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Johnson's Russia List
25 August 1999
[Note from David Johnson:
1. Moscow Times editorial: Corruption Will Dictate 21st Century.
2. The Global Beat Syndicate: Andrew Gentes, Letter from
3. Journal of Commerce: John Helmer, RUSSIAN METALS TRADE FRAUD EXPOSED
IN TITANIUM SUIT.
4. Itar-Tass: Condition of Raisa Gorbacheva Improves.
5. CNN Perspectives: The Russia Factor.]
August 25, 1999
EDITORIAL: Corruption Will Dictate 21st Century
Once upon a time, before the Bank of New York was implicated in laundering
Russian mob money, there was a Swiss money-laundering investigation of more
than 20 Kremlin officials.
Before that, there was an audit of the European Union that chronicled such
appalling cronyism and fraud, particularly regarding aid to the former Soviet
Union, that all 20 members of the European Commission resigned (The 20
Europeans quit in shame; the 20 Russians claim the inalienable moral right to
choose Boris Yeltsin's successor).
Before that there was FIMACO, with its revelations that the Russian Central
Bank is running a dubious and murky commercial empire. Somewhere in there we
learned that the International Olympic Committee has for years been steering
the Olympic Games to host cities for bribes. And we also heard something
about Citibank funneling millions in alleged drug money from Mexico to
Switzerland for another "family" member, the older brother of former Mexican
President Carlos Salinas.
All this in the space of about a year?
Corruption f like capital f has turned out to be terrifyingly mobile and
cunning. Anti-corruption efforts simply can't keep up. When Swiss Attorney
General Carla del Ponte began to squeeze corrupt "families" in Mexico and
Russia, the Swiss financial system f which has earned a pretty penny
servicing organized crime f objected. Del Ponte's "promotion" to The Hague
looks more like a way of kicking her upstairs.
Then there is the Bank of New York scoop, which probably had to have been fed
f by whom? f to The New York Times. The furious Brits blame the Americans; in
off-the-record conversations, the FBI blames the Brits; and either way, a
major U.S.-British investigation is being brought to a hasty and, possibly,
unsatisfying close. It is curiously reminiscent of del Ponte's promotion:
Heroes of law enforcement are applauded, lauded f and in the process taken
out of the game.
Corruption is less a Russian problem than an international one. And policing
it effectively will raise inevitable questions about how to control the
police. Already the U.S. National Security Agency is coming under fire over
ECHELON, an espionage program through which it listens to all of Europe's
phone calls and e-mails.
ECHELON is one vision of our futures. Another f one more attractive to those
of us who cherish democracy f is a United Nations that is treated like a
world parliament, and not like a joke. But in addition to being corruption's
banner year, 1999 was also the year NATO stepped forward in Yugoslavia to
christen itself the new UN. So far anyway, the 21st century looks more like
ECHELON than international participatory democracy.
>From The Global Beat Syndicate
Letter from Irkutsk
By Andrew Gentes
August 16, 1999
Andrew Gentes is a graduate student in the history department of Brown
University. He is researching the Siberian exile system in the former Soviet
IRKUTSK, Russia -- At the intersection of the two main thoroughfares here --
- Lenin and Karl Marx streets -- stands a statue of Lenin, his arm
outstretched toward the street that bears his name. In the past it was said
that he was pointing the way to the communist Utopia. Now the joke is that
he's trying to hail a taxi.
On a public bus in this Siberian city, 2,500 miles east of Mosow, a soiled
and tattered red flag bearing the hammer and sickle hangs between the
driver's seat and passengers. A taxi driver keeps a handful of Soviet-era
medals displayed on the dashboard of his vehicle. A visitor to the local
museum -- which like all public institutions here is in desperate need of
rare tourist dollars -- finds the gift shop closed. The clerk who runs the
shop won't be back to work for a month.
These are all signs of how difficult it is for Irkutsk, more than eight years
after the collapse of the Soviet Union, to evolve from its communist past and
embrace the ideals of democracy and capitalism. Like many provincial cities,
it clings to its mythologized past, wistfully remembering a paradise lost
that in fact never existed.
Not that some here aren't trying to drag Irkutsk, kicking and screaming, into
There's Iurii, a middle-aged retired fireman, who's now an entrepreneur. He's
built a greenhouse complex just outside the city that's large enough to
supply the city with most of its bouquets and cut flowers. He proudly
considers himself a capitalist, and divides his neighbors into two classes:
those who drink and those who work.
And there's Aleksei, a manager at the Baikal Business Center, a contemporary
glass-and-steel hotel and convention center on the outskirts of the city. He
spent several months studying businesses practices in the United States and
says he's trying to fulfill the center's goal of providing services to
businessmen at Western standards.
But it's not easy. Aleksei says that, as a matter of course, he must pay a
percentage of the center's profits to the local mafia or put their minions on
his payroll. Organized crime here divides along ethnic lines - Russian,
Chechen, Korean, Georgian, Armenian. And since the mobs are constantly
competing over over turf, Aleksei end up dealing with almost all of them. Of
course, he has no legal recourse, since the mafias are protected by corrupt
But the local mafias may be the least of Aleksei's problems. The collapse of
the Russian economy economy last August prompted many Western business people
to finally give up and leave.
Those Westerners still willing to do business can find just getting here
extremely difficult. While North Koreans and Cubans can still enter Russia
without a visa, it's often so difficult for Western business people to obtain
one that finally they give up altogether.
Once Westerners do arrive, they find that the bureaucratic hostility that is
the equal of its Soviet predecessor. I tried to have a computer shipped here
from the United States through an international delivery company. But when
the U.S. office couldn't get a coherent statement from its Irkutsk branch
about excise taxes -- which could range anywhere from 15 to 50 percent of the
cost of the computer -- I finally gave up.
If there is hope, it may be among the young people here, who seem more open
to change. Many students at the local university here are personally familiar
with the West and open to new ideas. But it's the older generation that
exercises a strong hold over mores and behavior here. Young people -- despite
some superficial signs of rebellion - - are by and large cowed. The old women
who still occupy the guard posts in the foyers of public buildings wield
their authority like tyrants and everyone accepts this arbitrariness as the
nature of things.
Some, of course, do seems to be prospering, although one suspects their
success may be based more on their membership in the mafia rather than on
honest work. There are plenty of grim-faced men, with oiled hair and
sunglasses, gunning their SUVs and Mercedes down city streets, blaring their
horns at old women trying to cross. These "new Russians" manage to infuriate
and alienate their fellow citizens with their rudeness, arrogance and
ostentatious behavior, displaying the worst characteristics of nouveau rich.
It all leaves the majority of Russians in provincial cities like this one
longing for a return to socialism rather than looking for a transition to a
capitalist future. And with no real change in sight from Moscow, the red
banners that once fluttered over this city, now dirtied and tattered, cover
it like a shroud.
© 1999 New York University. All Rights Reserved. The Global Beat Syndicate, a
service of New York University's Center for War, Peace, and the News Media,
provides editors with commentary and perspective articles on critical global
issues from contributors around the world. For more information, check out
Date: Tue, 24 Aug 1999
From: firstname.lastname@example.org (John Helmer)
Subject: This is as important as the BofNYC affair and includes Hay of
RUSSIAN METALS TRADE FRAUD EXPOSED IN TITANIUM SUIT
By John Helmer
Journal of Commerce, August 24
MOSCOW. Kenneth Dart, the billionaire U.S. investor, and TMC Trading
International, a Dublin-based company that has held exclusive foreign
trading rights for Russian titanium and magnesium metals, are at the heart
of a conspiracy to defraud Avisma, the Russian metals producer, according to
documents filed in United States federal court last week.
The lawsuit, filed on August 19 in the U.S.District Court for New Jersey,
is the first to be brought under the American racketeering statutes
alleging that a Russian company had been looted of its trading
profits through a pricing conspiracy between management and shareholders.
Similar practices have been alleged in Russia's exports of steel and
aluminum, leading in some cases to the imposition of anti-dumping penalties.
However, according to Bruce Marks, the Philadelphia-based attorney
for Avisma, this is the first time a U.S. court has been asked to rule
that these trade practices constitute fraud and money-laundering.
"This case may well deter Americans and other shareholders of Russian
companies who have engaged in these trade practices," Marks said.
The court claim filed by Marks alleges that the Menatep Bank of Moscow,
which controlled Avisma and TMC, and then a group of American investors who
took over from Menatep, skimmed at least $50 million from the company,
diverting the cash to offshore bank accounts from 1996 through late 1998.
"TMC was the vessel by which the money was laundered," Marks said.
A two-year investigation into TMC Trading has found evidence that it
arranged the cash to pay for raw materials for production at Avisma, and
then the sale of titanium by the company, primarily to buyers in the U.S.
Boeing is one of the major importers of Russian titanium.
Avisma, whose acronym in Russian means Aviation Special Materials, produces
more than 20% of the world's supply of titanium sponge each year. Considered
top-secret during the Soviet era, because of the military applications of
titanium in aviation, rockets, ship and submarine-building, Avisma was
fully privatized under the control of the politically influential Menatep
Bank and its industry group, Rosprom.
TMC (the initials refer to Titanium and Magnesium Corporation, though
the latter is not the legal title of the company) stresses its Irish
ownership and registration. The managing director is Robert Becker.
Becker, who was at work in his Dublin office on Monday, declined to respond
to questions about TMC's trading business. Another company official
would say only that the company has not traded Avisma metal "recently".
Documents filed in a unpublicized case early this year in
a Channel Islands court produced evidence of agreements between Dart
and the other American investors; TMC; and the Austrian bank Creditanstalt,
which arranged the sale of Menatep's shares in Avisma to the Americans.
Avisma's results for 1997 indicate that output of titanium sponge went up to
21,996 tons, a gain of 30% compared to 1996. After-tax profit of the company
increased by 2.2 times, and totalled Rb16.4 million ($2.7 million).
In 1998, according to public records in Moscow, Avisma's profits jumped to
After Menatep took control of Avisma in 1996, TMC shared offices in Moscow
with Avisma. Menatep and TMC's Moscow representative, Vladimir Guzenkov,
said at the time that TMC pre-paid Avisma for titanium deliveries,
thereby assisting the company in purchasing supplies and raw materials for
According to U.S. court documents, and a statement by Avisma just released,
the controlling shareholders in Avisma manipulated this pre-payment
scheme, obliging Avisma "to sell its products at below-market prices
to offshore companies, which were then to kick back the profits on the
resale of the products." The documents also allege that "profits were
siphoned by directing Avisma to purchase raw materials from the offshore
companies at above-market prices, with the profits funneled back
to Avisma's controlling shareholders through kickbacks."
TMC employs a handful of executives at a St. Stephens Green, Dublin,
location, which it shares with two Valmet companies, Riggs Valmet Ireland
and Valmet Trust. Riggs is a Washington, D.C., bank. Valmet is a
Gibraltar-registered trust company Irish company sources say is affiliated
with Menatep. The Russian bank is thought to own at least 20% of the Valmet
Irish sources say that TMC "appears to have been set up
as a shell. The directors are people who are in the business of running
companies for other people."
In 1997 Menatep sold its shareholding in Avisma, according to court
documents, to companies associated with Dart and others. He has repeatedly
claimed that he is the victim of Russian share fraud perpetrated by the
Menatep Bank group.
One of the co-conspirators named in the court claim is Jonathan Hay,
an American who was paid by the U.S. Agency for International Development
to advise the Russian government on privatization policy. Hay, now the
target of a criminal investigation in Washington for profiteering from his
official duties, has refused comment on this aspect of his Russian activities.
According to court papers, he was associated with Dart Management in
New Jersey. He was also elected by Dart votes to the board of directors
Dart and Hay concealed their alleged participation in Avisma's trading
Gennady Lopatinsky, director of corporate finance at Creditanstalt-
Grant, has said his bank was the nominal holder of 60% of Avisma
shares. Documents submitted to the Channel Islands court early this
year identify Lopatinsky as the intermediary in the transaction that
transferred control of Avisma from Menatep to Dart. The litigation
also revealed a dispute over the $110 million value of the sale, and the
size of the commission that was paid.
A spokeswoman for Dart Management has said she has not seen the details
of the court filing. "We are sure we have done nothing wrong," Sharon
Proving that the prices which Avisma received for its titanium, and the
prices at which TMC sold the metal, were the product of a racket, and that
the funds obtained by the shareholders were diverted as part of a criminal
money-laundering scheme, may not be easy, trade lawyers observe.
This is the first case brought by a Russian company to allege violations of
the U.S. Racketeer Influenced and Corrupt Organizations Act (RICO). It
is also the first attempt by a Russian metals producer to recover funds
transferred abroad in the course of metals trading. Under RICO,
Avisma may be awarded $150 million, treble the actual losses claimed.
According to the court documents in the Avisma case, the trading scheme
was halted when Avisma merged with a Russian magnesium producer, and
the new management outvoted the American shareholders in the new company to
stop the trading scheme.
Condition of Raisa Gorbacheva Improves.
FRANKFURT, August 24 (Itar-Tass) -- Condition of former Soviet first lady
Raisa Gorbacheva is getting better every day, her doctor Thomas Buechner said
Gorbacheva suffers from acute leukaemia and is preparing to receive a bone
marrow transplant. Her sister, Lydimila Titorenko, has agreed to be the
donor. She has already arrived in the German city of Munster where Gorbacheva
is staying with her husband, former Soviet president Mikhail Gorbachev.
Gobracheva was undergoing chemotherapy until last Friday, when doctors
decided to have a break to prepare the patient for operation, Buechner said.
She will be operated on by best surgeons from Freiburg and Munster in the
near future, the doctor said.
The Russia Factor
Aired August 23, 1999 - 0:00 a.m. ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE
STEPHEN FRAZIER, HOST: Russia: Not long ago, the center of the mighty Soviet
Empire, respected by some, feared by many. But then communism collapsed and
capitalism swept across a culture that was eager for its rewards but
unprepared for its risks, so unprepared that a year ago Russia's economy
I'm Stephen Frazier, and this is CNN PERSPECTIVES, a weekly documentary
series that presents an in-depth look at an issue or person in the news.
Here now, portraits of Russians as they live today. And what does it mean
when a people with the pride and the weaponry of a superpower grow desperate?
NARRATOR (voice-over): In Russian, the word "Pravda" means truth.
For most of the 20th century, this is where the newspaper "Pravda" churned
out the Soviet version of truth.
These days, the truth is Russia is as evasive as ever. The original "Pravda"
is dead. The paper pouring off the old communist presses on this day is
brazen, irreverent, immodest and rude.
The paper is called "The Exile," written in English by two Americans who
struggle with the harsh truth of the new century.
The truth is capitalism hasn't saved Russia.
MARK AMES, JOURNALIST: This is my neighborhood. This is where I live. Some
of the exciting things that have happened this year, there was a guy shot in
his car. It was the first contract killing of the year in Moscow. He was
shot in his car right there. He wasn't discovered until 4:00 in the morning,
because nobody really wanted to report it to the police.
NARRATOR: Mark Ames, early 30s, went to school in Berkeley, California, a
writer, a columnist, the co-editor of an alternative bi- weekly tabloid
called "The Exile."
AMES: That's the ministry of the interior's building. The police
headquarters is right across the street from me, looking into my apartment.
You can see here there are policemen with AKs.
Generally, these guys ask me for my I.D. because I have darker features.
NARRATOR: Mark loves the madness of Moscow. It's the capital of a
dysfunctional country with no tradition of free press, the perfect place for
a self-described Gonzo journalist and Merry Prankster like Mark.
AMES: The reason why you drink beer here is in America, for some absolutely
insane reason, you have to put a paper bag around your beer, and in Russia
you don't have to.
I don't even like beer, for that matter. But I'm drinking it. See?
Sometimes it's fun just coming here and hanging out and watching the
policemen pull people over.
He said no camera shooting or he'll break your camera, basically.
NARRATOR: The sheer audacity of the past decade, Russia's head- first dive
from communist control to capitalist chaos offers an off- beat writer like
Mark a daily diet of hypocrisy, astonishing contradiction and bitter irony.
AMES: This was it. I mean, this was the statue of Lenin.
For skate rats, it's a great place to skate on.
This thing that nobody thinks is anything strange about the fact that
they're skateboarding on Lenin's statue. They have a totally free country
now, and you don't have to worry about those kinds of things.
I mean, actually, they're right. You know, in America you could not actually
skateboard on Lincoln's memorial. It is more freer here, just because
there's a lot more chaos.
MATT TAIBBI, "THE EXILE": These guys are all from Azerbaijan. Their team
logo is the shaved head.
We see the guys already have bruises here, cuts, cuts in the back.
NARRATOR: Matt Taibbi, the other half of "The Exile" team is on assignment.
Boys as young as eight are preparing for Russia's first- ever kids' ultimate
fight world championship.
TAIBBI: Everything goes except you can't kick a guy in his private parts and
you can't choke him. So it's -- everything else is legal.
That was savage. Did you see that?
NARRATOR: Matt Taibbi, in his late 20s, is from New York. If his partner,
Mark, is "The Exile's" soul, then Matt, the investigative reporter, is its
TAIBBI: I mean, this is a -- this is a sport that's illegal in most states
in the United States -- right? -- for adults. Here you have kids doing it.
But I mean, you know, the concept of entertainment here has gotten so
strange just in general. I mean, they had a show on television where people
actually tried to steal cars.
NARRATOR: Matt will be one of the first Western journalists to write about
kids' ultimate fighting...
NARRATOR: ... but being first comes with the territory for "The Exile." It
is one of only two English-language newspapers published in Moscow, and the
only one with a tabloid look and alternative attitude.
AMES: We happen to be publishing in a very -- you know, in one of the most
capitals in one of the most important, geo-strategically speaking, countries
in the world. We've had no censorship upon us at all.
NARRATOR: Since 1997, Matt and Mark have lampooned and investigated greed,
corruption, cowardice and complacency, largely for the benefit of Western
expatriots living in Moscow.
In the summer of 1998, "The Exile" was virtually alone when it boldly and
correctly predicted that the Russian economy was about to fall to pieces,
AMES: Russia's economy was a complete smokescreen and a bubble, and the only
thing that was happening here was theft and a pyramid scheme.
NARRATOR: Russia is in chaos. Millions of people here live in poverty.
Organized criminals dominate Russian business. The nation's treasury is
virtually empty. Almost no one has a bank account because banks are either
closed or corrupt. Teachers go for months without pay. Some doctors earn
just $40 a month. Even Russia's once-proud military is in serious trouble.
Vladimir Vasiliyev (ph) recently spent two years in the Russian army. Vlad
says he and his comrades were poorly fed, underpaid and unappreciated.
VLADIMIR VASILIYEV, FORMER RUSSIAN SOLDIER (through translator): My memories
of the army were disgusting. there was nothing good. There was a lot of
NARRATOR: Vladimir's friend, Alexander Potopov (ph), had a similar
experience in the Russian navy.
ALEXANDER POTOPOV (through translator): We ate rotten vegetables and canned
meat. We were fed canned beef dated from 1961. It looked horrible.
NARRATOR: While in the military, Vladimir and Alexander earned barely enough
money to survive. Each of them quit. And now each makes more in one night
than they did in two weeks, as male strippers in Moscow nightclubs.
POTOPOV (through translator): I cannot complain. I can afford whatever I
want. I can afford to go to clubs and eat and drink what I want.
VASILYEV (through translator): I help my parents. I would like to take a
vacation. I would like to go back to school.
NARRATOR: Amid all the turmoil, Mark and Matt sit down every two weeks to
select a lead story. They have a huge menu of choices: The government is
unstable, the economy is reeling, and at the moment, there's a war going on
-- the NATO bombing of Serbs in Yugoslavia.
AMES: How about an issue, "We Were Wrong"?
TAIBBI: We haven't decided what's going go into the next issue yet, because
we don't know whether we're going to Belgrade or not. So...
AMES: Why don't we get like in a station wagon and just crash the gate, you
know, at the Hungarian border or something?
NARRATOR: In the days ahead, Matt and Mark must decide whether the next
issue of "The Exile" will be about war or money, corruption or crime.
They'll be searching for some version of Russian truth: Pravda -- tough to
do in a country where the extreme can seem normal.
NARRATOR: Living in Russia is a test of faith. For some, faith in God. For
everyone, faith in an uncertain future.
It's been exactly nine months and three days since the economy of Russia
UNIDENTIFIED MALE: And you (UNINTELLIGIBLE). His name, Igor.
UNIDENTIFIED MALE: Igor?
NARRATOR: His mother is Luva (ph); his father, Valeri (ph). Valeri Poliovkov
VALERI POLIOVKOV: I see his future. He will live in a good family with a
good father, with a nice mother. His parents will love him.
NARRATOR: Igor's family celebrates his birth. But it is an ominous time for
Russia. Moscow's middle class -- new and still small -- is in danger of
POLIOVKOV: Ten years ago, the difference between big level -- income levels
and low income levels -- do you understand? -- was not much. Not big.
Shorter. Now, we have a lot of very rich people and we have millions and
millions of people who have not enough of food.
NARRATOR: And in a sliver between, the few families of the middle class.
Communism could not tolerate them. Capitalism cannot survive without them.
Until the government defaulted and the banks went belly up, Valeri was on
his way to a small fortune. He owns an employment agency called Metropolis
(ph). Times are tough.
POLIOVKOV: I decreased my space, my office space. I decreased salary of --
salaries of support staff. I decreased my salary, the salary of my deputy.
NARRATOR: Valeri grew up in the Soviet Union, in a time stretching from
Stalin to Gorbachev.
You were a communist?
POLIOVKOV: Yes, I was a communist.
NARRATOR: Were you...
POLIOVKOV: I was a real communist. I thought that the ideas of Marx and
Lenin as the best ideas, and this is the future ideas of the world.
NARRATOR: He grew older, started a family, worked in a mindless government
job as a paper-pushing bureaucrat.
In 1990, a friend gave Valeri a home video camera. Valeri took a business
trip to England and brought the camera with him to a supermarket.
POLIOVKOV: I traveled from (UNINTELLIGIBLE), and made a film. I demonstrated
this film to my wife and to my mother. Maybe after five minutes, my wife
said to me, "I need a glass of vodka."
NARRATOR: Valeri's mother, Olla Polivna (ph), was even more moved. OLLA
POLIVNA (ph) (through translator): He's going alongside the shelves. They're
full. He goes around and films it. And he's saying that there isn't a single
empty place on the shelf. Everything is so easy. People just shop. Our minds
You know what I did? I began to cry. It hurt me that I was lied to for so
POLIOVKOV: I think that for my mother this point was a critical point to
change the mind.
NARRATOR: Valeri too. For him, communism was dead.
Are you a capitalist now?
POLIOVKOV: A little capitalist.
NARRATOR: In Moscow, those who are or want to be middle class live in an
apartment. The buildings built by Soviets are huge, blocky, colorless. At
certain angles, it looks like a wall of single- wide trailers, glued end to
end and stacked to the sky.
MASHA HEDBURG (ph): This is our building. Yes, this is the center of Moscow.
So definitely, it's not a poor area. On the contrary, whenever I say I live
on the (UNINTELLIGIBLE), they go, ooh, posh.
I mean, this is prime real estate.
I remember this when I was a kid.
NARRATOR: Masha Hedburg was born and raised in Russia, went to high school
and college in the United States.
Masha, a journalist, shares an apartment in Moscow with Matt Taibbi.
HEDBURG: And this is our fedyes (ph), or entrance, I guess.
These are your mailboxes, but we don't have a key to a mailbox. And
evidently no one uses their mailboxes anymore.
It's kind of dark because people tend to steal the light bulbs.
TAIBBI: (UNINTELLIGIBLE) apartment is what used to be called a communokka
(ph), which is...
HEDBURG: When my families live in one place and kid of share the rooms.
TAIBBI: It was a communal apartment. This is basically a Soviet-style
TAIBBI: I mean, you'd fund something like this, exactly like this, 10, 15,
20 years ago.
This drain doesn't really drain. It actually just leaks out holes in the
pipe and then leaks through the ceiling of our neighbor's apartment.
Look at the angles on these walls. I mean, they're slanted and sloped.
HEDBURG: And the floor. I don't know if you can notice the floor, but it's
TAIBBI: Kind of people they're calling middle class make about $500 or $600
a month. I mean, people have stuff, but they, you know, they have enough
money to actually eat and live without having to worry about starving every
month. But you know, in the States, we'd call the level they live at below
the poverty line, far below.
HEDBURG: You would not call it below the poverty line.
TAIBBI: Sure, we would.
HEDBURG: No, you wouldn't, because most of them own their apartment, at
TAIBBI: That's true, yes. A lot of these people aren't paying their rent,
TAIBBI: But you know, what really makes the middle class is an economy that
has a series of working positions that provide, you know, a comfortable
living and stable living, and that really doesn't exist here.
NARRATOR: Sixty-billion dollars of Western money poured into Russia in the
1990s, money that was supposed to build a middle class and rebuild the
economy. Some of that money helped pay for this field, tucked in a posh
corporate retreat. The players are top executives. The blue team, a huge
mineral company; the red team, a major bank. The man who owns both companies
-- and many others besides -- was for much of the decade the richest man in
VLADIMIR POTANIN, PRESIDENT, ONEKSIMBANK: In my opinion, it is not a big
favor to be rich in the poor country. And it is not good to show that you
are rich. It's just, you know -- I would prefer not to speak about this.
NARRATOR: Thirty-eight-year-old Vladimir Potanin is one of the so-called
"oligarchs": seven men who control much of Russia's wealth and political
influence. Potanin was the brains behind a 1995 plan to relieve the
government of its valuable state-owned assets. Russia's treasury had run out
of money. Taxes were a new capitalistic concept, and few people paid them.
Russian state-owned companies were outdated, inefficient and produced
poor-quality goods that consumers outside Russia had no interest in buying.
TAIBBI: What happened they took these huge companies, companies that would
be the equivalent of companies like U.S. Steel or Boeing, or you know,
Amoco, Exxon in the States. And they auctioned off huge chunks of properties
to private buyers.
NARRATOR: Those private buyers were Potanin and his fellow oligarchs. They
became instant millionaires, paying pennies on the dollar for Russia's
riches. Yet, they failed, for the most part, to spend much money at all to
revitalize those sagging industries, even when billions of dollars poured
into Russia from international lenders.
TAIBBI: They use the term "robber baron" all the time when talking about
these oligarchs, comparing them to people like Vanderbilt and Rockefeller
and all those people.
HEDBURG: Yes, but they built -- Vanderbilt built stuff.
HEDBURG: Rockefeller built stuff.
TAIBBI: That's a very important distinction is that the American robber
barons built stuff. Russian robber barons have stolen everything and
NARRATOR: Potanin has a higher opinion of the oligarchs. He sees them as
noble entrepreneurs, the kind of men who will eventually rebuild Russia.
POTANIN: Frankly speaking, it's a pity that in the whole country
entrepreneurs are considered like bad people. But in my opinion, we should
work a lot to change this attitude to the entrepreneurs, because the real
job is to create jobs, to pay taxes and to create lots of business activity
in the country, which is positive.
NARRATOR: Only months after Russia's banks shut their doors, vaporizing
millions of bank accounts worth billions of rubles, Potanin joined forces
with other oligarchs to open yet another bank. This time he only chases
after government and business accounts. Amazingly, this billionaire banker
says he cannot in good conscience ask average Russians to put their money in
his new bank.
POTANIN: This money may be the last money they had, they'd ever seen in
their life. Maybe it's their last pension savings or whatever. And when they
lose this money, they lose all hope in their lives. That's why it is very
dangerous to ask people to please give us money in such an economic
NARRATOR: Valeri Poliovkov, like most middle-class Russians, lost a lot of
money when banks owned by Potanin and other oligarch closed down. Like small
businessmen, he relies heavily on optimism to survive.
POLIOVKOV: How many years are we really a market economy? Less than 10
years. Our mind -- mind of majority of our people is not good for activities
in market economy. And we need many years to reconstruct our minds.
NARRATOR: In Russia, it seems, every conversation inevitably turns to crime:
crime in politics, crime in business, crime in the streets. Many Russians
see an epidemic of crime and wonder if capitalism is the cause.
TAIBBI: (UNINTELLIGIBLE) criminal chronicle. A little kid was hungry, so he
went next door and strangled an old lady for 15 kilos of flour. The family
killed their kid by locking him in a cabinet for a month and he died of
This is the old lady who -- that little kid killed for a sack of flour.
NARRATOR: Shakedowns and bribes are a normal part of daily living. Small
businesses are a favorite target of mobsters. And almost no one trusts the
police to protect them.
HEDBURG: I don't know, in the Soviet days -- or at least when I was growing
up -- you definitely had respect for the police, because there were all
these cartoons and all these books about -- you know, there's this one giant
policeman who's supposed to be -- God, I forget what the name of the actual
cartoon is. But he was about 7-feet tall or something like that, and he was
just friendly. And he'd rescue kittens from trees, and you know, kids loved
him. I mean, I believed it. Sure, I believed it. I loved that cartoon. But
-- no, but definitely, definitely, no one believes in that 10-foot-tall
policeman who's rescuing kittens anymore.
FRAZIER: You can't really understand Russia until you leave Moscow. When we
continue, a trip 4,000 miles east gives a rare glimpse of daily life in
(BEGIN VIDEO CLIP)
TAIBBI: This is the reality, where the economy's dead and people aren't
making any money.
(END VIDEO CLIP)
NARRATOR: This is Krozniarsk (ph), Siberia. It's 54 long years since the
Soviets beat back the Nazis. There is no more Soviet Union, yet they still
celebrate its victories. Democracy is not embraced here. Capitalism is
treated with scorn. Moscow seems rich and remote. The West seems decadent
Maybe it's the pictures of Josef Stalin, the tyrant who made Siberia
synonymous with forced labor and mass murder. Maybe it's the darker, quieter
whispers about Jews and blacks and Muslims and other non-Slavs. Or maybe
it's the big guy in the blue uniform, the ruler of the giant Krozniarsk
region, one-sixth of all Russia: former general and would-be president
AMES: Lebed got his popularity. At first, he was a war hero in Afghanistan,
TAIBBI: He's a scary guy in general. He has a reputation for having done all
kinds of scary things. There are legends about how he once stood up a
disobedient core of officers and broke their jaws one by one with his fists.
AMES: In 1996, he ran for president and came in third place. And it was a
strong showing that he was then brought into the government by Yeltsin, made
the head of the security council, and within a few months he brought peace
ALEXANDER LEBED, SIBERIAN GOVERNOR (through translator): It is strength that
the people of Russia have been so patient. They have cheated so many times.
Their patience cannot go on forever.
It might be like the revolution of 1917, but the weapons now are not knives
and rifles. They are nuclear.
TAIBBI: We're at Lebed's dacha. This is where the local communist party
leaders used to have their dachas. Nothing's really changed.
AMES: It's probably the only clean place in about a 200 square mile area.
TAIBBI: He arranged it so that when we arrived he would be playing this game
AMES: This is him relaxing, out in his...
AMES: This isn't his formal self. It shows that he's active. He's not like
Yeltsin, who's half a corpse.
There's no way this guy is (UNINTELLIGIBLE)...
TAIBBI: No, he's losing on purpose.
The voice on that guy.
AMES: Also the fact, you know, playing badminton, which is not the most
aggressive sport, takes sort of the edge off his reputation as a -- as a
right-wing general top.
Nice, nice shot actually.
TAIBBI: I want to play.
AMES: I know. Me too.
Matt asked General Lebed if he could play against him, and he said, come on,
let's play, go ahead.
Matt's in his penny loafers, giving it his college best.
TAIBBI: He has two distinct personalities on television. One is of a scary
militarist, pseudo psychopath, and his other image is of a rational,
thinking, relatively logical politician, which is a very -- it's a
tremendous rarity among public figures in this country.
NARRATOR: Mark and Matt spend several hours with the general over three
days, and eventually, begin to like him.
Lebed in not a communist, but he hates what the rush toward democracy and
capitalism has done to his country.
LEBED (through translator): In the United States, you've been building
democracy for 200 years. This is very hard work. You cannot declare
democracy. You have to build it. What we have no in Russia is anarchy. It is
NARRATOR: Many Russians admire Lebed the way Americans like Norman
Schwarzkopf or Colin Powell. A military man projects strength and power. But
is Lebed a democrat or a dictator?
To Mark and Matt, Siberia still seems suspiciously Soviet. As a test, they
ask Lebed for permission to tour one of the places where Communists sent
millions to work and die: Siberia's notorious prisons.
TAIBBI: Serious dogs, man.
I'm never going to freebase in Red Square again. This is it.
This is a prison for first-time offenders. That doesn't mean that it's a
minimum security prison. It just means that they've only been there -- I
mean, it includes murderers. It includes lesser criminals. But it's only
their first time.
NARRATOR: Siberian prisons have a savage reputation, but this place looks
eerily subdued. Mark and Matt wonder if they're getting a sanitized tour, a
Soviet-style attempt to alter reality or hide the truth.
AMES: The one on the right's in for murder one, and the left for theft. The
one on the left is 18 years old.
He's got three years and six months.
The only reason why we'd be careful is to make sure these guys don't get in
worse trouble -- like the guy on the right who's in for murder, he's out in
We just don't want to get these guys in any trouble at all, so I think it's
better if we just...
TAIBBI: Look, it's uncomfortable to be here actually, frankly. So...
NARRATOR: If anything, living conditions at this prison appear, ironically,
to be not all that different from the way everyone else in Krozniarsk now
Thousands of miles from Moscow, the whole region is under General Lebed's
control and seems a throwback to the Cold War.
AMES: If you noticed, everywhere we went, there seemed to be people waiting
there to meet us. Surprise...
TAIBBI: Not only that, but they're were little details that were so
classically Soviet, like the way, you know, our driver was conspicuously
better-dressed than a normal driver, starts appearing in more and more
And we go the prison, and suddenly, he's taking the tour with us in the
prison. I mean, either a very curious driver, or he's not a driver at all.
It's a classically Soviet thing to have one guy who you know is spying on
you and then have another guy who's also spying on you but is less
NARRATOR: Outsiders rarely visit Siberia. In fact, there is little reason
for most people to live here not that vast Soviet subsidies have ended. To
get the village of Uyar (ph), Mark and Matt had to practically sneak away
from Lebed's overbearing tour guides.
TAIBBI: Most of Russia is exactly like this. Look, you see people don't even
have their own plumbing systems in a lot of these houses. The same kinds of
houses people have been living in, in these villages for, you know, 100, 200
AMES: Yes. It's basically a peasant village.
TAIBBI: I mean, there's nothing here. These communities don't exist for
anything except for what they were built for. I mean, there's farming and
then there's the factory. That's it. If the factory doesn't employ them and
there isn't enough farming, then they're not going to survive.
It was villages like this, incidentally, which voted Lebed in.
NARRATOR: Twenty-five-year-old Alexander (ph), a farm laborer, says he voted
for Lebed but doesn't feel comfortable talking about it.
AMES: I said, "Are people trying to move out of here, trying to get out of
here, maybe to where you can actually earn money?"
He said: "Where would you go? There's no money anywhere around here."
And we see his 500 rubles a month, which is $20 -- is not getting anything
extra for being a war veteran. He's a geologist and he worked as an -- in
TAIBBI: These people have to buy their food and there are only a few stores
in town. And the prices are artificially raised.
He said they lived much better under communism -- much, much better.
The fact that there is positive economic news out of Moscow, out of the
financial center of the city is -- has no bearing on the reality, and this
is the reality, where the economy is dead and people aren't making any money.
AMES: The stories have usually been spun somehow that it's these people's
fault, that the only real answer is that they all have to die off before a
new generation comes in and changes things, which is pretty sick actually.
TAIBBI: Just imagine if Russians said, you know, if only Florida and Texas
and all the retirement communities of America were to die out, they...
AMES: The Social Security problem would be...
TAIBBI: Yes, they wouldn't have that Social Security problem. I mean, it's
NARRATOR: Vera Galkina (ph) lives across the street. She is 53, single
mother, supporting three kids on a base salary of $22 a month in a house
with no plumbing. Vera Galkina may be the most educated person in town. She
is a physician, psychiatrist and acupuncturist, with advanced degrees in
VERA GALKINA (through translator): Yes, I would say that life's changed for
doctors. We cannot afford things we could in the past and we no longer get
respect. Doctors are treated no better than simple medical assistants.
NARRATOR: For the people of Uyar, Alexander Lebed's tough talk is somehow
soothing, particularly when capitalism gets the blame for their plight.
LEBED (through translator): The enthusiasms people had after communism fell
apart in 1991 is already exhausted, because the same kind of people who
ruled the country before are still in power.
NARRATOR: In Siberia, graveyards grow like mushrooms beneath the birch
trees. In just the past decade, the average life expectancy of Russian men
has dropped almost six years, the most dramatic decline in the history of
AMES: If you're just drinking vodka, not taking care of yourself, eating a
poor diet, you know, you're going to die when you're 50 or so.
NARRATOR: With only days until deadline, the conflict in Kosovo gets uglier.
The U.S. embassy oozes with anti-American insults. Boris Yeltsin grows
increasingly angry. He echoes General Lebed's saber-rattling about using the
Russian military in a show of force.
AMES: A lot of young Russians are very concerned that NATO plans to
eventually bomb Moscow and invade Russia. And it seems absurd to an American
sitting at home, but believe me, if you're sitting here, if you're a
Russian, and you see the culmination of events, it doesn't seem absurd at
TAIBBI: The real reason that it's touched a chord with Russians is that they
feel so powerless because their economy is really, you know, broken down,
and people feel generally threatened that this is the next stage of a world
domination campaign by the United States.
NARRATOR: For at least a week, Mark and Matt have assumed that their next
lead story will be the interview with General Lebed, but suddenly, in
typical Russian fashion, President Boris Yeltsin dismisses his entire
All at once, Matt is under serious pressure to crash (ph) a last- minute
cover story about the latest Yeltsin hijinks.
TAIBBI: Yes, when -- when the entire government is fired, you can't put
something else on the cover really. It's still a newspaper and not a
And sure, we could get it from the defense ministry or something like that.
NARRATOR: Just 24 hours later, less than 12 hours before the final deadline,
there is a dramatic change of heart.
TAIBBI: After having made a trip thousands of miles east and spent all this
money and gone through all this effort to get something out of the ordinary,
and then having the government be fired, we just came right back to where we
were -- square one, and just did a war story again, because as it turns out
it's still the biggest story.
UNIDENTIFIED MALE: Vlad.
AMES: Matt, is Vlad here?
NARRATOR: Like Russia itself, Matt and Mark subsist on empty calories as
deadlines slip away.
AMES: Cigarette time.
TAIBBI: You haven't started writing the lead at all?
AMES: Well, no. I put down all the transcripts that I have on
TAIBBI: Do you want to start doing that a little bit while I do...
NARRATOR: The headache that is Russia at the turn of the century could
become a migraine before the pain subsides. Capitalism cannot save Russia
unless the middle class is allowed to blossom and expand, unless average
folks can have checking accounts and credit cards, unless leaders are
respected and laws are enforced.
TAIBBI: There are so many things in the United States we take for granted.
We don't just vote. We have courts that function. We have -- we have
lawsuits. You know, if you have a civil dispute, you can take somebody to
court for it and actually win. You can -- if someone does you wrong, you can
actually appeal to the government and ask for help. You can't do that in
AMES: What they have now is about the worst financial collapse and disaster
not only of this decade, in any country this decade, but they're still in
the depths of deeper and the worst economic depression of any industrialized
country this century.
TAIBBI: And we're way past deadline, as usual.
NARRATOR: But as usual, the presses eventually roll. On the cover? Yeltsin
and the war. Inside, an interview with Lebed with a promise of more Siberia
stories to come.
Will Russia survive? Will capitalism be its savior? A few of the answers and
at least some of the truth will roll off the old Pravda presses every two
FRAZIER: In three months, the Russian people elect a new parliament, and
seven months after that, term limits will end Boris Yeltsin's time in
office. So some new president will face the challenge of guiding Russia into
the new millennium.
I'm Stephen Frazier. Thank you for joining us.