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Johnson's Russia List


August 26, 1999   
This Date's Issues: 3464    

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.]


Washington Post
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 
tattoos, explained.

"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 
on Saturday.

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 
ever since.

"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 <> 
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.


Moscow Times
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 
named Luzhkov-Primakov. 

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 
allegedly corrupts.

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 
Subject: Kennan Institute Noon Discussion, August 30, 1999

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" <> 
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
our website.

Natan M. Shklyar
Research Associate
EastWest Institute
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 
on Wednesday. 

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 
final deposits. 

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 
relevant information. 

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." 


Moscow Times
August 26, 1999 

more on the corruption issues and Yeltsin
By Melissa Akin
Staff Writer

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. 


Financial Times
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 
presidential elections.

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, 
he said. 


Stratfor Commentary
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. 



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