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Johnson's Russia List
20 August 1999
[Note from David Johnson:
1. The Nation: Katrina vanden Heuvel, Russia and Election 2000.
2. Wayne Merry: Why Did Primakov Move Now?
3. Izvestia: Alexander Sadchikov, We Say Constitution, But Mean Yeltsin.
4. Reuters: Moscow bitter on U.S. missile system plans.
5. Reuters: Yeltsin Sends Clinton Birthday Congratulations.
6. Miriam Lanskoy: Save FBIS.
7. Moscow Times: Sarah Karush, Yeltsin's Cure May Stop Working at Any Time.
8. Reuters: Russia's liberals urge smashing moslem rebels.
9. New York Times: Philip Taubman, The Coming Battle for Succession in
10. New York Times: Raymond Bonner, and Timothy O'Brien, Activity at Bank
Raises Suspicions of Russian Mob Tie.
11. The Guardian: Jane Martinson and Dan Atkinson. Russian mob 'used US
bank' to launder cash. Detectives fear press reports have damaged
inquiry into illegal transfer of billions of dollars.
12. Reuters: Russian mobsters active in Florida and Caribbean.]
September 6/13, 1999
Russia and Election 2000
By Katrina vanden Heuvel
President Boris Yeltsin's firing of his fifth Prime Minister in seventeen
months and Russia's renewed war in the Caucasus are stark signs of his
regime's instability, desperation and "agony," the term often used in
Moscow. These developments are also a reminder that the Clinton
Administration's Russia policy has failed. For seven years the
Administration has repeatedly promised that Yeltsin was the best hope for
democracy and that US policies would help post-Communist Russia make the
transition to a democratic capitalism and integrate it into the West.
Instead, Russia is impoverished and US-Russian relations are at their
lowest point in a decade. Since none of the Administration's long- or
short-term goals have been achieved and most of its policies have been
counterproductive, Russia policy should be a subject of serious debate in
the US presidential campaign.
George W. Bush's chief foreign policy aide, Condoleezza Rice, has already
indicated that Bush will make a major issue of the failures of the
Clinton/Gore Russia policy. But although Rice castigates the Administration
for abetting Russian corruption in the name of reform and for equating
democracy with Yeltsin, she fails to propose an alternative policy,
concluding instead that the United States must wait a generation until real
reformers appear in Russia. That's not policy-it's a defeatist,
Vice President Gore is deeply implicated in the Administration's failed
policy, and his vulnerability is highlighted by the collapsing "Washington
consensus," which has underpinned Russia policy. Pundits and policy-makers
who were boosters of the Administration's policies and apologists for
Yeltsin's regime now criticize both. Indictments have recently appeared in
publications that long played those roles-for example, the New York Times,
the Washington Post, The Economist and think tanks across Washington. Even
World Bank vice president and chief economist Joseph Stiglitz argues that
the IMF's dogmatic policies should be renounced. What were once considered
dissident views about US Russia policy-as have appeared in magazines like
The Nation in the nineties-are now flooding the mainstream.
Partly because of Gore's vulnerability on this issue, foreign affairs may
take on an unusual role in this election. Not only did he play a key role
as chairman of the ballyhooed Gore-Chernomyrdin Commission, in which much
of the government-to-government business between the two countries was
handled, but there is direct testimony that Gore suppressed US intelligence
reports revealing the corruption of top Yeltsin officials, including former
Prime Minister Viktor Chernomyrdin.
Gore is also exposed because of the timing of Russia's presidential
election, scheduled for June 2000. If, as is widely believed in Moscow,
Yeltsin and his inner circle (known as The Family) try to cancel or steal
the election-as may be more likely now that former Prime Minister Yevgeny
Primakov has lent his personal popularity to a powerful electoral
coalition-it will further discredit the policies with which Gore is
associated. And if the elections go ahead in a fair manner, anti-Yeltsin,
possibly anti-American, forces may win.
Certainly Yeltsin can be counted on to produce more political drama in the
months to come. The appointment of the head of what was formerly the KGB,
Vladimir Putin, as Prime Minister-and Yeltsin's anointed heir-is the most
telling sign yet that the President and his inner circle are considering
unconstitutional measures to cling to power. Among the measures widely
discussed in Moscow are using the war in Dagestan as a pretext for imposing
emergency rule or creating a union with Belarus that would lead to a new
Constitution benefiting Yeltsin.
What drives these scenarios is the most explosive factor in Kremlin
politics today: the regime's fear of being held responsible for the
collapse and looting of Russia. (In his announcement upon joining the
coalition, Primakov offered immunity for Presidents after they leave
office-an obvious allusion to this fear.) The Family is desperate to secure
a friendly successor to ward off such retribution as corruption trials.
Meanwhile, Swiss prosecutors are closing in on Yeltsin's entourage. The
head of the Kremlin's Property Department, reported to control $600 billion
worth of real estate, and twenty-two other top Yeltsin officials are under
investigation for money laundering and other financial crimes. Members of
Yeltsin's family may be implicated. Putin is the regime's man not only
because he is tough-his willingness to intensify the war in the Caucasus is
one test-but, more important, he may also be implicated in the corruption
and thus have a personal stake in stopping any investigations.
Recently the State Department declared that US policy must now focus on
"Russian reform and the policies of the Russian government, not the
personalities." Nice words, but a bit late after seven years of
Clinton/Gore cheerleading for the Yeltsin regime. A new policy would begin
with the Administration strongly reminding Yeltsin that a Russian leader
leaving office in accordance with the Constitution, for the first time in
the country's history, is the best hope for Russia's fragile democracy. Let
the people choose new leaders in fair elections as scheduled-for Parliament
this December and for the presidency in June.
Whatever the outcome in Moscow, America needs a new Russia policy. That
debate has yet to begin, which is why all presidential candidates must set
out their proposals. As this magazine has warned since 1993, the missionary
nature of the Clinton/
Gore policy has contributed to the disaster in Russia. Without a new, less
dogmatic Russia policy, the disaster will only deepen.
From: Wayne Merry <firstname.lastname@example.org>
To: David Johnson <email@example.com>
Subject: Why Did Primakov Move Now?
Date: Thu, 19 Aug 1999
Why Did Primakov Move Now?
David, you asked for my (brief) views on why Primakov decided to join with
Fatherland-All Russia at this time rather than keep his options open, as
some commentators expected.
In essence, I think Primakov throughout his very successful career history
has been very sensitive to the importance of timing. He knows when to hold,
when to fold. In this case, two events drove his decision: the formal
linking of Fatherland and All Russia, and the formal opening of the Duma
election campaign season. The new alliance must present its "ticket" to the
country. If Primakov wishes to get on, he should do so now when he can lead
the ticket without compromising his future choices in any serious way. To
hold back would foreclose options rather than retain them.
What, in my view, in Primakov's game plan? I think he hopes to lead this
electoral ticket to either first or second place victory in December, and
then be the standard bearer of the largest non-Communist faction in the new
Duma. Not bad for an apparatchik. He would then have six months of maximum
public attention without much in the way of accountability before the
presidential election. I think Primakov thinks he would be able to run on a
national unity platform, perhaps including Zuganov, pledging "normal"
government, no more harebrained economic experiments, defense of national
interests in the near abroad and beyond, and restoration of Russia both at
home and in the world. He would also pledge no punishment of Yeltsin and
his family (but not of the oligarchs). Assuming his back holds up (and only
people with back problems understand what I am talking about) and no
extra-constitutional actions, I think this game plan is both workable and
better for just about everyone than any of the alternatives. I happen to
think it is the best Yeltsin himself can hope for, but somebody would need
to tell him that (Naina, perhaps?).
Now, as Harold Wilson said, in politics a week is a long time, so we should
expect many, many changes between now and December, let alone next June.
But, Primakov is always the Man with the Plan (for himself, at least), so
this is his. The key problem is the difficulty of any electoral alliance
holding together in Russia. If Primakov can keep his team together through
two elections, that may be the best indication of his qualifications for
head of state.
E. Wayne Merry
Program on European Societies in Transition
The Atlantic Council of the United States
910 17th Street, N.W.
Washington, DC 20006
August 19, 1999
We Say Constitution, But Mean Yeltsin
By Alexander Sadchikov
The Russian political elite has been dumbfounded by the demand for amending
the Constitution expressed the other day by Federation Council Speaker Yegor
Stroyev and ex-Prime Minister Yevgeny Primakov, writes IZVESTIA. Previously
the main critics of the Fundamental Law were the Communists. The Communist
Party in general does not recognize the present political regime, which,
nevertheless, did not prevent some communists from collaborating with this
regime. Yabloko leader Grigory Yavlinsky and his supporters also allowed
themselves to attack the Constitution. But never before has it been attacked
by official and non-official representatives of the "party of power.
Until recently, the paper goes on, Stroyev and Primakov were very cautious
in their political statements. Today, Primakov says the President should
share his powers with the upper house of the Russian Parliament -- the
Federation Council -- and with the Government, which is to be formed on the
basis of a parliamentary majority. To limit presidential powers still more,
he proposed introducing the post of Vice President. His only pro-presidential
proposal is the one on guaranteeing security to a former president.
Stroyev, too, speaks for limiting presidential powers and suggests
re-distributing them in favor of the subjects of the Russian Federation.
In fact, the paper says, both Primakov and Stroyev have said nothing new. At
the initiative of the communists attempts to amend the Constitution were made
in the lower house -- the State Duma. But the Fundamental Law has remained
unchanged. The parliament members have failed even to adopt an amendment on
establishing an institution of parliamentary investigation. No progress has
been observed in the adoption of the draft laws on amendments to the
Constitution. But State Duma Speaker Gennady Seleznyov has declared that the
Duma will not drag out their adoption and at that present "we can restrict
the President's autocracy."
However, the paper says, those who demand the amendments must not fail to
see that it will be fairly difficult to adopt them -- their adoption will
require two-thirds of the votes in the State Duma and three quarters in the
The paper considers that the motives behind such demands at present are
of the election campaign, which has just begun. Stroyev and some governors do
not venture to attack the President openly. It is easier for them to attack
the Constitution. Besides, few politicians are interested in President
Yeltsin as a target for their attacks.
Moscow bitter on U.S. missile system plans
By Peter Graff
MOSCOW (Reuters) - Russia and the United States ended a new round of arms
control talks Thursday with Moscow saying U.S. plans for a ``Star Wars''
missile defense system could start a new arms race in outer space.
After three days of initial talks on a new treaty, the two sides appeared to
make little progress, with U.S. hopes to alter the 1972 Anti-Ballistic
Missile (ABM) treaty the chief bone of contention.
The head of the Russian delegation told reporters that Washington's plans to
build a new ``Star Wars''-style missile defense system could bury the entire
arms control framework.
``The arms race could now leap to outer space,'' Interfax news agency quoted
Grigory Berdenninikov, director of the arms control department at the Russian
Foreign Ministry, as saying.
The U.S. delegation chief, John Holum, designate under-secretary of state for
arms control and international security, told Reuters Wednesday the
atmosphere at the talks was ``businesslike and productive.''
A statement released by both sides Thursday following the meetings gave no
indication they had come closer on the key issue of U.S. plans to set up an
anti-missile shield, which Russia says violates the ABM treaty.
``The sides presented their approaches to the ABM treaty and to continuing
efforts to strengthen it to ensure its viability in the future. Specific
proposals were not discussed in the course of the consultations,'' the
statement, released by the Foreign Ministry and the U.S. embassy, said.
The U.S.-Russian statement said they had agreed to begin full negotiations
only after the earlier START-2 treaty is finally ratified by Russia's
The 1972 ABM treaty banned full systems designed to shoot down the other
side's missiles. But the United States now plans to build a similar shield
against missile programs it fears are being developed by countries like Iran
and North Korea.
The Clinton administration says the new system would not violate the treaty
and wants the pact updated.
But Berdennikov said there was no way Washington could develop the system
without violating the treaty.
``We do not see any variant which would allow the U.S. to deploy a national
anti-missile defense system and at the same time maintain the ABM treaty,''
Itar-Tass news agency quoted him as saying.
``If this takes place, talks on a START-3 treaty will be ruined, as well as
the existing START-1 and START-2 agreements,'' he said, referring to the
Strategic Arms Reduction Treaties which have committed the former Cold War
foes to cutting their nuclear missile arsenals.
Clinton and Yeltsin signed START-2 in 1993, committing both sides to reduce
their stockpiles to 3,500 warheads by 2003. But the treaty has languished
since then without the approval of Russia's State Duma lower house of
The Duma was finally due to ratify it early this year, but abandoned it after
NATO began bombing Yugoslavia.
Clinton and Yeltsin arranged the latest talks at a summit in Cologne in June
when both sides said they wanted to be friends again after relations were
hurt by Moscow's outrage at NATO's air campaign against Yugoslavia.
Yeltsin sent Clinton a happy birthday telegram Thursday saying he was pleased
that ties were improving.
Berdennikov said Russia had proposed that the new treaty call for steep cuts,
to 1,500 warheads or below.
Yeltsin Sends Clinton Birthday Congratulations
MOSCOW, Aug 19 (Reuters) - Russian President Boris Yeltsin sent a happy
birthday telegram to Bill Clinton on Thursday and told the U.S. president
he was pleased that relations were improving after hitting a low point
during the Kosovo conflict.
"I note with satisfaction that Russo-American relations are again
demonstrating a positive dynamic," a Kremlin press release quoted Yeltsin
as having written to Clinton.
Clinton celebrates his 53rd birthday on Thursday.
Yeltsin and Clinton have been known for their close first- name
relationship at countless summits, but ties between their countries reached
their lowest ebb since the Cold War this year when Moscow was outraged at
NATO air strikes on Yugoslavia.
In June, Yeltsin and Clinton met at a summit in Cologne, Germany, to patch
up ties. They agreed among other things to a new set of arms control talks,
which took place this week in Moscow.
"I am convinced that the realisation of agreements we reached in Cologne
will benefit the further widening of cooperation between our countries and
the strengthening of security and stability in the world," Yeltsin said.
Subject: Save FBIS
Date: Thu, 19 Aug 99
From: Miriam Lanskoy <firstname.lastname@example.org>
Earlier this week Secretary William Daley's announced that the
of Commerce has decided to close down the National Technical Information
(NTIS) which publishes FBIS. This decision can be overturned if enough
Congressmen are persuaded that FBIS is a unique resource worth keeping.
The following is a draft letter on behalf of maintaining the FBIS
Dear Sen./Rep. ,
Knowing of your concern that the public not be denied access to
information, I believe that you will find this material to be pertinent.
Secretary William Daley's announcement of the decision by the Department
of Commerce to close down the National Technical Information Service
(NTIS) raises major issues of academic freedom. Among other services,
NTIS provides subscribers with access to _Foreign Broadcast Information
Service (FBIS)_. This is a unique resource for the academic community
(as well as for international affairs organizations, the media, and other
public constituencies concerned with world affairs).
FBIS provides almost immediate translations from the daily newspapers,
magazines, radio, and television in almost every portion of the globe,
including such particularly sensitive and potentially dangerous areas as
the former Soviet republics, China, the Indian subcontinent, the Middle
East, Africa, etc. No private institution could begin to match the vast
personnel and budget required for this immense task. Only government has
these resources, as well as the necessary access, to cover all of the
media in such a large portion of the globe. Government performs this
work for its own purposes of analysis and policy decision-making and will
continue to do so, irrespective of decisions pertaining to NTIS.
However, the many thousands of subscribers to FBIS, via NTIS, help to
finance at least part of this work. If NTIS were to close down, unless
specific measures were taken to ensure that FBIS were made available
through another provider, the academic community, for one would be
deprived of the essential material for its own research and analysis,
affecting ultimately the quality of its teaching. Moreover, a very
serious consideration pertains to _Academic Freedom_. If FBIS were
confined to government this would create a monopoly of the sources
without which serious analysis leading to policy conclusions would become
unfeasible. In other words, the academic community and the media could
not question official policy since government would be able to retort
that it has access to vital material (in the public domain) that could
not be rivaled by others. The academic community, at most, can subscribe
to a few newspapers abroad, which arrive usually many days in arrears; it
could not monitor radio to any serious extent and television not at all.
It may be recalled that an effort was made a couple of years ago to cut
off non-governmental subscribers from access to FBIS. The resultant wave
of protests from the academic community and the media led to a rescinding
of this attempt. It is worrisome that all inquiries to date have
produced the retort from Commerce that the liquidation of NTIS would not
affect the availability of materials purveyed through NTIS, since the
respective government agencies would provide the documents in question
freely through their existing websites. The governmental institution
from which FBIS emanates is not likely to have such a website, for
understandable reasons, and FBIS, to be accessible to the
non-governmental community, would have to be provided through another
channel resembling NTIS.
The very fact that no thought appears to have been given to finding such
a channel or, indeed, to the problems posed with regard to FBIS, raises
the most serious concerns regarding academic freedom. It is shocking
that such a momentous decision should have been unilaterally. As always,
the community turns to the Congress of the United States to be the
vigilant custodian of the public's rights and freedoms.
Jane and John Constituent
Institute for the Study of Conflict, Ideology & Policy (ISCIP)
at Boston University
August 20, 1999
Yeltsin's Cure May Stop Working at Any Time
By Sarah Karush
The medical treatment that appears to have re-energized President Boris
Yeltsin is a fairly common procedure for blocking a painful nerve - but its
effects could wear off in a matter of days, doctors said this week.
Yeltsin, seeming more vigorous than he had in months, told journalists this
week that he felt much better after treatment of an inflamed nerve in his
back at the Burdenko Neurosurgical Institute.
"Imagine you have a toothache all the time for three years," he said. "You
could lose your mind." He said the nerve had been causing chest pain.
The procedure was an injection that blocked pain from the nerve, the Burdenko
Institute's deputy director, Alexander Potapov, was quoted as saying this
week by the newspaper Sobesednik. He said the pain could return as soon as
Yeltsin's health has been a topic of widespread speculation since his
re-election in 1996. He had heart bypass surgery in November of that year and
has spent much of his time ill or recuperating from respiratory infections
and a bleeding ulcer. In public, he has slurred his speech or spoken with
obvious effort, causing people to suspect everything from Alzheimer's disease
But the president's obvious relief suggests that at least part of his trouble
was as simple as a bad back.
It is not uncommon for spinal-related pain to be so severe that patients have
difficulty concentrating and sleeping, thus causing drowsiness, said Dr. Paul
Nandi, consultant and anesthetist to the pain management unit at the National
Hospital for Neurology and Neurosurgery in London.
"Sometimes the medication they take for the pain is sedating," he added.
An injected anesthetic can wear off in a day; but the relief typically lasts
one or two weeks. It can be repeated, but it is a fairly involved procedure,
Nandi said there was no obvious medical reason for not performing the
procedure earlier. One explanation is that the chest pain was misdiagnosed,
given Yeltsin's history of heart troubles.
"Clearly, any physician that sees a patient complaining about pains in the
chest is going to think about more serious things like cardiac problems,"
Another possibility is that Yeltsin was taking other medication - such as
blood-thinning drugs - that would make the procedure dangerous.
Yeltsin's back problem is usually attributed to a rough airplane landing in
Spain in 1990, after which he underwent back surgery. But the president says
he has had intense pain only for the past three years - which roughly
coincides with the decline observers have noted in his speech and energy
Nandi said it is typical for spine-related pain to worsen over time, adding
that the pain is not always related to the particular event it is ascribed
But Leon Aron, a scholar at the American Enterprise Institute in Washington,
D.C., whose biography of Yeltsin is due out in January, said he did not
believe the back injury was the key factor in Yeltsin's overall state.
He said more probable causes of Yeltsin's decline were hardened arteries
affecting the brain, or depression - both conditions that can periodically
>From this point of view, his improvement could be related to last week's
appointment of Prime Minister Vladimir Putin and the political maneuvering
before December parliamentary elections.
"I think he's suffering from clinical depression," Aron said. "He must be in
a political battle for him to feel good."
Russia's liberals urge smashing moslem rebels
MOSCOW, Aug 19 (Reuters) - Russia's main liberal party Yabloko, fiercely
opposed to the 1994-96 Chechen war, said on Thursday moslem rebels in
Dagestan should be smashed.
The rebels, backed by Chechen fighters, have resisted efforts to dislodge
them from mountainous villages in the southern region of Dagestan despite
Russian bombardments and infantry assaults.
``The main task of Russia's authorities today is the unsparing obliteration
of the rebels as quickly as possible,'' Yabloko said in a statement.
Party leader Grigory Yavlinsky said Yabloko considered events in Dagestan as
an aggression of Islamic extremists.
``We see it as a concerted attack by international Islamic extremists,
separatists and terrorists against Russia,'' he told a news conference.
Yabloko has 45 representatives in the 450-seat Duma lower house of
Yavlinsky urged the military not to repeat the mistakes of the Chechen war
and do its utmost to spare civilian lives.
Yavlinsky, during a 1996 presidential campaign, called the rule of President
Boris Yeltsin ``the bloodiest autocratic regime since World War Two'' for its
acts, including launching the Chechen war, which ended in defeat for Moscow.
The Yabloko statement also backed more spending on the military in the 1999
budget and hailed a decision to increase the wages of soldiers fighting the
New York Times
August 19, 1999
[for personal use only]
The Coming Battle for Succession in Russia
By PHILIP TAUBMAN
The newly forged alliance between two of Russia's most cunning politicians,
Mayor Yuri Luzhkov of Moscow and Yevgeny Primakov, the former Prime Minister,
brings to mind the 1939 German-Soviet nonaggression pact that briefly linked
the two nations at the beginning of the Second World War. The compact
unveiled this week offers temporary tactical advantages to both men, but like
the nonaggression pact that ended with the German invasion of the Soviet
Union in 1941, it seems destined to be broken when either party decides it is
no longer convenient.
The show of unity, which came with the support of several of Russia's
powerful regional governors, is just one of the political maneuvers now
bubbling into view as Russia prepares for parliamentary elections in December
and presidential balloting next summer. Another gambit was Boris Yeltsin's
decision to dismiss yet another Prime Minister, Sergei Stepashin, and to
designate Vladimir Putin not only as Prime Minister but as Mr. Yeltsin's
favored candidate for president.
All the machinations may seem hard to follow from afar, and much about
Kremlin politics remains obscure. But compared with the mystery that used to
envelop Russian politics at the highest level, today's shifting alliances are
unabashedly and refreshingly transparent. The next year promises to bring all
manner of phony deals and nasty betrayals.
They may strain the fabric of Russian democracy, and the outcome may not
advance the cause of reform, but at least the Russian people will see many of
the stratagems unfold and will have the final word in picking their leaders.
That is, if Mr. Yeltsin does not try to cancel one or both elections, a
common fear. The prospect seems unlikely, but not inconceivable.
It was not so long ago that the furious maneuvering in the Kremlin was
conducted out of public view. Even after the lethal diktats of Stalin were
memory, the Communist Party bosses preferred to operate in strict secrecy. In
his memoirs, Mikhail Gorbachev recalls the backroom dealing that denied him
the chance to succeed Yuri Andropov in 1984, and the crucial endorsement of
Foreign Minister Andrei Gromyko that brought Mr. Gorbachev to power in 1985
after the death of Konstantin Chernenko.
All was done by the Politburo and Central Committee without a moment of open
debate. The problem today is sifting through an abundance of information in
Russian newspapers, magazines, television broadcasts and Web sites, much of
it unreliable. Every political act is closely analyzed, and every politician
seems to have a cadre of aides ready to spin out theories about what is
really going on. American politicians would feel right at home.
Assuming Mr. Yeltsin exits without a fight, the battle lines will be drawn
over whether his policies and Government should be extended through a
potential heir like Mr. Putin, or tossed in the incinerator of Russian
history alongside Mr. Gorbachev's stewardship.
Both Mr. Primakov and Mr. Luzhkov clearly entertain presidential ambitions.
After working for the mercurial Mr. Yeltsin, Mr. Primakov no doubt relishes
the prospect of being in charge himself. He commands wide respect among
Russians for steadying the country after last summer's economic collapse, and
appeals especially to the dwindling but powerful bloc of older voters aligned
with the Communist Party.
Mr. Luzhkov runs Moscow like a duchy and seems impatient to do the same with
Russia. He is viewed as an effective if unscrupulous executive who has made
Moscow a sanctuary of relative prosperity in a nation of economic adversity.
Mr. Putin, though unversed in electoral politics, has a chance to impress
voters by managing the Government efficiently, if Mr. Yeltsin allows him to
remain in office. His close ties with internal security agencies provide an
opportunity to harass his opponents. Mr. Primakov, with his own intelligence
connections, may prove to be a formidable rival in this contact sport.
There are other potential candidates, including Gennadi Zyuganov, the
Communist Party leader; Viktor Chernomyrdin, the former Prime Minister;
Aleksandr Lebed, the general-turned-politician, and Grigory Yavlinsky, the
one committed reformer in the field.
If Mr. Primakov and Mr. Luzhkov sustain their alliance, with one accepting
the role of junior partner, they will be hard to beat. If the partnership
dissolves, look for a 15-round heavyweight fight, with punching below the
New York Times
August 19, 1999
[for personal use only]
Activity at Bank Raises Suspicions of Russian Mob Tie
By RAYMOND BONNER with TIMOTHY L. O'BRIEN
Millions of dollars have been channeled through the Bank of New York in the
last year in what is believed to be a major money laundering operation by
Russian organized crime, law enforcement officials say.
>From October through March some $4.2 billion, in more than 10,000
transactions, passed through one account, investigators said.
But because the account has remained open to help a continuing investigation
by the Federal authorities, investigators estimate that as much as $10
billion may have flowed through the bank in that account and related ones
since early last year.
Investigators say the transactions seem to add up to one of the largest money
laundering operations ever uncovered in the United States, with vast sums of
money moving in and out of the bank in a day. But they are quick to point out
that the inquiry is still in its early stages and that they do not yet know
the full scale of the operation or where the money ended up.
Wednesday the Bank of New York said it had suspended two employees whose
names had surfaced in the investigation. Both are senior officers in the
bank's Eastern European division and are married to Russian businessmen, one
of whom is believed by investigators to have controlled one of the accounts.
The suspensions of the two women, Natasha Gurfinkel Kagalovsky of New York,
and Lucy Edwards of London, followed questions about the investigation from
The New York Times. The employees have been suspended pending completion of
"The Bank of New York has been cooperating with the office of the United
States Attorney for the Southern District of New York in a confidential
investigation of the use of bank facilities to transfer funds from Russia to
other countries," the bank said in a statement.
"There are no allegations of wrongdoing by the bank," it said, adding that no
customer or bank funds had been lost.
An American Government official who follows money laundering said, "What we
have here is the penetration of a major U.S. organization by Russian
American and European officials have been concerned about the possibility
that organized crime syndicates from Russia and other countries could
infiltrate financial markets and institutions in Europe and the United
Investigators here and abroad have been examining cases in which front
companies have tried to raise capital in North America for organized crime
activities in Russia through stock offerings.
Since the collapse of the Russian financial system last year, the flight of
money out of the country accelerated, and investigators have been on the
lookout for activities they suspect are "laundering" operations.
Money laundering is a legal catch phrase that refers to the criminal practice
of taking ill-gotten gains and moving them through a sequence of bank
accounts so they ultimately look like legitimate profits from legal
businesses. The money is then withdrawn and used for further criminal
The accounts under scrutiny at the Bank of New York have been linked by
investigators to a man who Western law enforcement officials say is a major
figure in Russian organized crime, Semyon Yukovich Mogilevich. Mogilevich is
involved in a wide range of activities from arms trafficking and extortion to
prostitution, American and European law enforcement and intelligence agencies
The Federal Bureau of Investigation was alerted to the suspected money
laundering at the Bank of New York more than a year ago by the British
authorities. The F.B.I. said yesterday that it would have no comment on the
The Federal Reserve Bank of New York and the New York State Banking
Department declined to comment on whether they had begun their own
investigations of the Bank of New York.
An initial round of Federal subpoenas issued to the bank produced 3,500 pages
of transactions for one account in the name of a company called Benex, said
investigators. They would say little about what information they have about
Benex, its location or its activities.
A few years ago, Benex tried to get visas to the United States for
individuals associated with Mogilevich, an American official said; the visas
were not granted.
It is likely to take many months before the investigators sift through the
documents and penetrate the complex web of offshore companies and holding
companies to determine precisely where the money came from and where it went.
British intelligence reported that some of the money from the account went to
pay contract killers and some went to drug barons, American officials said.
Mogilevich is considered smart, ruthless and vastly wealthy. A 1995 British
intelligence report said he was worth $100 million. Last year, after an
American journalist, Robert Friedman, wrote a long exposé of his criminal
career in The Village Voice, Mogilevich put out a contract on the reporter's
life, the Central Intelligence Agency and the F.B.I. said.
The threat was picked up during a telephone intercept by the C.I.A., which
was monitoring Mogilevich's phone. A European law enforcement official said
recently that the contract was for $100,000. Friedman went into hiding for a
while and later resumed writing.
The C.I.A. and European intelligence agencies have been intensely monitoring
the activities of Mogilevich, who is 53, for five years, an American official
An F.B.I. report on Russian organized crime said that when the Soviet Union
withdrew its military forces from East Germany, many Russian generals sold
their weapons to Mogilevich, who in turn sold them, at much higher prices, to
countries like Iraq, Iran and Serbia.
The money laundering operation was uncovered by the British authorities last
summer as part of an investigation of financial activities of Russian
While sifting through boxes of documents that turned up in the British
investigation, investigators found references to a company named Benex that
was linked to an American company, YBM Magnex, which was a front for
Mogilevich, officials said.
YBM, based in Philadelphia and once traded on the Canadian stock exchange,
was an operating company -- it made and sold industrial magnets -- and a
money laundering vehicle for Mogilevich, American and British officials have
In June YBM pleaded guilty to one count of securities fraud in Federal
District Court in Philadelphia, and the United States Attorney's office there
is still considering whether to indict Mogilevich.
The YBM case was one reflection of the success of Russian organized crime in
infiltrating Western financial markets, American and European officials said.
But "it's a drop in the bucket" compared with what has happened at the Bank
of New York, said an American official.
The account at the Bank of New York was opened by a Russian-American last
year, an investigator said. He declined to give the person's name.
The volume of transactions through the accounts has been extraordinary,
officials said, and often the money went in and out quickly. That should have
made the bank suspicious, said an investigator.
But investigators said the bank had filed only one "suspicious activity
report" with the Federal authorities -- after the authorities began
Wednesday the bank would not discuss the filing of any reports with the
If unusual activity occurs in an account, banks are required to file
"suspicious activity reports" to a system monitored by the United States
Treasury's Financial Crimes Enforcement Network, as well as the country's
five main banking regulators. The reports are confidential, and the
Treasury's network declined to comment yesterday on whether it had received
any such report from the Bank of New York recently.
At one time the American authorities froze the Benex account, which had $34
million in it, an investigator said. But they quickly unfroze it. Individuals
close to the investigation said the Government wanted to monitor where the
money was coming from and where it was going.
The accounts have been handled by Natasha Gurfinkel Kagalovsky, a senior vice
president of the bank in New York, said Government officials in New York and
Born in Russia, she emigrated to the United States in 1979, and after earning
a master's degree at Princeton joined a management training program at the
bank, according to articles in Bankers Monthly magazine and the newspaper The
American Banker in 1992 and 1993 respectively.
In the early 1990's, after the collapse of Communism, Ms. Kagalovsky was put
in charge of bringing in new business from Eastern Europe and the former
A few years ago she married Konstantin Kagalovsky, who has been an economic
adviser to the Russian Government and from 1992 to 1995 was Russia's
representative to the International Monetary Fund.
Ms. Kagalovsky, 44, declined to answer any questions yesterday.
Investigators are also looking at the role played by Lucy Edwards, a vice
president of the bank in London working on Eastern European accounts.
Two months ago, Ms. Edwards spoke at a two-day conference on international
financial services for Scandinavian, Eastern European and Russian clients.
She was the first speaker on the second day. Her topic was "Money Laundering:
Latest Developments and Regulations."
Ms. Edwards was also born in Russia, an American official said, and acquired
American citizenship by marriage. After a divorce, she married a Russian,
Peter Berlin, and he subsequently became an American citizen, the official
added. Investigators say they believe that Berlin had authority over the
Benex account at the Bank of New York.
Berlin could not be located.
Ms. Edwards's assistant in London, who gave her name only as Rachel, said Ms.
Edwards was traveling. She added that it was bank policy that no one on the
staff could speak to reporters. After being told more details of the money
laundering investigation, she referred questions to Ms. Kagalovsky.
20 August 1999
[for personal use only]
Russian mob 'used US bank' to launder cash
Detectives fear press reports have damaged transatlantic inquiry into illegal
transfer of billions of dollars
Jane Martinson in New York and Dan Atkinson
United States authorities are investigating allegations that the Russian
mafia has infiltrated the Bank of New York in what could be one of the
largest ever money laundering operations on Wall Street.
But American press reports have seriously compromised the London end of the
inquiry carried out by Britain's national crime squad.
The investigation by the US attorney's office in New York and the FBI
involves the alleged illegal transfer of billions of dollars through one of
the world's biggest banks. A report in the New York Times has suggested that
up to $10bn (£6.25bn) passed through the bank's accounts in a global money
British authorities are understood to have first alerted the US investigators
to the mafia's activity last year, after an investigation into Russian
organised crime and the City.
A spokeswoman for the national crime squad yesterday confirmed the
investigation but refused to give further details. The squad's money
laundering investigation team is believed to have been scrutinising the bank
for more than a year.
However, detectives fear that the New York Times report may have tipped off
key suspects and seriously damaged the inquiry. One police source said: "The
publicising of this has been so unhelpful it's untrue."
Investigators in London and New York have increasingly cooperated on cases of
global money laundering in the past few years as criminals have become more
sophisticated in using the world's financial system to hide their ill-gotten
Russian mobsters have been operating on Wall Street for several years,
attracted by the strong stock market of the past five years. But, if proved,
the Bank of New York case would suggest a far greater level of infiltration
into Wall Street after last year's collapse of the Russian economy.
Yesterday the bank said two employees mentioned in the investigation were now
on leave pending the completion of the inquiry. Although money laundering
typically involves large international banks, the possible involvement of
bank staff and the size of the alleged fraud make the Bank of New York case
unusual in the highly regulated US financial markets.
The two women under investigation are reported to be in London and New York,
although the bank refused to identify them yesterday. Both are understood to
work in the bank's eastern European department and are married to Russians.
There was no one available for comment in the east European department of the
bank in London yesterday.
A spokesman for the bank, Cary Giacolone, confirmed that the company had been
cooperating with the US attorney's office in the "confidential investigation
of the use of bank facilities to transfer funds from Russia to other
He added that there were no allegations of wrongdoing by the bank, and that
neither it nor its customers were believed to have lost any money. "After a
thorough investigative effort on our part, confirmed by independent review,
this appears to be an isolated incident," Mr Giacolone said.
The Bank of New York transfers more money around the world than almost any
other bank, with some $600bn passing through its coffers every day.
Money laundering is the term used to describe the transfer of illegally
obtained funds through a series of accounts in order to hide the origin of
The British investigation is understood to have centred on the activities of
Semyon Yukovich Mogilevich, a shadowy Russian businessman with alleged links
to organised crime and the world of drugs and arms trafficking.
The US bull market has encouraged the proliferation of share scam operations
involving mobsters in recent years, resulting in several prosecutions by New
York investigators. In June 85 people were charged with alleged fraud which
cost thousands of investors more than $100m.
Several of those arrested were members of the five Italian families linked
with organised crime, as well as the Russian Bor group. The indictment in
Brooklyn involved several men with nicknames such as Frankie the Fish and
Yesterday Britain's Financial Services Authority confirmed that the Bank of
New York remains licensed to do business in the City and continues to be
regarded as fit and proper within the meaning of the Banking Act.
The US inquiry is thought to have several months still to run, as
evidence-gathering is at an early stage.
Russian mobsters active in Florida and Caribbean
By Jim Loney
MIAMI, Aug 19 (Reuters) - Ruthless and sophisticated Russian gangsters have
followed Colombian drug lords and international financiers to the Caribbean
islands, long a haven for ill-gotten gains, U.S. agents and money laundering
experts said on Thursday.
Russian mobs, often run by ex-KGB and special services agents with broad
knowledge of covert operations and high finance, are involved in a vast array
of crimes including prostitution, fraud and narcotics trafficking, experts
Russians have moved into Caribbean offshore havens like Antigua, Curacao, St.
Kitts and Nevis, St. Maarten and others, where they build cozy relationships
with bankers and politicians much as the Colombian cocaine cowboys did in the
1970s and '80s, say officials and experts in the field.
"We see a significant (Russian) influence in the area of money laundering,"
said Brent Eaton, spokesman for the U.S. Drug Enforcement Administration in
Miami. "They are busy in the Bahamas particularly. They've had a lot of
meetings recently in Puerto Rico. There's a growing community in south
The far-flung Caribbean islands have long been havens for narcotics
In the 1970s and 1980s, Colombian drug barons corrupted local officials with
bags of cash and used the remote islands to transship cocaine. Plagued by
weak economies, many islands started banking industries that became tax
havens and prime turf for crooks looking to cleanse their loot.
This month, John Mathewson, a U.S. citizen who owned the now-defunct Guardian
Bank & Trust Ltd in the Cayman Islands, said at a sentencing hearing after
being convicted for money laundering that the government of the British
colony knowingly abets tax evasion. The Cayman government denied the
Russian mobs gained international strength in the early 1990s following the
collapse of the Soviet Union, and have been operating in south Florida and
the Caribbean for years, law enforcement sources said.
"Their strength in the Caribbean hasn't waned," said Charles Intriago, a
former U.S. Justice Department official who publishes the Miami-based
newsletter Money Laundering Alert.
The New York Times reported Thursday that billions of dollars have been
channeled through the Bank of New York <<A HREF="aol://4785:BK">BK.N</A>> in
the last year in what was believed to be a major money laundering operation
by Russian organized crime.
Intriago said the use of the Bank of New York, which comes under the
sophisticated regulation of U.S. authorities, may be a sign of growing
audacity of the Russians.
"These guys are savages, almost on par with the violent side of the Colombian
cartels," Intriago said. "I think their sophistication will grow with a few
more laps around the track. They've really only been in business for ten
Wealthy Russian mobsters, their bodyguards and flashy girlfriends, are a
common sight in the hotels of Miami Beach, experts said. Miami is a
transportation hub for the Caribbean.
In one audacious case, federal prosecutors accused a Miami strip club
operator, Russian-born Ludwig Fainberg, of cutting a deal with Russian
military officers to buy a submarine for a cartel.
Law enforcement officials say some Caribbean islands have moved recently to
clean up their banking industries. But the Russians, like others before, have
found the islands to be safe refuges, experts said.
"They are buying economic passports in five or six (Caribbean)
jurisdictions," said Kenneth Rijock, a Miami financial crimes consultant who
spent two years in jail for money laundering. "Under some circumstances you
can adopt a new name in these countries."
Rijock said that Russian mobs were formed by ex-KGB and special services
agents who looted Russia during the collapse of communism and became
well-funded gangsters with language skills and expertise in international
finance and covert operations.
"Miami Beach is a meeting place and R & R center," he added. "People involved
in drug homicides in Russia come here until the heat cools down."