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5 September 1999
[Note from David Johnson:
1. US News and World Report editorial by Mortimer Zuckerman, Betrayed but
not broken. Though plundered and confused, Russia can solve its problems.
2. Washington Post: Samuel Berger, Getting the New Russia on Its Feet.
Our assistance is making the American people more secure.
3. Bloomberg: IMF Policies Make it Hard to Track Loans to Russia, Elsewhere.
4. The Guardian (UK): Ed Vulliamy, Embezzlement warnings no one wanted to
5. Sam Ruben: Mir.
6. Ray Thomas: RE: 3471-Hirsh/The Gangster State.
7. Reuters: German banks may be in Russian money scandal-paper.
8. New York Times: Celestine Bohlen, In Russia, a Power Play Acted Out on
9. Reuters: Yeltsin has no need to declare innocence-spokesman.
10. AP: Communist Party Eyes Economy Control.
11. The Sunday Times (UK) Insight, HUNT FOR THE RED DON.
US News and World Report
September 13, 1999
Betrayed but not broken
Though plundered and confused, Russia can solve its problems
BY MORTIMER B. ZUCKERMAN/EDITOR-IN-CHIEF
Pity the Russian people. They have gone from living under communist barbarism
to capitalist barbarism without any civilized system in between. The United
States thought that its advice and money could transform Russia from a
command, socialist economy to a free-enterprise, market economy. Instead, it
has been transformed into a gangster state of staggering corruption. Current
headlines about billions in looted money being channeled through U.S. banks
are a glimpse of what has been going on. The oligarchs have literally stolen
the country in the crime of the century.
Boris Yeltsin, once the hero of the people's revolt, is a caricature of a
president. His puffy, slow movements and bouts of drunkenness personify a
desperately unhealthy nation. The clique around him has taken control of
Russia's most cash-rich agencies. At least five of his current or former
ministers are being investigated for corruption, including his daughter. The
state auditor is trying to find out what happened to the $488 million used to
refurbish Yeltsin's residence. The central bank was accused of transferring
currency reserves to an offshore company so that insiders could reinvest them
in Russia's short-term treasury bond market, for personal profit. Honest men
who resist the gangsters have to ponder a "silver or lead" option, which
translates: You take 30 pieces of silver or you get shot. No individual or
branch of government commands sufficient respect to govern effectively. The
legislature is paralyzed, the judiciary ineffectual, the police impotent. The
financial system is in such shambles that the ruble is a joke and over two
thirds of the economy operates on barter. Because it cannot collect taxes,
the state can barely perform its basic functions in health, security, and
education. On the "private" side, vast, unaccountable power is wielded by the
men who got control of the assets of the state and its natural resources.
These oligarchs–the nomenklatura capitalists–transfer their winnings abroad.
Capital flight is believed to have exceeded well over $200 billion in the
past seven years–three times what flowed out of Mexico in the 1980s.
The average Russian meanwhile has got poorer. GDP is off by 50 percent since
1989, unemployment and poverty are widespread, and the death rate among men
is staggering. Russians associate democracy with political arrogance and
market capitalism with cronyism. We sent money to support Yeltsin in the face
of a communist alternative. It was the evil of two lessers. But ordinary
Russians have convinced themselves that the collapse of the country is
largely the result of American machinations. What we did not fully appreciate
was the extent to which seven decades of communism had crippled the country.
Now Americans are also wondering how to come to terms with the disaster.
The most absurd question being asked is, "Who lost Russia?"–as if somebody in
America was to blame. Russia is not lost. It is still a much better friend of
the West than it was under communism and is certainly not our enemy. The
Russians have cast off communism. They have a constitution with contending
political forces instead of a secret one- party rule. They have a contentious
press, the beginnings of a market economy, and in the provinces a new
generation of entrepreneurs and political leaders.
The Russians have, in fact, demonstrated an extraordinary resilience. Despite
their privations and their betrayal by the oligarchs, there have been no
demonstrations, no sympathy strikes, no marches. The impending elections to
the Duma and the presidency offer the prospect that largely centrist politics
will dominate without the reds and browns on left and right being able to
The United States and the West will have to appreciate that Russia can only
solve its problems its own way. We must keep in mind that the West's
financial aid, much of which was misspent or stolen, may well have delayed
the necessary reforms in Russia. We have to step back, support democracy when
we can, but focus primarily on the security issues we share, of which the
gravest remains the thousands of nuclear weapons–the "loose nukes" in the
phrase of Harvard's Graham Allison.
Humility will serve us well. Not everybody needs to be like us. Not everybody
5 September 1999
[for personal use only]
Getting the New Russia on Its Feet
Our assistance is making the American people more secure.
By Samuel R. Berger
The writer is the president's national security adviser.
Not for the first time, people are pointing to trouble in Moscow -- to
evidence of corruption, malfeasance and capital flight -- to question whether
we have been right to engage with Russia and whether we engaged in the right
There are indeed plenty of troubles in Russia today. But they should not
obscure what U.S. engagement has produced for the American people. Since 1992
our efforts have helped deactivate almost 5,000 nuclear warheads in the
former Soviet Union; eliminate nuclear weapons from Ukraine, Belarus and
Kazakhstan; safeguard sensitive technologies; engage more than 30,000 weapons
scientists in civilian research; and obtain hundreds of tons of uranium from
dismantled Russian weapons.
Today three-quarters of our aid to Russia is devoted to programs that
diminish the danger of nuclear war and proliferation. Russia also has
withdrawn its troops from Central Europe and the Baltics -- not a forgone
conclusion when the Soviet Union collapsed -- respected Ukrainian
sovereignty, begun to forge a cooperative relationship with NATO, joined us
in peacekeeping missions in Bosnia and Kosovo and made some -- though not yet
sufficient -- progress in controlling the export of lethal technology to
rogue states. We have agreed to begin discussions this year on a START III
treaty, even as we work to get START II ratified and preserve the ABM Treaty.
None of this would have happened without our diplomatic engagement. And none
would have been possible had we not simultaneously supported Russia's
transformation into a more stable, open and prosperous society, despite the
frustrations of that undertaking.
Our approach to Russia's transition is based on a still valid premise: Reform
will take a generation or more. Neither success nor failure is preordained.
But encouraging success is in our interest. At this early stage, the only way
to lose Russia is to give it up for lost.
To understand corruption in Russia, we must understand that it is rooted in
the legacy of Soviet communism. The communist elite expropriated state assets
to enhance its wealth and power. Soviet citizens grew accustomed to stealing
from the state to squeeze out a better existence.
So among the first and most important tasks facing Russian reformers at the
beginning of this decade was to place state assets under private control.
This was a political as well as an economic imperative, for breaking the
state's stranglehold on Russia's economy was a prerequisite to breaking its
stranglehold on the country's society.
Today some argue that it would have been better to delay privatization until
Russia's political culture and legal institutions were more mature. But after
decades of communism, it would have taken years for Russia's fractured
institutions to agree on the necessary steps and still longer for the culture
When Russia's democratically elected leaders decided to begin privatization,
rather than wait and hope for a better day, we tried to help make that
process work. So we helped Russia create a securities and exchange commission
and a national electronic trading system that would allow shares to be traded
openly. We helped the development of small businesses and channeled aid
through nongovernmental organizations and local governments.
Unfortunately, a system with too many bad rules gave way to a system with too
few good rules. Many Russians associate privatization with insider deals on a
handful of large enterprises in 1995 -- a program we refused to support.
But if Russia has made less progress than the optimists hoped, it has made
more than the pessimists feared. Tens of thousands of private businesses have
been created. Russia's first modern middle class has emerged. With IMF help,
Russia has beaten hyperinflation.
Most important, the Russian people speak freely, choose their leaders, hold
them to account. They repeatedly have rejected a return to communism. My bet
is they will again.
As for corruption, we have spoken out bluntly, early and often. While in
Moscow in 1995, President Clinton called for an "all-out battle to create a
market based on law, not lawlessness." In 1998, he made clear that investment
in Russia depended on "strong checks on corruption and abuse of authority."
Long before allegations surfaced, U.S. law enforcement officials were
investigating Russian financial and organized crime and preparing
indictments. In early 1997 Vice President Gore pressed Prime Minister
Chernomyrdin to back money-laundering and anti-crime bills, which the Russian
Duma and Federation Council subsequently approved. We feel President Yeltsin
should not have vetoed the money-laundering law, and we urge the Russians to
get new legislation passed.
Last year Secretary of State Madeleine Albright said that foreign funds
"should be used to support policies that help the neediest Russians, not
enrich foreign bank accounts." While we have no evidence that IMF funds have
been stolen, we will continue to insist on safeguards and accountability of
IMF programs as a prerequisite for disbursements. Today IMF funds can be used
by Russia only to refinance its debt to the IMF.
Ultimately, accountability must come from the Russian people. That they now
have the freedom and power to provide it, that the truth is no longer hidden
from them but exposed by an energetic press, that they have broken the back
of communism and chosen to pursue their aspirations with, not against, the
world, remains among the most hopeful developments of our time. By standing
with them when possible, while standing up for our interests when necessary,
we have made the American people immeasurably more secure. This remains the
right course for America.
IMF Policies Make it Hard to Track Loans to Russia, Elsewhere
Washington, Sept. 5 (Bloomberg) -- The International Monetary Fund says it
has ``absolutely no indication'' any of its loans were caught up in an
alleged $10 billion money-laundering scheme that may have involved Russia
and Bank of New York Co.
Problem is, an IMF connection would be difficult to determine, because the
fund itself acknowledges it doesn't track the money it pours into
economically distressed countries.
``They just write a check to a government, and a government can do what
they please with it,'' said Vladimir Brovkin, a senior fellow at American
University who researches organized crime.
Concerns about how the IMF monitors its loans may delay, or even
jeopardize, a $640 million installment Russia is counting on soon from the
fund. James Leach, chairman of the U.S. House Banking Committee who has
called for a ``moratorium'' on Russia lending, is planning hearings on IMF
loans and other money transferred into and out of the country. Those
hearings, tentatively set for Sept. 21 and 22, will ensure that questions
about IMF lending multiply just as the fund begins its annual meetings
across town only days later.
Russian Finance Minister Mikhail Kasyanov said Friday the IMF may delay the
payment, at least until early October. On Aug. 25, Kasyanov had voiced
confidence the payment from a $4.5 billion credit line would come in
Fueling all the suspicion have been media reports that U.S. law enforcement
authorities are investigating allegations that about $10 billion of
illegally obtained funds was circulated through the Bank of New York by
associates of a Russian crime syndicate.
While the reports have said investigators are also looking into whether IMF
money was caught up in the laundering, law enforcement officials told
Bloomberg News they haven't found evidence of that. And the IMF, which says
it hasn't been approached yet by investigators, is conducting its own probe.
``We continue to have absolutely no indication of IMF money having been
diverted,'' Thomas Dawson, a spokesman for the fund, told reporters last
Monday in a conference call. ``We continue to take the allegations very
Questions remain from IMF critics, partly because of the sheer amount of
money the fund has lent Russia since the breakup of the Soviet Union: The
IMF has lent the country almost $22 billion since 1992, and Russia owes the
lender about $16 billion.
To be certain, disbursing the next $640 million installment to Russia from
the latest $4.5 billion loan, approved in July, would involve minimal risk
for the IMF, because the money will probably be transferred from one IMF
account to another. The funds, after all, are only being spent to pay back
other IMF loans.
The previous $640 million installment, paid Aug. 1, ``never left the (IMF)
building,'' said William Murray, another spokesman for the fund.
The IMF's own charter limits the lender to making ``the general resources
of the fund temporarily available'' to central banks ``under adequate
safeguards.'' The goal is to ``correct maladjustments'' in its members'
balance of payments.
Yet pouring money into central banks makes it difficult to track,
especially in a world where funds electronically zip across continents and
Loans placed in a country's central bank, ``are intermingled'' and ``cannot
be effectively distinguished from pre- existing balances,'' according to a
report the U.S. Treasury sent to Congress earlier this year regarding the
IMF's efforts to revamp its procedures.
The IMF itself acknowledges that.
``We do not monitor every international transaction from a borrowing
country,'' said Murray. ``What we do monitor very closely is changes in
international reserves. We ask some pretty detailed questions.''
The Treasury report said that as a remedy the lender may begin requiring
audits of central banks before it disburses loans. The IMF also may impose
restrictions on how borrowing countries can use the loans to intervene in
their foreign exchange markets, support domestic banks or service foreign
That may not be enough to appease critics.
``They've had a rather naive eye and sometimes a blind eye toward the way
government officials spend this money,'' said Keith Henderson, co-director
of American University's transnational crime and corruption center in
Washington. ``Because it did not properly assess the risk in loaning money
and did not build in safeguards to make sure the money wasn't misused, they
have often found themselves with their pants down.''
In Russia, ``you're dealing with a negotiating side whose motives were
suspect,'' said Thomas Graham, who had several assignments in the U.S.
embassy in Moscow and helped plan Russian policy at the State Department.
Graham said the IMF should have been more skeptical, especially before
helping Russia secure a $22.6 billion credit line in July 1998. Russia used
much of the first installment of $4.8 billion to prop up the ruble -- then
weeks later defaulted on its domestic debt and devalued the currency.
Russian officials ``could have gotten this money on false pretenses because
they knew it would be used by people close to them,'' raising the specter
of ``insider information,'' Graham said.
What's more, the IMF answers to its 182 member countries, which can
influence lending decisions, analysts said. With Russia, that has meant
decisions have been made for the wrong reasons, such as to influence the
outcome of elections.
``The IMF deal for Russia was the most political deal the IMF has ever
done,'' Arturo Porzecanksi, chief economist for the Americas and a managing
director at ING Barings in New York, said of the July 1998 credit line.
The Guardian (UK)
5 September 1999
[for personal use only]
Embezzlement warnings no one wanted to hear
Ed Vulliamy in New York
Back in 1995 the Central Intelligence Agency called it the biggest heist in
history: billions of dollars of Western taxpayers' money sent to Russia as
loan aid by the International Monetary Fund - a central pillar of United
States policy - was being siphoned off by what Washington labelled last
week as 'the Kleptocracy'.
Russia had been raped and pillaged by an alliance of its own political
elite and the criminal classes.
The CIA delivered its verdict to Vice-President Al Gore, the man who has
made friendship with Russia his hallmark and who is now hoping to become
the next President. The agency named Viktor Chernomyrdin, the former
Russian Prime Minister, as one of the players in the web of corruption.
Gore, who together with Chernomyrdin led the US-Russian Commission
responsible for trade, responded to the report with a derogatory remark.
The Clinton administration, unimpressed, did nothing: the US preferred to
do business with Russia.
The CIA kept its eyes open in Moscow, but decided it was not worth asking
its agents around the world to watch the movement of Russian money. For
five more years the money flowed and flowed - some $20 billion in IMF loans
- and disappeared. Now the cash has started to reappear, laundered across a
miasma of shell companies and bank accounts.
The blatant warnings about what was happening to the flood of money to
Russia were ignored because sometimes in Washington politics there has to
be an abyss between the language of policy and the reality of what it
The White House and the IMF talk about economic aid to Russia in terms of
the end of the Cold War, the dawn of democracy, the free market and the
hand of friendship.
What they cannot do is acknowledge the beast that has been created at such
vast expense to the US taxpayer: a sick, lurching creature infected with
corruption and being eaten by terminal economic cancer, led by a senile
Last week on Capitol Hill, as he testified to the House banking committee,
Boris Kagarlitsky, director of the Institute of Economic Analysis in
Moscow, offered a crushing piece of common sense. 'It is impossible to
believe,' he said, 'that IMF officials are not aware when every shopkeeper
in Moscow knows about it.
'How can you talk about due safeguard when it is a notorious fact that
capital flight from Russia has far exceeded the sums provided as credits by
international financial institutions?'
As the IMF last week stalled the next tranche of its rolling programme of
loans to Russia - an instalment worth $640m - it insisted it had no
evidence of massive embezzlement in Russia.
An IMF official told The Observer that the fund was 'sceptical' about the
now rampant reports that billions of dollars loaned to the Russian Central
Bank have been smuggled out of Russia by criminals protected by the
political elite through shell companies and accounts held at the Bank of
But the IMF admits in a forthcoming internal bulletin that it was
hoodwinked by the Russian Central Bank over capital flight, and that loans
dating back to 1996 might not have been authorised had officials been aware
of the flow of capital out of Russia. Signed by an IMF official, John
Odling-Smee, the bulletin lambasts the way Russia's Central Bank channelled
IMF funds though offshore subsiduaries.
It concedes that the Russians were concealing their dealings. 'Hiding the
transactions created a misleading impression of the true state of the
reserve... and may have caused the IMF to disburse funds in 1996 that would
otherwise have been delayed.' The bulletin concludes that the Russians were
guilty of a 'total breach of trust'.
The IMF was made aware of the massive flight of capital when the Central
Bank's chief, Viktor Geraschenko, told the Russian parliament that a shell
company in Jersey, Fimaco, was set up to hide assets from predatory Western
creditors. The IMF found the explanation unconvincing but ordered an
investigation by the bank, which was duly carried out by auditors from the
international accountancy firm PriceWaterhouse Coopers.
They concluded that the Central Bank had churned some $50bn through Fimaco,
which had been monitored by British authorities and led to the present
Date: Sat, 04 Sep 1999 10:43:57 -0700
From: "Sam Ruben" <email@example.com>
To: David Johnson <firstname.lastname@example.org>
We space fans would hope that Russia decides to fire the retros the other
way when it's time to decommission Mir, fire it off to high orbit, even into
the void, to be retrieved later when we are a truly space-faring race, to be
set up in a great monument on, say, Phobos Base, to the ingenuity and hopes
of Early Galactic Human.
From: R.Thomas@open.ac.uk (Ray Thomas)
Subject: RE: 3471-Hirsh/The Gangster State
Date: Sun, 5 Sep 1999
>know is that lots of money was going in and out of these accounts. Whether
>it's nefarious or not we really don't know," the FBI official said.
>"Basically we don't know if this is legitimate money or illegitimate."
>Investigators say at least $4.2 billion and as much as $10 bil- lion may
>been laundered - funneled through legitimate accounts so it appears clean -
>from as early as October 1997 to March of this year.
It is unfortunate that those who write about Russia having a virtual economy
don't talk to these who write about money laundering. They might learn from
The virtualists cannot understand the scale of barter in the Russian
economy. [Thank you Stephen Moody, see JRL 3454, for that useful term
'virtualist' - definable as those who can interpret trends in Russian only
in in the light of an alien ideology]. But the explanation is quite
simple. The firms who engage in barter are not supported by a banking
system that enables them to control their financial activities.
No-one in Russia has trust that Russian banks would take care of their money
or that that the Russian government would allow the banks to take proper
care of their money. Anyone who acquires money legitimately, or illegally,
would prefer to entrust it to a western bank. That involves breaking
regulations, having secret deposit accounts, and careful editing of
organisations' financial accounts.
Of course Yeltsin and the family also indulge in this kind of activity.
Like any dictator, Yeltsin wants to have assets in foreign accounts to
ensure that he gets the pension that might be denied by his successors in
power. And so do all his hangers on.
These conditions encourage criminal activity in the form of transfer of
money that belongs to organisations into personal accounts. Not surprising
that the line between legitimate and illegitimate money is very hard to
Laundering of money and the barter economy will continue to coexist for as
long as Russian banks lack any credibility.
And Russia will continue to be attacked on the one side by the 'virtualists'
who believe that money is the only real thing in the world, and on the other
side Russia will get only qualified support from those handling money whose
legitimacy is in doubt.
I can't see much indication that the solution to this problem can be solved
internally. The trust that is a necessary condition for the existence of
the barter economy, does not appear to exist wherever money is directly
involved. Everyone understandably gives priority to taking care of the
financial interest of their organisation - or their personal financial
Is is possible that the solution could come from outside? The IMF and a
host of US advisors find it very easy to tell Russia governments how they
should run their economy. Would not the the IMF and the host of US
advisors be more effective if they focussed on telling the Russian
government how they should establish a banking system?
German banks may be in Russian money scandal-paper
FRANKFURT, Sept 5 (Reuters) - German financial institutions could be involved
in the alleged Russian corruption and money laundering scandal that is
currently being probed, Deutsche Bank AG Chief Executive Rolf Breuer was
quoted as saying.
German newspaper Welt am Sonntag in its Sunday edition quoted Breuer as
saying: ``It is possible that we were misused as intermediaries.''
The newspaper reported that Deutsche Bank is investigating whether any
suspicious money transactions had occurred.
A Deutsche spokesman said in response to Reuters enquiries that he could give
no details for legal reasons.
U.S. and international law enforcement officials are probing allegations
Russian mobsters, officials and businessmen diverted about $10 billion from
Russia through at least one U.S. bank.
The suspected embezzled cash is suposed to include money from International
Monetary Fund loans but the IMF says that while it is watching the probe,
there is no evidence that IMF money is involved.
New York Times
September 5, 1999
[for personal use only]
In Russia, a Power Play Acted Out on Television
By CELESTINE BOHLEN
MOSCOW -- If television is, as it increasingly seems to be, the weapon of
choice in Russia's intense and ugly political battles, then Sunday night will
offer Russian viewers, on two of the country's major channels, a journalistic
rendition of "Gunfight at the O.K. Corral."
ORT, Russia's largest TV channel, is controlled by Boris A. Berezovsky, a
financier, media baron and close ally of President Boris N. Yeltsin. It will
start a weekly news program whose host, Sergei Dorenko, is an anchorman with
the reputation of an attack dog. He has in the past used his air time to tear
political opponents to shreds.
Dorenko goes head-to-head with Yevgeny Kiselyov, a journalist with a studied,
more ponderous style, who is host of "Itogi," or "News," a long-running
weekly program broadcast by NTV. An independent channel, it is controlled by
the media magnate Vladimir Gusinsky, who in recent months has openly broken
ranks with Yeltsin's dwindling team.
In another nation, competition on a Sunday at 9 P.M. might be seen as the
start of a ratings tussle. In Russia, with legislative and then presidential
elections during the next nine months, the "mano a mano" between Dorenko and
Kiselyov is the latest skirmish in a media war that has at least as much to
do with power as it does with viewers.
"It is pretty fierce because the competition exists on several levels," said
Sergei Markov, director of the Institute of Political Studies. "It is a
competition between two journalists, between two TV channels, between media
magnates, all this against the background of a battle between the existing
party of power and the future party of power."
In 1996 both television channels and their owners were solidly behind
Yeltsin's re-election campaign. In those days, as Dorenko recalled in an
interview, the stations scheduled their news programs to avoid competition.
One result, he noted, was all Yeltsin, all the time, "until the viewer was
ready to hang himself."
This year, the competition between Russia's two main media groups has turned
into a blood sport, not unlike the political battle now shaping between the
Kremlin and its newly emerged rival, a coalition headed by Yuri M. Luzhkov,
Moscow's Mayor, and former Prime Minister Yevgeny M. Primakov. In both media
and politics, the stakes are very high.
"If Luzhkov wins, then ORT will exist but without Berezovsky," Markov said.
"If the Kremlin is able to undermine the Primakov-Luzhkov march to power,
then NTV will exist, but under different control."
As Russia's election year gets off to a running start, efforts to police --
some say harass -- the media have become more blatant. Last month officials
from the Moscow fire department issued an order to shut down the offices of
Kommersant, a daily paper recently bought by Berezovsky, in a move that the
paper's new editor said was driven by Mayor Luzhkov. On Friday the Press
Ministry pulled the plug on a TV station in St. Petersburg, Russia's
second-largest city, after it failed to respond to a warning about a program
that savagely mocked a rally organized by liberal politicians.
"Television is a powerful weapon," Kiselyov said in an interview this week.
"And it can produce unexpected results."
Kiselyov was talking about the "Itogi" program broadcast in May, when he
shocked the Russian political elite with a full-scale assault on the Yeltsin
administration. Breaking an unspoken taboo in the liberal media, he described
it as "the family," until then an insiders' code phrase. It refers to a small
group that includes most notably Yeltsin's daughter and political adviser,
Tatyana Dyachenko, Berezovsky and Berezovsky's business associate, Roman
Abramovich, who is described as the family's cashier.
On that program Kiselyov described how the family, in a bald-faced power
play, had handpicked appointees to Russia's latest Cabinet. "It was so open,
so cynical, so outrageous that it was a slap in the face of public opinion,"
Kiselyov said. "It was like Caligula when he went to the Roman Senate and
presented a horse as his successor."
Not long after this, the war between NTV, controlled by Gusinsky, and ORT,
backed by Berezovsky and the Kremlin, moved out into the open. All of a
sudden, a Government-controlled bank recalled a $60 million loan to Media
Most, the Gusinsky-controlled media group. In newspaper interviews, a top
Yeltsin aide vowed to teach Gusinsky a lesson; Kiselyov, at a conference,
urged the aide, Aleksandr Voloshin, to resign.
Some of the heat has since gone out of the Kremlin's attacks on Media Most,
and according to news reports the disputed $60 million loan was successfully
renegotiated. But the television war is still on.
The Kremlin is again on the defensive, fending off corruption charges now
under investigation in Switzerland. And it is now that Berezovsky has chosen
to bring out his heavy artillery -- Dorenko, a 39-year-old Zen and motorcycle
enthusiast who clearly relishes his role as the enfant terrible of Russian
Viewers remember him for his investigation of Anatoly B. Chubais, the former
privatization chief (and Berezovsky foe), and for his attempt, on air, to
examine the size of the skulls of top Communist Party leaders, as alleged
proof of their supposedly subhuman intelligence.
Not surprisingly, Dorenko has many enemies -- some of them, he asserts,
inside the Kremlin, where he says he is remembered for repeated references to
the President as a baboon. But his loyalty to Berezovsky is unquestioned. He
says that he speaks with Berezovsky almost daily, and that he has twice been
a guest at Berezovsky's villa in the south of France.
Dorenko's stunts and aggressive style have also won him a popular following,
particularly in Russia's distant regions, where he says some polls have shown
that he is more trusted than the Russian Orthodox Church. However, he admits
that in Moscow, Kiselyov's ratings are higher than his.
"He is more popular with the elite, I agree," Dorenko said. "The elite thinks
Kiselyov is one of them, a member of the corporation. But the electorate
believes me, not him, which is why the elite fears me."
Both Kiselyov and Dorenko insist that they themselves have no stake in
Russia's political fight, and that their programs will provide neutral
coverage of events this week in Russia, a full menu including everything from
an open-ended war in the Caucasus to the unfolding scandals linking the
Kremlin and the Bank of New York.
For Russia's political junkies, the question will be which of the two
programs to watch live. "Mostly I will probably watch Dorenko," Markov said.
"I think I know what Kiselyov will say. But Dorenko is a killer, and harder
Yeltsin has no need to declare innocence-spokesman
MOSCOW, Sept 4 (Reuters) - President Boris Yeltsin should not have to declare
his innocence or respond to reports about corruption allegations against the
Kremlin involving a Swiss construction company, his spokesman said on
``There is, it seems to me, a poor understanding of one of the fundamental
legal principles and that is the presumption of innocence...a man should not
have to go into the square and say publicly that he is not guilty,'' Kremlin
spokesman Dmitry Yakushkin told RTR television.
``Every time this is demanded from people, as a rule, it has tragic
The Kremlin has firmly denied reports Yeltsin or any of his family have
foreign bank accounts after a report in the Italian newspaper Corriere della
Sera which said Swiss firm Mabetex paid $1.0 million into a Budapest bank for
the president in 1994.
The newspaper also said Mabetex, which won contracts worth $300 million for
renovating buildings including the Kremlin, also paid credit card bills for
Yeltsin and his two daughters.
Mabetex has also strongly denied the allegations and says it is going to
court to get Russia to pay unpaid bills.
Pavel Borodin, the central figure in the bribery probe, said earlier on
Saturday that he was enjoying the fame that came with the scandal but called
the allegations against him ``madness.''
Speaking in a radio interview, Borodin said Yeltsin saw the case as a
political witch-hunt against him personally.
Borodin runs the department of Yeltsin's administration responsible for the
presidency's vast real-estate holdings and has been at the centre of the
Communist Party Eyes Economy Control
4 September 1999
By BARRY RENFREW
MOSCOW (AP) - Fighting to remain Russia's largest political bloc, the
Communist Party on Saturday made public an election platform advocating
greater state control of the economy and renationalization of key sectors.
The Communists promised to prosecute and jail those it said had plundered the
economy and to recover state assets sold off under the country's current
efforts to build a market economy. Businessmen and officials who have grown
rich by looting state assets would be jailed.
``Building a fair society has always been (our) goal and remains as such.
There will be no poor or hungry people and thieves and swindlers will be put
in prison,'' Communist leader Gennady Zyuganov told a special congress.
The party's platform for December elections for the State Duma, the lower
house of Parliament, also calls for the reunification of Russia, Belarus and
Ukraine, which became independent when the Soviet Union collapsed in 1991.
The Communists are the largest bloc in the Duma and have been the main
opposition to President Boris Yeltsin with their bitter attacks on market
economics and their calls for a return to the Soviet system.
But the Communists are facing a major electoral challenge because of a
reshaping of the political landscape in recent months. Several new centrist
electoral alliances are expected to do well and could dominate the Duma.
A new alliance led by Moscow Mayor Yuri Luzhkov and former Prime Minister
Yevgeny Primakov threatens to overtake the Communists as the largest
parliamentary faction, according to recent opinion polls.
While calling for a return to state economic control and subsidies, Zyuganov
was vague on how the Communists would rescue Russia from years of economic
decline. He called for a national spiritual revival, saying that resurrecting
Russia's intellectual potential would revive the economy.
The vague economic plan highlights the Communists' dilemma. They insist that
the Soviet system remains Russia's best hope, even though it collapsed years
Zyuganov denied the Communists would restore authoritarian rule, saying the
party did not favor emergency rule that would suspend constitutional rights.
The Communist leader, who was defeated by Yeltsin in the second round of 1996
presidential elections, criticized the president's frequent dismissals of
prime ministers and Cabinets.
``The crazy game of reshuffling personnel, which has become a laughing stock
for the entire world, will be put to a stop,'' Zyuganov said.
He also called for the beleaguered military to be restored to its former
glory, saying the Communists would again make it ``a favorite of the people.''
The Sunday Times (UK)
5 September 1999
[for personal use only]
HUNT FOR THE RED DON
Semion Mogilevich, the ruthless gangster at the centre of a $10 billion money
laundering scam, has escaped the police for years. A fresh trail starts at a
rundown flat in eastern Europe
Insight: David Leppard, Maeve Sheehan, Gareth Walsh and Paul Nuki in London;
Garth Alexander in New York; Suzanne Simon and Karl Peter Kirk in Budapest;
Natalya Shulyakovskaya in Moscow
As the burly figure of the Red Don moved briskly towards the entrance of the
shabby 11-storey apartment block in a Budapest suburb, he appeared keen to
avoid onlookers. Semion Mogilevich had every reason to be nervous. He is the
Russian mobster who is the target of investigations in three continents over
his alleged involvement in the world's biggest money-laundering scam.
Mogilevich shrugged his shoulders when confronted by a Sunday Times reporter.
His smart-suited Russian henchman would say only: "Officially, he's still in
Moscow." Mogilevich then disappeared into his ground-floor apartment, which
he keeps in the name of his Hungarian-born wife.
Investigators in London and New York would like to question him over a $10
billion money-laundering scheme that has unwittingly embroiled the Bank of
New York and a network of other leading financial institutions in America,
Britain and up to six other countries.
As it continues to unravel, the inquiry even threatens the political
ambitions of Al Gore, the leading Democratic contender for the American
presidency, whose opponents accuse him of going soft on Russian corruption.
The 53-year-old Ukrainian-born Jew, who is also known as the Brainy Don
because he has a degree from a Russian university, was returning for a brief
- and supposedly secret - visit to the eastern European capital that in
recent years has become the base for his global crime syndicate.
Money-laundering - transforming the profits of crime into "clean" cash by
channelling them through a network of apparently legitimate companies and
bank accounts - is just one of the Red Don's many skills.
Arms dealing, prostitution, art fraud and extortion all form part of his
formidable criminal repertoire. He has even been linked to a big funeral
service company in Moscow. Such activities are said to have made him more
than $100m (£60m) in the past 20 years.
Much of his money comes from a string of nightclubs he owns in Russia, the
Czech Republic and Hungary, which serve as fronts for huge prostitution
rackets. In Budapest, the Black and White club represents the hub of his
global empire. From there he has single-handedly bought most of the country's
He is also said to have purchased an entire airline in a former Soviet
republic so that he could ship heroin out of the golden triangle in Asia.
The tentacles of the Mogilevich empire stretch from Moscow and Ukraine
through the Czech Republic and Hungary and into Britain and the United
States. He has even set up a base in Israel and has established strong ties
with the Italian mafia [see box.]
In New York, his lieutenants tried to broker a deal with Russian associates
of the Genovese crime family to dump tons of American toxic waste in Russia.
He acquired jewellery businesses in Moscow and Budapest. According to Federal
Bureau of Investigation documents, they were to be used as a front to acquire
art stolen from churches and museums in Russia.
It is a formidable empire for Mogilevich, who began his criminal career in
the 1970s as a thief and counterfeiter with a Moscow crime gang.
So far he has evaded the authorities. "Western investigators hold no evidence
against me," he told a Russian newspaper last month. "FBI members are lonely
and frustrated opportunists and I am the appointed victim."
Heading the attempts to break his empire is John Moscow, a high-flying United
States assistant district attorney in New York, the FBI and a team of British
detectives based at the headquarters of the National Crime Squad in London.
Moscow, a money-laundering specialist who made his name leading the
investigation into the £2 billion fraud at the Bank of Credit and Commerce
International, has been on the trail of Mogilevich and "hot" Russian money
It began in May 1997, during a fraud investigation into an American company
that owned a golf driving range on Long Island and was planning to float on
the American stock market. Many of the victims were British. The inquiry led
Moscow to two companies in Jersey. Charges followed. When the British police
learnt of the case, they told Moscow of 21 companies implicated in the
The information led him to a network of accounts at the Bank of New York and
money channelled there by Benex Worldwide, a British firm run from the London
home of Peter Berlin, a Russian businessman. His wife, Lucy Edwards, worked
as a vice-president at the bank's London offices. The bank has said it has
not been accused of any wrongdoing.
Benex is alleged to have been used by Mogilevich and other Russian gangsters
to move large sums from Russia to Britain. Investigators claim that in the
six months to March this year, about $4.2 billion, in more than 10,000
transactions, passed through one account.
In New York, the bank suspended Natasha Kagalovsky, another senior official
involved in its eastern European business. Her husband, Konstantine, also
Russian, had recently worked at the International Monetary Fund, fuelling
speculation that some of the laundered cash may have originated from IMF
grants to Russia. The couple deny any wrongdoing. In London, Edwards, too,
was suspended and then sacked. She issued a statement last week strongly
denying the claims.
IT wasn't the first time that the shadow of the Red Mafia had fallen on the
City of London. As early as December 1994, British police officers, tipped
off by their counterparts in eastern Europe and North America, learnt of
allegations that the Mogilevich organisation might be laundering profits from
arms dealing, prostitution, extortion and drug trafficking through a firm of
For years Scotland Yard had been giving warnings of the spread of Russian
organised crime. Now, it seemed, there might be concrete evidence. Launching
Operation Sword, detectives from the South East Regional Crime Squad obtained
37 court orders to search the client accounts of Blakes, a firm of
There, police discovered £30m had been channelled through the accounts in
just three years. More than 100 files were seized from the firm's offices in
Bedford Row. A report on the investigation obtained by The Sunday Times
stated the files "contained extensive intelligence relating to financial
transactions conducted by the Mogilevich organisation".
There was little doubt in the mind of Detective Sergeant John Wanless, who
wrote the report, that police had stumbled across the mafia boss's British
He wrote: "Semion Mogilevich is one of the world's top criminals, who has a
personal wealth of $100m. As a result of the effect of his financial impact
on the City of London, he clearly falls in the category of a core criminal."
According to Wanless, the Mogilevich cash was being placed into client
accounts that Blakes had set up in the name of three companies, including
Arigon Ltd. The money was held at the Royal Bank of Scotland (RBS) in Lombard
Street, in the heart of the City.
In the case of Arigon, the report reveals that police found $2,096,145 in
three RBS accounts. Some of the other cash, a total of $3.3m, was said by
Moscow police to have come from a fraud involving food contracts for the
While there is no suggestion that the bank or the solicitors acted
improperly, the discovery of the cash enabled detectives to start closing
down what they claimed was the Mogilevich empire in Britain.
The Crown Prosecution Service got a High Court order to freeze the RBS
accounts. Adrian Churchward and Peter Blake-Turner, two solicitors at Blakes,
were arrested, as was Churchward's Russian-born wife, Galina. Police found
she had a son called Yuli. The father was Mogilevich. After a five-month
global inquiry, their report noted: "The funds passing through the RBS
accounts were unregulated and also originated from a variety of dubious
sources in the former Soviet Union."
But the trail soon went cold. All money-laundering inquiries require police
to prove the criminal origin of the cash. Despite a visit by high-ranking
British police officers to Moscow, the authorities there failed to pass on
any evidence that the cash was dirty. Charges against Churchward, his wife
and Blake-Turner were never laid and legal proceedings were dropped.
All three, who deny any wrongdoing, were awarded costs against the CPS and
from his new base in Budapest, the Red Don undertook a successful legal
action for the return of the $2m frozen in the Arigon accounts.
For the first time, Operation Sword had raised the spectre of Russian
organised crime infiltrating the City. At the time of Mogilevich's ban, the
Home Office estimated that between £2.5 billion and £4 billion of
criminal-generated money had entered the British financial system.
Last week, however, Jim Leach, head of the US Congress committee
investigating the latest money-laundering allegations, estimated that the
sums of money going through western banks could exceed £60 billion in the
past five years.
There is little doubt that, since Operation Sword, the British authorities
have in-creased their vigilance for "hot" Russian money. One British-based
billionaire whose metals firm does millions of dollars of trade in Russia
told The Sunday Times he had recently discovered how his accounts at Barclays
had been secretly investigated by the British authorities.
The entrepreneur, who asked not to be named, said he had seen an
investigation report into his London-based company which "insinuated" a
connection to money-laundering and even drugs.
The businessman, who denied wrongdoing, said he was the victim of political
machinations in Moscow by those seeking to discredit Alexander Lebed, once a
Russian presidential candidate. His lawyer, a partner at a London law firm,
said: "It seems everybody with any business interest in Russia has had their
bank accounts searched."
THIS weekend it emerged that up to 20 banks and hundreds of accounts could
become embroiled in the Mogilevich scandal. As well as the Bank of New York,
investigators confirmed that Barclays had been co-operating with them. One
investigator said: "They have taken the view they don't want crooks using
Investigators have already seized $20m from two accounts at the Bank of New
York and frozen accounts at Chase Manhattan, Citibank, Corpstate and
BankBoston. Deutsche Bank and UBS are two other European banks that have
reported suspicious activity they believe may be linked to the current
Meanwhile, the Red Don continues to run his empire from his lairs in Budapest
and Moscow. He has already forged ties with the American and Italian mafia.
At the Black and White club, prostitutes continue to ply a lucrative trade.
Reports suggest he has friends in powerful places and officials on the
payroll of police and intelligence organisations who are paid to protect him.
A group of his companies is said to be linked to Yuri Luzhkov, the mayor of
To those who know and fear him, he seems untouchable. Last year an American
journalist who reported on Mogilevich's business empire was forced to go into
hiding with his wife after the Central Intelligence Agency intercepted a
telephone call in which Mogilevich allegedly put a contract of $100,000 out
on the reporter's life. At least one key witness in the case was murdered
before he could testify against Mogilevich.
Mogilevich himself was believed to be the target of a bomb attack on a
Budapest club. Like other suspected Russian gangsters, he has been mocking
western investigators for years. Over the next few months it will be up to
Moscow, with help from the FBI and British police, to see how untouchable he