(Adds Russia rejecting charges)
By Emily Flitter and Joseph Ax
NEW YORK, Dec 5 (Reuters) - U.S. prosecutors have charged 49 current and former Russian diplomats and their family members with participating in a scheme to get health benefits intended for the poor by lying about their income.
Russia called the charges a "cheap" propaganda stunt and said the investigation was illegal, adding to strains in ties between two countries at odds over accusations of rights abuses, politically motivated prosecutions and Russia's sheltering of a former U.S. spy agency contractor Edward Snowden.
According to the charges, filed in November and unsealed on Thursday, the diplomats' families got around $1.5 million in benefits from the Medicaid program for families with low monthly incomes - in many cases around $3,000 or less.
The benefits covered costs related to pregnancies, births and infant care, the charges say.
The family members also had their housing costs paid for by the Russian government and spent "tens of thousands of dollars" on vacations, jewelry and luxury goods from stores like Swarovski and Jimmy Choo, the charges said.
Each of the 49 people was charged with one count of conspiracy to commit healthcare fraud and one count of conspiracy to steal government funds and make false statements relating to healthcare matters, according to the charges.
Russian Deputy Foreign Minister Sergei Ryabkov expressed disappointment the United States had not tried to discuss the charges with Russia through diplomatic channels.
"We categorically reject the charges," Ryabkov said, according to the state-run Itar-Tass news agency. "We believe that shadowing diplomatic personnel ... is illegal."
"If the American authorities had claims against our citizens ... they should have presented them through diplomatic channels. Instead they took the path of making it all public," Ryabkov said. "This is nothing more than cheap P.R."
A spokesman for the Federal Bureau of Investigation, Peter Donald, said no one was arrested.
U.S. Attorney Preet Bharara said at a Manhattan press conference the U.S. State Department would have had to request a waiver of immunity from Russia for U.S. authorities to arrest the defendants. If no waiver is granted, Bharara said the State Department can insist that the defendants leave the country.
"Diplomacy should be about extending hands, not picking pockets in the host country," he said.
Bharara declined to say how the charges might affect U.S.-Russia relations. He said his office has not been in contact with the White House.
The State Department declined comment on whether it would ask Russia to waive diplomatic immunity for the current Russian diplomats charged or on whether it might seek reimbursement for the monies paid to them as a result of the alleged fraud.
"We don't think this should affect our bilateral relationship with Russia," State Department spokeswoman Marie Harf said at a regular briefing. "Quite frankly, there are too many important issues we have to work on together."
The Russian mission to the United Nations was not immediately available for comment on the case.
LYING TO QUALIFY
The charges say the defendants obtained letters to prove their false incomes from officials at the Russian U.N. mission, including a former counselor and a former second secretary, as well as from former top officials at the Russian Consulate in New York and Russia's Trade Representation in the United States.
Only two of the seven officials who allegedly signed off on the income letters are identified in the charges by name. The other five are referred to as unidentified co-conspirators.
Timur Salomatin, a former Russian diplomat at the U.N., and his wife Nailya Babaeva said they made $3,000 a month when Salomatin's U.N. salary was actually over $5,160, according to the charges.
Another couple, Andrey Kalinin and Irina Shirshova, lied about their income and monthly housing costs to be deemed eligible for Medicaid and also sought benefits from the Special Supplemental Nutrition Program for Women, Infants and Children, which subsidizes the cost of some types of foods and education. According to the charges, the family received more than $23,000 in Medicaid benefits over about three years.
Some families also lied about their newborns' citizenship status, the charges say, because children born to many diplomats and their spouses do not automatically acquire U.S. citizenship the way others do.
Hundreds of Russian diplomats and their families live in a compound in the Riverdale neighborhood in the Bronx. Three dozen of the defendants lived in Russian-owned housing in the Bronx, according to the complaint.
Bharara said only 11 are still in the United States; 10 are diplomats with the Russian Mission to the U.N. and their spouses, and one is now stationed at the Russian embassy in Washington.
Russia has accused the United States of biased and politically motivated prosecution of its citizens, including jailed arms dealer Viktor Bout and Konstantin Yaroshenko, a pilot sentenced to 20 years in prison for drug trafficking.
In response to a U.S. law enacted in December 2012 that bars Russians seen as human rights abusers from entering the United States, President Vladimir Putin signed retaliatory legislation barring some Americans, including some U.S. Justice Department officials, from Russia. Bharara is among those banned from Russia. (Reporting by Emily Flitter and Joseph Ax; Additional reporting by Michelle Nichols in New York, Arshad Mohammed in Washington and Steve Gutterman and Alexei Anishchuk in Moscow; Editing by David Gregorio, Andrew Hay, Tim Dobbyn, Phil Berlowitz and Elizabeth Piper)