-laundering firm which bought Arbat and Arigon. Worth $1bn at its peak, YBM was closed down after a raid by 60 officers of the US Organised Crime Strike Force.

Operation Sword led directly to Mogilevich's links with the Bank of New York branch in the City through YBM's dealings with Benex Worldwide, a customer of the US bank based in north London. Benex's sole director, Peter Berlin, a Russian, is the husband of a Bank of New York employee, Lucy Edwards, born Lyudmila Pritzker, who has now been sacked. Another executive, Svetlana Kuryautsev, was fired on Thursday. Both women reported to Natasha Kagalovsky in New York and were responsible for opening accounts for Russian banks and businesses. All deny any wrongdoing.

Following assassination warnings, Mogilevich now lives under armed guard in Budapest. After his release from a Swiss jail last year, Mikhailov was deported to Russia and has reclaimed his position in the Solntsevo gang.