September 7, 1999   
This Date's Issues: 3486 •  • 

Johnson's Russia List
#3486
7 September 1999
davidjohnson@erols.com

[Note from David Johnson:
1. New York Times letters responding to John Lloyd's The Russian
Devolution (Who Lost Russia?). (JRL 3441).
2. Moscow Times EDITORIAL: U.S. Debate On Russia Is Too Smug .
3. RFE/RL: Sophie Lambroschini, Russia: Investors Undeterred By Scandal 
Rumors.
4. The Times (UK): Yeltsin 'family' tycoon linked to cash scandal.
(Roman Abramovich)
5. The Times (UK): Advert puts 'kingmaker' in public eye.
6. Oleg Petrov: Corruption.
7. David Fishman: viewpoint on money laundering issue.
8. Pavel Palazchenko: LOOK BEYOND THE HEADLINES IN THE “RUSSIAN FUNDS 
SCANDAL”
9. Reuters: Calamity looms for Russia in Dagestan.
10. Reuters: US congressman says money probes not anti-Russian. (Tom
Lantos in Moscow)
11. Moscow Times: Brian Whitmore and Natalya Shulyakovskaya,
Skuratov: Chubais, 779 Others Investigated.
12. RFE/RL NEWSLINE: YAVLINSKII BACKS CUTTING OIL EXPORT DUTIES AS 
RESPONSE TO SCANDAL CHARGES and LIVSHITS SAYS IMF LOVED RUSSIA TOO MUCH, 
FORGAVE TOO LITTLE.
13. The Independent: Helen Womack, RUSSIA'S NEW PAY-PER-CLASS STATE 
SCHOOLS.] 

*******

#1
New York Times magazine
5 September 1999
Letters

THE RUSSIAN DEVOLUTION 

You won't find "who lost Russia" by looking among bureaucrats and academics
(John Lloyd, Aug. 15). They don't have any real economic power. Your writer
touched on the key when he stated, "Just how much money has left Russia in
the past seven years isn't known precisely, but estimates vary from $200
billion to $500 billion." 

The really powerful Russians are the ones who are sitting on top of this
half-trillion-dollar treasure trove in Western investments. The inquiry
into who will revive Russia should shift to investigate the motives of both
the Russian holders of these hoards and the politicians of the Western
countries in which these funds are held. That's where the decision power
really resides, and not with the revolving door of public officials in
Moscow. 
CARL OLSON
Chairman, State Department Watch
Washington 

The irony of the Democrats' bungling (or worse), which allowed the giveaway
of the Russian people's resources into the hands of the rich, is that it is
being used as a campaign weapon by George W. Bush and the party most
responsible for the rich owning a disproportionate share of the United
States. 
TOM MILLER
Oakland, Calif.


Joseph Stiglitz, the chief economist at the World Bank, is right when he
says that the establishment of a legal and financial market infrastructure
should have preceded "flash cut" privatization in our policy toward Russia.
But not only do markets require strong courts, banks and contracts, they
also require strong cultural traditions to make them work. The very
pervasiveness of those traditions makes it too easy for us in the United
States including economists like myself to take for granted that we live
in a society that has regarded private property and stable currencies as
givens, practically since the Magna Carta. No wonder we'd think that all we
have to do is say, Ready, Set, Privatize, and no wonder we'd be wrong. 
TIM BRENNAN
Professor, Policy Sciences and Economics
University of Maryland
Baltimore 


Your article did not mention the absence of organized religion as a root
cause of moral chaos in Russia. What would you expect after 70 years and
two or three generations without faith? In the absence of religious
institutions, who gives people credit for honesty, integrity, fair dealing
and charity? Without religious practices to teach respect and celebrate
people for doing right by their neighbors, it is not going to happen. It's
no wonder there is no sense of community in Russia, now a country of
fatherless children. 
FRANK WELSH
Cincinnati 

For sure, shock therapy failed. Lloyd forgets, however, that this failure
and the advantages of a gradualist alternative, which could have positioned
the Russian reformers to build a slow but sure success instead of being
overwhelmed by immediate and dramatic failure, were extensively discussed
at the time. I myself spelled out the caveats and the criticisms repeatedly
in scholarly writings (Current History, Journal of Democracy) and also in
the news media (including Lloyd's Financial Times), as well as by debating
Jeffrey Sachs on television news programs. 

Lloyd's omission of this history of gradualist critiques is not merely an
indictment of his analysis. It also accounts for his failure to grasp
perhaps the most important reason the United States policy makers, despite
their great talents, went wrong in Russia. Their unwarranted confidence in
shock therapy and their ready assumption that gradualists were
muddle-headed antireformers led them to stamp out any effective input from
dissenting economists on this side of the Atlantic. 

The lack of pluralism in our support at the Russian end, where only
reformers like Chubais and Gaidar and their economist associates were
financed, has often been criticized. But that support did make a lot of
sense; we needed to identify and shore up several pro-reform groups in a
situation still rife with anti-reform sentiments and Communist agendas. But
the decision to put all eggs into one basket at this end with a view to
enforcing a rapid-fire reform strategy in Russia was inexcusable. It also
turned out to be expensive. 

PADMA DESAI
Harriman Professor of Comparative Economic Systems and Director, Center for
Transition Economies
Columbia University
New York 

********

#2
Moscow Times
September 7, 1999 
EDITORIAL: U.S. Debate On Russia Is Too Smug 

For years, the West's herd mentality was that Russia was a democracy, Russia 
was getting prosperous, Russia was a U.S. White House success, Russia was 
making it. Now - in the wake of both the ruble meltdown and of attention 
suddenly focused on a years-old plague of government corruption here - the 
herd has abruptly turned. Mooing and baying angrily, it is stampeding in a 
rage back towards the Clinton administration. 

The result is not a debate, but a reality-warping exercise in U.S. 
election-year sanctimony. From self-styled liberal American journalists to 
the candidates of the Republican Party, there are plenty of organizations 
suddenly expressing indignation - but where have they been for the past four 
or five years? And will anything change if the American debate is destined to 
be so smugly partisan and self-serving? 

Towards the end of a more substantive discussion, we'd like to consider the 
article on this page by Samuel Berger, the U.S. National Security Adviser. 

The most valuable contribution Berger makes is when he reminds us of things 
we now take for granted - like a Russia whose troops no longer occupy the 
Baltics. Berger is right to say that it is unfair in 1999 to look back and 
airily claim that it was always obvious how the West should have responded 
to, say, the Berlin Wall falling in 1989. 

But Berger is mounting a defense of his president - a PR exercise, not an 
honest discussion - and this shows most grimly in the discussion of 
privatization. It is simply not correct to say that the U.S. government 
opposed loans-for-shares, the 1995 rip-off of the oils and metals companies. 

The organizer of the loans-for-shares boondoggles, Anatoly Chubais, kept 
Washington's favor for years afterwards, and when Boris Yeltsin tapped him in 
1996 to head government economic policy, then-Deputy Treasury Secretary 
Lawrence Summers gushed about Russia's "economic dream team." 

Berger's protests about the 1995 privatizations are like Yeltsin's: The 
Russian president also "opposed" loans-for-shares in public - once. It's 
called covering your backside. It has nothing to do with reality. The reality 
is that the Americans have embraced all privatizations as their own. 

Perhaps it's that old Cold War-inspired phobia of appearing "soft on 
Communism", but to this day, U.S. politicians don't seem to get the 
difference between privatization and private business activity. 

The one is basically the hijacking of the oil companies; the other really 
began under Mikhail Gorbachev, and has been strangled by taxes - which are so 
high precisely because they subsidize the corruption so firmly ensconced in 
power by loans-for-shares. 

********

#3
Russia: Investors Undeterred By Scandal Rumors
By Sophie Lambroschini

The ongoing money-laundering scandal, in which billions of dollars are
alleged to have been diverted from Russia through the Bank of New York, is
being covered extensively in the Western press. Some Russian media and
politicians have denounced it as an attempt to discredit Russia. But
experts on foreign investment in Russia are withholding judgment, saying
they will react to facts, not rumors. RFE/RL correspondent Sophie
Lambroschini talked to Russian bankers and investors in Moscow. 

Moscow, 6 September 1999 (RFE/RL) -- On top of the allegations of money
laundering, another revelation appeared this weekend to undermine the
reputation of the Russian elite. Russia's suspended prosecutor-general,
Yuri Skuratov, told "The Los Angeles Times" daily that hundreds of Russian
officials are suspected of corrupt bond dealings. He also confirmed to the
Associated Press news agency that Yeltsin and his daughters were being
investigated in connection with bribes.

Amid the flurry of new accusations, heated denials, and conspiracy
theories, investors in Russia are keeping a cool head. They say charges of
corruption are nothing new.

Rair Simonyan, managing director at the investment firm Morgan Stanley in
Moscow, is one investor who is remaining unruffled. He told RFE/RL that it
would take more than media reports on corruption and capital flight to
frighten investors who know the Russian market. 

In Simonyan's words: "Seriously, for whoever knows Russia a bit, there is
nothing surprising in the New York Times revelations. It's not a secret
that there is capital flight out of Russia...by businesses that are
concerned about lack of guarantees for their revenues. So those
professionals don't react to the reports of 10 or 15 thousands of millions
of dollars mentioned by media reports. These are empty sums in the sense
that it is not said what they mean, where they come from." 

Denis Rodionov, financial expert with Brunswick and Warburg, agrees that
investors are not reacting immediately. Rodionov said a good indicator of
foreign investors' moods is the market index, which has stayed stable over
the past few days. He said: "The investors that know Russia aren't reacting
seriously to the scandals yet. Others, newcomers, are more worried." 

Rodionov also says that "for most investors, the scandals first have to
affect the real financial flows." But Rodionov added that a slide in the
ruble's value last week may be the first symptom of nervousness among
Russian and foreign investors alike.

Morgan Stanley's Simonyan sees the publicity surrounding the corruption
allegations as an opportunity for the government to take some positive
action to increase law enforcement in the economic sector. And Russian
companies, he says, might be inspired to boost their confidence ratings by
making their finances more transparent and volunteering more audits. In
Simonyan's words, "This is the Russian government's chance to show that the
country can play by rules, and that these rules will be applied equally to
everyone."

Ordinary Russians don't share that optimism. Most Muscovites RFE/RL asked
about the scandal in the past few days just shrugged and said it was
nothing new.

Neither do many Russians share the anti-Western rhetoric of the Russian
press. Igor, a doctor, said: "Even though there's no proof that Russia
laundered money and that Yeltsin's family received bribes, it does ring
like the truth, considering how this country works." 

Alexei Levinson, a Moscow-based sociologist, said the Russian attitude is
"a kind of withdrawal reaction." Everyone knows the corruption exists, he
says, but it is never pleasant to dwell on it. 

********

#4
The Times (UK)
September 7 1999 
[for personal use only]
Yeltsin 'family' tycoon linked to cash scandal
FROM JAMES BONE IN NEW YORK, DAVID LISTER AND FIONA FLECK IN GENEVA

THE first link has emerged between the Bank of New York money-laundering 
scandal and a member of President Yeltsin's "family", a mysterious 
businessman known as a kingmaker in the Kremlin. 
The Times has learnt that Roman Abramovich, a tycoon, controls the trading 
arm of one of Russia's largest oil companies through an Isle of Man company 
that has figured in the Bank of New York affair. Mr Abramovich runs the 
Siberian oil giant Sibneft, which sells its oil through a company called 
Runicom. 

His name has emerged after speculation that Swiss investigators are looking 
into the role of Runicom as part of the widening investigation into the 
laundering of up to $15 billion of Russian money through American banks. 

Runicom is owned by at least two offshore companies set up by the Valmet 
Group, a financial services concern partly owned by Menatep, a failed Russian 
bank that used the Bank of New York. 

Menatep's former deputy chairman, Konstantin Kagalovsky, is the husband of 
the Bank of New York's senior vice-president, Natasha Gurfinkel, who has been 
placed on paid leave pending the outcome of an investigation of suspected 
money-laundering through her department. 

Menatep and Valmet have been named in a separate lawsuit in America in 
connection with an alleged "tolling" system to divert profits from a Russian 
titanium producer. Under such schemes, raw materials are sold to an offshore 
company for below-market prices, which then sells the minerals on at market 
prices, and pockets the difference. 

In that case, Valmet is said to have helped to channel diverted profits 
through a number of companies with accounts at Barclays Bank on the Isle of 
Man. A director of Valmet denied that the company was involved in 
money-laundering, and Barclays said it was complying with court orders. 

Runicom operates as Sibneft's trading arm and is known to handle large deals 
including the selling of crude oil to refineries and bartering of oil 
products for other goods. 

The link to Mr Abramovich emerges from corporate records in Gibraltar which 
show that Runicom, the oil trading concern, is owned by companies set up by 
Valmet. Fifty per cent of Runicom is owned by Valmet Nominees, an Isle of 
Man-registered company, and the other half is owned by Finsbury Nominees, 
also a Valmet company. 

At about the same time as the Gibraltar company was established in 1996, 
Runicom also set up a subsidiary in Switzerland, taking advice from Valmet 
and using the group's Geneva address as its registered office, an arrangement 
that has since ceased. 

Christopher Samuelson, president of Valmet Group, yesterday refused to 
disclose the beneficial owners of Valmet Nominees and Finsbury Nominees. 

"All I can tell you is that Valmet itself does not own anything in Runicom," 
he said. "I couldn't release any information at all without the client's 
permission." The Times has confirmed that the man behind Runicom's owners, 
Valmet Nominees and Finsbury Nominees, is Mr Abramovich. Daniel Devaud, an 
investigating magistrate in Geneva who has been examining allegations of 
kickbacks paid to Kremlin officials by a company called Mabetex, said 
yesterday that he could not rule out a new investigation related to the Bank 
of New York scandal. A Swiss news weekly, L'Hebdo, reported this week that 
Geneva's chief prosecutor, Bernand Bertossa, had opened a new investigation 
last month into a company at the heart of the Bank of New York affair, but 
refused to identify it. 

Asked whether Valmet was under investigation, Mr Devaud said yesterday: "The 
name of this company is not unknown to me, but at the moment it is not 
directly involved in the investigation concerning Mabetex." 

A source close to Valmet said: "In 1994 we thought getting Menatep on the 
shareholder register was brilliant news. But we are very unhappy about all 
this Russian stuff. To be honest with you I wish we had never heard of 
Russia." 

********

#5
The Times (UK)
September 7 1999 
[for personal use only]
Advert puts 'kingmaker' in public eye
FROM GILES WHITTELL IN MOSCOW

HE IS barely 33, controls one of Russia's largest oil companies and rarely 
lets himself be photographed in public. He is the latest post-Soviet 
billionaire implicated in the alleged Bank of New York money-laundering 
scandal and by far the closest to President Yeltsin's immediate family. 
Roman Abramovich has not been named in connection with the scandal but like a 
growing number of Russia's business and political elite he has reason to be 
worried. At the weekend speculation intensified that Swiss officials were 
investigating the Geneva branch of Valmet SA, which shares an address with a 
company thought to be the international face of the Siberian oil giant, 
Sibneft. The trading company, Runicom SA, and Sibneft have the same de facto 
chief executive - Mr Abramovich. 

Few figures in Moscow's power structure have inspired such myth-making in 
recent months as the dynamic oil engineer known variously as the 
"puppetmaster", the Kremlin's éminence grise and the Yeltsin family cashier. 
He is virtually the sole owner of Sibneft and its vast oil refining 
capability in the Omsk region, but as a close friend of Mr Yeltsin's daughter 
- he is rumoured to have bought her two yachts and a Bavarian villa - and an 
architect of the President's recent Cabinets he is also considered to be a 
full-time politician. 

Yet few Russians would recognise him. Six weeks ago he was almost forced out 
into the open. A billboard bearing his ill-shaven likeness appeared on 
Kutuzovsky Prospekt. It read: "Roma [short for Roman] thinks about the 
family," referring to the Yeltsin "family", as his inner circle is known. 
"The Family thinks about Roma. Congratulations!" It was cryptic to outsiders, 
but all too clear to Russians. The man thought to have handpicked the Cabinet 
of Sergei Stepashin, the former Prime Minister, was being politically 
"outed", presumably by the family's rivals. He was not amused and within 
hours the billboard was pulled down. 

Photographs of Mr Abramovich are so rare that earlier this year a Moscow 
paper offered a cash prize for the first one sent in. According to a recent 
profile in Kommersant, he has never sought fame, only money and influence. 

His first big deal involved a trainload of diesel fuel from the northern Kumi 
province, destined for Moscow. Mr Abramovich won a six-figure contract to 
deliver it, but according to reports at the time the fuel never reached 
Moscow and the refinery that produced it was never paid. All 55 wagon-loads 
were allegedly sold in Latvia instead. 

Mr Abramovich developed strong business links in Kumi and Siberia and swiftly 
became the dominant channel for oil heading west from Omsk. By 1995 he had 
joined forces with Boris Berezovsky, the best-known of Russia's seven 
billionaire "oligarchs". 

Mr Abramovich's central role in picking the Stepashin Cabinet may have been 
his finest hour, however; the new Prime Minister, Vladimir Putin, may yet try 
to curb the power of the oligarchs. 

*******

#6
From: Opetrov@worldbank.org (Oleg Petrov)
Date: Mon, 06 Sep 1999 
Subject: Corruption

David,

Many thanks for an excellent choice of articles and opinions. A couple of
points
from a perspective of a Russian citizen currently living abroad:

1. I have seen a lot of material about the recent corruption allegations in
your list. I think the avalanche of articles in the world press has created a
serious momentum upon which we can build to move things forward in terms of
governance in Russia, both public and corporate. Ethics is a foundation of
governance. If there is no ethics of public service, if there is no proper
business ethics, one should expect corruption on a grand scale regardless
of any
other factors.

Given the recent impetus generated by the media "to do something about it",
all
friends of Russia should undertake an all-out effort to push for sweeping
governance reforms in Russia on a systemic level rather than continuing the
piecemeal approach of fixing things here and there.

Total corruption is a symptom of a systemic disease, of a profound decay of
ethics and values. Apart from purely economic, technical and legal measures,
which are undoubtedly all necessary, one has to deal with ethics as well.
I recall at a panel on corruption at the Fletcher School of Law and
Diplomacy in
April 1997 just before the HIID scandal Andrei Schleifer said: "Corruption is
not an ethical issue". We all know where such mentality leads... I would
like to
emphasize that first and foremost corruption is a profoundly ethical issue.
Other factors can just catalyze it, make a deal with one's conscience
easier to
accept.

We need to deal with corruption squarely but keeping in mind that it is only a
symptom of underlying disease and that we should cure the root causes, not
only
the symptoms like money laundering, procurement graft etc.

As a Russian citizen, I am very grateful to the Western media for taking
courage
in exposing the incredible abuse of public interest by the current clique in
power when the "free" Russian media have been mostly subjected by various
special interests and remain silent. Most of all we need transparency now in
order to shed light on those "cockroaches" who are running away with the
public
wealth they have stolen in the darkness of Russian transition.
Thank you from the bottom of my heart!

Although some of the Western media's motives may be far from altruist (e.g. an
internal election struggle in the US), this is of secondary importance to
us and
it is necessary to continue exposing the iceberg of Russian corruption and
corporate abuse now that we have seen the very top of it.

The Yeltsin regime should leave the scene in ultimate disgrace, so that the
future generations of Russian leaders will always remember that corruption
cannot be tolerated to any extent. We need to achieve a zero tolerance
level of
corruption in Russia by the Russian people and friends of Rissia, including
all
donors, private sector, academia and NGOs. Many in the West are guilty of
being
complacent about Russian corruption by taking it as a necessary evil side
effect
of transition. They now have a chance to repay their debt to Russia by getting
very tough on this issue.

What Russia needs most now is a sweeping, systemic reform of its public
institutions, public education, public administration schools supported by
key
donors, NGOs and academia. Public education campaign is particularly important
since there has to be a strong public demand for a clean, altruist and
efficient government. People deserve their government, says a popular wisdom.
Once there is demand, there will be ample supply from the new generations of
Russians.

Corruption is also pervasive in the private sector and similar reforms of
corporate governance are badly needed to develop a strong business ethics.
Perhaps, foreign private companies who want to do business in Russia can
form an
"Alliance for Better Corporate Governance in Russia" (ABCGR) or something
like this and create a fund to support specific activities in this regard.
This
is also a huge challenge as anything else in Russia. Nothing short of an
all-out
effort will work there.

2. Thanks for publishing this "paradoxical intention" piece about
disintegration of Russia (3485-Badretdinov) - may be a very useful
checklist for
the relevant policy-makers what to suppress in order to prevent further
disintegration. Hopefully, some of them will get it. Disintegration of
Russia is
the last thing we need in this already very unstable world.

******

#7
From: Darusuk@aol.com (David Fishman)
Date: Mon, 6 Sep 1999 
Subject: viewpoint

Press reports and political speeches since the Russian 
money-laundering story exploded into front-page news several weeks ago make 
it inevitable that various aspects of this multi-faceted tragedy will play 
leading rolls in political campaigns in at least two countries between now 
and the end of the year 2000 election cycle. Given at least greater potential 
for Russian politics to follow a winner-take-all scenario and given the 
prevalent pain and rage felt by most Russians (indeed inhabitants of the 
whole region according to World Bank and UNDP statistics and reports) the 
intensity this issue is attaining there is foreseeable and understandable. It 
is equally plausible - albeit with far less drama for ordinary people here - 
that our debates about these matters will impact on careers, reputations, and 
conceivably election outcomes.
There may not always be a clean line of separation between 
assessing the extent to which things have gone wrong, the responsibility and 
perhaps culpability of individual actors and institutions, and thinking 
through alternatives of how best to move on from where events are now headed. 
It is nonetheless of vital importance that we endeavor to maintain this kind 
of analytical separation, if only because a wretched outcome of events in 
Russia is more likely to have negative implications for America as well.
Figuring out what we try to do now - and this should be a 
sustained dialogue with Russians, taking into account understandings and 
perceptions in both countries as to what is wise and politically feasible - 
may be less of a spectator sport than assigning blame, debating guilt, or 
declaring heroes and villains. It is more like hard work and may require new 
ways of thinking not dissimilar from the kind of paradigm shift reresented in 
their day by glasnost and perestroika. It's a task that should commend itself 
to Western business people and lawyers who want to make honest money in 
Russia, to people who worry about nuclear security and the size of a 
necessary defense budget, to policy makers, and to a bi-partisan perspective. 
It will be welcomed by a much larger audience of Russians than we might 
expect. This audience will also note our failure to engage in this effort.
It's time we got on with this task.

******

#8
Date: Mon, 06 Sep 1999 
From: Pavel Palazchenko <ppalazchenko@MAIL.COLGATE.EDU>
Subject: LOOK BEYOND THE HEADLINES IN THE “RUSSIAN FUNDS SCANDAL”

LOOK BEYOND THE HEADLINES IN THE “RUSSIAN FUNDS SCANDAL”
by Pavel Palazchenko

The headline-grabbing scandal involving the Bank of New York, money from
Russia and, perhaps, IMF loans and high-ranking Russian officials shows no
signs of abating. It is a complex and convoluted story in which fact,
fantasy and flawed reasoning are mixed in unknown proportion.

As to facts, it seems clear that large amounts of money, of murky and
possibly criminal origin, went through accounts in the Bank of New York
without triggering any reporting or regulatory procedures. How this could
happen in a sector that is arguably the most regulated one in the US
economy is anyone’s guess. One might expect that this would be the first
question for the media and Congressional watchdogs to ask. But, in a highly
charged political atmosphere of approaching elections in both Washington
and Moscow, the debate has taken a different turn.

The president and vice-president of the United States are being accused of
having “lost” Russia -
the assumption being that Russia was there to be “lost” by the United
States in the first place. Russia is being portrayed as perhaps the most
corrupt place in the world. The implicit message “to whom it may concern”
is, don’t touch it. 

US and Russian officials have reacted in a way that is both extremely
defensive and, so far at least, not very helpful. “Calm down world,” says
Deputy Secretary of State Strobe Talbott. “We have been aware from the
beginning that crime and corruption are a huge problem in Russia and a huge
obstacle to reform. Russian reform is not over, but it's going to take
decades and the problem will only get worse if you isolate Russia.''
Russian Foreign Minister Igor Ivanov, for his part, has insisted that the
whole scandal is rooted in US electoral politics and aims at “besmirching
Russia.”

But these reactions - and the ritual pronouncements about the need “to
engage Russia” - miss the point. There never was a real debate in the West
about how to “engage” it, and it is not certain that one is about to start
now. But some of the right questions are already being asked.

“The issue that troubles me,” says Condoleezza Rice, a top adviser to
likely Republican presidential nominee George W. Bush, “is, were we
accepting the rhetoric of reform rather than real reform in Russia.” Ms.
Rice is right to use the word “we,” for the same mistake was made by
President Bush and President Clinton, by Republicans and Democrats alike,
indeed by the entire US political establishment. 

Once the fundamental assumption was made that Russia was a nation defeated
in the Cold War, once the rhetoric of “aid” replaced the idea of
cooperation, subsequent developments flowed almost automatically. US
university professors with little or no knowledge of the realities of
Russia’s economy arrived in Moscow to “advise on economic reform,” and
Russian “young reformers” got down to work with a vengeance - but with no
regard for the cultural obstacles they were facing or the need to create a
legal framework for economic change. Amazingly, in a recent article in The
Washington Post US national security adviser Samuel Berger asserts that
that was the only way to go.

If so, one has to live with the consequences. Where government controls are
destroyed and nothing is put in place instead, Mafia-style economics and
the merger of organized crime and bureaucracy become inevitable. Whether or
not the president of Russia and members of his “extended family” were
involved in any improprieties is almost irrelevant. What matters is that
Yeltsin is presiding over a system that has made a mockery of democracy,
market economics and the rule of law - the purported goals of the second
Russian revolution.

There’s got to be a better way. A year ago, I asked former Secretary of
State George Shultz what he thought had gone wrong in the US-Russian
relationship. “We should have found a way to show that we respect your
country,” he replied, “that we are ready to treat it as a real partner
despite its problems.” Of course, sending fly-by-night academics to “give
advice” and then looking the other way as “the new Russia” degenerated into
an orgy of oligarchy and corruption was not the best way to show respect
and willingness for partnership.

As two former US Senators, Gary Hart and Gordon Humphrey, wrote recently in
a letter to the New York Times, the list of possibilities for cooperative
US-Russian programs is virtually limitless: “Why not a U.S.-led program to
create a sound banking system, a mortgage-lending program, long-term oil
purchase contracts to provide revenues for infrastructure rebuilding (and
jobs) and a program to establish a desperately needed pharmaceutical
industry?” 

It will probably take elections in both countries to set the stage for a
proper reassessment of their relationship. In the meantime, it would not be
a bad idea to take a long, hard look at the global financial system. As
barriers to free flow of capital are being progressively removed, has it
not become too easy for the barons of dirty money to make and hide their
mountains of gold?

******

#9
ANALYSIS-Calamity looms for Russia in Dagestan
By Peter Graff

MOSCOW, Sept 6 (Reuters) - Until this week, if you said Russia's Dagestan 
province could turn into another Chechnya people would call you a 
scaremonger. Now they just might call you a realist. 

Two weeks after declaring victory against Chechen-led guerrillas in the 
impoverished southern region, Russia now seems to have played a bad hand 
poorly. 

A new rebel offensive at the weekend took Russian forces by surprise and a 
certain fatalism has begun to settle in Moscow. 

``Unfortunately, we have to acknowledge the possibility of the start of a war 
comparable to the Chechen war in scale, and possibly even worse in terms of 
its consequences,'' Emil Pain, an advisor to President Boris Yeltsin said on 
Monday. 

``Nobody could have expected this even three months ago. But it has taken 
place, and the likelihood of the very worst scenarios is extremely high.'' 

Yevgeny Kiselyov, the respected host of NTV television's weekly Itogi talk 
show, stayed on the air for an extra two hours on Sunday night. He apologised 
to viewers for delaying a movie, but explained simply enough: ``War has 
begun.'' 

The new found pessimism comes only weeks after Moscow seemed to have scored a 
clear victory, beating back an invasion into Dagestan by warlords from 
neighbouring Chechnya, which has been outside Moscow's control since its 
humiliating defeat in the 1994-96 Chechen war. 

The warlords had said they wanted to establish an Islamic state in Dagestan 
and throw off Moscow's rule across the southern frontier. But Russian forces 
managed to blockade them in the hills near the border, and two weeks later 
they withdrew. 

In the weeks that followed, Moscow launched a full-blown armed crackdown on 
Islamic radicals, known as Wahhabists, in another part of Dagestan. 

The Wahhabists had occupied several villages for more than a year. Although, 
like the Chechens, they said they wanted to set up an Islamic state, there 
was no clear sign that they were ready to support the Chechen-led rebels. 

But Russian officials vowed to have done with the radicals altogether, and 
launched a fierce campaign of air strikes and artillery assaults to dislodge 
them. Dozens of Russian soldiers and police were killed in attempts to storm 
the villages. 

Those attacks now seem to have played into the hands of the Chechen warlords, 
who returned this weekend, occupying villages in another region at the 
border. 

Russian forces now face the disturbing prospect of a battle on two fronts. 
Worse than that, by taking on indigenous Islamic radicals in Dagestan itself, 
they risk setting off sparks that could ignite an ethnic free-for-all in the 
impoverished region. 

``I think it was a great mistake, having finished dealing with Chechen 
fighters in the mountainous regions to turn to a fight with internal 
Dagestani Wahhabists,'' said Nikolai Petrov, an analyst at the Carnegie 
Endowment in Moscow. 

``Having sent the (Chechen-led) guerrillas back where they came from, they 
started simply to destroy people defending their own homes. It is the start 
of a war that absolutely resembles the Chechen war,'' he said. 

``They didn't learn lessons from Chechnya.'' 

So far the overwhelming majority of Dagestanis still support Moscow and see 
the Chechen-led rebels as unwelcome invaders. But that loyalty could be 
fragile amid the endlessly shifting alliances of politics in an ethnically 
divided region. 

Russian federal forces are closely associated with Magomedali Magomedov, 
Dagestan's regional leader. He has countless sworn enemies among rival ethnic 
groups and clans, some of whom command rival armed militia. 

Full scale warfare will only deepen ethnic rivalries, and, said Pain, 
increase the appeal of armed Islamic groups. 

``People turn to Wahhabism not because they are seeking out the details of 
Islam. They turn to it for protection. With attack aircraft you cannot halt 
such a movement. You only make it grow,'' Pain said. 

******

#10
US congressman says money probes not anti-Russian

MOSCOW, Sept 6 (Reuters) - A U.S. investigation into a suspected 
money-laundering scheme through at least one New York bank is not part of an 
anti-Russian witchhunt, an influential U.S. congressman said on Monday. 

``There is not the slightest anti-Russian motivation in our investigation,'' 
Tom Lantos, an outspoken California Democrat, told Ekho Moskvy radio after 
talks with Foreign Minister Igor Ivanov. 

Lantos said the Government Reform Committee of which he is a member would 
hold a series of hearings on the allegations that Russian mobsters, officials 
and businessmen may have diverted billions of dollars through the Bank of New 
York (BK.N). 

Lantos quoted Ivanov as saying the Russian government planned to send ``a 
very strong working delegation'' to the United States to assist law 
enforcement agencies there. 

The Bank of New York says it is cooperating with the investigation. It has 
not been accused of any crime and no one has been charged with wrongdoing, 
although two bank employees have been fired and a third suspended. 

Lantos, during what he described as a semi-private visit, discussed a range 
of issues with Ivanov from arms control to the situation in Kosovo. 

But he said there were no conflicting views on the money-laundering issue. 

``It is in our interests, as it is in the interests of the Russian government 
and the Russian people, to see to it that illegal activities do not take 
place,'' he said. 

He echoed the view of Russian officials and many U.S. politicians and 
commentators that the scandal had been used to discredit U.S. Vice President 
Al Gore, the leading Democratic presidential candidate for a 2000 election. 

Gore's Republican opponents have seized on his close ties with Russia's 
leaders and his support for aid to Moscow as ammunition against his 
presidential bid. 

Gore co-chairs a U.S.-Russian commission which meets twice a year to foster 
closer economic ties and develop joint projects. 

``The political angle relates to cheap presidential politics by Mr Gore's 
political opponents,'' Lantos said, stressing that there was more at stake in 
U.S.-Russian relations. 

``It is obvious that U.S.-Russian relations are infinitely more important 
than whatever questionable activities that may have occurred.'' 

******

#11
Moscow Times
September 7, 1999 
Skuratov: Chubais, 779 Others Investigated 
By Brian Whitmore and Natalya Shulyakovskaya
Staff Writers

Suspended Prosecutor General Yury Skuratov said Monday that some 780 current 
and former federal government officials, including former Deputy Prime 
Minister Anatoly Chubais, are being investigated for using insider 
information over the years to speculate on the Russian treasury bill market. 

Skuratov's claim was the latest allegation to come out of separate 
Russia-related corruption scandals - one involving billions of dollars 
channeled through accounts in the Bank of New York that U.S. and British 
officials say was used for money laundering, the other involving allegations 
that the Swiss Mabetex company won lucrative state contracts in return for 
kickbacks to President Boris Yeltsin and other Kremlin denizens. 

However, a little-noted but potentially explosive detail reported in the 
Italian newspaper Corriera della Sera on Saturday suggests that the two 
scandals may not be so separate after all. 

The newspaper printed documents that suggest a central figure in the Mabetex 
affair - Kremlin property manager Pavel Borodin - did business both with 
Mabetex and with the Bank of New York from the same Lugano-based bank 
account. 

Borodin has denied ever opening a foreign bank account. Corriera della Sera 
on Saturday published documents - including copies of what is purported to be 
Borodin's passport - suggesting he opened an account at the Lugano-based 
Gothard bank on March 28, 1995. 

The report said several million dollars churned through that account in late 
1995. They included a transfer on June 15 of $100,000 to an account in the 
Bank of New York opened by a company called Albion Trade, and a $1.5 million 
deposit on Sept. 9 from Mabetex. 

If true, this would mark the first documented link between the Russia-related 
scandal unfolding in America and that in Switzerland. 

Skuratov's allegations were also linked to the Bank of New York affair, a 
scandal that has led the U.S. Congress to call for hearings and has put 
future International Monetary Fund loans to Russia in doubt. 

In a telephone interview on Monday, Skuratov said he suspects that government 
officials were speculating on the treasury bill market with inside 
information - and thanks to that same insider knowledge were able to cash out 
their GKOs, state ruble-denominated debt, prior to last August's financial 
crash. 

"Chubais, when he was deputy prime minister, was a player in the GKO market. 
That was 1997. And as far as I know, he was still a player in the market in 
1998," Skuratov said. 

Yukos oil baron Mikhail Khodorkovsky floated a similar theory last month, 
saying that some of the billions of dollars allegedly laundered through the 
Bank of New York was that of government officials seeking to protect their 
personal GKO fortunes from last year's debt default and ruble meltdown. 

Khodorkovsky did not name names. Skuratov was more specific, but only 
somewhat. He said 780 officials were under investigation for playing the GKO 
market while in office, but Monday he would only name three: Chubais, who is 
now CEO of the United Energy Systems electricity monopoly; former Foreign 
Minister Andrei Kozyrev, now a federal lawmaker; and former Deputy Prime 
Minister Valery Serov. 

Skuratov named those three in a report in Sunday's Los Angeles Times. The 
Times quoted Kozyrev as calling that allegation "a brazen 100 percent lie." 

Chubais - who was in New Zealand on business Monday, said UES spokesman 
Sergei Pinchuk - could not be reached for comment. 

New allegations against Chubais were also reported on Sunday by The Observer, 
a British weekly. 

Citing unidentified Russian intelligence sources, The Observer reported that 
Arbat International - a firm linked to reputed mobster Semyon Mogilevich and 
the powerful Solntsevo gang - is a 20 percent shareholder in TEMBR bank, the 
clearing bank for UES. 

The Observer, citing anonymous sources, reported that investigators are 
looking into Chubais's financial relationship with TEMBR. The paper also said 
that UES holds a 30 percent stake in TEMBR. 

The UES public relations department released a statement through Interfax on 
Monday denying the allegations. An unidentified UES spokesman told Interfax 
that UES holds just a 2.94 percent share in TEMBR bank. 

"UES runs no settlements, to say nothing of hard currency operations, through 
TEMBR," the spokesman said. "Only salaries to UES executives are 
traditionally paid through this bank." 

Interfax also cited Mikhail Davydkin, TEMBR bank's vice chairman, as saying 
that the bank had severed its relations with Arbat International in 1996. 

President Boris Yeltsin has yet to respond publicly to the snowballing 
scandals surrounding his administration. Moscow Mayor Yury Luzhkov, who is 
leading an anti-Kremlin political charge, has insisted Yeltsin must speak out 
if he is innocent. 

But Kremlin press secretary Dmitry Yakushkin on Monday compared such calls to 
the Spanish Inquisition. 

"A man should not have to go out on the square to publicly declare that he is 
not guilty of anything," Yakushkin in told Interfax. "There is no need to 
revive the methods of the Inquisition at the end of the 20th century." 

Other Russian officials have countered that there may be a great deal of 
truth to the allegations, even if, in their view, the Western media is overly 
excited about them. 

"The scope described in the press - huge billions [of dollars] - obviously 
doesn't correspond to reality. But I repeat, the problem exists, and we will 
work on it, without dramatizing it, but without ignoring it," said Prime 
Minister Vladimir Putin on Sunday in an interview on ORT television. 

Mikhail Zadornov, who resigned last week as the Kremlin's representative to 
international lending institutions, said Sunday on RTR state television that 
as much as $18 billion leaves Russia every year as capital flight. 

*******

#12
RFE/RL NEWSLINE Vol. 3, No. 173, Part I, 6 September 1999

YAVLINSKII BACKS CUTTING OIL EXPORT DUTIES AS RESPONSE TO
SCANDAL CHARGES. Yabloko leader Grigorii Yavlinskii said that
Moscow should respond to what he called the "baseless and
indiscriminate scare campaign" against Russia by slashing or
even abolishing oil export duties, Interfax reported on 3
September. He said the Russian government should now "offer
real support to leading Russian companies" in the wake of the
money-laundering charges. In other comments, Yavlinskii said
that the situation now is similar to the one a few years ago:
then the entire world press was "euphoric about the imaginary
successes of Russian reform." Now, this media "is equally
unanimous in its hysterical proclamation that all of Russia
is a kleptocracy." Both perceptions are equidistant from
reality, Yavlinskii argued. PG

LIVSHITS SAYS IMF LOVED RUSSIA TOO MUCH, FORGAVE TOO LITTLE.
In an article in Turin's "La Stampa" on 3 September,
Aleksandr Livshits said the IMF's biggest mistake in dealing
with Russia was that "it loved us too much and forgave us too
little." In other comments, the Russian envoy to the G-8
acknowledged that no one knows the real amount of capital
flight from Russia. Meanwhile, Finance Minister Mikhail
Kasyanov said on 3 September that the next tranche of the IMF
loan to Moscow may be delayed because the fund's board may
not meet until October, AP reported. PG

*******

#13
The Independent (UK)
7 September 1999
[for personal use only]
STREET LIFE - SAMOTECHNY LANE: RUSSIA'S NEW PAY-PER-CLASS STATE SCHOOLS 
By Helen Womack

SAMOTECHNY LANE was suddenly noisy early last Wednesday with the chattering 
sound of crocodiles of children processing into school. For them, the first 
day back is a gentle re-entry, as they waste the morning at a bell-ringing 
ceremony, then give flowers to the teachers and play until home time. 
In some provincial towns, this year as last, unpaid teachers rejected the 
traditions of the "Day of Knowledge" and went on strike. But the Mayor of 
Moscow, Yuri Luzhkov, makes a point of paying state sector wages on time, and 
teachers in the capital are not as unhappy as their country cousins. 

Talking to friends, I had the impression that parents were the ones who 
really dreaded the new term. "Pay, pay and pay again, that's what we have to 
do," said Sveta, for whom the last days of August were torture as she 
struggled to get her 11-year-old son, Fedya, ready for school again. 

A few private schools now exist in Russia. The overwhelming majority of 
parents, however, still send their children to state schools. "The only 
trouble is," said Sveta, "that we now have to pay for so much that we might 
as well be educating our kids privately." First she went to a bazaar in the 
Olym-pic stadium to buy books and atlases, which in Soviet times the school 
would have provided. "The queue stretched right round the stadium," she said. 
"I stood there with Fedya for an hour. When we got to the counter, the 
customers and assistants were so harassed they were throwing books at each 
other." 

Then she took on the crowds in Detsky Mir (Children's World), the department 
store only slightly less forbidding than the secret police headquarters next 
door. In an hour, she spent what her husband, an engineer, officially earns 
in a month (the equivalent of pounds 37.50) on trousers and a jacket. 

Fedya hates the return to school, as it coincides with his birthday and there 
is never enough money left for a present. Luckily, he had a foreign sponsor 
to buy him a battery-operated, crawling plastic hand made in Taiwan. "How can 
you waste money on such junk?" Sveta scolded me. 

In some schools, not only equipment but also tuition now costs money. 
Teachers, whose official earnings average 800 roubles (pounds 20) a month, 
have taken to giving extra private lessons, without which the child cannot 
hope to succeed. 

Another friend, Pavel, said he slipped $50 (pounds 32) a month to a state 
school teacher last year so his boy could study English. "Nobody gets paid 
properly. So the traffic cop earns on the side, so that he can pay the 
teacher, so that she can pay the doctor. And everyone evades tax." 

On Tuesday afternoon Fyodor Maskayev, headmaster of Moscow's Middle School 
Number 174, sat in his study, enjoying the last moments of quiet before the 
first bell. At his school, he assured me, the poor could still count on a 
decent education for their children. All compulsory subjects were taught 
free, although he admitted that pupils over 16 might have to pay for extra 
coaching to reach college. 

Mr Maskayev said basic textbooks were handed out, although parents were 
expected to buy other books that might be recommended. 

This term, Russian children will also have a new civics textbook. It explains 
why, if a society wants schools with good facilities and motivated teachers, 
the first lesson citizens must learn is the importance of paying tax. 

*****