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Johnson's Russia List
26 August 1999
[Note from David Johnson:
1. Washington Post: David Ignatius, Who Robbed Russia? Did Al Gore know
about the massive lootings?
2. AFP: Russian Easy Riders rev up for biker fest.
3. Wayne Merry: How about the Medvedev Scenario?
4. Moscow Times: Andrei Piontkovsky, Yeltsin Could Yet Put Putin In the
5. International Herald Tribune: William Pfaff, Good Economics, Maybe, but
Villainous Policy for Real People.
6. Kennan Institute Noon Discussion, August 30, 1999, on regionalism in
7. EastWest Institute's Russian Regional Studies Network.
8. Reuters: Bank of NY Russia probe a complex jigsaw.
9. Reuters: U.S. Congress to probe Bank of NY money laundering.
10. Moscow Times: Melissa Akin on the corruption issues and Yeltsin.
11. Financial Times: John Thornhill, Kremlin 'stifling press freedom'
12. Interfax: Yavlinskiy, Stepashin Explain Duma Election Strategy.
13. Stratfor Commenetary: Russia and China Reinforce Their Strategic
14. The Wall Street Journal Europe letter: John Odling-Smee, The IMF
Is a Responsible Lender.]
25 August 1999
[for personal use only]
Who Robbed Russia? Did Al Gore know about the massive lootings?
By David Ignatius
You can see the question rumbling toward Al Gore like a freight train in the
night: What did the vice president know about the looting of Russia by
organized crime, and why didn't he do more to stop it?
That issue -- what the heck, let's call it "Russiagate" -- has come into
sharper focus this month, thanks to some powerful reporting that has
highlighted the lawlessness of modern Russia and the acquiescence of the
Clinton administration in the process of decline and decay there.
The most dramatic revelation came last week, when the New York Times reported
that investigators are exploring whether associates of a suspected Russian
mobster named Semyon Mogilevich laundered up to $10 billion through the Bank
of New York. Imagine that! A man identified by the FBI as long ago as 1993 as
a likely figure in Russian organized crime may have used a U.S. bank to hide
his ill-gotten loot.
"The U.S. government has had a difficult time focusing its activities on
Russian organized crime," says Jim Moody, a former head of the FBI's
organized crime efforts who's now a private security consultant and one of
the leading U.S. experts on the new Russian mob.
What makes the Bank of New York case especially intriguing is that one of the
bank employees who's suspected of involvement in the money-laundering scheme
is married to Konstantin Kagalovsky, the man who was Russia's representative
to the International Monetary Fund from 1992 to 1995. Investigators are
exploring whether Bank of New York served as one of the conduits for $200
million or more that may have been diverted from IMF loans to Russia,
according to the Wall Street Journal.
This alleged diversion of IMF funds could be a political hot potato for Gore.
That's because the vice president was a loud advocate of continued IMF
lending to Russia, even as evidence mounted that some of it was being misused
by the business oligarchs and their political cronies.
Also potentially troubling for Gore is evidence that the Russian central bank
speculated with some of the roughly $20 billion the IMF has lent to Russia
since 1992. The Post's David Hoffman has reported that the speculation was
allegedly managed through a firm operating in the Channel Island of Jersey.
The Russians would use these funds partly to speculate in their own
securities, buying up short-term government debt known as "GKOs" when the
ruble plummeted and selling them back into the market when the price rose.
Gore's biggest vulnerability may be his close relationship with Russia's
former prime minister, Viktor Chernomyrdin. The vice president formed what
amounted to a political alliance with the Russian premier, despite evidence
that Chernomyrdin was in league with the forces of corruption -- and an
oligarch himself through his holdings in Gazprom, the state natural-gas
monopoly he helped "privatize" under what can only be called dubious
"It was all laid out for Gore . . . and he didn't want to hear it," says one
knowledgeable former government official, describing 1995 reporting on
Chernomyrdin's activities. "Our government knew damn well what was
Pinning down the details of that assertion -- what did Gore know about the
involvement of top Russian politicians in corrupt activities and what did he
do about it? -- will be a crucial reporting challenge for the U.S. and
Russian press as we head into this campaign season. Gore may live to regret
his decision to take a leading role in Russia policy, through what was known
as the "Gore-Chernomyrdin Commission."
A senior Gore aide responds to the criticism this way: "Do we read the
intelligence that's sent us? Yes. Were we concerned about corruption in
Russia? Yes. Was it a subject of our conversations with them? Yes. Has the
link [with Chernomyrdin] proved valuable? Certainly yes."
Two essays this month by longtime Russia-watchers have helped frame the
question. The first was a long article in the New York Times Sunday magazine
two weeks ago, examining the question: "Who lost Russia?" It was written by
John Lloyd, former Moscow bureau chief for the Financial Times.
Lloyd makes a powerful case that by allowing the oligarchs -- in the name of
the free market -- to grab Russia's resources and siphon anything of value
into their own offshore bank accounts, the United States poisoned Russia's
transition from communism. In the minds of ordinary Russians, Lloyd argues,
capitalism became equated with theft.
Damning details of U.S. complicity in this process were added by The Post's
former Moscow bureau chief, Robert Kaiser. In an Aug. 15 Outlook piece,
Kaiser quoted two former diplomats at the U.S. Embassy in Moscow who watched
the mess unfold.
The Gore-Chernomyrdin Commission became "a Soviet-style bureaucracy in which
success was mandatory, and any information that would contradict success
simply was filed forever," E. Wayne Merry, the head of our political section
in Moscow from 1991 to '94, told Kaiser. His successor, Thomas E. Graham Jr.,
recalled in a separate interview with Kaiser how an embassy cable describing
the corrupting role of Russian bankers in the mid-'90s was killed because of
fears it might upset people back in Washington.
What makes the Russian case so sad is that the Clinton administration may
have squandered one of the most precious assets imaginable -- which is the
idealism and goodwill of the Russian people as they emerged from 70 years of
Communist rule. The Russia debacle may haunt us for generations. Gore played
a key role in that messy process, and he has a lot of explaining to do.
Russian Easy Riders rev up for biker fest
MOSCOW, Aug 25 (AFP) - Motorbikes, a cheap mode of transport in the old
Soviet Union, are gaining cult status in modern Russia, but these days the
enthusiasts are making the bikes themselves.
"It's a very democratic hobby, the main requirements are nimble fingers and a
good imagination," explains Andrei Sozonov, a member of the Moscow "Night
Wolves" club which is organising its fifth international biking festival.
The event, with accompanying rock concerts and competitions, runs from Friday
to Sunday in a field near Moscow and is expected to attract close to 50,000
people, according to the bike-fest organisers.
Slava, head of another bikers' group and a local government worker in
Voskressensk, near Moscow, foresees a two-wheeled revolution in Russia.
"Previously the bike was the poor man's car in Russia, used to carry 20 sacks
of potatoes or a hundred geese," a 40-year-old, with a side interest in
"Nowadays riding a bike is a way of relaxing, It's synonymous with speace and
Bikers are arriving for the event from as far afield as Finland, Belgium,
Sustria and New Zealand, according to "Shaman", an engineer for the the Night
"They may have more money, but they think like us," he said.
Shaman is one of the bikers who have built "SteppenWolf" super bikes which
sell for 20,000 dollars and are based on the classic Russian "Ural" model.
The holy grail is a Harley Davidson-style bike, "but solid, inexpensive and
good for off-road," which means suitable for the poor Russian roads, explains
"New bikes are born in winter, in underground garages where you're working in
minus ten degrees."
The indispensable prize of a tool box is on offer for the winner of a rally
Shaman dismisses the "fake bikers", the "odious" nouveau riche Russians who
arrive on Harley Davidsons with their mobile phones at the opening of the
festival and are never seen again.
Three youngsters from Lossinopetrovsk, near Moscow, arrived with one of their
grandfather's bikes and sporting all the biker trappings; leather jackets,
silk scarves on their heads and huge death head rings. Genuine Russian Easy
Riders? Not according to them.
"To become a real biker takes years," admits Alexei, 18, who has been
convinced that he still lacks the true spirit of a bike mechanic.
Muscovite Genia, 21, nicknamed Jennie and dressed head-to-toe in leather, is
sitting outside her tent eating straight out of a tin with a knife. She gave
up her job as a shop assistant a year ago and has been a carefree biker-girl
"I appreciate the freedom of choic and the movement," she explains.
"We live in another world, where there is no crisis," explains Irina, 27,
deputy head of a small business.
Two Ukrainians wannabe bikers, calling themselves Poup and Liokha, are here
to soak up the atmosphere.
They explain that they have bought an old Zaporojets, a Ukrainian car for the
handicapped, and sawn off the exhaust pipe to get it "to rumble like a real
The open-air meeting will include several prize eevents; the best-looking
homemade bike, the best stunt driving and the biggest tattoo. The women
attending can also, in true biker fashion, compete for the title of "Miss
Date: Wed, 25 Aug 1999
From: Wayne Merry <email@example.com>
Subject: How about the Medvedev Scenario?
Re: Roy Medvedev's article in the "Moscow Times" suggesting Yeltsin will
resign in favor of Putin for a Nixon/Ford scenario:
I personally knew Roy Medvedev well enough (mostly from the early Eighties)
never to dismiss his analyses out of hand. Medvedev has a first-class mind,
but at the moment he also has a political agenda. There is much logic in
what he says but, perhaps, it is a bit too neat for me. Roy was, in my
view, much better at understanding the workings of the Soviet leadership
than of the more open politics in Russia today. While one may respond that
Kremlin politics today seem similar to those of the Brezhnev epoch, I would
not agree. Palace politics are the norm everywhere (sadly, nowhere more so
than in Washington); but what makes Moscow today non-Soviet is that we have
so much information, speculation and opinion to sort out. In the old days,
the problem was a dearth of all these (and Medvedev's sources then were pure
In my view, Yeltsin is not first and foremost motivated by protecting the
"family" after he departs office (though many of the "family" members
doubtless are). I see no reason why Yeltsin could not make a perfectly
satisfactory deal on that account with Primakov and Luzhkov (neither of whom
could bear close examination of their own finances). The Fatherland-All
Russia crowd have zero motivation for hanging Boris or his tribe out to dry
after coming to power: the precedent alone would be self-defeating, while
the expectation increases the chances of extra-constitutional action. No,
this is not the problem.
The problem is power now, not protection in the future. BNY is (among his
other virtues and vices) like the father who insists on telling his kids and
in-laws exactly how to suck eggs and what shoes to wear. The guy is
accustomed to command and to be obeyed. He is now the classic fading
patriarch: kith and kin are fighting over the inheritance and who gets the
silver. This is so common, ordinary and sordid a human story that I find it
difficult to credit it with the patina of high politics. No, in this
passage of the Russian saga, the human factor is preeminent. Yeltsin
cannot, will not give up control. He fired poor Stepashin because the guy
could not do the manifestly impossible in stopping the Fatherland-All Russia
crew coming together (as they must do before the formal, legal opening of
the Duma election campaign season). So, Stepashin out, Putin in. Is Putin
more likely to accede to extra-constitutional action? Yes, I think so, but
that is almost a marginal question. The key factor is the generational
passing of the torch (ignoring that Primakov is actually older than
Not to sound like an "I told you so", but I argued strongly within the US
Government that we would all be better off if Yeltsin did not run for a
second term, precisely to avoid the kind of Russian version of "King Lear"
we now see. What do I expect to come out of this? More humiliation for
Yeltsin and for Russia, certainly, combined with a high probability of
violent and destructive measures. My idea of the best outcome: Primakov
and Luzhkov win big in both December and June. Washington would hate this,
because Washington is like the son-in-law who expects to take over when Bid
Daddy goes, only to find that the natural children have other notions. For
myself, a confident and moderately nationalist government in Russia is not
only acceptable, it is absolutely necessary.
August 26, 1999
SEASON OF DISCONTENT: Yeltsin Could Yet Put Putin In the Kremlin
By Andrei Piontkovsky
It has been a long time since so much disparaging abuse has rained down on
the head of President Boris Yeltsin as it did following his Aug. 9 decision
to exchange Prime Minister Sergei Stepashin for Vladimir Putin. And Yeltsin's
loudest critics are the members of his once-prominent presidential council
and the experts of his 1996 campaign headquarters f the same intellectual
servants who justified the shelling of the Supreme Soviet in 1993 and the war
in Chechnya, and who played a leading role in his 1996 re-election drive.
Now, in the search for new cozy positions and generous budget flows to their
think tanks, these newly minted fighters against the regime have moved into
the camp of the new boss f the two-headed pretender to the Russian throne
It has been said often, and justly, that Yeltsin has the strongest power
instinct of any 20th century Russian politician save Stalin. Today, thanks to
testimony from former Kremlin security chief Alexander Korzhakov and former
Interior Minister Anatoly Kulikov we know for certain that in 1996 Yeltsin
seriously discussed a scenario to cancel the presidential elections and bring
in a state of emergency. It is indisputable that similar plans, with
modifications (such as a unification with Belarus and the creation of a
Russian-Belarussian Union presidency), have been put forward by Yeltsin's
circle this time around too.
In 1996, the president in the end decided to hold elections. It seems to me
that he has also made his final decision on that matter this time around. In
a recent address to the nation, Yeltsin concluded with the statement: "Within
a year, the first democratically elected president of Russia will hand over
power to the second democratically elected president of Russia."
All of Yeltsin's political opponents repeated that phrase like an incantation
f they feared, and not without cause, that the president might take other
extraconstitutional steps. But on Aug. 9 (the third anniversary of his
inauguration), Yeltsin signed a decree on holding State Duma elections on
Dec. 19 f and, for the first time, named the man he wants to see win Russia's
third presidential election. He had come to the conclusion, finally, that the
only thing he could do to save his presidency and go into the history books
with a plus sign was to see through the most critical stage in the
establishment of a democracy f a civilized transfer of power. The more
personal and primitive task of protecting himself and his family is also best
carried out by following that path, instead of through some political
If this is so, then the appointment as prime minister of a person whom he
truly wants to see as his next president is a completely natural and
necessary move. First, that's the best platform for a run at the presidency.
Second, in this struggle Yeltsin has acquired an additional degree of
freedom. He can, in complete agreement with the Constitution, pick a voting
day that is most comfortable for Putin and least comfortable for his
opponents. For example, Dec. 19 would be a very difficult day for Moscow
Mayor Yury Luzhkov.
Watch Sunday, Sept. 19. On that day, the president could suddenly start to
feel a dramatic decline in his health, and decide to resign f which would
automatically make Putin acting president for three months. We, as usual,
will learn of this the following Monday morning.
International Herald Tribune
August 26, 1999
[for personal use only]
Good Economics, Maybe, but Villainous Policy for Real People
By William Pfaff
PARIS - Those who doubt the power of ideas will learn something from a report
on the former Soviet Union and Eastern Europe issued by the UN Development
Program, the world's largest agency for multilateral development cooperation.
The report, possibly the harshest ever issued by a UN authority, says that
the Western-led effort to transform the former Soviet bloc's economies by
wholesale privatization has plunged more than 100 million people into dire
poverty and stripped millions more of any form of economic security.
This was done on the advice of the Western community of professional
economists in universities, international agencies and governments.
True, there were arguments among the professionals for or against ''big
bang'' privatization - doing it all at once and leaving the survivors to sink
or swim. But few, if any, among the economists argued that the Soviet-style
state and its industry should be carefully dismantled in stages, with
empirical attention to the consequences, above all the consequences for the
The Western economics profession was at the time, and largely remains,
committed to its own version of the romantic fallacy, which is at least five
centuries old and concerns the ''natural'' perfection of man, whom society
They believed that humans are natural capitalists. By destroying socialist
obstacles to capitalism in Eastern Europe and the former Soviet Union as
rapidly as possible, they believed that people would spontaneously respond by
creating capitalist prosperity.
Alan Greenspan himself has admitted that he (or ''we,'' as he says) assumed
that communism's collapse ''would automatically establish a free market
entrepreneurial system.'' He assumed that capitalism was ''human nature.'' It
turned out, he says, to be ''not nature at all, but culture.'' Culture is not
the economists' department.
What was created was a disaster, the equivalent for that region, as The Times
of London has said, of the Great Depression. Anton Kruiderink, the UNDP's
regional director for Europe and the former Soviet Union, quotes World Bank
figures in his foreword to the report. In 1989, 14 million people in the
former Soviet bloc lived on less than the equivalent of $4 per day. During
the first five years after communism's collapse, that population figure rose
to around 147 million.
There are exceptions to the traumatic destabilization of society that
followed in Russia. Poland and Slovenia are in good shape today, but they
were advanced societies before World War II. So were the Czech Republic,
Hungary and the Baltic states, which the UNDP says have made noticeable
As for the rest of the region, life expectancy has fallen by four years or
more. Tuberculosis and diseases linked to malnutrition are back on a large
scale, as is suicide. Social structures - including educational systems,
which in Soviet times were among the few real assets of the region - have
been devastated. Education is essential to any hope people have of climbing
out of this pit.
The transfer of state assets to robber capitalists, generating a black
economy, has devastated tax collection and the ability of governments to
reconstruct what has been destroyed.
The findings of the UNDP report can surprise no one who has read the
newspapers during the last decade or followed the Western debate over policy
for Russia and the former Soviet bloc states. Yet the sheer scale of the
disaster must shake even those who criticized the policy from the start.
The West has been implicated in another way than simply by giving bad advice.
There were more reports last week of suspected Russian criminal
money-laundering through Western financial institutions, this time through
what had been considered the eminently respectable Bank of New York.
The sums cited in the investigation are $10 billion since early last year,
$4.2 billion alone through a single account from last October to March 1999.
Ten billion is half the total that the International Monetary Fund has loaned
Russia over the entire period since 1992.
The power of ideas is great, above all when they are bad ideas. Yet there is
very little that can be done about intellectual fashion, or to loosen the
grip of politically favored ideologies.
The one principle that can and should be defended in making public policy is
to do as little harm as possible. One cannot govern with entirely clean
hands. (That, as France's Charles Péguy observed many years ago, would mean
with no hands.) But governments should not recklessly press on beleaguered
foreign societies ''reform'' programs that clearly will do much harm in the
short term, when the justification for those programs is the contested and
unproved theory that miracles will take place in the long term.
It is essential to look before leaping, and to question the application of
any theory, however seductive. The conventional wisdom of any given period is
nearly always wrong.
Date: Wed, 25 Aug 1999
From: "NANCY POPSON" <POPSONNA@WWIC.SI.EDU>
Subject: Kennan Institute Noon Discussion, August 30, 1999
THE KENNAN INSTITUTE
FOR ADVANCED RUSSIAN STUDIES
is pleased to invite you to a noon discussion on
Members of the Kennan Institute's Regional Russia Working Group will
present their findings on regionalism in Russia, the effect of assymetrical
development on the transition process, and the applicability of Western
theory to the Russian case. Several members of the Working Group will be
in attendance and will be able to answer questions about their research.
Monday, 30 August 1999
12:00 - 1:00 P.M.
Conference Room, 5th Floor
The Kennan Institute
Woodrow Wilson International Center for Scholars
The Ronald Reagan Building
1300 Pennsylvania Ave., NW
Members of the Regional Russia Working Group: James Alexander, Marjorie
Mandelstam Balzer, Michael Bradshaw, Cynthia Buckley, Andrei Degtyarev,
Vladimir Gelman, Jodi Koehn, Andrei Makarychev, Beth Mitchneck, Nicolai
Petro, Nancy Popson, Lawrence Robertson, Blair Ruble, Regina Smyth, Steven
Solnick, Kathryn Stoner-Weiss, Natalia Vlasova
Seating is on a first come, first served basis. Please bring picture
identification to get through the Wilson Center's security procedures.
Date: Wed, 25 Aug 1999
From: "Natan M. Shklyar" <firstname.lastname@example.org>
Subject: Russian Regional Studies Network
Russian Regional Studies Network
We are proud to announce that the Russian Regional Studies Network
(RRSN) is up and running on our website. More than 50 researchers and
practitioners have already provided descriptions of their projects. You
can see this information online at:
The Russian Regional Studies Network (RRSN) is a virtual community of
specialists dedicated to the study of Russia's 89 constituent parts.
The RRSN acts as a clearinghouse of information and provides a
networking mechanism for its participants. It is a unique opportunity
to advertise your projects to other specialists, as well as learn what
others in the field are studying and doing.
We imagine our network as a place where both scholars and practitioners
can come together to share information and resources. This is why you
will find not only academic studies, but also projects of government
agencies and non-governmental organizations posted on our site.
You can join the RRSN by completing the "project information" form on
Natan M. Shklyar
700 Broadway, 2nd Floor
New York, NY 10003
Tel: +1 212 824-4115
Fax: +1 212 824-4149
Bank of NY Russia probe a complex jigsaw
By Clelia Oziel
LONDON, Aug 25 (Reuters) - A probe into a possible $10 billion Russian money
laundering operation through the Bank of New York will test the competence of
regulators, police and international treaties in solving a complex global
Tracing mobsters who can send funds around dozens of banks electronically
across the world will be a tortuous and expensive task for U.S. and British
authorities and they may not even get their hands on the money, experts said
The hardest part is proving who owns the funds and that they were derived
from crime -- for this the authorities need to overcome the barriers of local
jurisdictions and get a full audit trail from the first crime through to
The probe, which was disclosed last week, is examining how the bank's
internal checks failed to catch billions of tainted dollars alleged to have
been funnelled through its branches by a Russian crime mob.
``I suspect there will be significant problems because of the Russian
connection. The regulation and the strength of their financial system will
not be up to world standard,'' said Sue Thornhill, fraud consultant for the
British Bankers Association.
Another big challenge is extracting information from the offshore Channel
Islands where some of the money, including possibly some from the
International Monetary Fund, were allegedly diverted.
``The money has been lost, they won't recover it once it has gone offshore.
The regulations are very loose and there is a high degree of secrecy,'' said
Shelagh Heffernan, professor of banking and finance at London's City
Thanks to pressure from the United States and Britain, offshore centres have
come a long way in tidying up their banking systems.
In fact, a recent British review praised the Islands as being in the ``top
echelon of offshore finance centres.''
But doubts remain about whether the authorities are really managing to make
the rules work.
``It is still a lot easier to get away with money laundering there than it is
here because you're working with a long history of unregulated banking,''
said one expert solicitor in London.
International mutual assistance treaties drawn up in recent years ensure that
law enforcement agencies in the Unites States, Britain, Russia and the
Channel Islands work together to chase any ill-gotten funds and pass on any
In Britain, the National Crime Squad is investigating the Bank of New York's
London branch, which is at the centre of the alleged fraud, and searched the
home of Lucy Edwards, one of the two Russian-born officers the bank placed on
leave. Neither has been accused of any crime.
The Squad said two of its investigators had flown to New York in connection
with the case, but did not say whether they were helping the FBI.
Special police authorities in the Channel island of Guernsey are also
believed to be on the case, but neither they nor the regulators in Guernsey
or Jersey have commented on the matter.
If a crime is found to have been perpetrated in Britain, even if its victims
may be abroad, it will be referred to the Serious Fraud Office, which in turn
may seek court action.
For the regulators' part, the U.S. Federal Reserve, which has declined
comment, would be taking a leading role in coordinating international
efforts, regulatory experts said.
The greatest threat for the Bank of New York is a removal of its licence in
New York or in London. This would depend on whether it were found to be
culpable or simply a victim of something which was impossible to guard
The Fed has enormous powers when it comes to money laundering in that it uses
its laws extra-territorially.
The Fed's most powerful weapon is the U.S. dollar clearing system, which it
uses as a lever on banks under its jurisdiction to obtain information from
other dollar-based jurisdictions, such as the Cayman Islands.
But even in the United States, which has the best record in recovering
laundered funds, the sums realised after confiscation orders are made have
been relatively small, experts said.
Both the Fed and Britain's Financial Services Authority (FSA) will look at
whether the bank's internal control systems were in place and whether they
complied with anti-money laundering rules. Initially, they will take a back
seat to criminal investigation agencies.
The FSA, which has also declined comment, has no jurisdiction in the Channel
Islands and has adopted a different approach to the Fed on money laundering.
U.S. laws require banks to monitor and report deposits of more than $10,000
and any loopholes here will lead the Fed to either impose a very heavy fine
or place it on special monitoring watch.
Britain believes criminals can work their way round a compulsory transaction
limit and has adopted a ``suspicious transaction reporting requirement,''
putting the onus on the financial institution to spot fraudsters. The Channel
Islands have the same regime.
U.S. Congress to probe Bank of NY money laundering
WASHINGTON, Aug 25 (Reuters) - The U.S. House of Representatives Banking
Committee said on Wednesday it will hold hearings next month on allegations
that Russian mobsters laundered some $10 billion through Bank of New York.
The hearings will focus on the impact of foreign corruption and money
laundering on the U.S. financial system.
"At issue is whether foreign theft has been facilitated by self-serving
banking practices in the western world, including the United States," Banking
Committee Chairman Jim Leach, an Iowa Republican, said in a statement.
No dates or witness lists for the hearings have been fixed yet, but a
congressional source said they would likely focus on whether any
International Monetary Fund loans were illegally diverted from Russia and on
Bank of New York's role.
"Russian banks appear to be more platforms for insiders seeking to spirit
money out of the country than intermediaries for domestic economic growth,"
Leach said. "With regard to Bank of New York, the question is whether they
were unwittingly duped or were willing facilitators in what may be the
greatest example of kleptocratic governance in modern history."
Bank of New York has suspended two employees and is cooperating with law
enforcement officials, but there have so far been no allegations of
wrong-doing by the bank itself.
The IMF has launched its own investigation into whether any funds it lent to
Russia may have been misappropriated. But the director of the fund's
department dealing with Russia, John Odling-Smee, defended its record in a
letter to the Wall Street Journal Europe published on Tuesday.
"The fact is that IMF loans have been used for legitimate government
purposes, such as helping to finance the budget deficit," he said. "They have
been made in support of economic programs that addressed the basic problems
of the economy."
August 26, 1999
more on the corruption issues and Yeltsin
By Melissa Akin
The head of the Mabetex company -- a Swiss-based contractor that has won
lucrative Kremlin refurbishment contracts f has admitted to supplying more
than $1 million in "pocket money" to President Boris Yeltsin and his two
daughters, an Italian newspaper reported Wednesday.
The money was supplied by Mabetex head Bahgjet Pacolli to Yeltsin to cover
personal expenses of the president and his family rung up during a 1994 trip
to Budapest, Hungary, according to the Italian newspaper Corriere della Sera.
The newspaper reported that Pacolli had provided the information f along with
documentation that included pay slips from credit cards the Mabetex chief
reportedly arranged for the Yeltsin entourage f to former Swiss Federal
Prosecutor Carla del Ponte.
The newspaper said Pacolli paid off credit cards for Yeltsin, his daughters
Tatyana Dyachenko and Yelena Okulova, and the former Kremlin security chief
and erstwhile Yeltsin confidante Alexander Korzhakov.
"The president does not seem to have abused Pacolli's cards," the daily
wrote. "But his daughters? Their accounts are the least stingy. Tanyushka
[Dyachenko], the tsarina, the little princess of the Kremlin above all. She
spent millions of lire [thousands of dollars] in a single day."
Corriere della Sera cited unidentified sources it described as being close to
del Ponte's investigations into Russian corruption.
A spokeswoman for Mabetex, reached by telephone at the company's offices in
Lugano, Switzerland, said Pacolli had seen the Italian newspaper report and
viewed it "extremely negatively," calling it an "excellent fiction." The
spokeswoman said Pacolli was on vacation and could not be contacted.
The Kremlin press office said the report was untrue. The Swiss prosecutor's
office had no comment. Korzhakov, now a State Duma deputy, could not be
reached to comment.
The Mabetex fit-out company, which has won lucrative contracts to redo
government buildings in Russia f including the presidential residence in the
Kremlin and its ceremonial facilities f sits at the hub of graft allegations
aimed at presidential functionaries.
Last month, Geneva city prosecutor Bernard Bertossa froze Swiss bank accounts
he said belonged to Pavel Borodin, the head of the Kremlin's household
affairs directorate. Bertossa's staff have said Borodin's accounts are under
suspicion of money laundering.
Borodin's Swiss bank accounts also figure in the latest allegations: Pacolli
told Swiss prosecutors he used them to channel "pocket money" to the
Yeltsins, Corriere della Sera reported.
In the Italian newspaper's account, the case broke when a Swiss informant at
some point told Prosecutor General Yury Skuratov of the existence of Swiss
bank accounts in the names of high Russian officials.
Skuratov asked Swiss prosecutors to check into account numbers at two Swiss
banks f Banca del Gottardo and UBS. As a result of that investigation, those
accounts were frozen, Corriere reported.
The UBS branch in Geneva, where, according to Bertossa, Borodin's accounts
were frozen, could not be reached for comment.
Roberto Gianola, the official who heads the department that deals with
Russian clients at Banca del Gottardo in Lugano, said Wednesday, "We do not
release any comments."
The Corriere della Sera report says the Yeltsin family credit cards were
issued against the account of a small Lugano clothing store owned by Silvia
Fenini f whose husband Franco Fenini, the paper says, once headed Banca del
Gottardo's Russian operations before Gianola.
Reports of the involvement of a banking official's spouse in a dubious
financial scheme were reminiscent of the scandal surrounding allegations that
billions of dollars in Russian money may have been laundered through the Bank
of New York: Natasha Gurfinkel Kagalovsky,a senior vice president who
supervised the bank's Russia business, is married to Konstantin Kagalovsky,
Russia's representative to the International Monetary Fund from 1992 to 1995
and now vice president of oil giant Yukos.
Swiss media also reported last week that prosecutors froze the accounts of
Dyachenko ally Boris Berezovsky f along with accounts belonging to two
Swiss-based companies linked to Berezovsky that are suspected of having been
used to siphon off the foreign revenues of state-owned Aeroflot airlines.
Valery Okulov, Yeltsin's son-in-law, is general director of Aeroflot.
The Lausanne premises of those two firms, Andava SA and Forus Service SA,
were searched this spring by Swiss prosecutors, who seized documents.
"Those seized documents are here [in our offices]," del Ponte said in an
interview with the Swiss daily Neues Zßrcher Zeitung last week. "I have
almost a roomful of them, and they are now being sorted through."
The Corriere report that Mabetex paid Yeltsin's personal bills marks the
first time the president himself has been linked to suspected graft in the
Mabetex case. Kremlin officials have viciously fought Skuratov's
investigations, to the point of televising a videotape of him cavorting with
prostitutes and using it as a pretense to oust him.
A warrant for Berezovsky's arrest was quietly canceled when the political
patron of Skuratov's investigations, Prime Minister Yevgeny Primakov, was
fired in May.
Primakov was subsequently replaced by Sergei Stepashin, a former interior
minister who once accused del Ponte of meddling in Russian internal affairs
by assisting Skuratov, and also once announced he simply intended to ignore
an arrest order for Berezovsky.
But even so, the investigations seem to crawl forward. Del Ponte has said she
continued to receive requests for investigative assistance from the Russian
prosecutor even under the leadership of Skuratov's deputy, Yury Chaika, Neues
Zßrcher Zeitung reported.
Both Chaika and del Ponte, however, have received promotions in recent days,
feeding suspicion that they are being kicked upstairs in hopes their
investigations will cease.
Chaika was quietly fired, then named justice minister last week, while del
Ponte was named the chief prosecutor on war crimes in Yugoslavia and Rwanda
at the United Nations International Criminal Tribunal.
Staff writers Oliver Ready and Robin Munro contributed to this report.
26 August 1999
[for personal use only]
RUSSIA: Kremlin 'stifling press freedom'
By John Thornhill in Moscow
Raf Shakirov, the former editor of Kommersant, Russia's most respected
business newspaper, warned yesterday that political forces around the Kremlin
were trying to stifle freedom of the press in the run-up to next year's
Mr Shakirov said Boris Berezovsky, the influential businessman who recently
won control of Kommersant, was leading a campaign to tighten the Kremlin's
grip over Russia's biggest companies and to monopolise the media.
"This accumulation of money flows, this accumulation of brain-washing
structures, this creation of a powerful staff. . . creates a favourable base
to launch an assault for the presidential elections," Mr Shakirov said in an
interview with the Financial Times.
Mr Shakirov, dismissed as Kommersant editor earlier this month, said Mr
Berezovsky already controlled the ORT and TV-6 television channels, as well
as the Nezavisimaya and Novye Izvestiye newspapers and the Ogonyok news
magazine. The addition of Kommersant gave him another weapon with which to
set the political and business agenda.
"A powerful, well-balanced information empire is being put together," Mr
Shakirov said. "The seizure of the mass media creates the opportunity to
shape the intellectual climate to support any decision which is taken," he
said, urging the country's anti-monopoly committee to intervene to prevent
the excessive concentration of media ownership.
Russia's remaining anti-Kremlin media have highlighted a meeting in the south
of France at the beginning of August between some of President Boris
Yeltsin's top advisers to plot political strategy. These advisers included Mr
Berezovsky, Tatyana Dyachenko, Mr Yeltsin's daughter, Valentin Yumashev, the
former head of the presidential administration, and Roman Abramovich, the
head of the Sibneft oil group.
According to Mr Shakirov, these advisers devised a plan to strengthen the
Kremlin's influence in the run-up to the presidential elections in 2000. Mr
Shakirov compared the meeting with that of the "seven oligarchs" in the Swiss
ski resort of Davos in early 1996, when a group of Russia's leading
financiers plotted Mr Yeltsin's re-election campaign.
Mr Shakirov said Mr Berezovsky was trying to undermine Media-Most, a rival
television and newspaper group controlled by Vladimir Gusinsky, although this
struggle was arousing little interest among the population.
He predicted that pro-Kremlin forces would intensify the pressure on Rem
Vyakhirev, the chief executive of Gazprom, the large gas monopoly, which is
holding an extraordinary general meeting today.
"Of course they will attack it with all their force. Of course they will try
to replace Vyakhirev. Of course Gazprom is by far the most abundant source of
money. And, as concerns the media, Gazprom is an enormous regional empire
with a pile of local newspapers and an interest in Media-Most," Mr Shakirov
said. But he said it was an open question whether the Kremlin would succeed
in bending the country to its will. "It will be an interesting, unprecedented
experiment," he said.
Yavlinskiy, Stepashin Explain Duma Election Strategy
ST. PETERSBURG. Aug 24 (Interfax) - Yabloko party
leader Grigory Yavlinsky and former Russian Prime Minister Sergei
Stepashin made a joint statement in St. Petersburg on Tuesday [24 August]
explaining the reasons why they are joining forces for the forthcoming
parliamentary elections. They both want to create a government supported
by the people, for government without this is doomed, Stepashin told
Their unity will be guided by five principles. (1) Yabloko
and Stepashin will work for the setting up of a political group which,
"depending on what the electorate decides, will become an honest and
effective democratic state power or honest and effective law-abiding
opposition." They will continue talks with interested parties without
making separate deals with political groups or figures or state
officials. (2) Yabloko will field Stepashin as its candidate on the party
ticket and in single mandate constituency No. 209 in St. Petersburg which
used to be represented in the State Duma by Galina Starovoitova, who was
killed last fall. (3) Yabloko and Stepashin will act in a coordinated way
during the elections adding to each other's political weight. Stepashin
will under no circumstances pull out of the party list until the
elections results are declared. (4) If he is elected, Stepashin will be a
member of the Yabloko party group in the State Duma. (5) Both Yabloko and
Stepashin believe that "the toughest possible steps must be taken to
fight the gangs attacking security and human lives" in the North Caucasus
but that "there should be no replay of unwarranted activities and tragic
mistakes made in Chechnya that resulted in civilian deaths." Stepashin
will prepare together with Yabloko for the 2000 presidential elections.
Next January or, possibly, December, he may not only join Yabloko but
also join preparations for the 2000 parliamentary elections, he said.
"This is our principled position," Stepashin said. Stepashin will run in
constituency No. 209 against Duma Chairman Gennady Seleznyov and so "the
Communist Party is our opponent," Yavloinsky said. "The killing of Galina
Starovoitova makes Yabloko as a democratic party do so," he said.
Significant progres has been made in the investigation of her murder,
Stepashin said. He met earlier in the day with senior officials of the
St. Petersburg Federal Security Service and Interior Ministry branches
who told him that, he said. "I can say again that there are grounds to
believe that the killers will be found," Stepashin said. It is his "moral
duty" to Starovoitova to win in the constituency where she was elected,
August 25, 199
Russia and China Reinforce Their Strategic Partnership
Three high-profile meetings between Russian and Chinese officials this week
suggest Moscow and Beijing are fortifying their emerging strategic
partnership. They are seeking to challenge U.S. and Japanese efforts to build
a Theater Missile Defense, while cementing their own arms sales and military
On August 25, Russian President Boris Yeltsin will meet with his Chinese
counterpart, Jiang Zemin, at the Shanghai Five summit in Kyrgyzstan.
According to reports, the two leaders plan to address joint U.S. and Japanese
efforts to create a Theatre Missile Defense (TMD) in Asia.
This week in Beijing, Grigory Berdennikov, director of the Russian Foreign
Ministry Department on Security and Disarmament, said Russia and China are
"very concerned" about TMD, viewed as a first step towards a U.S. national
missile defense. He said Moscow and Beijing consider increased U.S.-Japanese
military cooperation as the establishment of a "NATO [-style bloc] in Asia".
Berdennikov went on to say Russia and China had "practically a unity of
views" on disarmament and security matters.
At the top of the Yeltsin-Jiang summit is military-technical cooperation. A
large Russian delegation led by Vice-Premier Ilya Klebanov, who runs the
military technical sector, is currently visiting Beijing. The delegation
includes Alexei Ogaryov, the head of Russia’s largest arms exporter,
Rosvooruzhenie, and Yuri Koptev, director general of the Russian Space
Agency. Klebanov confirmed Russia will sell Su-30 fighters to China. Russia
and China have reportedly been negotiating a contract for between 40 and 60
The surge in diplomatic activity and advancing military-technical cooperation
clearly indicates that Russia and China are fortifying their strategic
alliance, initiated by Yeltsin and Jiang in 1996. We believe the partnership
has been given fresh impetus by the installment of Prime Minister Vladimir
Putin. Putin appears to represent forces which would redefine Moscow’s
foreign policy, making it more assertive towards the West. While they are
unlikely to quickly cement a military alliance at this time, China and Russia
are formalizing their ties.
The Wall Street Journal Europe
August 24, 1999
The IMF Is a Responsible Lender
A Letter to the Editor
By John Odling-Smee
Director of the International Monetary Fund's
European II Department
In his eagerness to convict the International Monetary Fund of supporting
both corrupt politicians and destructive economic policies in Russia, Matt
Bivens plays fast and loose with the facts ("The IMF Bails Out Russia's
Corrupt Politicians," Editorial page, August 17).
To take just two examples: Mr. Bivens is wrong to claim that the IMF is
interested merely in high taxes. In fact the thrust of Fund advice to
Russia is to strengthen the government's finances by better tax collection.
Better tax collection can, in turn, create the breathing space for tax rate
reductions. He is also wrong to say that the report by
PricewaterhouseCoopers supports the claim that there was a large-scale
misappropriation of funds. (You can read this report, together with a
second, on the use of funds transferred to the central bank of Russia by
the IMF in July 1998, on the IMF's website at
However, it is in his main charge, that IMF lending is irresponsible, that
Mr. Bivens is widest of the mark. The fact is that IMF loans have been used
for legitimate government purposes, such as helping to finance the budget
deficit. They have been made in support of economic programs that addressed
the basic problems of the economy and have commanded the support of the
Fund's 182 country members. I would advise your readers to judge for
themselves by studying the latest program on the IMF's website, rather than
to accept Mr. Bivens' unreliable oversimplifications.