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Johnson's Russia List
23 June 1999
[Note from David Johnson:
1. Reuters: Russia State TV Pulls Anti-Corruption Show.
2. Jamestown Foundation Monitor: SKURATOV PROVIDES DETAILS ON CENTRAL BANK,
MABETEX, BEREZOVSKY INVESTIGATIONS.
3. Reuters: Russia Still Sees ABM Changes As Dangerous.
4. Bjorn Kaupang: Russian Law System, in theory and practice.
5. AP: Russians Fought for Serbs.
6. Press Release: Independent Living for Disabled Youths.
7. Kommersant Daily: Yevgenia Albats and Bill Powell, Black Cash of the
Country. (Re FIMACO).]
Russia State TV Pulls Anti-Corruption Show
MOSCOW, Jun 23, 1999 -- (Reuters) Russia's state television pulled the plug
on an award-winning anti-corruption show on Tuesday, and the show's
producer said Kremlin politics lay behind the move.
Artyom Borovik, head of the company that produces the hugely popular
Sovreshenno Sekretno (Top Secret) television show and a newspaper by the
same name, said officials at Russia's RTR state television station had
given no reason for canceling the show.
"They won't even answer my phone calls," he told Reuters, reached by mobile
phone at a location he said was "outside Russia."
"I have been appearing on RTR for 10 years now, and we have survived
various periods when they tried to take us off the air. I think that in the
last three or four months, in preparation for the (presidential) election
in 2000, they have purged the airwaves of programs they do not control," he
RTR officials did not deny that politics were behind the decision to kill
the show. RIA news agency quoted RTR's first deputy director, Mikhail
Lesin, as saying the show was taken off the air because it dealt in
"kompromat," or compromising material released by politicians to discredit
Lesin said the decision to kill the show was sparked by an installment
earlier this year critical of liberal State Duma deputy Galina
Starovoitova, who was murdered last year.
But Borovik said the station had renewed the program's contract after the
controversial Starovoitova story was aired, and he believed authorities
were more likely annoyed by articles in one of the program's sister
newspapers, which accused top Kremlin officials of corruption.
"That is just some kind of excuse. They didn't take us off the air because
of the story about Starovoitova," he said. "They didn't like something in
the newspapers, but they couldn't shut them down, so they kicked the
television show off the air."
A Kremlin spokesman could not be reached late on Tuesday for comment.
Versiya, one of Sovreshenno Sekretno's sister newspapers, ran a story last
month charging senior Kremlin officials with corruption. "That made them
angry," Borovik said.
Sovreshenno Sekretno, which first aired in 1991 shortly after the attempted
coup against then Soviet leader Mikhail Gorbachev, won a huge following for
gritty, tabloid-style programming in a corruption-riddled country where few
have dared to take on top-level officials.
It won Russia's TEFI television industry prize this year for best
investigative program. The newspaper version is one of the most widely read
publications in Russia.
The show was one of the last remnants of RTR, now Russia's main state
broadcaster, which had been loyal to then maverick outsider Boris Yeltsin
during his confrontations with the entrenched Soviet leadership in the late
Borovik said the decision to shut down Sovreshenno Sekretno reminded him of
the late days of Soviet rule, when Communist leaders shut down Vzglyad
(Outlook), a path-breaking glasnost-era magazine show that infuriated the
"It is sad that 10 years later they are resorting to the same techniques,"
Borovik said he already had several episodes prepared, and was in
negotiations with other media companies, including the leading independent
network, NTV, to air them.
"Today I spoke to (NTV owner Vladimir) Gusinsky. I said, listen, pal, this
time it's me. Next time it'll be you," he said.
Jamestown Foundation Monitor
June 23, 1999
SKURATOV PROVIDES DETAILS ON CENTRAL BANK, MABETEX, BEREZOVSKY
INVESTIGATIONS. In a recent interview with the monthly "Sovershenno
sekretno" (Top Secret), Yuri Skuratov gave further details about what
corruption investigations had revealed prior to his suspension as prosecutor
general. He said that after his investigators seized the databases of the
Moscow Interbank Currency Exchange concerning trades in GKOs (the state
treasury bills which were frozen last August), they found that the GKOs had
served as "a washing machine for laundering illegally received revenues of
top officials and representatives of the criminal world." Skuratov also
claimed that just prior to the August 17 market collapse, the Central Bank,
rather than trying to prop up the ruble, "began to actively dump GKOs,
earning huge money and worsening the situation in the country." While
Skuratov continues to refuse to name who was involved in manipulating the
GKO market, he did say that a small group of officials, including Sergei
Kirienko (then prime minister), Anatoly Chubais, (then Russia's special
representative to international lending institutions) and Mikhail Zadornov
(then finance minister) made the decision to default on the GKOs
(Sovershenno sekretno, No. 6, 1999).
In the case of Mabetex, Skuratov said that top officials signed contracts
for construction and restoration work of government buildings in Russia in
which "the real volume of work was less than indicated, and what was left
over was shared between those who ordered the work and those who carried
[it] out" (Sovershenno Sekretno, No. 6, 1999). Russia's State Audit Chamber
recently found that the Kremlin administration spent US$488 million
refurbishing President Boris Yeltsin's Kremlin residence, at a cost of more
than US$14,0000 per square meter--with the average price for building or
refurbishing top-of-the-line office buildings in central Moscow running at
some US$2000 to US$3000 per square meter (Moscow Times, June 18). While the
Audit Chamber did not charge that laws had been broken, the General
Prosecutor's Office, at Skuratov's direction, launched a criminal
investigation earlier this year into whether Kremlin officials received
bribes for renovation contracts. Prosecutors seized documents from the
office of Pavel Borodin, who heads the Kremlin's property department. Last
month, "Versiya"--a weekly magazine owned by Sovershenno sekretno--published
what it said were documents from a Swiss bank account held jointly by
Borodin and officials of Mabetex, the Swiss construction firm which won
contracts to refurbish the Kremlin and other state buildings.
Skuratov said that the investigation of Mabetex, which was assisted by Swiss
federal prosecutor Carla Del Ponte, encountered unprecedented resistance,
and that he knows with "100 percent" certainty that Boris Berezovsky worked
to obstruct the investigation of alleged embezzlement from Aeroflot and to
have him, Skuratov, removed from his post (Sovershenno sekretno, No. 6,
1999). The Swiss authorities assisted the Russian Prosecutor General's
office in investigating the activities of Andava, a Swiss firm reportedly
controlled by Berezovsky, which won approval from Russia's Central Bank to
manage hundreds of millions of dollars of Aeroflot's revenues.
Russia Still Sees ABM Changes As Dangerous
MOSCOW, Jun 23, 1999 -- (Reuters) Foreign Minister Igor Ivanov said on
Tuesday Russia still regards U.S. plans to develop a "Star-Wars"-style
missile defense system as "dangerous" despite agreeing to consider changes
to the Anti-Ballistic Missile treaty.
Moscow agreed to consider changes in the 1972 landmark ABM treaty during a
weekend summit of the Group of Eight countries in the German city of Cologne.
But Itar-Tass news agency quoted Ivanov as saying on Tuesday: "(Such
changes) are dangerous and could destroy the basis of strategic stability
and the whole disarmament process.
"The United States is turning into a practical reality the deployment of a
national anti-ballistic missile system," he was quoted as saying.
The ABM treaty sets limits on the type of systems Russia and the United
States can deploy to intercept incoming missiles.
The United States wants changes to the treaty because legislation adopted
by the U.S. Congress commits Bill Clinton's administration to put in place
a defensive shield against limited missile attack.
Worried about the risk of a so-called rogue state like Iran or North Korea
attempting a missile strike against the United States, the Clinton
administration has pledged $6.6 billion in its fiscal budget for the
development of a missile defense.
Speaking to Ekho Moskvy radio on Tuesday, Kremlin spokesman Dmitry
Yakushkin also branded the U.S. plans as "very unwelcome tendencies,"
stressing that the 1972 treaty remained for Moscow a "cornerstone of
Russia and the United States are due to begin discussions on the ABM treaty
later in the summer.
In exchange for Russia's agreement to hold new ABM talks, Washington has
agreed to resume negotiations on a new START-3 treaty reducing long-range
Washington had previously insisted that the existing START-2 treaty must
first be ratified by Russia's opposition-dominated lower house of parliament.
START-2 obliged both sides to bring warheads down to a maximum of 3,500.
Under START-3 they would go down to 2,000 on each side. The U.S. Senate
ratified START-2 in 1996, but it has been stalled in Russia's State Duma
lower house of parliament.
On Tuesday Ivanov reiterated the Russian government's resolve to push
START-2 through the Duma.
"This is a top priority for us and we shall achieve it," Tass quoted Ivanov
as saying. ((c) 1999 Reuters)
From: "Bjorn Kaupang" <firstname.lastname@example.org>
Subject: Russian Law System, in theory and practice
Date: Wed, 23 Jun 1999
>From Bjorn Kaupang in Nizhny Novgorod ;
I have earlier expressed my thoughts about business in Russia, especially
about the Joint Stock Law and the Law on Insolvency (Bankruptcy),
connected to the small businesses (enterprises with less than 1000
employees). These days my mood is changing from my normal always
positive mood, to a more moderate believing in this country's future.
In JRL it have been several articles from Andrei Liakhov and Sarah Carey,
both lawyers knowing the Russian legal system well.
I would like to put some comments on their thoughts from the practical life.
As I understood from an article in BusinessWeek of May 31., my practical
experience is common with a lot of other foreigners here in Russia, the
only difference is maybe that we are a very small company compared with
many of the others, British Petroleum is one of them.
But anyhow, we have felt "on our body" what the lack of respect for the law
1. We have been main shareholder (46 % of voting shares) in an enterprise
since 1995, but still haven't been able to act in the way such power should
give you. Why is the most of Russian companies getting closer to their death
for every day they operate ? One reason can be that their management
don't respect that new times have come, and they know have to deal with
shareholders, Board of Directors and the market itself. They have to make
up with budgets and accounting in a new way, reporting to the board and
receiving feedback on how to run the company, if the Board of Directors are
not satisfied with what they are presented. What is all about ?
To make nice figures on the bottom line !
Very few of today's leaders care at all about figures, and that's of course
also why the whole country is ill - they don't get taxes collected mainly
because of the same, managers don't respect any law and avoid
taxpayment. The last can even be with help of their local mayor (of course
a friend) !
2. The "Law on Insolvency" is another law we have learned some experience
about. Following all the rules, we have had the following case ;
* Taking part in a tender, giving a businessplan including investment-plan
* Winning the same
* Ready to sign "Sales and Purchase agreement"
- But here we were wrong, the "External Manager" refused to sign from the
Sellers side (she was the only one against the result of the tender).
We went to the Arbitration Court, which imposed the "External Manager" to
fulfill the result of the tender. But, that manager told in the court, that
would never do so !!!
Our talks later on with the manager of the Arbitration Court, where we asked
about what should be the next step, we got the answer that they would not
do any more actions. And, it was useless to go to a higher court with the
case. So, here we are today, four months after the tender - without
possibilities to work on our new enterprise (juridicial it should be ours I
If any of you wonder if we have spent time working with creditors - the
answer is yes. But, creditors are also ordinary Russian companies, and from
time to time behaving strange - at least in my opinion. The creditors are
same as in almost all Russian companies - Pension Fund, Energo, Budget.....
Even if we could believe that creditors would like to stop their daily loss
money on this enterprise, they (or at least the biggest one, which
decide all) don't want to take the action for to dismiss the External
That biggest "Konkurs Creditor" instead have started working on selling
their credit to a specialized in taking over debt's. And (almost of course)
other company is friends of the management in the "creditor-company".
Could we suppose that some of the management staff even was
shareholders in that other company ? In few words this means that one of
the creditors voting for sale of the "Bankrupt Company" on a tender, and
also member of the "Konkurs Commission", have "forgotten" all about the
tender, and continued working in a way that maybe suit them (or mainly
some insiders) better.
Is this kind of business how the country is going to feed a new kind of
business elite ? Absorbing bankruptcy (or almost bankrupt) companies for
kopeks, in much of the same way as the "Voucher-program" for
privatisation in the early ninetees. That time I by myself was not so aware
of what was going on, new with Russian culture (especially business)
and probably glorifying to much of what I saw. Today I have learned a
little more, and can see some dangerous moves going on.
Where are all the nice talks from the political elite about supporting
domestic industry and make the investment climate for foreigners
It seems that nobody know how to act, when cases like this come up, or
maybe some of them don't want to have all settled upon the law ? Or it is
really so that the corruption is stronger than I wnat to believe. Hopefully
the last is not true.
One disadvantage living outside Moscow / St. Petersburg, is that it is very
hard to get hold on experienced lawyers that have international experience,
and talk English. But, that is a minor drawback compared with all other
positive sides of being outside the Capital !
Russians Fought for Serbs
By Robert Burns
June 23, 1999
WASHINGTON (AP) -- The Pentagon says Russian mercenaries fought in Kosovo
alongside Serb forces, and their role is likely to be examined as part of
an international investigation of war crimes against ethnic Albanians.
``We certainly know that Russians participated. Russian volunteers,
mercenaries, we believe, did participate with paramilitary and other Serb
forces,'' Pentagon spokesman Kenneth Bacon said Tuesday. He had been asked
to comment on a report in Newsday that dozens of Russian volunteers had
participated in the killing of hundreds of ethnic Albanians and the
destruction of towns and villages around Prizren in southern Kosovo.
``I do not have verification that there were units or groups of the size
that Newsday reports,'' Bacon said. ``But we do believe that there was some
The Pentagon also announced that 12 Air Force B-52 bombers are expected to
begin returning to their U.S. bases today from England, where they flew
strike missions against Yugoslavia throughout NATO's bombing campaign. In
all, nearly 400 U.S. planes will return to normal duty in coming weeks,
The aircraft carrier USS Theodore Roosevelt, whose F/A-18 and F-14
warplanes participated in the NATO air campaign, will leave the
Mediterranean and take up station in the Persian Gulf in July, Navy
officials said, speaking on condition of anonymity. The USS Kitty Hawk and
its battle group, now in the Gulf, will then leave and return to its home
station in Yokosuka, Japan, in early September -- filling a carrier gap in
the western Pacific that has existed since early April. In the meantime,
the USS Constellation has left the West Coast and will eventually replace
the Roosevelt in the Gulf in September.
The matter of Russia's role in Kosovo is sensitive. NATO has arranged for
3,600 Russian troops to join KFOR, the Kosovo Force of peacekeepers,
including in the southern sector commanded by German forces. Russians have
cultural ties to the Serbs, and Moscow strongly opposed NATO's bombing of
``When the Russian forces arrive as part of KFOR, we expect them to be
totally fair and professional in their dealings with both Serbs and Kosovar
Albanians, as they have been in Bosnia and where they have been very
stalwart and successful members of the peacekeeping force,'' Bacon said.
``I anticipate that the Russian troops coming to Kosovo will be exactly the
Bacon said the Kosovo Liberation Army, the guerrilla band that fought
against the Serb forces in pursuit of independence for the Serb province,
had told NATO authorities during the 78 days of NATO bombing that Russians
were involved and that a number of Russians had been killed. He said it was
unclear whether the deaths were caused by NATO bombing or combat with the
The Newsday report, citing ethnic Albanian and Serb security sources,
mentioned several examples of Russian involvement in atrocities against
ethnic Albanians. It said a group of about 60 Russians was ordered out of
Kosovo just last week by German soldiers. The Russian volunteers were
military men either retired or not in active service, the newspaper
reported, and their commander was an army colonel.
Newsday reported that the Russians were organized as a single unit and
operated under the aegis of the Special Purpose Police of the Federal
Ministry of the Interior in Belgrade. Bacon said the Pentagon had no
independent confirmation of this or other details of the Russian
involvement in Kosovo.
``Our impression is that they were mercenaries, but this is something that
I'm sure will be looked into by war crimes investigators, who are now going
into Kosovo in considerable numbers to try to figure out what happened and
who was responsible for it,'' Bacon said.
From: "Mansfield, Angela" <AMansfield@usaid.ru>
Subject: Press Release: Independent Living for Disabled Youths
Date: Tue, 22 Jun 1999
June 22, 1999
Independent Living for Youths with Disabilities
Moscow - The first annual Independent Living Youth Camp for nearly 100
disabled youth activists from more than 35 regions of Russia will take
place in Moscow from June 25 to 30, 1999, at the Izmailova Hotel,
Izmaylovskoe Shosse 71, korpus Delta.
The purpose of the seminar is to teach disabled youths new skills to become
independent, active members of their communities and to learn about the
Independent Living Movement.
The six-day workshop will include workshops on self-advocacy, peer support
groups, disability awareness, disability culture and dance, the history of
the disability movement in the United States, Europe and Russia, and tools
for independent living.
A competition will also be held on the design for public service
announcements and public education events.
The workshop is part of a partnership project managed by Perspektiva, the
Derbyshire Centre for Integrated Living (UK) and the World Institute on
Disability (US), and overseen by the Charities Aid Foundation (CAF) and the
International Research and Exchanges Board (IREX). The project is funded
by the British Know How Fund and the U.S. Agency for International
This event was made possible by funding from the Open Society Institute as
part of their new grant competition "Independent Living for Persons with
Media are welcome to attend any part of the weeklong workshop.
Presentations will be given by disabled activists from England, America and
Sweden, who will share their experiences in becoming independent and
impacting change for disabled people in their communities. Disabled youth
activists from Perm, Komi, Krasnodar and Novgorod will lead the training
For further information on the workshop or Perspketiva's activities in
Russia, please contact:
Olga Drozdova or Denise Roza
Tel: (7-095) 951-9768
From: "Yevgenia Albats" <email@example.com>
Subject: Re: 3354-FIMACO Report
Date: Tue, 22 Jun 1999
In regard to # 2 ( IMF studding report on FIMACO)
Please find attached translation of the investigation I did along with Bill
Powell ( Newsweek). The small version ( about 1000 words ) of it was
published by Newsweek back in late March. The new findings, and the full
version ( about 5 000 words )was published in the Russian national daily "
Kommersant" on April 21. It is unofficial translation made on author's
Black Cash of the Country
by Yevgenia Albats, Bill Powell (Newsweek)
Kommersant Daily, April 21, 1999
The Company That Survived All Regimes
Offshore company FIAMCO was registered on the Jersey Island (the Normandy
Islands) on November 27, 1990. Its registration number is 48883. Its
registration address is Capital House, Builders, Bath Street, St Helier,
Jersey. As Andrei Movchan, President of Eurobank - Sovzagranbank for
Northern Europe - maintains, on February 9, 1999 Central Bank's accounts in
FIMACO were closed. Therefore, in the
period since FIMACO was founded until the scandal it caused (that will
cost the country millions of dollars) the following events occurred: the
break-up of the state - the Soviet Union, the creation of another state -
Russia, the change of a regime (or two) and of the economic system. FIMACO
survived 5 governments, two coup attempts and a war.
When it was created Viktor Geraschenko headed the USSR Gosbank, then he
became Chairman of the Central Bank of Russia, then he was dismissed and
now he occupies the same position. When Yevgeny Primakov asked Kuwait for a
credit (that through Eurobank ended up FIMACO) he was Candidate to the CPSU
CC Politbureau and now he is Prime Minister of Russia. When Gennady Kulik
was signing an agreement with the Swiss export/import company Noga
(supposedly, it was because of the claims made by this company to the
Russian Government that some of the Central Bank reserves were moved to
FIMACO in 1993) he was Minister of Agriculture of one of the USSR republics
- the RF and now he Vice Premier of the Russian Government.
What explains FIMACO's phenomenal ability to survive?
In mid-1990 "the country was really on the verge of bankruptcy", stated
Deputy Head of the CPSU CC Department on Social and Economic Policy in a
confidential memo to a Politbureau member. According to documents from
special Politbureau files, in 1990 the USSR's negative trade balance was
$17.1 billion, its foreign debt was $56.7 billion, its current foreign debt
payments (in 1991) were $20.7 billion. The problem was solved by quite
modern methods. "The declaration of bankruptcy was avoided by conducting
extraordinary measures that included urgent additional sale of gold, metal
swap operations, mobilization of non-traditional sources of financial
resources such as the receipt of financial credits from Saudi Arabia, South
Korea and others", said the confidential memo "On Foreign Debt of the
USSR". The instrument that "mobilized non-traditional sources of financial
resources" under 2 presidents (Gorbachev and Yeltsin) and 2 regimes (Soviet
and post-Soviet) over 9 years was offs!hore company FIMACO.
Was There A Granddaughter?
"In essence, FIMACO is our 100% granddaughter [branch]", CB Chairman Viktor
Geraschenko tried to justify himself in the Duma after the Procurator
General's famous letter was made public there. But the fact is that "in
essence" the offshore [company] through which minimum $2.5 billion of the
country's currency reserves (this is the amount for which there are
documents) and at least 2/3 of one of the IMF tranches were moved is
neither Bank of Russia's granddaughter or daughter. And Mr. Geraschenko
should know about it better than anybody else. According to the documents
received from the Jersey Island as well as the information from financial
experts in Great Britain and France the situation is as follows.
In November 1990 FIMACO was registered (why - we will talk about it later)
at Eurobank's request as a "financial institution or bank" (according to
registration papers) by the Jersey law firm Ogier & Le Cornu (now Ogier &
Le Masurier). Three lawyers from this firm became owners of FIMACO. Then
one of them - Richard Thomas - also became a Board of Directors member of
the offshore bank. The beneficiaries - the people who made profits from
FIMACO's activities - at different times and according to different
information were either Royal Bank of Scotland Trust Co., or the Russian
Commercial Bank in Zurich (it belongs to Vneshtorgbank) or even individuals
who, though, had a direct connection to Sovzagranbanks in Paris and London.
According to one of the versions from the law-enforcement agencies, it was
Yuri Ponomaryov who is now Head of the Supervisory Council of Eurobank and
President of the Moscow People's Bank (London); Andrei Movchan, President
of Eurobank; Bernard Dupui, a member of the Eurobank's Supervisory Council;
Richard Thomas, a lawyer. But exactly [were the beneficiaries] can only be
established by Interpol (Of course, if the Russian Government and the CB
become express an interest in it) by requesting the appropriate agency on
the Jersey Island.
In the version of the current Head of Eurobank Andrei Movchan with whom we
met during his latest trip to Moscow (the banker came to Moscow to answer
questions on the offshore company that the IMF had), at the initial stage
there were endless metamorphoses with FIMACO. Already a couple of weeks
after the offshore company was set up, in December 1990, it was bought by
some 3 British companies that belonged to some British bank - Eurobank's
partner (not to disclose commercial secrets Mr. Movchan did not give the
names of the companies or the bank, but as British financiers informed us,
it is the Edinburg Royal Bank of Scotland). Then, in March 1992 FIMACO was
purchased by Eurobank ... for $1000.
And experts on offshore companies point out to a very suspicious price of
the deal made between Eurobank and FIMACO - $1000 (if we trust what Movchan
says). In experts' estimates, over 2 years the expenses to run the company
in Jersey were $5000 minimum ($1500 for registration, annual servicing -
800-1000 pounds). Usually, the sale price is low when the owners sell to
Also, the Charter capital of $1000 was paid in full only on January 1,
1998. Besides, according to data taken from the registration papers,
starting January 1, 1998 FIMACO suddenly decided not to be audited. In
experts' opinion, all this could mean that changes in the names of the real
owners of FIMACO were made only at the end of 1997.
If this is true, then, at least, until 1998 the Central Bank had nothing to
do with FIMACO. Which means it transferred the country's hard currency
reserves to an unknown company with an unknown owner on unknown conditions.
Moreover, the Procurator's Office still does not have documents proving
that the funds the CB transferred were returned.
In Search of The Owner
Finally in December 1998 the CB became interested in who was the owner of
the offshore company that became world famous. It sent a request to
Eurobank. (It happened, though, after Procurator General Yuri Skuratov sent
an official letter to the Presidential Administration and the Chief
Presidential Department about FIMACO's activities besides other issues.)
The CB received a fax from Paris, "Dear Sirs, In response to your fax of
December 4, 1998 we would like to inform you about the decision of the
Board (of Eurobank) dt. 12/7/92 in regard to the transformation of FIMACO
into Eurobank's branch [daughter company] and the changes in the company's
charter. Please accept our congratulations. P. Remond, Director".
However, there was no reason for congratulations. According to the "Minutes
from Eurobank's Board meeting #92-25", the meeting considered a "plan of
action to start the activities of the new company FIMACO that was to be
implemented until the year end." The plan consisted of 3 parts. The first
one was the appointment of FIMACO's Board of Directors that at that time
included the then President and the current Chairman of the Supervisory
Council of Eurobank and President of another former sovzgranbank - Moscow
People's Bank (London) Yuri Ponomaryov, the above lawyer Richard Thomas and
a couple of unknown names. According to other documents, Andrei Movchan was
also on FIMACO's Board of Directors. Part 2 dealt with the search for an
auditor. And part 3 instructed "to set the date for the Board of Directors
meeting that will approve the closure of FIMACO trust company and the
creation of a new FIMACO company, 100% branch of Eurobank". The meeting was
set for 12/15/92. That was the intent - if we believe the fax from Paris.
But if we believe the documents the plan was never implemented: on December
15, 1992 only the registration address was changed to Pirouet House, Union
Street, ST Helier, Jersey. The law firm that registered the offshore
company is located at this address. But, according to the Jersey law, one
cannot close down one company and open another one with the same name, let
alone the fact that a new company gets a new registration number reflecting
the year it was founded.
"It's true, Eurobank is not mentioned in any of FIMACO's registration
papers, Mr. Movchan agreed. You will ask me with what documents I can prove
that FIMACO id Eurobank's daughter? The IMF mission asked me about it too.
First of all, there are documents on the issue of the shares (FIMACO's
shares) by Eurobank. Secondly, there is an agreement between the bank and
the 3 British companies that it authorized them to manage the offshore
company. Finally, in Eurobank's annual reports FIMACO is listed as a
company 100% owned by the bank."
The President of Eurobank kindly promised to show us the documents. But it
did not happen. "Currently a complex audit is being conducted of FIMACO's
operations with members of the RF CB group. Among many issues handled by
Price Waterhouse Coopers as part of this audit is an issue on the Company's
share holders, including nominal shareholders. The results of the audit are
expected to be ready at the end of April or May of this year. That's why it
would be inappropriate to make another request on this subject, he informed
us in his e-mail letter from Paris. Numerous conversations with the
secretary to a member of FIMACO's Board of Directors and a lawyer of the
company that registered the Jersey group Richard Thomas did not bring any
Why FIMACO Was Created
It's amazing: the Duma left majority that is usually so keen on any
information on corruption in the higher echelons of power is silent about
There is a reason for it. Why was this offshore bank created? The official
version: Eurobank was hopelessly trying to collect debts from Morocco,
Cuba, Mauritania. To make matters worse, Vnesheconombank -whose
jurisdiction until February 1992 included sovzagranbanks - announced
default on its foreign debts, almost like what happened now. To improve
Eurobank's balance a scheme was invented according to which the debts were
transferred to FIMACO.
The Bank of Russia gave a credit to Eurobank: $960 million ad 80 mln. ECU
(approximately 1.1 billion total). And Eurobank gave the money to FIMACO.
The offshore company used this money to buy bad debts - it paid $964
million (what happened with another $100 million remains a mystery). But in
1992 the Bank of France stopped favoring such deals. That's why Eurobank
got its obligations back, and they affected its balance negatively.
This version appears to be too obvious. That's why it's not promoted that
much. All the people from the banking sphere that we interviewed without
exception (including people who used to be connected with Gosbank and
Vnesheconombank) have no doubts that FIMACO was created (and, it's obvious,
it was not the only bank of this kind) to, first of all, pump the party's
money, second of all, transfer some of the credits given to the USSR by
Western banks in 1990-1992. "It's difficult to track down how they were
used or returned. In Moscow the majority of the documents from that period
(they were kept in Vnesheconombank) have been destroyed", a source from
Vnesheconombank with an intimate knowledge of the subject informed us.
Money for the Proletariat's Dictatorship
A reminder: in March 1990 the 3d Congress of People's Deputies voted for
the cancellation of Article 6 of the Constitution that proclaimed the CPSU
monopoly. It caused shock on Staraya Ploschad: the CPSU had to share its
property with other parties and movements. Which they didn't want to do at
all. The then Head of the Department of the Central Committee's Business
Nikolai Kruchina (he committed suicide under mysterious circumstances soon
after the failed coup in 1991) became in charge of a campaign called "On
urgent measures to organize the party's commercial and foreign economic
activities". The measures were different. They included: "Some of the
party's property (first of all - suspicious) needs to be sold, which means
transferred into money. The entire world's experience shows that this is
the most mobile and reliable means of preserving the property", a memo
called "On CPSU's Property" said. It was signed by Head of a Section of the
Humanitarian Department of the CC of the CPSU V.V. Kulikov and submitted to
the Politbureau leadership. Mikhail Gorbachev wrote on it, "To Comrades V.
Ivashko, N. Kruchina. Please prepare proposals on possible ways to
transform the CPSU's property."
And the property was transformed. According to certificate "On deposits of
funds from the account of the Department of the CPSU CC Business in other
banks, associations, and enterprises in 1990-1991", some of the money went
to the newly appearing commercial banks; for ex., 1 billion rubles (in 1990
money) went to Autobank, 150 million to Tokobank, 200 million to
Unikombank, etc. (just this one certificate gives names of 22
organizations). Some of the money went abroad. And Eurobank was used for
different confidential transactions conducted by the Soviet power for
decades: it was set up back in 1922 and has existed not only under the
patronage of Moscow but by the French communist party as well that was the
largest beneficiary of money from the CPSU CC. It was the French communist
party that helped restore the bank after W.W.II; its representatives among
the bank's management.
The Soviet intelligence handled financial transactions abroad: the
Department of the Central Committee's Business even received 2
Lieutenant-Colonels - L. Veselovsky and A. Davidenko. As Veselovsky
reported later, they were doing pretty well. He reported the results to his
bosses and to the CC bosses. Among the names he mentioned (besides Pavlov,
Sitaryan, and Znamensky) 2 are of current characters Yevgeny Primakov (at
that time he was Candidate to the Politbureau, and in the fall of 1991 he
became Head of Intelligence) and Viktor Geraschenko (at that time he was
Head of Gosbank).
In 1990, before the "Desert Storm", the Persian Gulf states unanimously
decided to give credits to the USSR: Saudi Arabia, Kuwait and UAE gave
about $1.75 billion (as the Western press wrote then, it was the price they
paid for the USSR's refusal to put a veto on an action against Saddam
Hussein in the U.N. Security Council). According to some sources, it was
Yeveny Primakov, a Special Representative of the USSR President, who
managed to get the credit from Kuwait. Some of the funds - $250 million,
according to well-informed sources in Vnesheconombank were given through
Eurobank and went to FIMACO.
Questions for Viktor Geraschenko
Facts show that Viktor Geraschenko knows this story in detail. Because he
is not only former Head of the USSR Gosbank and then the Central Bank of
Russia but until 1997 he was a member of the Supervisory Council of
Eurobank and Head of the Moscow International Bank that owes 10% of
Eurobank's capital. And if the chief country's banker had agreed to answer
our questions we would have asked him for what purpose and based on what
legislative acts the Bank of Russia issued Resolution #181 on December 23,
1993 (it was signed by the then First Deputy Head of the CB Arnold
Voilukov) that called for hiding the Central Bank's money kept in FIMACO.
In the official language it sounds as follows: "Accounting of the funds
transferred in FIMACO's management is conducted in balance account #076
"Calculations relating to other transactions in hard currency... The
Department of Foreign Transactions shall submit to OPERU a list of assets
managed by FIMACO signed by FIMACO in currencies agreed upon in the
contract, as well as it shall report the balance in the Bank of Russia'
current investment account (profit account) in FIMACO that is not reflected
on the balance of the Bank of Russia".
The official explanation is well-known: in 1993 Noga company was going to
arrest Russian accounts in Switzerland and Luxembourg: there was a battle
on the contract signed in 1990 by the then agrarian guru and current First
Vice Premier Kulik. The contract envisaged food deliveries in exchange for
oil. Since in 1993 there was no Law on the CB yet Noga could, in reality,
lay claims on the Bank of Russia's hard currency accounts abroad. To save
its reserves the CB transferred over $1 billion to FIMACO (Jersey offshore
companies do not have to publish their financial reports), as well as $500
million from the first $800 million IMF tranche. "Six months later the IMF
money came back", a well-informed source from the former CB management said.
However, this is only half the truth. The other half is that in 1993 also,
to be more precise, on July 15, 1993, an agreement was signed between the
CB and the offshore bank with a dubious owner to transfer funds to FIMACO's
management in order to buy RF treasury bonds - GKOs. "In case FIMACO
purchases the above treasury bonds the Bank of Russia irrevocably takes the
responsibility to ensure the appropriate currency transactions (the
purchase of rubles by FIMACO to make investments and the purchase of USD by
FIMACO to close its investments), that will be done in accordance with the
legislature of the RF. The total amount of each transaction shall not
exceed $100,000,000.00 USD." As a result, according to our sources, in late
September 1993 the CB transferred to FIMACO $205 million USD, 251.1 million
Deutche marks, 55 million French franks, 11.9 million of British pounds,
13.1 billion of Japanese yen.
The CB that did not have the right to work at the initial treasury bond
market entered the promising GKO game through the offshore bank (which was
kind of a secondary market). In the financial world, especially in the IMF,
it is considered a mess: it's not acceptable for the central banks,
especially those of the developing countries, to invest their reserves in
high-risk debt obligations of their own governments. So, the offshore bank
FIMACO located under the jurisdiction of Great Britain started working on
the GKO market three years before the government allowed non-residents to
participate in transactions with securities. So, with high interest rates
on GKO, the CB used the government's hard currency reserves to get money
out of the budget.
The Bank That Managed to Outperform the CB
In 1993 commercial bank Eurofinance was created. Its main shareholders were
Paris Eurobank (45.44% shares), FIMACO (35% shares), and later MAPO MIG
(14,28%) and a number of small stockholders (besides 2 Government-owned
banks there were the now bankrupt trading company Konex, Posprom, Yukos
among them). One of Eurofinance's corresponding banks in the country was
International Moscow Bank that Viktor Geraschenko became in charge of right
after his resignation from the CB in 1994. At the end of July 1993 (or half
a month before the agreement with FIMACO was signed) Eurofinance received a
ruble license. Then it became one of the first 3 banks that became official
dealers on the GKO market.
Documents show that this bank was very successful, especially in conversion
transactions. For ex., in 1997 the CB constantly made profits in conversion
transactions at the expense of all other banks. Except Eurofinance. It was
the only bank that managed to give a huge blow of approximately $57 million
to the CB (though there is another "lucky one": Sobinbank also defeated the
CB - but only for $150). Experts have no doubt that it was a way of
transferring money or, to put it carefully, giving credits for GKO
operations through Eurofinance.
The largest transfer to FIMACO - $1.4 billion - was made in September 1994.
Right on the eve of the Black Tuesday. And the hard currency market was so
small then that 10% of the money transferred offshore would have been
enough to support it.
Money For The President
Commenting on the documents, including on some that we will speak about
later, one of the former Premiers said, "I doubt that Geraschenko or
Dubinin would have undertaken such risky operations (to invest federal
reserves in GKO through FIMACO") if they didn't have an appropriate
political protection. At the minimum, the Premier should have known about it".
1996 - was the year of presidential elections. It was then that by decree
#40 signed by CB First Deputy Chairman Sergei Aleksashenko the offshore
bank FIMACO was released "from its obligations to invest the CB funds only
in first-class assets" (low-risk securities of countries with stable
economies). And the money started flowing to the GKO market. On February
20, 1996 - exactly 16 days after the economic forum in Davos where the
oligarchs decided to support Boris Yeltsin at the presidential elections -
"operations to invest RF CB's funds in the GKO market through FIMACO"
started. After CB decree #40 there appeared decree #44 signed by CB
Chairman Sergei Dubinin, in accordance with which "additional transfers to
FIMACO were made:
- $365 million with the conversion date set for 2/29/96 for 3 months with
the further extension of the investment for up to 1 year;
- $200 million with the conversion date set for 4/24/96 without a definite
term of investment;
- $90 million with the conversion date set for 4/29/96 without a definite
term of the investment;
- $200 million with the conversion date set for 5/28/96 without a definite
term of the investment.
Therefore, a total of additional $855 million was transferred for GKO
transactions", Deputy Director of the Department of Foreign Transactions S.
Scherbakov reported in his memo to CB management.
All FIMAKO's transactions on the purchase of GKO in 1996 were conducted
through commercial bank Eurofinance in a special trade account #634. The RF
CB insured GKO transactions conducted by an official foreign non-resident -
Eurobank - with federal hard currency reserves", says another internal CB
We will provide one more quote to prevent a chance of being blamed for
"making it up": "Using its branch bank Eurobank in Paris and FIMACO the RF
CB conducted the following transactions with GKO of 23d, 24th and 33d
series. The participant of the deal was FIMACO. The transactions of this
investment series were conducted in 1996 with 3 tranches". The total of
these 3 tranches conducted in March-June of 1996 is $143,193,253. The total
at the time of closing is $182,060,642.
Therefore, over the 5 months almost $1 billion was invested in FIMACO
through Eurofinance and Eurobank. In other words, $1 billion of the
country's hard currency reserves was converted into rubles through the
above financial institutions, it was spent to buy Finance Ministry's debt
obligations and then it was paid back by the Finance Ministry itself, which
means with the budget money but with an interest rate. The received amount
was converted into dollars and some of it went abroad. It's not amazing
that in 1997 4 members of the Board of Eurobank received a bonus of $1.2
Andrei Movchan told us that only his bank's money was invested in GKO
through FIMACO. The Central Bank owes 78% of his Paris branch's capital.
However, an analysis of Eurobank's annual reports by experts showed that
Eurobank could not have possible had such money to make guarantee deposits
and invest in GKO. Actually, no analysis was needed: a source from the CB
management confirmed that that was CB currency reserves and they were
invested in GKO through FIMACO "to pay back wages and pensions during the
presidential campaign and to finance other expenses connected with the 1996
This is how it worked. In early February 1996 calculations were made: to
pay back wages and pensions and to satisfy other conditions necessary to
conduct a successful presidential campaign about $500 million was needed.
The oligarchs did not have such money and they were not in a hurry to
invest anyway. There were 2 options: to take the money from CB's hard
currency reserves or to conduct emission
But the then CB Chairman Sergei Dubinin was against both of these options.
Then a scheme was invented (supposedly, former Deputy Finance Minister
Andrei Vavilov is its author) that made it possible to finance the budget
through GKO. As our source maintains, this decision was made at the level
of the country's President and Prime Minister.
But a question arose: where to borrow this amount of money? If bonds were
issued what residents would not be afraid to buy so many of them? So at the
end of February 1996 a decision was made to allow non-residents to operate
on the state bond market. The 6th and 7th tranches of OVVZ were issued and
thy were accepted as payment against taxes for local businesspeople.
The decision was made but what was the way to attract foreigners who were
terribly afraid of Russia? That's when sovzagranbanks, including Eurobank,
came into the picture. They were supposed to show that investments in GKO
were profitable. Smelling quick money real foreigners came to the GKO
market. Therefore, " having borrowed money from the West through government
ruble bonds [they] ensured their victory in the elections", our source
Why did the country's main bank get involved in transactions that were
dubious, to say the least? Well, everything is clear about the Soviet
period. As Martin Borman used to say, "the party's money could be used by
those who will continue the cause of the national-socialist idea in the
future". But what about the post-Soviet period?
One of the former Premiers provided the following explanation, "It's
unlikely that these transactions were conducted just to make personal
profits, there are less riskier ways to make money. More likely the logic
was as follows: why the hell are we investing our currency reserves and
getting 4-5% - these were interest rates on high-liquid securities like
Treasury Bills - when if we play on the GKO market we can make 30, 40,
100%? In 1993 Geraschenko issued a lot of credits to the industry that were
not backed up by anything. Therefore, by making money on GKO he decreased
the size of emission. In 1995 a war in Chechnya started, it required huge
expenses, the money had to be made somewhere. 1996 is clear, presidential
elections. Why did they continue playing this game? It's hard to say,
maybe, they started getting ready to 2000 elections..."
Maybe, the money was really saved from the Swiss company? In 1997 the
arbitration court of the Stockholm Chamber of Commerce awarded Noga $23
million, plus more for court expenses. Is that why billions were
transferred offshore? The management of the CB maintains that the IMF knew
that in 1993 the CB hid its reserves. An official in the IMF New York
office disagrees, "Yes, it's true that we knew about the problems connected
with the arrest of Bank of Russia's accounts and that the Russians sent
some of their reserves to Eurobank. But to imagine that they used offshore
for this purpose!.. If we had known it it's unlikely we would have been
enthusiastic about this information". They were not. In 1996 the country
was being saved from Zyuganov, that's why the GKO market for non-residents
was opened. Money was made. As well as the pyramid that collapsed in August
The result: the IMF leadership made it clear that it would be impossible
for Russia to receive more credits from international financial
institutions until a complete report on the offshore company in Jersey is
presented. That's why FIMACO is being audited now. However, it's unlikely
that without the intervention of Interpol that all details of this scam
will become known. In other words, the sovereign state put itself in a
humiliating position of a thief who now has to prove to everybody that he
"will not do it again".
P.S.: We realize that new information on the scandal with FIMACO may have
a negative influence on Russia's negotiations with international financial
institutions. But since the IMF has already asked for FIMACO to be audited
silence is only making the situation worse. That's why Kommersant hopes
that Viktor Geraschenko will find an opportunity to answer our questions.