August 28, 1999   
This Date's Issues: 3467 •3468 • 

Johnson's Russia List
#3468
28 August 1999
davidjohnson@erols.com

[Note from David Johnson:
1. UPI: Laundered billions may fund election races.
2. Nezavisimaya Gazeta: Nikolai Ulyanov, Yeltsin Is Being Pushed Toward 
Decisive Actions.
3. Reuters: Russian politicians step up election preparations.
4. Itar-Tass: Primakov Slates Centrism and Patriotism of New Bloc.
5. NTV: Lebed Predicts Major, Protracted Caucasus War.
6. THE JAMESTOWN FOUNDATION PRISM: Alekxandr Buzgalin, DIFFERENT
PRESIDENTS, 
DIFFERENT HOBBIES: CLINTON CHANGES HIS WOMEN, YELTSIN HIS PRIME MINISTERS.
7. Moscow Times letter: Superpower Warhead Numbers Not Needed Now.
8. Ira Straus: Is the US supporting break-up of Russia?
9. The Economist: Organized Crime in Russia. Crime Without Punishment.] 

*******

#1
Laundered billions may fund election races 

WASHINGTON, Aug. 26 (UPI) Billions of dollars laundered by Russian organized 
crime figures through two New York banks were intended to finance Russian 
President Boris Yeltsin's allies in the coming parliamentary and presidential 
elections, United Press International has been told by U.S. intelligence 
sources, Russian analysts and other experts. 

The Washington-based newspaper USA Today reported from London Thursday that 
Russian organized crime figures laundered at least $15 billion through the 
Bank of New York and the Republic National Bank at the direction of Yeltsin's 
government. The paper cited senior U.S., British and Russian law enforcement 
officials for its report. 

The paper also reported that at least $10 billion of the $15 billion came 
from the more than $20 billion the International Monetary Fund has loaned to 
Russia since 1992. 

Moscow-based Russian sources said the USA Today report appeared to be 
accurate. They said that Yeltsin and his supporters were widely believed to 
be attempting to hinder the investigations into the scandal. They also said 
that the huge sums may be intended to finance pro-Yeltsin candidates in 
elections for the State Duma, the main house of the Russian parliament, due 
to be held this December, and in the presidential elections to choose a 
successor to Yeltsin next June. 

Ariel Cohen of the conservative Heritage Foundation, a prominent U.S. expert 
on Russian politics, said these claims appeared credible. 

"Judging by the large amount of funds involved and the desperate need for 
money that has been expressed privately by officials at the highest level of 
the Yeltsin administration, this was the political 'war chest' of the Yeltsin 
clan," he said. "It was the collection of funds that was being moved out of 
Russia for safekeeping until it needed to be used in the parliamentary and 
presidential elections." 

"In the West, this money laundering scandal is being treated as a pure law 
enforcement issue, but that is very misleading," Cohen said. "For Moscow, 
this is primarily a political issue." 

Yeltsin cannot run for a third term as president under the 1993 Russian 
Constitution, which he himself designed. But he and his inner circle of 
supporters are believed to be desperate to keep his former prime minister, 
Yevgeny Primakov, and Moscow Mayor Yuri Luzhkov out of power. In recent 
weeks, Primakov has joined with Luzhkov and most of the regional governors of 
Russia in the merged Fatherland and All Russia movements. 

In the 1995 Duma elections and Yeltsin's successful 1996 election campaign, 
he enjoyed the financial support of the enormous Moscow-based Gazprom oil and 
gas corporation, the largest energy corporation in the world. Viktor 
Chernomyrdin, Yeltsin's prime minister from 1993 to 1998, was previously the 
chairman of Gazprom. And was reappointed to that position on Thursday. 

But now Gazprom, under its current chairman Rem Vyakhirev, is supporting the 
Primakov-Luzhkov alliance against the Yeltsin interests in the coming 
elections. That means, experts said, that Yeltsin and his supporters have 
been increasingly desperate to raise comparable sums to finance their 
campaigns from other sources. 

"Vyakhirev has committed himself to support the Primakov-Luzhkov team for the 
1999-2000 elections," said Cohen. 

On Thursday, the Putin government pushed through a new board of directors to 
control Gazprom at an extraordinary shareholders meeting in Moscow. The move 
was seen as consolidating state control of the company. 

USA Today named five prominent Russian individuals who, it said, were being 
investigated by senior law enforcement bodies in both Russia and Britain in 
connection with the money-laundering through the two New York banks. 

Those named: 

_Tatyana Dyachenko, Yeltsin's daughter and most influential political 
adviser; 

_Anatoly Chubais, former chief of staff and former finance minister, the 
mastermind of Russia's' crash privatization program, who has extremely strong 
personal links with top Clinton administration policy makers on Russia; 

_Oleg Soskovets, former deputy prime minister; 

_Alexander Livshits, former finance minister; 

_Vladimir Potanin, former deputy chairman of the Russian Federation and one 
of the seven wealthiest and most powerful oligarch billionaires in Russia. 

Janine Wedel of George Washington University, a leading U.S. expert on the 
siphoning of Western aid by Russian organized crime, said Chubais had been 
widely suspected in Russia for a long time of being involved in such 
activities. 

"Chubais has been under suspicion for years. Nevertheless, he has remained 
the favorite son of individuals at the top levels of the United States 
government," she said. 

The Moscow Times, in an editorial Aug. 25, said that the investigation into 
the money laundering appeared to have been hampered by leaks to the Western 
press. The original story revealing the scandal ran last week in the New York 
Times. 

"The furious Brits (British investigators) blame the Americans; in 
off-the-record conversations, the FBI blames the Brits; and either way, a 
major U.S.-British investigation is being brought to a hasty and, possibly, 
unsatisfactory close," The Moscow Times said. "Heroes of law enforcement are 
being applauded, (and) lauded and in the process being taken out of the 
game." 

Dimitri Simes, president of the Nixon Center, a Washington think tank, agreed 
with this bleak assessment. He said that despite the dramatic allegations in 
the New York Times and USA Today reports, it was by no means certain, or even 
likely, that the suspects in the scandal ever would be successfully 
prosecuted. 

"Unless the United States Congress decides to take an active role in probing 
these allegations, this investigation will not go very far," he said. "Russia 
is a country where allegations of corruption fly back and forth all the time. 
And up to now, all the investigations that have been made into them have been 
effectively blocked by President Yeltsin and his close associates." 

In 1997, a study into Russian organized crime by the Global Organized Crime 
Project of Washington's Center for Strategic and Organized Studies concluded 
that even by then close to $200 billion had been illegally siphoned out of 
Russia as the proceeds of criminal activities, and that the immensely wealthy 
new structures of Russian organized crime were already subverting the highest 
officials and institutions of the state. 

The report coined the term "criminal-syndicalist state" to describe the 
emerging political system in a Russia permeated by corruption and organized 
crime to the highest levels. 

*******

#2
Nezavisimaya Gazeta
Aug. 28, 1999 
"Yeltsin Is Being Pushed Toward Decisive Actions" 
Nikolai Ulyanov 
[fragments] 
[translation for personal use only]

Even if the allegations about some secret accounts of the Yeltsin family in
Western banks may have some foundations behind them, they have appeared at
precisely the right time...Even if the publications in foreign media have
not been orchestrated by the Luzhkov team (and we should remind ourselves
of the Moscow Mayor's words that he would find a way to respond to the
attacks against him on the part of Yeltsin's entourage), it is objectively
in the interest of the leader of the Fatherland to reinforce the scarecrow
image of Yeltsin the crook in the West, the scarecrow that was set up quite
some time ago by Russian leftists. 

By itself, the story of the Yeltsin family's Western accounts is not worth
a penny. The out-of-court testimony by Mr.Turover, aka Filya and Filipok
[Russian diminutives] (an international adventurer having major problems
with Spanish legal system, from which he reportedly was hiding in Russia)
cannot be seriously considered as objective and truthful - this ex-Soviet
has too dirty a reputation for that. And yet, according to Yuri Skuratov,
this gentleman was introduced to him by Mrs. del Ponte herself (one
wonders, exactly in what capacity he was introduced). 

Del Ponte's interest in this affair is pretty obvious - after the
well-known Italian operation "Clean Hands", the former Swiss General
Prosecutor got dizzy with success, she felt the need to boost her
reputation as the iron lady of Justice even further, and the Russian
material came up just in time for that... 

It is not by chance that the affair of the Bank of New York coincides in
time with the Milano story about the Yeltsin family's credit cards. The
former case apparently is well corroborated, yet it is related not to
Yeltsin but to money laundering by Russian mafia. The second one is a
product of fantasies of Western journalists, coopted by certain Russian
political circles. These circles exploit del Ponte's maniac passion for
self-promotion for the sake of their personal short term interests. In this
process, the Russian players neglect the interests of their own country,
which risks, as a result of this scandal, to lose the subsequent tranches
of the IMF credit that was obtained at such a heavy price. 

These developments confirm the opinion that the war between the
power-wielding clans in Russia has reached a stage when no truce is
possible, and anything goes. So far, the Kremlin has restrained itself from
the extremely tough actions, but after the Milano provocation it is quite
possible that the most resolute people in Yeltsin's entourage will decide
that their patience has run out. This bodes no good for the country, but
the tumor objectively requires surgery, and such a medical-cum-political
action may possibly be taken any day. It is quite clear that after this
final political battle in the capital the situation in the country will
have changed in a radical way.

********

#3
Russian politicians step up election preparations
By Gareth Jones

MOSCOW, Aug 28 (Reuters) - Russia's politicians stepped up their preparations 
on Saturday for December's parliamentary election, while former Prime 
Minister Sergei Stepashin signalled that he would also contest next year's 
presidential poll. 

Stepashin, sacked this month by President Boris Yeltsin for being too 
independent-minded and too soft on the Kremlin's foes, used a sporting 
metaphor to hint at his ambitions. 

``I am a former athlete, a middle-distance runner, 400 to 800 metres,'' he 
said in an excerpt of a television interview to be aired on Sunday. 

``It does not matter which number you wear or which lane you run in but how 
you finish.'' 

When the interviewer asked him to clarify what 800 metres meant in political 
terms, Stepashin said: ``Next year'' -- when Russia is to elect a new 
president to replace Yeltsin. 

Stepashin has already said he will stand in December's poll for the State 
Duma lower house of parliament on a Yabloko ticket after he clinched an 
electoral pact with that liberal party. 

Another former premier, Yevgeny Primakov, formally launched his 
centre-leftist bloc on Saturday. Outlining his programme, he called for a 
strong state but ruled out any return to Soviet-era controls on individual 
freedom or renationalisation of industry. 

``Supporters of a strong state do not strive to nationalise everything but 
strive to ensure effective management of state property,'' said Primakov, 
Russia's most popular politician. 

``The development of democracy and freedom of speech were and remain our 
values,'' he added. 

The former spymaster said his bloc, which groups powerful regional leaders 
and the Fatherland party of Moscow mayor Yuri Luzhkov, would push for an 
overhaul of Russia's post-Soviet constitution, which gives most power to the 
president. 

But Primakov dismissed media talk that they were opponents of President Boris 
Yeltsin. He said he may try to seek a meeting with Yeltsin, who sacked 
Primakov as premier in May for allegedly dragging his feet over market 
reforms. 

Another ex-premier and veteran Yeltsin loyalist, Viktor Chernomyrdin, told 
his Our Home is Russia party on Saturday they must show themselves a 
genuinely popular grouping. In the past Our Home has been seen as a party of 
the establishment. 

Our Home approved its electoral list of names, which must now be submitted to 
the central election commission. 

Half of the Duma's 450 seats are contested by individual candidates and the 
rest are allocated proportionally to parties based on their list of names. 
The higher a name on a given list, the greater likelihood of the person 
winning a Duma seat. 

Chernomyrdin headed his party's list, which also included reformist Samara 
governor Dmitry Ayatskov and former finance minister Boris Fyodorov. 

Primakov's bloc also approved its electoral list, topped by himself, Luzhkov 
and St Petersburg governor Vladimir Yakovlev. 

Luzhkov welcomed a decision by a large number of Agrarian Party deputies to 
join Primakov's bloc. 

The Agrarians have until now been allied with the Communist Party in the 
Duma, where they have been the largest bloc. Their defection, against the 
advice of their party leaders, is likely to hurt the Communists' prospects in 
the next election. 

The Kremlin has been worried by the emergence of the Primakov-Luzhkov 
alliance, which poses a powerful challenge to Yeltsin's authority. Its 
efforts to form a right-leaning bloc as a counterbalance have proved largely 
unsuccessful. 

Radical free market liberals like Yegor Gaidar, whose Democratic Choice of 
Russia party also held a meeting on Saturday, remain unpopular in Russia and 
their parties may fail to clear the five percent barrier to win Duma seats. 

Yeltsin has named new Prime Minister Vladimir Putin, an ex-KGB spy, as his 
preferred choice for next president. 

On Saturday Putin was busy dealing with the situation in Russia's turbulent 
North Caucasus region where Russian forces have just crushed a revolt in 
Dagestan by Chechen-backed Islamic guerrillas. 

*******

#4
Primakov Slates Centrism and Patriotism of New Bloc.

MOSCOW, August 28 (Itar-Tass) - Fatherland and All Russia have passed a 
formal decision on their unification into a bloc at their joint conference 
working in Moscow on Saturday. 

The bloc's coordinating counncil chairman, former Prime Minister Yevgeny 
Primakov said in his address to the conference that Fatherland-All Russia 
embark on the course of centrism and patriotism. 

He scolded "destructive extremes" and said the bloc would not become like 
those who call for return to the totalitarian set-up and the command economy. 

"But we will also differ from those who would like to return the country into 
the chaotic, transition-to-market period with no rudder and sails, as they 
theoretically imagine it," Primakov said. 

He said Fatherland-All Russia unites "statemen". "A stateman today is he who 
seeks to use all of the attributes and possibilites of the state mechanism, 
in the first place to preserve the territorial integrity of Russia," he said. 

The bloc will seek state regulation within the framework of the market 
economy, Primakov sadi, adding that if the regulation was in place, there 
would be no "gasoline crisis". 

Primakov said the values of Fatherland-All Russia are democracy, freedom and 
Russia'as inimitable civilisation. "We will seek that the mass media are free 
from both state censorship and the guiding finger of monopolists," Primakov 
said. 

He called for the rule of law and order. The state has all possibilites for 
getting things in order, including in the economy, but not in terms of 
property redivision. 

"This is not our goal," he said. As for international relations, Primakov 
said the Fartheland-All Russia bloc, should its candidates be elected to the 
State Duma lower house of parliament, "will not allow a slighting attitude 
toward Russia at the international level". 

Russia will be an equal partner of "the strong of this world". Primakov said 
the bloc will work for this "without taking risks, without taking the matter 
to confrontation:" 

He said it was important not just to outline policies in election campaign, 
but show voters that Fatherland-All Russia knows how to implement them. 

*******

#5
Lebed Predicts Major, Protracted Caucasus War 

NTV
26 August 1999
[translation for personal use only]

[Presenter Mikhail Osokin] Today [Krasnoyarsk 
Governor] Aleksandr Lebed contacted journalists again. He was visiting 
servicemen wounded in the battle in Dagestan [in the hospital] in 
Rostov-on-Don. 
[Begin recording] Correspondent] This week is hard for the Rostov 
authorities. They are receiving and seeing off VIPs all the time. 
[Passage omitted: correspondent says that Lebed came to the city right 
after Russian Deputy Prime Minister Valentina Matviyenko, that he visited 
a miltary hospital and took part in a conference on the North Caucasus] 
Lebed said in the hospital that some people are too hasty in making 
forecasts and that the situation is much more complicated than it seems. 
[Lebed] There is every indication that it is a major and long war. If we do 
not take appropriate and timely measures, five or seven republics in the 
North Caucasus will be dragged into it. It would automatically mean 
destabilizing the situation in the whole country, the introduction of a 
state of emergency, the derailing of the elections, and a lot of other 
troubles. 
[Correspondent] Aleksandr Lebed spoke about many matters linked to local
and 
federal 
politics and the election campaign. He said that he is not going to join 
any bloc, and that he has a good reason for that. 
[Lebed] I am not getting involved in that cockroach race. It would be 
ridiculous. People's attitude to all these alliance builders could be 
summed up in one good Russian word which I cannot utter in front of TV 
cameras. A synonym would be that everybody is fed up. 
[Correspondent] The Krasnoyarsk governor's visit to Rostov coincided with
the 
development of a big scandal concerning his [1998] campaign to become 
governor. He is aware of what is happening in Krasnoyarsk and about the 
decision by the Territory Electoral Commission to start investigating the 
financial records of the electoral headquarters of the then gubernatorial 
candidate Lebed. He was clearly reluctant to comment today beyond saying 
that all the allegations were false. 
[Lebed] The Krasnoyarsk public prosecutor's office started a criminal 
investigation on 18th August against [aluminium tycoon] Mr [Anatoliy] 
Bykov. He is suspected of murder and should be taken into custody. This 
is a reaction [by Bykov to the charges against him]. I am quite happy to 
ask the Prosecutor-General to investigate the allegations against me. I 
have nothing to hide. 
[Passage omitted: Lebed delivered medical equipment and medicine to a 
military hospital] [end recording]

*******

#6
THE JAMESTOWN FOUNDATION
PRISM
A MONTHLY ON THE POST-SOVIET STATES
August 1999 No.15 Part 2

DIFFERENT PRESIDENTS, DIFFERENT HOBBIES: CLINTON CHANGES HIS WOMEN, YELTSIN
HIS PRIME MINISTERS
By Aleksandr Buzgalin
Aleksandr Buzgalin is a doctor of economics and a professor at Moscow State
University. He is a leader of Russia's Democratic Socialist Movement.

The latest cabinet dismissal--that of former Prime Minister Sergei
Stepashin, who had had barely three months in the job--was greeted with
little more than a sarcastic smile by most Russians, to the effect: What can
you expect from him [Yeltsin]? Then comes the thought: When is it going to
end? When will he go? Where is the "triumph of democracy" in Russia, when,
on the whim of one old man, the country's top policeman is appointed to rule
the country, only to be replaced, three months later, by the top KGB man? Is
this a state ruled by law (technically the Russian constitution has not been
violated), or a banana republic less the bananas (but with a banana king)?
What sort of a constitution is it when one man can play games with the
entire country?

What is the significance of Stepashin's sacking--is it a whim of Yeltsin's
or something more? I shall discuss just two important themes: the crisis of
authority and the absence of a "party of power."

I. The quarterly change of prime ministers does not alarm anyone, and has
very nearly become the norm. This is precisely how the political elite
reacted to Yeltsin's latest gambit. Their reaction is not so much a question
as a statement of medical fact. I would like to stress that this diagnosis
concerns not only the condition of the current Russian president of Russia,
but the country's entire social, economic and political system as well.
Moreover, this is a diagnosis which was made several years ago (the illness
being chronic): A system crisis. The reasons for the game of prime
ministerial leapfrog in Russia, therefore, go far deeper than some other
Russian and foreign experts may think. The Yeltsin family and the financial
and bureaucratic circles which support it are patently extremely nervous,
fearful of total ruin when their leader relinquishes the presidency. There
is indeed some basis for this fear, not the least from the experience of
Yeltsin's past: When Gorbachev was being retired, Yeltsin promised him
"mountains of gold and rivers of wine", but just a year later he had already
"forgotten" about his pledges to the ex-president (just as he did about the
many other promises he has made as "guarantor of the constitution").

The general state of affairs in the country gives even greater cause for
concern, when ruling groups do battle using any methods they like with no
regard for any rules. I have already been prompted to write for Prism that a
sort of "Jurassic Capitalism" has arisen in Russia, whereby one lot of
dinosaurs (corporate-bureaucratic groups) devours other lots of dinosaurs,
dealing ruthlessly with anyone who gets in the way. Against this background,
one cannot hope for mercy for the fallen: Yeltsin's departure will spell the
end of the high level of state "protection" for all businessmen connected to
the "family."

After all, the departure of the current president will also provide an
enormous impetus for change in the administrative and political system in
the country. A change of leadership in Russia will lead to a huge shake-up
of the whole team--primarily in, but not limited to, the presidential
administration (whose role in our country is similar to that of the Central
Committee of the CPSU in the former Soviet Union).

A change of president means above all a change of line, a change of the
nomenklatura 'dynasty.' Despite the games of leapfrog being played among the
administration heads and prime ministers, basically one and the same dynasty
has remained in power (Primakov was a partial exception). Yeltsin's
departure, however, may signify the fall of the "second nomenklatura" (the
first being up of the so-called "foremen of perestroika"--also known as the
"first wave of democrats"--who vanished into the political wilderness in the
autumn of 1993, before, during and immediately after the state coup which
began with the notorious decree number 1400 and ended with the tank attack
on the Russian parliament and the murder of hundreds of its defenders).

So what has this to do with Stepashin's dismissal, you may ask. The answer
is that the Yeltsin dynasty is desperately seeking but failing to find an
heir to the throne. Having brought about the economic and political crisis
themselves, Yeltsin's team have deepened it to such an extent that it has
even hit their own structures. It is well known that a fish begins to rot
from the head. The Yeltsin group is no exception. They were offered a chance
to compromise, by gradually transferring power (and the gravy train) to the
dynasty represented by Primakov, but this chance would have entailed ceding
economic influence and relinquishing, albeit only partially, opportunities
for the rapid accumulation of capital. Yeltsin's team did not seize this
chance, and it appears that they do not have another. Sacking the totally
loyal and efficient Stepashin is a rather hysterical move on the part of the
presidential clan. All of this would appear to support the general
conclusion that the crisis of authority in the country as a whole also
affects the crisis of the "second dynasty of the new Russian nomenklatura."

II. Prime ministerial leapfrog as a consequence of the absence of a "party
of power." The second theme mentioned above--the absence of a party of power
in Russia--is also reflected in Stepashin's dismissal: neither Kirienko nor
Stepashin nor Yeltsin's current crony Putin have any socioeconomic and
political force behind them which is distinct from Yeltsin's closest circle.
Does this mean that there is no such force in Russia at all? I do not want
to offer a hasty reply to this question, which is a very important one in
contemporary Russia.

Two powerful but unseen processes are underway in Russia, which analysts
basically know about but which they sometimes "forget" to mention when
examining specific political problems. 

First, throughout the years of reform in Russia, a huge abscess of social
contradictions has been deepening. While the ruling class is gradually
forming into a distinct (if not uniform) force (the "capitalist dinosaurs"
mentioned above, the upper echelons of the corporate-bureaucratic groups),
most working people are only now becoming aware of their own objective
interests--the interests of people enslaved by dual (or even triple)
oppression: primitive capital, continuing bureaucratic arbitrariness, and
reemerging (in certain places) semi-feudal subjugation. The greater the
social tensions and the deeper the contradictions, the greater the challenge
to the authorities: There must either be a major review of the "course of
reform" (to which Yeltsin swears he is committed) or there will be major
social upheaval. The new "party of power" should therefore go some way, at
least temporarily and partially, towards meeting the interests of the
working people.

Second, in an equally unseen way, but more and more significantly, Russia is
gradually drifting away from pro-Western monetarist reform towards a
state-nomenklatura form of capitalism. The new party of power must also
respond to this challenge. If the country's new rulers do not resolve this
issue--even partially--they will not be able to rule Russia.

It is therefore time to ask the rhetorical question: Does such a party exist
in Russia? Before we answer this, I should stress that even if there were
such a party, a policy of social great-power capitalism would not resolve
the system crisis in society, but would only slow it down, at the same time
aggravating the already powerful contradictions in the field of human
rights, weakening financial oppression but strengthening bureaucratic
oppression and so on...

Who, then, can aspire to the role of the party of power in 21st century
Russia? By virtue of its size, one ideal candidate for this role--pursuing a
policy of state capitalism with a strong element of social paternalism--is
the Communist Party of the Russian Federation (KPRF). But new Russians and
their hangers-on have a pathological fear of the KPRF. On top of this--and
this is very important--most Russians, while they do not approve of Yeltsin
nor particularly want him or anyone like him in power, have even less desire
to see a return to shortages and authoritarianism. And, although Communist
leader Gennady Zyuganov's people cannot (and do not want to) move backwards,
no one will believe them. Luzhkov's Fatherland and All Russia are making
their bid to be the new party of power. If--and this is a big if--they can
(1) ensure real unity in their ranks, (2) lure at least part of the federal
nomenklatura over to their side, (3) persuade most Russian citizens that
they are fundamentally different from the Yeltsin brigade and (4) come to an
agreement with Primakov, then they may triumph.

As far as Russia's present "masters" are concerned--the Yeltsin
dynasty--they are growing frantic in their efforts to hold on to power,
feverishly swapping their prime ministers and heirs. But this will not help:
The Yeltsin clan will probably soon come to an end (barring, of course, any
unforeseen eruptions and disturbances in our fundamentally unstable social
order). Nevertheless, the effects of Yeltsinism as a form of social order
will continue to be felt for a long time to come; it may simply adopt a new
body into which it will transplant its criminal-capitalist soul--if such a
phenomenon as Yeltsinism actually has a soul.

******

#7
Moscow Times
August 28, 1999 
MAILBOX: Superpower Warhead Numbers Not Needed Now 

In response to "START II Will Be Hard Sell," Aug. 19: 

Editor, 

Being an emotional man, I must tell somebody that I disagree with what Mr.
Pavel Felgenhauer has written in the Aug. 19 issue of The Moscow Times. 

His idea is that it would be great for Russia to have far fewer nuclear
warheads than even the follow-up START III treaty outlines f not
2,000-2,500, but 1,000-1,500. With that I can fully agree. But the opinion
of Mr. Felgenhauer is that such a drastic reduction will be impossible
because "The Pentagon is adamant that the U.S. should not go under the
2,500 limit." 

I think this is another good example of that fact that many people in
Russia can't understand that their country's place in the world isn't the
same as it was 15 years ago. Russia cannot and should not try to match the
United States in this area. Even during the Cold War there were many
countries that felt safe enough having much fewer warheads than the
superpowers f for instance, France or China. The destruction that could be
inflicted by just a few warheads is so awful that even 100 of them is a big
enough deterrent for any potential aggressor. 

So why wait for the United States? Let them have as many warheads as they
want to have. 

Let's reduce unilaterally our nuclear arsenal. It will take a great burden
off our economy, it will reduce the chances of some major accident given
the situation in nuclear safety controls, it will reduce the risks of
nuclear materials leaking from Russia and it won't compromise our security
in any way. 

Pavel Priamostanov 
Moscow 

******

#8
From: IRASTRAUS@aol.com (Ira Straus)
Date: Fri, 27 Aug 1999 
Subject: Is the US supporting break-up of Russia?

Robert Bruce Ware, who knows a lot about Dagestan, writes (JRL 3466, and LA 
Times of 27 Aug. '99) of the need for the US to do something "to relieve the 
common Dagestani misconception that the United States is supporting the 
[Chechen] invaders." 

To put that another way, he is saying that lots of Dagestanis think the US 
wants Dagestan to break away from Russia, even if it means joining Chechnya 
and forming an Islamist state. And that the US needs to do something to 
dispel this impression.

This is an alarming statement about the local perception of U.S. intentions. 
If he is right, then the U.S. very urgently needs to do something about it.

I had previously thought the idea that the US was trying to break up Russia 
was primarily a Muscovite Russian misconception . It is distressing to hear 
that this misconception is common in Dagestan, too. 

Maybe it is common in other regions as well. 

This perception is very bad for the U.S. image -- in Moscow, in Dagestan, and 
just about everywhere in Russia. 

In each region, it can have a damaging effect on two sides: by giving false 
courage to the local separatists, and by building resentment to the US among 
the non-separatist majority.

Certainly it can't be winning us any friends in Dagestan, where the vast bulk 
of the people seem to dislike and fear the Islamists.

And obviously it can't be winning us friends in mainstream Russia. There 
could be no better way to convince Russians that we are their enemies, than 
to leave them with the impression that we are trying to break up their 
country.

It would be extremely interesting to know how many Russians feel that America 
wants their country to break apart. And it would be important to know this.

Could there be a straw poll of Russian readers of JRL on this matter? I'll be 
glad to help formulate the questions for it.

I suppose someone else, like USIA, ought to be doing such a poll, since it is 
a matter of vital national interest to know the extent to which America is 
getting such a bad reputation and why. And for that matter, USIA ought to be 
doing a poll to find out how many Americans in fact want Russia to break 
apart -- which I would guess if very few -- so it can refute the Russian 
accusation. And finally, USIA ought to be asking how many Americans have the 
sorts of political attitudes (such as always blaming the Center and always 
advocating decentralization, no matter what the specifics of the case, or how 
badly deficient the country already is in central authority) that could give 
a reasonable Russian the impression that they favor Russia's break-up, even 
if that's not at all what they have in mind. This could lead to some 
corrective measures regarding the kinds of advice that USIA-related programs 
and other official or sponsored Americans are giving to Russia.

While we're waiting for USIA to wake up, JRL could steal a march on it and do 
the first survey on the subject.

********

#9
The Economist
August 28, 1999
Organized Crime in Russia
Crime Without Punishment
MOSCOW AND NEW YORK 
The latest money-laundering scandal in New York confirms that the evil of 
organised crime is woven into Russian life—and that it is starting to infect 
the rest of the world 

DIRTY money makes the criminal underworld go round. Between $500 billion and 
$1.5 trillion (or 5% of gross world product) may be laundered every year, 
according to the IMF. Now it seems some of the IMF’s own cash may be 
involved. Along with several leading banks, it is embroiled in what may prove 
the biggest-ever case of money-laundering. All protest innocence and even 
shock. But few are surprised that the money involved comes from Russia. For 
the scandal has confirmed Russia’s status as the world’s leading kleptocracy. 
The story broke on August 19th, when the Bank of New York (BoNY), one of 
America’s oldest, admitted to co-operating with an investigation into alleged 
money-laundering of as much as $10 billion. The paper-trail has touched 
several European banks too, all of which are said to have helped, over the 
past year, to move $4 billion from Russia to BoNY’s London office. All the 
banks deny wrongdoing. 

One focus of the investigation (who also denies wrongdoing) is Bruce 
Rappaport, a 76-year-old Swiss banker whom Antigua, a notorious Caribbean tax 
haven, recently appointed as its ambassador to Moscow. He is joint-owner, 
with BoNY, of Bank of New York-InterMaritime, a Swiss bank that does lots of 
Russian business. Another focus is Benex, a company run by Peter Berlin, 
husband of Lucy Edwards (born Lyudmila Pritzker), a BoNY executive. The bank 
has suspended her, along with a second Russian-born executive, Natasha 
Kagalovsky—who is married to Konstantin Kagalovsky, a rich Russian 
businessman, who in the early 1990s was Russia’s IMF representative. 

As much as $200m that passed through BoNY may have come from IMF loans to 
Russia. The IMF says allegations of money laundering are serious and it is 
looking into them. But it also says that its loans to Russia were deposited 
directly into the accounts of the Russian central bank and that it has 
neither the locus nor the ability to monitor what happens next. 

Yet the IMF, which has lent over $20 billion to Russia since 1992, has had 
the sort of experience that would have persuaded any private lender to cut 
its credit lines. In July, a report by PricewaterhouseCoopers confirmed that, 
in 1996, Russia’s central bank had moved $1 billion to Fimaco, a firm it 
controlled in the Channel Islands, without telling the IMF. Stanley Fischer, 
the IMF’s deputy managing director, declared that the Russians had lied about 
the matter. Yet the IMF has just agreed to lend Russia a further $4.5 
billion; though this time, the money is being used to pay off earlier loans, 
so the Russian government cannot touch it. 

IMF officials concede privately that many problems have arisen because Russia 
has been treated as a special case. Lending to Russia has often been 
politically motivated, notably to help re-elect Boris Yeltsin in 1996. If 
lending criteria for Russia were unusually lax, that too is because of 
political considerations. 

Western banks also argue that Russia is a special case. Many were encouraged 
to set up shop in Moscow after the collapse of communism. And much Russian 
business has indeed proved lucrative—although a lot of banks lost heavily a 
year ago after the Russian government defaulted on its debts. However, Russia 
is now a special case mainly because of its organised crime. 

Banks have seldom asked much about where customers’ money has come from. But 
in the past few years they have been tightening up. Most international banks 
have rules in place to detect and report money laundering. But in Russia, it 
is virtually impossible to tell whether money is earned legitimately. 

That is because crime is not at the margin of society: it is at its very 
centre. Although all figures in this area are inherently unreliable, the 
Russian Interior Ministry has estimated that organised crime controls 40% of 
the economy; other estimates are even higher. Half of Russia’s banks are 
thought to be controlled by crime syndicates. 

A lawless history 

Yet to understand the depth of Russia’s crime problem, it is important to 
shed one big misapprehension: that it is a wholly new phenomenon. Russia has 
been, more or less, an orderly country for much of its history. But it has 
practically never been lawful. Property rights and an independent judiciary 
were only weakly rooted under Tsarist absolutism. They were further 
destabilised following the Bolshevik Revolution of 1917. 

Crime is more visible than before, but that does not make it new. In the 
Soviet Union, there was also organised crime, but it was largely hidden. For 
decades, there was a tightly knit group of traditional gangsters, known as 
vory v zakone, an expression meaning “thieves governed by their own laws”, 
who ran rackets of the kind that flourish in any repressive society, from 
trading in building materials to illegal prostitution to gambling. Such clans 
were often at loggerheads with the authorities. Stories about these criminals 
rarely, if ever, surfaced in the state-controlled media. 

Then there was the communist-run state itself. For the ordinary citizen, it 
may have maintained a semblance of law and order. But it also confiscated 
anything it wanted, ranging from household savings (through currency reforms) 
to the lives of its citizens (via slave labour). Until the fall of communism, 
the extent of official lawlessness was not fully appreciated. Thanks both to 
Russia’s freeish press and to greater integration into the outside world, 
lawlessness is now more visible than it was. Day to day, it is probably 
worse; but it is not completely new. 

The unusual thing is not that crime has flourished since 1989. It is that 
there has been at least an attempt to run Russia as a law-governed state. And 
the worrying thing, for both Russians and the rest of the world, is that this 
attempt has largely failed. On a superficial level, certainly, the structures 
and values of legality are in place. Policemen and judges no longer take 
orders from party bosses; there is parliamentary oversight of the executive; 
on paper, nobody is above the law. Even the most corrupt politicians pay lip 
service to notions of legality. 

But, once again, the reality is different from what is visible. At the top 
table, ex-communists used legal, semi-legal and illegal means to turn power 
into wealth, and then wealth into power. The presidential administration has 
become fantastically wealthy (its former chief housekeeper, Pavel Borodin, 
earlier this year valued its assets, shamelessly if fancifully, in the 
hundreds of billions of dollars). There are no meaningful public accounts; 
such details as do drip out—hundreds of millions of dollars spent renovating 
the Kremlin, for instance—suggest prodigious indulgence. 

Other signs of lawlessness at the highest level include the privatising of 
Russia’s main industrial and energy companies for token amounts in the 
shares-for-loans scandal; the extraordinary indulgence shown to banking 
magnates whose recklessness in any other country would have led to bankruptcy 
and prosecution; and the remarkable and unchecked opportunities for bribery 
created by a combination of high tariffs and a corrupt customs service. 

Although state institutions are strong and greedy where their own interests 
are concerned, they are weak and apathetic in defending Russia’s citizens. 
This has cleared the way for the growth of a new organised crime that preys 
on the country’s private sector. When the state will not help you collect 
your debts, secure your business or provide public services, as a rational 
businessman you must look elsewhere. 

The mundaneness of most protection rackets is no reason to be sanguine. “The 
mafia both exploits a vacuum, and maintains it,’’ points out Mark Galeotti, 
an academic based at Keele University who specialises in Russian organised 
crime. Although business enjoys a quieter and more predictable life, the 
hefty fees for krishas have pernicious effects. One is to make sure that 
officials stay weak and bribable. Another is to finance the mafia’s own 
business expansion plans in Russia and, increasingly, abroad. 

Survival of the fittest 

Fuelled by other people’s money, high and low forms of criminality have over 
the past decade converged into one (see chart 1 above) [DJ: Charts not here]. 
Corrupt officialdom 
pervades the economy; organised crime pervades officialdom. Russia’s 
financial collapse last year made things worse. The devaluation of the rouble 
has savagely reduced the value of public-sector salaries. This makes 
officials more vulnerable; it also makes hiring the public sector the most 
cost-efficient form of physical protection. The cost of hiring a squad of 
elite OMON anti-terrorist police, for example, has fallen to 1993 levels (see 
chart 2). 

Where this now leads depends largely on the economy. When Russia is booming, 
it produces a distorted form of crony-capitalism, visible in Russia’s biggest 
and most prosperous cities, in which local political barons are, in effect, a 
super-krisha for all business on their patch. Different clans divide up the 
economic cake by district or specialisation (all petrol stations in an area, 
for example, may be formally or informally franchised to the same group). A 
stable pecking order is often maintained by an external group, perhaps of 
Chechens, acting on behalf of the city bosses. 

This is hardly attractive, and certainly not optimal. Illegal revenues are 
funnelled through businesses that are kept going only as money-laundering 
operations, or thanks to monopolies maintained by force. But it does at least 
offer a kind of stability. One recent opinion poll in Moscow showed that a 
majority of residents believed that the municipal administration was 
corrupt—but that a majority would still be ready to re-elect it. 

Lawlessness can take far worse forms, leading to a vicious circle of 
increasing poverty and greed. This is visible in some of Russia’s most 
far-flung and worst-governed regions, such as the far eastern provinces, 
where local officials use the crudest threats and intimidation to force 
businessmen to hand over cash, shares or physical property. Increasingly 
corrupt officials and ever more criminal businesses squabble over a shrinking 
cake. Russia’s economic crisis has tilted the balance further towards this 
more poisonous variant. Contract killings, for example, which were declining 
until last year, are rising as turf wars intensify. 

Home matches, away victories 

The future depends partly on the mafia’s own business planning, which is 
becoming increasingly sophisticated. A striking consequence of Russia’s 
economic crisis was to speed up consolidation. Low-level gangsters, whose 
talents extended to little more than terrorising a bunch of kiosk owners or a 
car park, found revenues drying up along with consumer spending. They have 
lost market share to more sophisticated competitors who offer better service 
at a lower price. “Many thugs are putting on uniforms and working as security 
guards for the better krishas,” says Dr Galeotti. 

But the biggest worry for the rest of the world is not so much the prospect 
of a dismal, lawless future for Russia as of contagion outside its borders. 
If Russia’s economy continues to stagnate, the prospects for an ambitious, 
criminally minded Russian are limited. Local business looks increasingly 
unrewarding compared with the pickings elsewhere. 

There are three troubling possibilities. One is of Russian organised crime 
abroad. Russian racketeers in businesses such as prostitution and smuggling 
are already a well-established feature of the criminal landscape in countries 
with a big Russian immigrant presence, including Germany and America. 
Money-laundering into respectable businesses, or simply assets such as London 
property or American shares, is also substantial, as the BoNY case may yet 
confirm. 

More worrying is co-operation with foreign criminals in areas where Russian 
gangsters have a competitive advantage, in either skills or ruthlessness. Dr 
Galeotti’s research, for example, suggests that Japanese gangs have used 
Russian hackers to attack law-enforcement agencies’ databases. Russian 
professional assassins are also in big demand. 

But the worst threat comes from the fusion of a corrupt state with powerful 
gangsters. It has never been explained, for example, how the menacing Aum 
Shinrikyo cult was able to continue operating in Russia, even after its 
nerve-gas attack on the Tokyo subway. International branded-goods companies 
look with near-despair at the counterfeiting business in Russia, which seems 
to enjoy protection from the highest levels of government. Russia is a major 
staging-post for smuggling weapons and drugs, something that would be 
impossible without the close co-operation of state bodies. “Organised crime 
interests are global, not isolationist,” says one western security 
specialist. “They would love it if Russia was in the European Union.’ 

Dr Galeotti speaks of a “symbiotic relationship” between organised crime and 
Russian intelligence. In parts of the world where Russia’s intelligence 
agency, the SVR, has been cut back (such as Latin America), organised crime 
syndicates will do important legwork for Russia’s spymasters, he says. In a 
country like Israel, “which has excellent counter-intelligence but is 
hopeless at dealing with organised crime”, the same arrangement applies. In 
return, he says, the SVR performs services for Russian criminals—for example, 
spiriting key members across borders. There is, says Dr Galeotti, “no known 
case of Russian state interests prevailing over those of Russian criminals 
abroad.” 

This presents a huge difficulty for western law enforcement agencies—and for 
the IMF and other creditors. If the Russian state is fundamentally corrupt, 
working with it against crime is worse than useless. Any sources that 
Interpol share with Russian colleagues risk being fed straight back to the 
criminals. And any money that reaches Russia from abroad risks being siphoned 
off by organised crime, in cahoots with the state. 

Glass roof at tunnel’s end 

Yet the picture is not totally hopeless. Other post-communist countries have 
managed to tackle both the mafia and corruption. Estonia, which was under 
Soviet rule until 1991, has made substantial progress, sometimes by 
threatening to deport Russian suspects. Latvia and Lithuania have jailed 
heads of mafia clans who seemed untouchable only a few years ago. Public 
disgust with crime and corruption, coupled with pressure from friendly 
neighbouring countries, were key factors. So was an increasing desire among 
leading crooks to go respectable. 

The shift is not complete: one Estonian law enforcement official laments that 
some well-known and well-connected local businessmen still dip into illegal 
business if they can. But it marks a huge step towards manageability. That 
most post-communist countries have reduced lawlessness below some western 
levels is cause for congratulation, though perhaps not complacency. 

There is no reason why this should not also apply, eventually, in Russia. 
Although Russians tolerate a remarkable degree of lawlessness in their 
country, there is no evidence that they actually like it. This may seem a 
slender reed to rely on, but it is not a negligible one—particularly as and 
when the costs of corruption become more apparent. Russian voters, like 
voters elsewhere, will not put up indefinitely with corrupt rulers who keep 
them poor. The sad thing is that they have little experience of anything 
else. 

*******