August 27, 1999   
This Date's Issues: 3465 •3466 • 

Johnson's Russia List
#3466
27 August 1999
davidjohnson@erols.com

[Note from David Johnson:
1. AFP: Key figure in Russian corruption inquiry accuses Yeltsin.
2. USA Today: Jack Kelly, Russian bank fraud probe expanding.
3. AFP: Moscow press cautious to report "Russiagate" laundering probe.
4. New York Times: Timothy O'Brien and Raymond Bonner, Bank Called Long 
Unaware of Big, Suspicious Transfers.
5. Washington Post: Ceci Connolly, Gore Faces Ticklish Issue On Russian 
Corruption.
6. Baltimore Sun: Greg Schneider, Nuclear option: Aid for Russia?
Congressional office weighs U.S. help with 6 warning satellites; Degraded 
system dire risk.
7. Los Angeles Times: Robert Bruce Ware, Caucasus Fighting Masks Region's 
Real Problem.
8. World Socialist Web Site: James Brookfield, Bank of New York probe 
exposes ties between Western financiers and Russian Mafia.
9. Peter D. Ekman: RE: 3465, Helmer/Saints.
10. Christian Nadeau: Electoral Laws.
11. Itar-Tass: Authorities Seek to Stabilise Situation in Run-UP to Polls.
12. Reuters: Mike Collett-White, China,Russia, C.Asia see separatist 
threat.]

*******

#1
Key figure in Russian corruption inquiry accuses Yeltsin

ROME, Aug 27 (AFP) - A man named as a key figure in a probe into a Kremlin 
financial scandal has accused Russian President Boris Yeltsin of accepting 
bribes, the Italian daily Corriere della Sera reported Friday.

Russian-born businessman Felipe Turover told the newspaper he was a witness 
in four investigations in Russia and in Switzerland because of his 
longstanding high-level contacts in Russia.

He said Yeltsin was "behind" Pavel Borodin, the Kremlin property manager -- a 
powerful job that allows him to decide who wins contracts to service 
everything from Kremlin real estate to cars. Borodin is suspected of having 
taken bribes from Kosovar businessman Bexhet Pacolli in return for important 
construction contracts in Moscow.

"Behind Pacolli, there is Borodin and behind Borodin there is only one 
person, the most important of persons," said Turover.

Asked by the newspaper who he meant, he added: "President Yeltsin, who still 
backs him (Borodin) because Borodin knows too much."

Turover continued: "When he (Borodin) is no longer useful or is too much of a 
threat, he will fly through a window like his predecessor, the Treasurer of 
the CPSU (Communist Party of the Soviet Union) Krushina, who in 1991 took a 
dive from the window of the same office that Borodin occupies today."

Turover, who holds joint Israeli-Spanish nationality, added: "For 30 years 
you have the flower of the construction industry present in Russia. You have 
French, Turkish, Finnish and Italian companies."

Suddenly, they had disappeared in favour of a little Swiss company with 
100,000 francs (62,000 euros) in capital: Pacolli's company, said Turover.

"I think there is enough material there to awake the interest of the 
magistrates."

The Kremlin was using Pacolli's company to grab the state's wealth, he added.

The Kremlin on Thursday denied that Yeltsin and his family had foreign bank 
accounts, as Corriere reported in an earlier article.

Borodin on Thursday denied allegations of taking bribes from Pacolli, saying 
the accusations were part of a media-led smear campaign against the president 
and his advisors.

Pacolli has also denied the accusations in an interview with Corriere.

On Thursday, the paper carried an interview with Russia's former chief 
prosecutor Yury Skuratov, who accused Yeltsin's office of blocking his 
investigation into corruption at the highest levels.

Swiss magistrates have seized documents linking Yeltsin and his family to a 
kickbacks scheme of at least one million dollars.

Italy's Corriere della Sera reported Wednesday that the payments were made by 
the Swiss-based company Mabetex in exchange for lucrative contracts to 
restore the Grand Kremlin palace and the government building.

The kickbacks scheme revelations have coincided with growing questions about 
Russian money-laundering, after the New York Times last week reported that 
billions of dollars from the Russian mob had moved through the Bank of New 
York in what could be the biggest money laundering scheme ever detected in US 
history. 

*********

#2
USA Today
27 August 1999
[for personal use only]
Russian bank fraud probe expanding
By Jack Kelley, USA TODAY

WASHINGTON - U.S. investigators, alarmed by the extent of possible money 
laundering by Russian crime groups in U.S. and European banks, said Thursday 
that they are expanding their probe to include a wide array of U.S. aid 
programs to Russia.

"The more we dig, the more we find," said one senior U.S. official, part of 
the team investigating the illegal diversion of billions from a variety of 
Russian aid and loan programs.

He said the full extent of the money laundering could exceed $15 billion and 
be spread over more than the current five accounts under investigation.

He and other investigators also disclosed that tens of millions of additional 
dollars are missing from a special bank account that was set up by the 
government of President Boris Yeltsin to deposit earnings from the sale of 
U.S. grain to Russia.

Under that agreement, begun by the Bush administration, the United States 
both donates grain and provides long-term loans for the Russian government to 
purchase grain, corn and other products. 

The products would then be sold in Russia at market prices to local 
residents. The earnings were to have been deposited into a special account.

But investigators now believe that the earnings have been illegally diverted 
to an offshore bank, possibly by current or former members of Yeltsin's 
government. 

In addition, U.S. and British investigators told USA TODAY that they suspect 
there are at least 12 current or former Russian officials who have diverted 
at least $15 billion, including several billion in International Monetary 
Fund loans, through two New York banks.

Russian Finance Minister Mikhail Kasyanov has denied that the Russian 
government had any role in diverting loan money. 

But Russia's acting prosecutor general, Vladimir Ustinov, said Thursday that 
he planned to join the probe into the accusations.

Also Thursday, U.S. and British officials said they were intensifying their 
search for Semion Mogilevich, a leader of Russia's largest crime group, who 
they believe was among those responsible for diverting the money.

Moglievich disappeared last week from his office inside a Budapest, Hungary 
nightclub called the "Black and White Club." Two other suspects in the case 
have also disappeared. 

******

#3
Moscow press cautious to report "Russiagate" laundering probe

MOSCOW, Aug 27 (AFP) - Moscow's mainstream press, much of it controlled by 
the very oligarchs implicated in a 10 billion money laundering probe, took a 
sceptical view Friday of a brewing scandal over why so much Russian money was 
parked in the Bank of New York.

And some, like the leading Kommersant business daily that was recently 
purchased by controversial tycoon Boris Berezovsky, in conspicuous and 
uncharacteristic fashion simply ignored the biggest banking scandal to hit 
modern Russia.

However Russia's floundering Communist press gorged itself on the 
"Russiagate" story broken last week by the New York Times and the Wall Street 
Journal.

"The pogrom (massacre) of the red mafia has begun," announced Slovo, formerly 
known by its Soviet-era name Pravda.

"The US and British secret services do not exclude that the money was used to 
hire assassins and trade in drugs," added the paper in a full-page spread 
that never cited any sources.

Russia's more reserved press, like the liberal Sevodnya daily controlled by 
Vladimir Gusinsky's MOST-Media bank, linked the Bank of New York probe to US 
election politics.

"Is (US Vice President) Albert Gore the patron of the Russian mafia?" 
Sevodnya asked in a headline.

The paper argued that the money laundering allegations were being leaked to 
the New York and Washington press by Republicans keen to damage Gore's 
reputation by portraying him as a champion of corrupt Russian officials.

Moscow's third main daily, Vremya, which has reported financial links to the 
Central Bank, in a lengthy front-page article refused to mention revelations 
that investigators had zeroed on President Boris Yeltsin's two daughters.

USA Today reported Thursday that Yeltsin's daughter and close confidante, 
Tatyana Dyachenko, as well as other advisers to the president may have 
handled 20 million dollars in New York bank accounts.

Dyachenko and at least four government officials had access to some 20 
billion dollars the International Monetary Fund loaned Russia since 1992, USA 
Today said, half of which may have been diverted, the newspaper said, citing 
Russian and British investigators.

Those charges were denied by an official Kremlin spokesman. The Vremya daily 
mentioned no Russian names in its report.

Only the Moskovsky Komsomolets tabloid, which caters to a younger readership 
and is allied with Moscow mayor Yury Luzhkov, attempted a cynical approach to 
Russia's latest scandal.

"Russia is the black hole of world finances. Will anyone be able to close 
it?" Moskovsky Komsomolets sarcastically asked in a headline.

"How can we properly punish people who have turned a great country into a 
black hole which, like space, swallows and destroys everything?" 

******

#4
New York Times
August 27, 1999
[for personal use only]
Bank Called Long Unaware of Big, Suspicious Transfers 
By TIMOTHY L. O'BRIEN and RAYMOND BONNER

Large sums of money were moved through accounts at the Bank of New York for
at 
least six months before the bank was aware of it, according to individuals 
who have direct knowledge of an investigation into Russian money laundering. 

They said Thursday that nine New York accounts that are part of the inquiry 
became active before March 1998, much earlier than was previously believed. 

More than $4.2 billion that investigators suspect was tied to organized crime 
and corporate embezzlement in Russia passed through these accounts between 
early 1998 and March 1999. The bank did not begin cooperating with a Federal 
investigation of money laundering at the bank until September 1998. 

The fact that money was filtered through the bank for at least six months 
before any action was taken raises questions about how well accounts and 
employees were supervised at the bank before the investigation was begun and 
will undoubtedly concern regulators. 

It also is not clear why the Government allowed the accounts to remain open 
so long after the investigation began. 

The accounts are linked to Benex, a company incorporated in London, whose 
exact activities are unknown. 

In March of this year, the British authorities who had initially notified the 
Federal Bureau of Investigation about a suspected money laundering operation 
in June 1998 expressed concern that the inquiry was moving too slowly. 
Federal and state bank regulators have declined to comment on the matter. 

Investigators believe that as much as $10 billion may have been moved by 
Russian organized crime and members of the country's political and business 
elite through the Bank of New York in order to hide its origins. 

Some news reports have suggested that some of that money may have been 
diverted from loans extended by the International Monetary Fund to Russia in 
1998 as part of a failed effort to stop a series of bank collapses and the 
crash of the ruble. 

But a senior Clinton Administration official said that Attorney General Janet 
Reno was given a detailed briefing yesterday on the investigation and that 
the Justice Department did not believe, at this point, that I.M.F. funds were 
involved in the suspected money laundering. 

The official said the amount of money involved was so great that it almost 
certainly did not come only from the direct profits of criminal activities. 
Other areas, besides the I.M.F., that investigators are studying as potential 
sources for the money include looted state assets and corporate corruption. 

People close to the investigation said the $4.2 billion initially moved 
slowly through the Benex accounts but then increased to sometimes very heavy 
volumes before the bank began cooperating with the investigation. 

Thousands of pages of records pertaining to Benex were obtained through 
subpoenas sent to the bank, but it could not be determined when those 
subpoenas were issued, information that would help make the sequence of 
events less murky. 

People close to the investigation said the Government had requested the 
accounts be left open from September 1998 until last week. The accounts were 
closed only after The New York Times wrote about the investigation last week, 
these people said. 

Spokesmen for the F.B.I. and the United States Attorney's Office in New York 
declined to comment on any aspect of the matter yesterday. 

Two bank employees have been suspended since the investigation became public. 
People close to the investigation said yesterday that no "smoking gun" had 
been discovered implicating the employees. Natasha Gurfinkel Kagalovsky, a 
Bank of New York executive who oversaw the bank's Russian business, was 
suspended from her job pending the outcome of the investigation. 

No document has been discovered so far that directly links Ms. Kagalovsky to 
the suspected money laundering operation, an investigator said. 

But he added that it was "inconceivable," given her position, that she had 
not been aware of the large volumes of questionable money moving through the 
accounts. 

Ms. Kagalovsky's lawyer has declined to comment, and she has not been charged 
with any wrongdoing. 

The other bank executive who has been suspended, Lucy Edwards, worked in the 
bank's London office. Ms. Edwards has also not been charged with wrongdoing, 
and it has not been possible to reach her or her husband, Peter Berlin, who 
ran Benex, the company whose accounts are under investigation. 

The people close to the investigation said the Bank of New York claimed that 
it did not know that Ms. Edwards was married to Berlin. They also said 
evidence had been found in Ms. Edwards' London home indicating that she used 
the Bank of New York name for dealings unrelated to her bank duties. 

The name of Ms. Kagalovsky's husband, Konstantin, vice chairman of a large 
Russian oil company called Yukos, has also come up in connection with the 
Bank of New York investigation. 

Kagalovsky is a former vice chairman at Menatep, a now insolvent Russian bank 
that once did business with Bank of New York. Investigators are examining 
whether Menatep accounts were laundered through the American bank. 

Kagalovsky has declined repeated requests for an interview. In a statement 
yesterday, Menatep said that "neither the institution nor its esteemed former 
vice chairman can in any way reasonably be implicated" in charges of money 
laundering at the Bank of New York. 

*******

#5
Washington Post
August 27, 1999
[for personal use only]
Gore Faces Ticklish Issue On Russian Corruption
By Ceci Connolly

New revelations about Russian money laundering through a major U.S. bank have 
presented Vice President Gore with a potentially difficult campaign issue, 
and once again illustrated the pitfalls of running for the White House from 
the vice president's chair.

A criminal investigation into charges that Russian mobsters and politicians 
may have laundered money -- including diverted international aid funds -- 
through accounts at the Bank of New York has revived a long-standing debate 
in Washington over whether the Clinton administration has given too much 
support to a Russian government known to be plagued by corruption. As the 
chairman of a joint commission on bilateral ties with former Russian prime 
minister Viktor Chernomyrdin -- a role Gore once proudly embraced -- the vice 
president has been one of the targets of past attacks.

Now, several of his opponents in the presidential race appear to sense a new 
opportunity. Republican presidential candidate Steve Forbes said yesterday 
that Gore shares in the blame for the latest scandal. Foreign policy aides to 
Texas Gov. George W. Bush (R) are arguing that the administration should have 
been more sensitive to the level of corruption in Moscow and that Gore too 
willingly accepted pledges of reform that were never carried out.

The Gore team has responded to the emerging issue with uncharacteristic 
speed, offering one of the most detailed accounts to date of the vice 
president's conversations with Russian leaders about the country's crime 
problems. At the same time, aides have stressed that Gore, although touted as 
the "most involved vice president in history," had no idea federal 
investigators were looking into allegations that the Bank of New York 
laundered billions for Russian criminals, including some with close 
connections to the government of President Boris Yeltsin.

"With respect to stories about the Bank of New York, the vice president would 
not have been aware of it," said Leon S. Fuerth, Gore's top national security 
adviser. "He learned of it reading the newspapers."

Though no one has charged that Gore knew of the financial diversions, the 
still-emerging money laundering scandal has tendrils that could run close to 
the vice president. One of the Russians suspected of having engineered the 
diversion of millions of dollars through the New York accounts, Konstantin 
Kagalovsky, was Russia's representative to the International Monetary Fund 
from 1992 to 1995 at a time the Clinton administration was deeply involved in 
IMF lending to Russia. Chernomyrdin, Kagalovsky's boss and Gore's partner in 
the bilateral commission from 1993 until last year, has been the target of 
numerous allegations of corruption, some compiled by Western intelligence 
agencies.

Consequently, after boasting for years about the vice president's unique role 
in overseeing relations with Russia, Gore's advisers now find themselves 
shifting to the defensive about foreign policy credentials they hoped would 
be a campaign asset. Ironically, Gore has been forced into an initial 
response that sounds a little like that of th the father of his leading 
Republican opponent; as vice president and a candidate for the White House, 
George Herbert Walker Bush was forced to argue in 1988 that he had been "out 
of the loop" in decision making about arms deals with Iran.

As was the case during that earlier Bush campaign, there is frustration in 
the Gore camp about the vice president being held responsible by critics for 
Clinton administration policies made by others, as well as for alleged crimes 
in a foreign country.

"It is quite clear that people are going to try to turn this into an effort 
to assail what the vice president has been doing on foreign policy by 
attacking one of the things he's worked hardest at," said one Gore strategist.

Forbes, who plans to talk regularly on the campaign trail about the Russian 
economic crisis, said Gore long ignored warning signs that the country was in 
grave trouble.

"It's long been in the papers that tens of millions of Russians are not being 
paid; it's long been known billions are being siphoned off," Forbes said. 
"This is nothing new and yet they keep shoveling billions of IMF money into a 
government that misuses it and into a government that doesn't pay its 
workers."

Some in the Gore camp attempted to put a little distance between the vice 
president and Russia's economic woes. "Gore clearly chaired this commission 
but this was an administration policy, not Al Gore's policy," said one Gore 
adviser.

Fuerth said that Gore never met Kagalovsky and had long pressed Russian 
leaders to reform. The subject of organized crime in Russia "has come up on a 
number of occasions through the [bilateral] commission," he said, noting that 
Gore "went out of his way to make sure the Russians participated" in a global 
conference on crime and corruption held in late February at the State 
Department.

"On many other occasions, the vice president has talked about the need to get 
a grip on this," Fuerth added.

Specifically, Fuerth said that last month Gore urged then-Prime Minister 
Sergei V. Stepashin to accept IMF demands to submit to an extensive audit 
before receiving any more financial aid. "The vice president told Stepashin 
to satisfy the IMF," Fuerth said. He said Gore's staff had not disclosed this 
information at the time of the meeting but was doing so now because "it is 
important to try to keep the record straight."

Other senior White House officials involved in Russia policy said they, like 
Gore, knew nothing about the allegations of money-laundering through the Bank 
of New York. Among those caught by surprise, officials said, was White House 
national security adviser Samuel R. "Sandy" Berger. A senior administration 
official said Clinton aides are pressing to learn more about the 
investigation, and hope to be briefed soon.


Staff writers John F. Harris and Dan Balz contributed to this report. 

*******

#6
Baltimore Sun
August 27, 1999
[for personal use only]
Nuclear option: Aid for Russia?
Congressional office weighs U.S. help with 6 warning satellites; Degraded 
system dire risk
By Greg Schneider 
Sun Staff

Russia apparently cannot afford to launch several new satellites for 
monitoring U.S. nuclear missile strikes, so the Congressional Budget Office 
has explored a truly strange gesture of post-Cold War goodwill:

Have the United States pay to put six of the satellites in orbit -- "enough 
to give Russia 24-hour coverage of U.S. missile fields," according to a CBO 
letter obtained by The Sun.

The Aug. 24 letter to Senate Minority Leader Tom Daschle, a South Dakota 
Democrat, weighs the pros and cons of such an action, which would seem to be 
an odd twist on generations of East-West mistrust.

But one expert said there is good reason to take the option seriously.

"Their early warning network is in pretty bad shape," said John Pike of the 
Federation of American Scientists. "My view is, we've got to do something 
here because it's an accident waiting to happen."

The United States and Russia have fleets of satellites that watch each 
other's nuclear arsenals for signs of attack. The United States has continued 
to update its network, and is spending billions to perfect a "star wars" 
system that could both warn of attack and knock enemy missiles out of the sky.

Russia's system, though, is so "seriously degraded [that it] poses risks to 
both countries," the Congressional Budget Office said. In 1995, the launch of 
a research rocket off the coast of Norway caused Russia's early warning 
system to go on alert for nuclear attack.

Such a situation could trigger a Russian nuclear launch before the false 
alarm was detected.

The two nations have explored waysof addressing the problem at least since 
last year, when another CBO study suggested giving Russia access to the U.S. 
early warning satellite system. Faced with considerable political pressure 
not to release such sensitive information to the Russians, Daschle asked the 
budget office to consider "nontraditional" alternatives.

Since then, according to the letter, the CBO has learned that Russia has 
built seven new early warning satellites, but "is unable or unwilling to 
devote the resources necessary to launch them."

The United States could buy Russian rockets -- which are less expensive than 
American rockets -- and launch six of the satellites for about $200 million, 
the CBO said.

The letter lists several arguments against the option, including the fact 
that if Russia were sufficiently worried about false alarms, it could cough 
up the money itself. In addition, the six satellites would not allow Russia 
to monitor launches around the globe, only in the United States.

And the option would not provide money for helping Russian institutes that 
design and build early warning satellites, meaning that the country's 
engineers could be driven from the field by lack of money.

But it could be argued that any investment in Russia's early warning system 
would be wise because "one of the greatest strategic threats the United 
States faces is inadvertent nuclear war caused by a failure in Russia's 
command-and-control system," the letter notes. Because the satellites are 
Russian-built, Moscow would trust their data, and cooperation on the project 
could lead to better relations on other early warning issues and arms control 
in general.

The CBO letter was written at Daschle's request on behalf of the budget 
office's director, Dan L. Crippen.

None of the letter's recipients -- Daschle and five other senators, including 
Majority Leader Trent Lott of Mississippi -- could be reached last night for 
comment, nor could their staffs.

While the United States recently agreed to cooperate with Japan on missile 
defense research, paying to launch Russian satellites could be a far thornier 
political issue.

Pike, who has monitored nuclear weapons for many years, said he does not give 
the idea much chance of survival in Congress.

"In the current political environment, no," Pike said. "Simply because it 
would require a more mature understanding of the actual situation than is 
prevalent in Washington right now."

But he said assisting Russia with the project would be better than doing 
nothing.

"Given the alternative between the old way of doing things and this way of 
doing things, I would prefer to do it this way," he said. "We would be living 
in a much safer world."

*******

#7
Los Angeles Times
August 27, 1999 
[for personal use only]
PERSPECTIVE ON WORLD POLITICS 
Caucasus Fighting Masks Region's Real Problem 
By ROBERT BRUCE WARE
Robert Bruce Ware Writes Extensively on Dagestan

While it is both deeply tragic and highly strategic, the current shoot-out 
in the Caucasus is essentially a sideshow. The military aspects of the 
situation have little to do with the causes of the problem and may even less 
to do with its solution.The real issues are neither military nor religious. 
They are economic, and any enduring solution that might bring stability to 
this strategic region must be economic as well. Though federal troops have an 
important role to play in the present situation, Moscow's lopsided military 
approach is leading it into the trap that was set by the brilliant Chechen 
insurgent warlord, Shamil Basayev. Basayev knows that while his forces are 
well-trained, well-armed and admirably financed, they are far too few to 
achieve a decisive victory in Dagestan. 
More important, he knows that no one will rule the Dagestani people 
against their wishes. Contested areas of Dagestan are in rugged geography 
inhabited by hot-blooded mountaineers equipped with large quantities of arms, 
a culture of personal valor and a tradition of vendetta. Ultimately, Basayev 
can win only if he is able to recruit many Dagestanis to his side. 
The majority of Basayev's fighters are from Dagestan, though others are 
drawn from a host of Central Asian, Middle Eastern, Eastern European and 
African countries. Most of the Dagestanis fighting for Basayev are members of 
the Islamic fundamentalist sect commonly known as Wahhabis. The Wahhabis are 
led by Jordanian-born Emir Khattab. Khattab fought beside Basayev in the 
Chechen war, then married a Dagestani woman, led a group of central Dagestani 
villages in a violent, de facto secession from the Dagestani government and 
coordinated with Middle Eastern supporters to set up a guerrilla training 
base in Chechnya. He knows that his best recruiters, by far, are Dagestan's 
economic collapse and the deepening desperation of its people, 80% of whom 
are currently unemployed. 
The Wahhabis have attracted adherents because they offer an option to 
social and political corruption along with onerous pseudo-Islamic traditions. 
Yet the Wahhabis have long been violently opposed by Dagestan's traditional 
Moslems, who together with smaller populations of Christians and Jews 
constitute well more than 90% of the population. By March 1999, only 3% of 
the Dagestanis were Wahhabi, but their ranks are likely to grow with the 
increasing misery level of the people. 
Of course one sure way to make people more miserable is to bring a war 
to their territory. The invasion has already produced more than 10,000 
refugees, whose numbers grow each day. The plight of these refugees is all 
the more severe since no international relief agencies have been able to 
operate in Dagestan for more than two years. The hostage industry, which 
originated in Chechnya after the war and quickly became the region's leading 
source of revenue, forced out all international agencies before the end of 
1997. Moreover, the situation is fraught with ethnic tension that could 
multiply the conflict among Dagestan's 34 ethnic groups. Hence, with every 
day that they fight on Dagestani soil, Khattab and Basayev create more 
potential recruits for their forces. 
Brilliantly, Basayev and Khattab are not fighting a war of attrition, 
but of amalgamation. Even if federal troops are successful in their campaign 
to dislodge the insurgents, the result is likely to be an indefinite future 
of border clashes and guerrilla raids that continue the process of 
destabilization and rebel recruitment. 
Moscow would be better advised to recognize that the problem in Dagestan 
is fundamentally economic and that it therefore requires an economic 
solution. Moscow must move immediately to ensure that seldom-seen 
entitlements, such as pensions and unemployment benefits, are paid, and 
government programs reestablished, in order to stimulate the local economy. 
If it is to regain any measure of stability in this historically 
strategic, oil-laden region, the West must ensure that relief is provided 
despite government corruption and adverse conditions. There are three 
strategies that can be pursued. First, relief agencies that formerly operated 
in Dagestan must mobilize Dagestani "locals" who previously staffed their 
offices usually under the supervision of Westerners. These local workers can 
be organized from afar to receive and distribute aid. 
Second, Western groups and agencies can work on a grass-roots basis 
directly with Dagestani groups and organizations. This might also help to 
relieve the common Dagestani misconception that the United States is 
supporting the invaders. 
Finally, diplomatic pressure must be applied to the governments of Saudi 
Arabia, Kuwait and Pakistan to persuade their citizens to stop financing the 
insurgents. 
The Western media should follow the money. Much of those large sums that 
support the insurgents originate in societies that stand to profit from 
instability in the Caucasus. Increasingly, the West has been backing away 
from earlier investments in Caspian oil, partly because the instability of 
the region renders the transportation of that oil risky and difficult. 
Caspian oil reserves may not compare with those of the Persian Gulf 
countries, but the successful transportation of the former would reduce the 
capacity of the latter to control the price of oil. Is it therefore merely 
coincidence that the invasion is being financed by residents of Persian Gulf 
states who profit from the sale of oil? Perhaps it is, but this is a question 
that should be investigated. 

*******

#8
World Socialist Web Site
www.wsws.org
Bank of New York probe exposes ties between Western financiers and Russian 
Mafia
By James Brookfield
27 August 1999

When the history of the first ten years of capitalist restoration in Russia 
is written, it will have to include two fundamental points. First, that never 
before was so much money stolen by so few people in so short a span of time. 
Second, that the thieves included not only elements of the old Stalinist 
nomenklatura and a new generation of Russian gangster-businessmen, but also a 
good number of Western bankers and government officials.

An important chapter in this history is now unfolding in the United States. 
Federal officials, working with their counterparts in Britain and 
Switzerland, are engaged in an investigation of what may be the largest 
money-laundering scheme in US history. They allege that billions of dollars 
from Russia, some of it from Mafia elements, were channeled through accounts 
at the Bank of New York. Two BNY vice-presidents have already been suspended 
as a result of the probe.

Investigators are also looking into the possibility that Russian Mafia 
elements took $200 million from IMF loans that were made to the Russian 
government.

A series of articles by New York Times writer Timothy L. O'Brien has brought 
the salient facts to light. Sometime during the summer of 1998 British 
officials investigating Russian mob activities alerted US authorities to a 
link between YBM Magnex, a front company for suspected Russian gangster 
Semyon Yukovich Mogilevich, and Benex, a firm owned by Peter Berlin, the 
husband of one of the now-suspended BNY vice-presidents. From October 1998 to 
March 1999, $4.2 billion in suspect money passed through the BNY accounts of 
Benex and other firms. Investigators allowed the account to remain open after 
March as they continued their probe, and the total amount laundered may prove 
to be as much as $10 billion.

The traces of criminal wrongdoing extend beyond suspected organized crime 
figures like Mogilevich and point to high-level officials in the US and 
Russia. Investigators are looking into whether funds from the now insolvent 
Russian bank, Menatep, were also involved in money laundering at BNY. Menatep 
is owned by Russian oligarch Mikhail Khodorkovsky and recently employed, as a 
senior executive, Konstantin Kagalovsky.

Kagalovsky's alleged role in the money-laundering operation highlights the 
criminal character of the nouveau riche in Russia, for the most part born of 
the old Stalinist bureaucracy, as well as the complicity of Western financial 
institutions, governments, and academic advisors. Kagalovsky was involved at 
the highest level of the Russian government, serving as an advisor and as its 
representative to the IMF before moving on to Menatep in 1994. Prominently 
displayed in his office at Menatep were photographs of his meetings with 
George Bush, John Major and other Western leaders.

He left Menatep to become the vice-chairman of the Lukos oil conglomerate. 
This company had been acquired by Menatep on the cheap in a 
“loans-for-shares” scheme in which the bank extended credit to the Russian 
government in exchange for shares in the company's ownership. When the bank 
went under, Lukos picked up many of its assets, including its Moscow 
headquarters and a number of offshore holding companies, according to a 
report in Thursday's Wall Street Journal.

These holding companies are alleged to have been used to plunder a number of 
other Russian companies, also owned by Menatep. In a procedure known as 
tolling, the assets or products of manufacturing firms were sold to the 
holding companies at below-market prices. The offshore holding companies then 
sold the goods at normal prices, keeping the profits outside Russia. The 
Journal article cited one example of tolling in which $20 million was removed 
from a Russian titanium plant in just one year.

Such dealings are alleged to have quickly made Mr. Kagalovsky a very rich 
man. So suggests the following description, provided by John Lloyd, a writer 
who recently traveled to Moscow and prepared an article for the New York 
Times Magazine (“Who Lost Russia?—the Russian Devolution,” 15 August 1999):

“[Kagalovsky] was the first reformer I had got to know when I went to live in 
Russia early in 1991. Back then, he lived in a two-room, comfortless flat in 
one of the massive projects that ring Moscow. Thin and intense, he had sat me 
down at the kitchen table and, battling with his halting English and my 
halting Russian, talked of Adam Smith and Milton Friedman and Jeffrey 
Sachs.... He told me of the futility of Gorbachev's reforms, the need for 
policies of the strictest monetarist provenance and of the pure evil of 
Communism.

“The man who [now] came out of his office to meet me—after I had gone through 
two careful security checks and several soft-carpeted corridors in an 
expensively renovated 19th-century Moscow mansion—had put on some weight and 
wore a well-cut suit and rich tie....

"‘In 1991 and into 1992,' he said, ‘we were still in our romantic period. Our 
views and feelings were based on our readings, discussions, ideas—some of 
them childish, it seems now. After that'—he smiled a little—‘life changed all 
of us....

“‘We now see such simple truths: that a country that is based on stealing and 
corruption is much less efficient than a normal society. And that the end 
doesn't justify the means. After 1996, corruption became a systematic element 
of the state. It went to the core of the new Russian state ...'”

Of which, he does not add, he came to be an instrumental part.

Kagalovsky is a fitting representative of those who actively worked for and 
profited from the dismemberment of the USSR. From whatever exposure to 
Marxism they received in the waning days of the Soviet Union, the “New 
Russians” like Kagalovsky retained one concept: the venality of capitalist 
society. This they considered not a socially detrimental aspect of the profit 
system, however, but a positive basis for personal enrichment.

Kagalovsky is married to Natasha Gurfinkel Kagalovsky, who is the second 
suspended BNY vice-president. She oversaw the vast majority of the bank's 
Russian accounts. Like her husband, Natasha Kagalovsky proved to be a rapid 
social climber. Born in 1954 in the Soviet Union, she emigrated to the US in 
1979, got her degree from Princeton, and in 1996 joined Irving Bank, which 
was bought by BNY two years later. She took over the bank's East European 
division in 1992 and became very wealthy, reportedly paying cash for a 
$796,000 Manhattan condominium in 1997.

The plundering exemplified in the BNY case is of an immense magnitude, 
particularly in its relation to the size of the Russian economy. One analyst 
estimated that the $10 billion allegedly laundered over the past year 
constitutes fully 6 percent of the Russian gross domestic product, and 40 
percent of the Russian federal government's budget. And this is only the sum 
that may have passed through one channel over one year. An article in 
Saturday's Financial Times of London cited a report prepared by Fitch IBCA, 
an international credit rating agency, that estimated a total of $136 billion 
was taken out of all of Russia between 1993 and 1998. Another estimate, 
provided in Lloyd's article for the Times, puts the total in the neighborhood 
of $200-500 billion.

Though the exact figure has not been determined, this vast sum not only lined 
the pockets of the new Russian kleptocracy, but also flowed into the coffers 
of US and European financial institutions. (The BNY case may well involve a 
number of major European banks. On Tuesday, the Wall Street Journal, citing 
sources familiar with the investigation, said that Credit Suisse, Union Bank 
of Switzerland, Dresdner Bank, Westdeutsche Landesbank and Banque 
Internacionale of Luxembourg are being scrutinized for their role in the 
matter.)

Claims that US and European banks were merely taken for a ride by Russian 
corporations and Mafia elements are belied by the vast profits garnered from 
Russian accounts. As Natasha Kagalovsky pointed out in a 1995 memo to Thomas 
Renyi, then BNY president and now its CEO, “Inkombank [another bank that, 
like Menatep, is now insolvent] is our largest generator of fee income and 
they are now the largest clearing bank in Russia for domestic transactions” 
(emphasis added).

The new Russian oligarchs, who felt their hold on their newfound wealth to be 
very fragile as long as it remained in the country, needed Western banks to 
get the money out. They had little difficulty finding major banks willing to 
overlook evident wrong-doing in order to open up fat and profitable accounts 
for their Russian clients.

Since the BNY scandal broke last week, articles critical of the Clinton 
administration, the Yeltsin government and Western banks have appeared in the 
US press. But not one will so much as broach the possibility that the 
plundering of Russia is organically linked to the restoration of capitalism 
in the Soviet Union, or that the West bears any responsibility for the 
economic, social and moral disaster that has engulfed Russia over the past 
decade.

Nevertheless, the record speaks for itself. At the end of the last decade, 
capitalist policy makers in the US and Europe, backed up by the IMF, demanded 
the rapid privatization of the Russian economy, the liberalization of prices, 
the elimination of social benefits, and the removal of other barriers to 
profit-making in the former USSR. These policies, which put in private hands 
what had been, at least legally, public property, thereby creating a new 
possessing class, required criminality. Who but the most avaricious, 
ruthless, and reckless would implement such policies? Western officials and 
banks worked with (and continue to work with) the new Russian oligarchs and 
their political allies.

Ten years ago, pro-capitalist politicians were able to take advantage of the 
disaffection of the Soviet masses with the Stalinist regime to reintroduce 
capitalist market relations. At the time, their promise that freedom and 
prosperity would follow was taken more or less as good coin. As this decade 
closes, the human toll of capitalist plunder in Russia—mass unemployment, 
rapid decline in life expectancy, the reduction of as much as one-fifth of 
the population to a level of poverty almost unknown outside the Third 
World—already constitutes a devastating historical indictment of capitalist 
restoration, and more generally, the prospects which the profit system offers 
to the vast majority of the world's population.

*******

#9
From: "Peter D. Ekman" <pdek@co.ru>
Subject: RE: 3465, Helmer/Saints
Date: Fri, 27 Aug 1999 

John Helmer is an interesting writer who has very good contacts
in Russia's metal industries. He usually start off his pieces with
a reference to a fairy tale. He's taken some very unusual positions
- for a westerner - concerning Russian metal industries.
The last 3 Helmer pieces that I've read, including #3 in 
JRL 3465 have attacked Kenneth Dart and Jonathan Hay, because 
a court claim was filed against them in New Jersey. I should point
out that anybody can file a suit - but legal proof is something altogether
different. When Helmer writes "according to the court 
documents" and "court documents suggest," I think that JRL readers 
should realize that this means "the complaint alleges."
The connection of Konstantin Kagalovsky to this suit, written on at 
length by Helmer, completely escapes me. I think its fair to say that 
there is no substantive link between Kagalovsky and the suit.
From the 3 Helmer articles I can only sift 2 apparent facts.
1- a suit has been filed in New Jersey
2- Jonathan Hay called Helmer "a stooge."
But where's the fairy tale?

*******

#10
From: "Christian Nadeau" <CNadeau@ifes.ru>
Subject: Electoral Laws 
Date: Fri, 27 Aug 1999 

For those who are interested, the election law for the State Duma can be
found at the following address:

http://www.ifes.ru/eng/el_laws/index.html as well as other information on
the Russian electoral system.

*******

#11
Authorities Seek to Stabilise Situation in Run-UP to Polls.

MOSCOW, August 27 (Itar-Tass) - The Russian authorities set themselves the 
task of stabilising the social situation in the country in the run-up to the 
forthcoming parliamentary elections, Vice-Premier Valentina Matviyenko told 
journalists here on Friday after her meeting with President Boris Yeltsin in 
the Kremlin. 

"Should the social situation deteriorate, we may have protest-type voting at 
parliamentary elections, as a result of which people who seek to further 
exclusively their own ambitions may get a berth on the State Duma," 
Matviyenko believes. She emphasised that "it is essential to do everything 
for the electorate to vote for sound politicians". 

******

#12
ANALYSIS-China,Russia, C.Asia see separatist threat
By Mike Collett-White

BISHKEK, Aug 27 (Reuters) - When leaders from China, Russia, Kyrgyzstan, 
Kazakhstan and Tajikistan met in the Kyrgyz capital this week, the threat of 
regional unrest was high on their list of concerns. 

A two week insurgency by Moslem rebels in Russia's volatile south and a 
continuing security crisis along Kyrgyzstan's border with Tajikistan were the 
latest signs of a problem which forced the five to examine how to jointly 
police their territories. 

``Events happening in various corners...bear witness to the rightness of our 
conclusion that today extremism...is a global threat and we need to work very 
closely together,'' Russian Foreign Minister Igor Ivanov said at the summit. 

More than 1,000 gunmen thought to belong to Uzbekistan's fundamentalist 
Islamic opposition are hiding in the remote mountainous region of southern 
Kyrgyzstan where they are holding at least 16 hostages, including four 
Japanese nationals. 

Russian troops are combing two western districts in Dagestan for remaining 
separatists who sought to establish Islamic rule in the region and held out 
for two weeks against Russian war planes and artillery. 

Moscow sent bombers to attack suspected rebel camps in the breakaway region 
of Chechnya, Moscow's main headache in the region which has been blamed for 
sheltering Islamic guerrillas. 

And while no public mention was made of them during the Bishkek summit, China 
too has its separatist problems. 

Turkic-speaking Uighurs living in the restive Moslem province of Xinjiang in 
northwest China, which borders Kazakhstan, have been accused by Beijing of 
trying to establish an independent East Turkestan. 

China has been accused by human rights groups of brutality in its dealings 
with the separatists in the province, which has been rocked periodically by 
anti-Chinese riots, bombs and assassinations. 

How far the five countries, who first met in Shanghai in 1996 to reduce 
border tensions, will go towards jointly combating the separatist threat, 
particularly when it is linked to militant Islam, remains unclear. 

But cooperation is already visible on a number of levels. 

Kazakhstan, for example, has kept a close eye on the Uighur population on its 
territory, keeping a lid on any sign of public protest and going to great 
lengths to avoid being seen as in any way endorsing their cause. 

In Kyrgyzstan, Uzbek jet fighters are bombing rebel outposts in remote areas 
and Kazakhstan has offered both troops and military equipment to its tiny 
neighbour. 

Kyrgyz acting Defence Minister Nuridin Chomoyev said on Friday the government 
had asked Moscow to supply special equipment to help its stretched forces in 
the south counter nocturnal operations by the invaders. 

A number of former Soviet states, including Kazakhstan and Kyrgyzstan, 
recently helped Uzbek President Islam Karimov round up people suspected of 
involvement in February bomb attacks in Tashkent which claimed 16 lives and 
almost killed the president. 

Karimov is convinced Islamic opponents, some living in foreign exile, are 
bent on overthrowing his regime and installing an Islamic state. A chief 
suspect, Dzhuma Namangani, is said to be the architect behind the latest 
Kyrgyz crisis. 

Leaders in Beijing, Moscow and elsewhere have found it almost impossible to 
strike the right balance between reducing the threat of violent separatism 
and protecting human rights. 

A late amendment to the declaration signed by the five countries meeting in 
Bishkek indicated the signatories were in no mood to bend to international 
pressure over human rights. 

``Human rights must not be used as a pretext for meddling in the internal 
affairs of (our) states,'' it said, adding that ``particularities'' of each 
country must be taken into account. 

Within Central Asia, security threats are being blamed on the power vacuum 
left by the collapse of the Soviet Union nearly 10 years ago. Moscow has 
nearly 20,000 soldiers in Tajikistan, where they help keep the peace in the 
volatile state. 

Uzbekistan, the region's most populous state with 24 million, looks 
particularly vulnerable given the strength of the Islamic revival there. 

Chomoyev told reporters the Kyrgyz infiltrators appeared to be moving north 
in groups of 15 to 20 in order to reach Uzbekistan and launch a campaign of 
terror there. 

*******