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Johnson's Russia List


September 10, 1999   
This Date's Issues: 3491 3492   

Johnson's Russia List
10 September 1999

[Note from David Johnson:
1. Reuters: Russia's Lebed says will run for president in 2000.
2. Itar-Tass: Lebed Expects to Have to Cope with "Mess" in N. Caucasus.
3. Ha'Aretz (Israel): Isabella Ginor, Lebed Besieged by Appeals to Take 

4. Izvestia: To the Duma! Quick March! THE ARMY IS STORMING THE PARLIAMENT.
5. Oleg Petrov: What went wrong in Russia?
6. Reuters: Time to shake up IMF, end interference - report.
7. Newsweek International: Bill Powell, A Half Century of Nuclear Blasts.
And the environmental fallout is just beginning. 

8. Itar-Tass: Yavlinsky for State of Emergency on Dagestan Border.
9. The Economist: Money laundering in Russia.
10. Carol Pearson: Russian adoptions.
11. FRIENDSHIP 2000's RUSSIA NIGHT at the Russian Embassy.
12. Heritage Panel on Russian money laundering, government
corruption and the IMF assistance.

13. New issue of Transitions Online
14. New York Post: John Dizard, FRANKEL COULD LEARN A THING OR 2 FROM 

15. Business Week: What Money Laundering? Banking kingpin Smolensky 
pooh-poohs the allegations.

16. Reuters: U.S. cites local religious freedom curbs in Russia.
17. AP: Bradley Stresses Independent Appeal.]


Russia's Lebed says will run for president in 2000

MOSCOW, Sept 9 (Reuters) - Russian regional governor Alexander Lebed, 
likening himself to France's Charles de Gaulle, vowed on Thursday to run for 
the presidency in mid-2000, saying his country needed his experience as a 

Itar-Tass news agency quoted the former general and governor of Russia's 
Krasnoyarsk region as saying in Paris he could follow in the foot steps of 
General de Gaulle. 

``De Gaulle showed the whole world that a general can run the state,'' he 
said at a meeting with French former Interior Minister and prominent Gaullist 
Charles Pasqua. 

``This is not only possible in Russia, but necessary. Without a general, 
no-one will believe us any more. The world no longer trusts us.'' 

Last year, former Prime Minister Viktor Chernomyrdin, liberal politician 
Grigory Yavlinsky and Kirsan Ilyuzhinov, the flamboyant president of Russia's 
southern Kalmykia republic, said they would run in next year's presidential 

Analysts say other likely presidential candidates include Communist leader 
Gennady Zyuganov and former Prime Ministers Yevgeny Primakov and Sergei 

President Boris Yeltsin has named Prime Minister Vladimir Putin as his 
preferred successor as president. 


Lebed Expects to Have to Cope with "Mess" in N. Caucasus.

KRASNOYARSK, September 9 (Itar-Tass) - Alexander Lebed, the governor of the 
Krasnoyarsk territory, said he had "warned three prime ministers there will 
be a big war in the Northern Caucasus in late summer or early autumn". Lebed 
stated this at a news conference in Krasnoyarsk on Thursday in connection 
with the round-table conference "Krasnoyarsk territory -- Hauts-de-Seine 
department: prospects for business cooperation". 

Lebed said that his opinion had been "received with condescension" and that 
he had been blamed for having his mind "fixed on catastrophes". Now the war 
is on and "I have much suspicion that I would have to deal with the mess 
stirred up in the Northern Caucasus by people who are far from clever, and 
there is nobody else to cope with this problem but me". 

Asked by Tass in what capacity he is going to "deal with the mess," Lebed 
said that he would no longer be appointed to any post. He can only be elected 
by people. 

Lebed said he "has much esteem for great French president Charles de Gaulle 
who "proved brilliantly that a general can excellently govern a state". 

Asked whether he plans to run for the 2000 presidential elections, Lebed said 
he will "do so only if he is needed". And what happens in Russia now gives 
the ground to think that he will soon be needed, Lebed said. 


Date: Thu, 09 Sep 1999 
From: Isabella Ginor <>
Subject: Lebed Besieged by Appeals to Take Power

"Lebed Besieged by Appeals to Take Power" 
By Isabella Ginor 
Abridged Hebrew version published in Ha'Aretz (Israel), September 9 1999.
May be quoted freely with appropriate credit. Full reprinting by permission
of author only. 

The battles raging around Khasavyurt in Dagestan between Russian forces and
militant Islamic intruders fron neighboring Chechnya have brought back into
the headlines the "Hero of Khasavyurt" from three years ago, former General
Aleksandr Lebed. After coming in third in the first round of presidential
elections in 1996, Lebed threw his support to President Boris Yeltsin and
in return was named secretary of the National Security Council. Thanks to
this maneuver Yeltsin was re-elected, Lebed proceeded within a few weeks to
end the bloody war in Chechnya with the "Khasavyurt Agreement" -- and was
dumped by Yeltsin soon after. 

"Everyone knows how it would have ended in Chechnya if Lebed hadn't stopped
the  war," says his confidant and close friend Colonel Mikhail Bergman,
"And in Dagestan we now have a full-scale war that can be compared with
those between Israel and the Arabs, or even the 'Great Patriotic War'." 

In an interview with Ha'Aretz from Krasnoyarsk, where he is now Lebed's
advisor since the latter  was elected Governor last year, Bergman claims
that "on this very day I saw in the administration offices more than one
thousand letters -- no exaggeration -- from mothers of soldiers and
officers, all crying and begging Lebed to assume power since there is no
other way out (of the crisis). Other governors and officials are phoning
him, too." 

According to Bergman, Lebed is avoiding any public statement and has
ordered not to put through calls from journalists. "The Prime Minister
declared it would all be over in a week or two, and what are we seeing now?
The people at the helm are incapable of pulling the country out of this
chaos. Those governors and officials understand that the situation may get
out of control, because there is no authority in Russia today.  There is a
sick and feckless president. There is a Prime Minister, Vladimir Putin, who
in his earlier job as head of the security services should have known about
the movements of these so-called bandits across the border. Actually these
"bandits" are Russian citizens carrying Russian passports.  There are
generals who are busy building dachas while the army is being cut back so
badly that there is no one left to send to Dagestan. I can't forget the
sight of (Defense Minister Igor) Sergeyev flying from his vacation spot at
Sochi to Dagestan, spending 15 minutes there and once he saw blood was
being shed turning around to fly back.   So who's in charge of  operations
there? The district commander? and what can he do? I spoke today with the
commanding officer of a special-missions battalion (there), Col. Goncharov,
who once served under me. He's amazed: an army ought too have unified
command. But over there everyone's giving orders -- the ministries of
defense and interior, the border guard, the FSB -- and it's all no use.
Just today the President finally deigned to make a statement. This house in
Buinaksk was blown up, you know, so he goes and blames the soldiers. How
can they be blamed when they're commanded by generals  like these, like
Sergeyev? Like they say, if you don't feed your own army, you'll end up
feeding somebody else's. When Lebed was Secretary of the (National
Security) Council, he said publicly: the army has to be put back on its
feet, the problem of the army must be solved, there's no other way. So what
happened? They threw him out, and now all he warned about is coming true." 

In this state of affairs, is a military coup possible? 

I wouldn't say it's on the agenda. In a laboratory at Rostov there are
still, two years after the war,  a lot of bodies from Chechnya that have
yet to be identified and buried, and already new ones are coming in. Bodies
of Russian citizens are being sent to towns and villages all over, and the
people are seeing this and understanding, discontent is growing. Today the
flow of refugees swelled, you can see people being killed -- how Sergeyev
and the Air Force are bombing their own people. This situation is
explosive. Yesterday I met a company of OMON (from Krasnoyarsk) being sent
to Dagestan. They're from a battalion that went through Chechnya without
losing a single man, thanks to the competence of their officers. You should
have seen the eyes of the officers before leaving. They are obeying orders,
but they don't feel there's a country behind them. It's not that people
have lost their loyalty to the homeland, it's the country that's not
looking after them. 

Lebed understands all this, but from where he sits in Krasnoyarsk there's
nothing he can do while a war is going on in Russia. What's going on in
Dagestan is full-scale war, comparable to the Arab-Israeli wars or even
with the Great Patriotic War, because  you have the local population, our
own people whom we must save -- almost 40 million people in the Caucasus.
Many military men are predicting an ever greater war, especially because of
the stupid decision of the Defense Minister to distribute guns in Dagestan.
There are a lot of weapons floating around in Russia, with no supervision,
and you can see the result in Dagestan. You need to have in power a bright
and courageous man like Lebed, who realizes that these weapons can spread
all over the world. " 

Can Lebed influence his partner to the Khasavyurt pact, Chechen President
Aslan Maskhadov, to rein in the extremists operating from his territory? 

"Lebed is carrying on his peace mission. He has invested great efforts in
achieving the release of many soldiers and civilians who were abducted to
Chechnya. Everyone helps him, for no payment, just by dint of his
influence. The respect he enjoys throughout  the Caucasus is enormous, the
elders all come to him. Not long ago he was in Rostov and saw everything,
but couldn't do anything about it. He can't influence Maskhadov  because
there are irreversible processes beginning there, and they will continue
because there's no authority. For him to appeal (to Maskhadov) as governor
of Krasnoyarsk would be like firing blanks. Lebed has to be in power, today." 

Can  he become Prime Minister against Yeltsin's will? 

"If Yeltsin can muster enough strength, If he listens to wise counsel,
he'll understand. Many of the governors and officials are appealing to him
as well, and he is receiving the same flood of letters that we are getting.
I know because the writers add: 'we're addressing the same question to the
President of Russia'. Yeltsin will have no alternative. And if the people
call him, Lebed will come to the rescue like Aleksandr Nevsky. People like
him are born once in a thousand years, and there is a yearning for a man
like him. Take the latest issue of Argument i Fakty -- there's a picture of
Nevsky on the cover. I was astounded, because it appeared even before the
invasion from Chechnya". 

Russia Today press summaries
September 9, 1999
To the Duma! Quick March!
Generals have displayed great efforts with respect to the upcoming Duma 
elections. This can either mean that they need the deputies' immunity, or 
that they really want to influence politics. Besides, generals are positive 
that the people are longing for a "tough hand", and thus, will be happy to 
vote for the military, and, especially, for generals. And it does not matter, 
they believe, that the generals do not know how to conduct war, which the 
recent events in Dagestan have proven.

One instance of the forthcoming generals' fight is in the Tula region, where 
former defense minister Gen. Pavel Grachev will most probably compete with 
the president’s chief bodyguard, Gen. Korzhakov and Tula Interior Affairs 
Department chief Gen. Rozhkov, who is supported by the KPRF.

Pavel Grachev promised that tomorrow he will tell the regional newspaper "the 
whole truth" about the Chechen war of 1994-96, when he was in office as the 
defense minister.

Gen. Korzhakov, who is a currently a State Duma deputy from the Tula region, 
promised to construct a public bath-house in Skuratovo, which he already did 
when he was running for the first time.

And Gen. Rozhkov sent campaign leaflets -containing his picture and a number 
of "important police phones" where citizens can report petty crime at markets 
or bribery by highway patrols - by direct mail to his potential voters.


Date: Thu, 09 Sep 1999 
From: Oleg Petrov <> 
Subject: What went wrong in Russia?

There have been many explanations what went wrong in Russia in your
list, let me me also comment on this very briefly
and suggest how this can be corrected now.

Russian transition failed mainly because it was based on the false
"liberal" conviction that the State is not important in the society
and economy, and many actions were taken by the Yeltsin governments
(often with a donor support) to break the
spine of the State: demoralize it and undermine the fiscal revenue.
Particularly harmful were
insider/mafia-dominated privatization of the most profitable state
assets and activities, such as gas, oil, metals, diamonds,
gold, alcohol and tobacco sectors, which undermined the state budget.
The handicapped state naturally went bankrupt
and corrupt and was unable to implement any meaningful reforms despite
all infusions of cash, not even its basic functions. The weak state
and absence of effective regulation and enforcement led to the
emergence of jungles in the business world and scared away civilized
foreign investors.

So the main mistake of Russian transition was a lack of respect and
support for the State and the public administration.
The reformers cut down the branch on which they were sitting and fell
down from the tree of history. Russia is meanwhile
in shambles. Let's assume that bringing down Russia to this sad state
was not the real objective of the Western policy (as most Russians now
unfortunately believe) and it really meant what it proclaimed: to make
Russia a prosperous democracy. The West simply failed to appreciate
the importance of the strong, efficient, competent and altruist State
during transition to a market democracy. A lot of donor money was
wasted because the most important pillar of democracy, the State and
institutions, was not given enough attention and was allowed to
collapse. In the chaos that followed and still continues the
money cannot remain long... Russia became a guinea pig of those
Harvard/Chicago economists and their devotees who needed to try out
their minimalist state theories in the real world. The price of this
experiment is in the hundreds of billions...Who is gonna pay the bill
now that the party is over? Alas, the future generations of

What is to be done today to fix the errors of the "Chicago boys" and
the Family?

First of all, profound and comprehensive public and corporate
governance reform should become a pre-condition of any
future aid to Russia, particularly IMF and World Bank loans.
Strengthening and improving public and corporate
governance, empowering the State will greatly increase the
effectiveness of all other reforms. Intense public education
campaign should be a cornerstone of the program since the attitudes
and ethics have to change relatively quickly. See my
previous posting on Russian corruption.

Second, those large companies which were "sold" through "loans for
shares" and other corrupt methods should be
re-privatized using professional international investment bankers and
through standard procedures (trade sales, IPOs,
negotiated sales). Bankrupt privatized companies who regularly do not
pay taxes should be re-privatized also through

transparent case-by-case procedures. Debt-equity swaps may be used.
IPOs should be used to compensate those who
lost their savings, pensions and salaries during transition. The rest
of the people should also be compensated by
subsidized shares of crown jewels of the economy so that they can
resell them in the future if they wish. The choice today
is not between privatization and nationalization. It is between a
sweeping renationalization by the Communists and a
selective re-privatization by the centrists with assistance of the
donors and the reputable international investment banks.

Third, government should do everything possible to encourage a massive
inflow of foreign direct investment and foreign
expertise. Donors should unite their efforts to help the government in
this area. Various non-traditional tools should be
used, including the Internet. Russia and all of its regions need a
high-quality and comprehensive presence on the Internet
in major languages, certainly in English. This will be a sure sign of
a welcome attitude.

Those who who will credibly promise to strengthen the State and
undertake the above measures will probably win both
parliamentary and presidential elections (if they are not cancelled).
Let's hope these will be the centrists, not the radicals.


Time to shake up IMF, end interference - report

LONDON, Sept 10 (Reuters) - The International Monetary Fund should be made 
independent so that its response to financial crises does not risk being 
driven by the political agendas of national governments, according to a 
report released on Friday. 

The study by the International Centre for Monetary and Banking Studies in 
Geneva said the IMF had made costly errors because its board of directors was 
not strong enough to stand up to outside political interference and to the 
Fund's powerful management. 

``In many respects, there's a feeling that the IMF is being used very openly 
by big shareholders, especially the United States,'' said Charles Wyplosz, 
one of the authors of the report and professor of international economics at 
the Graduate Institute of International Studies in Geneva. 

Wyplosz told reporters that loans to Russia and Brazil were prime examples 
from the recent past of politically motivated decisions that have hurt the 
integrity of the Fund. 

He said that althouugh IMF staff opposed fresh lending to Moscow, the U.S. 
Treasury had pressed hard for it in the interests of political stability in 

``They (the United States) should do it directly and not use the IMF for 
their diplomacy,'' Wyplosz said. ``The IMF shouldn't go the way of other U.N. 
institutions where political interference is happening every day.'' 

The report proposes that the IMF's executive directors, once appointed, be 
barred from accepting instructions from their governments. They should serve 
fixed terms and would not be allowed to take up jobs later with their 

To make the board accountable, detailed minutes and voting records would be 
published. To counter the perception of excessive U.S. influence, the 
``supermajority'' needed on important IMF votes should be cut to 80 percent 
from 85 percent. 

This would rob Washington, which has a 17.56 percent stake, of its effective 
veto, the report said. 

The other authors of the report are economics professors Jose de Gregorio of 
the University of Chile; Barry Eichengreen of the University of California, 
Berkeley; and Takatoshi Ito of Japan's Hitotsubashi University, who has now 
joined the Japanese government. 

The study also questions the IMF's reaction to recent ``high-tech financial 
crises'' rooted in sudden, violent capital flows rather than in traditional 
current account inbalances. 

``The Fund must rethink both its traditional recommendation that crisis 
countries impose tough monetary and fiscal policies and its recent tendency 
to provide ever-larger balance-of-payments financing. 

``Restarting an economy that is the victim of a severe credit crunch may 
require a wholly different approach, including the restructuring of foreign 
currency debts -- both public and private -- and th eadoption of reflationary 
measures,'' the report said. 

An Independent and Accountable IMF, Geneva Reports on the World Economy 1. 
Available from ORDERS+CEPR.ORG 


Newsweek International
September 13, 1999
[for personal use only]
A Half Century of Nuclear Blasts
And the environmental fallout is just beginning 
By Bill Powell 

Gulmira Azhakhmedova remembers the day almost 20 years ago when the 
authorities in her riverside village of Seitovka, just outside Astrakhan in 
southern Russia, told her to remove all the dishes from her shelves and go 
stand outside. She remembers how the ground shook and cracked underneath her 
feet. That was the first explosion, in 1980, "and no one knew what was 
happening then." But the blasts continued for four years — 15 in all — "and 
by the end we all knew what was going on," she says. 

The government called it Project Vega. The idea was to create giant cavities 
in the ground where Gazprom, the state-owned gas company, could store huge 
quantities of the raw materials needed for an enormous condensate plant that 
was soon to be constructed. At the insistence of the Russian military, they 
found an atypical way to do it: by detonating nuclear bombs. 

Events like that are more vivid in people's memories than ever: Aug. 29 
marked the 50th anniversary of the first successful test of a nuclear device 
in the Soviet Union. Moscow's equivalent of the Manhattan Project — led by 
the legendary Igor V. Kurchatov, "the Russian Oppenheimer" — culminated in a 
22-kiloton, aboveground explosion that destroyed homes as far as three miles 
from the testing site outside Semipalatinsk in Kazakhstan. Its success made 
the Soviet Union a superpower and ushered in the 40-year nuclear standoff 
between Washington and Moscow. Last week Kurchatov's heirs — Moscow's wistful 
nuclear establishment, now underfunded and unappreciated — gathered at the 
once secret city of Arzamas 16, 250 miles from Moscow, to commemorate the day 
the Soviets got the bomb. 

For them the legacy of Kurchatov is one of power and pride. But then, the 
engineers don't live in Semipalatinsk or in Astrakhan or in the Arctic Circle 
region of Novaya Zemlya, three of the sites across the former Soviet Union 
where hundreds of nuclear tests occurred until 1990. Gulmira Azhakhmedova and 
her three children do. The 49-year-old schoolteacher has heard about the 
horrors of Semipalatinsk: a rate of birth defects in newborn children that 
rises year after year (81 per 100,000 births in 1988, 104 in 1996); rates of 
leukemia and cancer that are more than double the national average. Some 
333,000 people were exposed to direct radiation from the tests in eastern 
Kazakhstan, and now their children live — and in some cases die — with that 

No other region was as dramatically affected by the Soviet Union's aggressive 
testing policy as Semipalatinsk. But the growing concern in a smaller test 
site like Astrakhan shows just how widespread the program's environmental 
legacy may be. The government and Gazprom have repeatedly assured those 
living outside the plant that they do not need to worry about any fallout 
from Project Vega. 

But the scheme to create the storage cavities did not go according to plan. 
The tanks themselves, constructed deep underground, were structurally flawed. 
According to Boris Golubov, head of biosphere research at the Russian Academy 
of Sciences, several were flooded with ground water. The result: a sort of 
radioactive brine that has been slowly seeping toward the surface — as well 
as toward the Caspian Sea and its rich aquatic life. "What were meant to be 
storage cavities for hydrocarbons instead became storage cavities for 
radioactive matter," says Golubov. 

The extent of any radioactive contamination is unknown today. Are farm 
animals already munching on grass soaked in radioactive ground water? 
Russia's Minatom, which oversees the country's nuclear-energy plants as well 
as its weapons production, insists not. But scientists complain it has been 
very stingy with data to support its claim. Azhakhmedova, like most of the 
residents of Seitovka, doesn't want to stick around to see who's right, but 
at the moment she doesn't have a choice. Because of the rancid sulfurous 
fumes that the Gazprom plant has been spewing into the air since it opened in 
1986, the company actually has been helping move people to a village it 
helped build farther away. But the process has been torturously slow, and 
Azhakhmedova's turn hasn't come yet. Nor does she have any idea when it will. 
"Why won't they get us out of here now," she says, "if there's even the 
slight chance of [radioactive] poisoning?" After all, "they came around to 
make sure our dishes didn't break 20 years ago." 

With Steve LeVine in Semipalatinsk 


Yavlinsky for State of Emergency on Dagestan Border.

MOSCOW, September 9 (Itar-Tass) - Yabloko leader Grigory Yavlinsky believes 
the state of emergency should urgently be imposed on Dagestan's and Stavropol 
territory's border with Chechnya. He stated this on Thursday to reporters in 
the President Hotel at the founding congress of the Russian Cities movement. 

Yavlinsky believes that imposing the state of emergency in Dagestan's border 
district will create a basis for political backing for Russian servicemen 
staying there as this will "give a seal of legality" to their actions, or 
else "utter rightlessness may set in". 

He believes the state of emergency is also needed for the reason that "the 
authorities should clearly explain against whom a war is being fought, who is 
Russia's enemy, who threatens the country's security". 

The situation in Dagestan is different from that during the Chechnya war, 
Yavlinsky said. "It poses a real threat to security and freedom of our 
country," he said. This requires diplomatic efforts in addition to material, 
moral and political support for the servicemen and their families in Russia. 
"An array of political and military tasks needs to be resolved," he said. An 
aggression of extremist terrorist forces, including international, is being 
staged against Russia. 

Noting that "most rigid measures with minimum loses" are called for in this 
situation, the Yabloko leader called in question the professionalism of 
Russian military. "There is much concern as to the ability of military 
leaders to conduct these actions". "We are very much concerned how 
professionally our military act, why the losses are so high." 

Asked to assess the actions of Prime Minister Vladimir Putin in the Northern 
Caucasus, Yavlinsky said that the matter is yet open. Yavlinsky said he fears 
that the Chechen situation might be repeated in Dagestan, the situation when 
all efforts of the federal authorities are "reduced to nought by corruption, 
drunkenness, lawlessness and lack of professionalism of top brasshats." 
Therefore, Yavlinsky said, Yabloko is going to raise the question of the 
prime minister's personal control over the supply of funds and armaments to 
the Northern Caucasus. 

Yavlinsky also declared for the pullback of all conscripts from the area of 
hostilities and for employing only those who serve under contract. He also 
announced that the Yabloko faction is going to propose at the first plenary 
meeting of the State Duma the adoption of a law for high insurance and 
material aid to servicemen's families. 


The Economist
September 11-17, 1999
[for personal use only]
Money laundering in Russia 
Red ink, redder faces 
M O S C O W 

FOR a banker, to lose money is irritating; to lose a reputation is fatal. 
Western financiers who withstood the first stage of Russia’s financial 
meltdown last summer—a $40 billion default and devaluation—are finding the 
second, scandalous stage, centred so far around money-laundering 
investigations into $4.2 billion transferred through the Bank of New York, 
more disconcerting. Bankers in Moscow, Frankfurt, London and New York are 
frantically reviewing business with Russia over the past few years to see if 
it will withstand regulatory scrutiny. 

One sign comes from Barclays, a British bank that has written to a number of 
Russian offshore corporate clients giving them a month’s notice to close 
their accounts, on the grounds that the bank cannot satisfactorily “identify 
and understand the markets and counterparties” involved. Barclays has also 
ended a 25-year presence in Moscow by closing its office. In Frankfurt, 
Deutsche Bank’s boss, Rolf Breuer, has conceded that “it is possible that we 
were misused.” 

Behind the panic, however, lies confusion between two different forms of 
financial wrongdoing. One is money-laundering: turning criminally acquired 
money into the respectable stuff. The other, much larger activity, is capital 
flight: the (entirely understandable) desire by Russians of all professions 
to keep their money safe—ie, abroad. 

In other countries things are clearer. A German dentist opening an account in 
Luxembourg to dodge taxes on his savings (a civil offence) is easily 
distinguished from a Berlin cigarette smuggler (and thus criminal) trying to 
launder his money into a bank account. But in Russia the two overlap. Much of 
Russian managers’ time is spent thinking of ways to diddle anyone with a 
claim on their cashflow, such as workers, shareholders or the taxman. One 
common ruse for raw-materials companies is to divert export revenues to 
offshore intermediaries; another is to pay bogus overseas suppliers, 
insurers, consultants, or commission agents. 

Cheating people with a legal claim on your company’s cashflow may be morally 
objectionable but it is not necessarily a criminal activity. For a fee, 
official permission in Russia can be forthcoming for the most questionable 

A further complication is that capital flight is just the sort of service 
that criminal gangs, with their connections to corrupt officials, are well 
placed to offer. If a legal Russian business uses a criminally owned company 
to bribe an official in order to land its revenues legally (by Russian 
standards) in a western bank, how guilty is the banker under, say, English 
law, for taking the deposit? 

Lawyers will be having expensive fun with this sort of question in the months 
ahead. The usual first line of defence against money laundering—“know your 
customer”—helps little if the firm in question is, say, a large state-owned 
oil company and, by Russian standards, respectable. That leaves the “smell 
test”, where some bankers may now prove to have come badly unstuck. One 
banker recalls a well-known Russian oil magnate, now in deep trouble, who, 
after two rejections, emphasised his interest in opening an account by 
hurling a glass ashtray at him. (It missed.) “We got a Swiss bank to open an 
account for him instead,” he recalls. 

In short, the standard western approach, in the form of money-laundering 
laws, looks flawed when applied to Russia. Russian gangsters may be 
obnoxious, but the big money is elsewhere. It is also largely futile to try 
to stop capital flight from Russia, just as it was from Latin America in the 
1980s. For now, Russia’s unique combination of corruption, wealth, size and 
lousy government makes the country all but impossible to deal with on a 
normal basis. The absence of any new ideas for dealing with this is merely 
disguised by the sound and fury in New York. 


Date: Thu, 09 Sep 1999 
From: Carol Pearson <cpearson@VOA.GOV> 
Subject: Russian adoptions

Someone forwarded to me a reference to a piece on Johnson's Russian
Adoptions. I did not read the entire article, but there seems to be an
assumption that children adopted from Russia are either mentally or
physically deficient. And that corruption is rampant in the adoption

I am sure the corruption part is accurate, otherwise it wouldn't cost so
much to adopt from a developing country.

However, my husband and I adopted two wonderful girls last November. 
They are now 7 and 11. They are beautiful, bright and healthy. The
younger one has adapted wonderfully. She loves our cat, likes to
collect rocks and wants to take gymnastics. She is the little girl I
have always dreamed of having.

The older one is still adjusting. She loves having a family. But she
is dealing with issues that any kid who had been raised for a time by a
physically abusive mother would have to deal with. Her positive
qualities far outweigh the negatives. She loves babies and small
children, she is nurturing, kind and conscientious. And by keeping in
mind that what happened to her wasn't her fault, I can deal with her
insecurities. She's already come such a distance, I am sure she will be

Other than dealing with a mountain of paperwork, much of which was
repetitive, and paying $175 for a $50 tourist visa, and I am sure other
padded fees, we had no difficulties. The orphanage director was kind
and good to all of the children, as were other staff members. I thought
they were as nurturing as they possibly could be under the
circumstances. Our kids were the first ever to be adopted from that
orphanage so the director certainly had no money machine going. 

I know lots of other older children adopted from Russia, and after their
initial adjustment, they seem to be doing fantastically. 

I would like to see more older children adopted. A lot of these
children can thrive if they are just given a chance. I would also like
to see the government take an interest in these throw-away children and
actively try to get them in good homes by cutting the red tape and
reducing the corruption thereby making adoption something more people
could afford.


Date: Thu, 09 Sep 1999 
From: "Victoria Sokolova" <> 
Subject: FRIENDSHIP 2000's RUSSIA NIGHT at the Russian Embassy

The Eurasian Center's FRIENDSHIP 2000 Club
invites those interested in attending
at the Information Dept. of the RUSSIAN EMBASSY,
Russian Info. Agency,
1706 18th St., NW, (18th & R Sts) Washington, DC,
7:30 p.m. - 11:00 p.m.

Celebrate the evening with Russian caviar and cuisine, listen to Russian 
classics and popular music and taste wines and spirits from the regions of 
the former Soviet Union. ?'s 202-966-8651 or - 
Victoria Sokolova

Entrance: $20 per person, $30 per couple...
(Business attire - Open Bar)

FRIENDSHIP 2000 is a a new gathering of professionals within the 
metropolitian area who are interested in attending cultural and artistic 
events to promote postive relations between the United States and the 
nations of Eurasia.


Date: Thu, 09 Sep 1999 
From: "Ariel Cohen" <> 
Subject: Heritage Panel on Russian money laundering, government
corruption and the IMF assistance



Director, Russian Organized Crime Task Force, Center for Strategic and
International Studies

Research Fellow in Russian and Eurasian Studies, The Heritage Foundation

Former National Intelligence Officer for Russia, Central Intelligence Agency, 
and former Chairman, National Intelligence Council

Recently, The Wall Street Journal, The New York Times and USA Today began
reporting that billions of dollars in IMF assistance funds allocated to
Russia, along with profits reaped from such dubious sources as Eastern
European prostitution rings and illegal arms sales, were laundered through
the Bank of New York. Swiss authorities have seized hundreds of millions
of dollars in Russian bank deposits and are investigating allegations of
corruption leading to the highest levels of the Kremlin. These revelations
come at a crucial juncture both in US-Russian relations and in the internal
political life of both countries. They raise a series of obvious questions.
Who in the U.S. Government knew and when did they know it? What are the
implications for the Russian parliamentary and presidential elections? Will
this situation have an impact on the upcoming U.S presidential elections?
If billions of dollars in IMF aid have disappeared without ever helping
their intended recipients, can and should assistance be stopped altogether?

12:00 noon
Visit our web site at:


Date: Thu, 09 Sep 1999 
From: Luke Allnutt <> Johnson <>)
Subject: Transitions Online--Simmering Conflicts

Dear David,
The new issue of Transitions Online <> has just
been posted. The theme of the issue is the region's simmering conflicts --
most legacies of the Soviet Union's collapse -- and the role of Russia:
directly or indirectly financing, arming, or peacekeeping. We also have a
special report on how a proposed Soviet theme park has prompted Lithuanians
to take a hard look at how to memorialize their past. Hope this will be of
interest to your readers.
Best Wishes, 
Luke Allnutt
Assistant Editor
Transitions Online


New York Post
9 September 1999
[for personal use only] 

IF you assume the charges against Martin Frankel are true, then he made a
couple of serious mistakes when he decided to steal money left in his trust. 

First, he only ripped off maybe $218 million, or at most $915 million.
Second, he neglected to make friends with Treasury Secretary Larry Summers
and Vice President Al Gore. 

Had he followed the business model crafted by Larry Summers' friend
Anatoly Chubais, President Yeltsin's top "energetic young reformer" and
Viktor Chernomyrdin, Yeltsin's long time Prime Minister and Gore's pal,
then instead of trembling in a Hamburg jail he'd be sleeping between crisp
sheets in Blair House, the White House's VIP quarters. 

Sadly for Martin, he didn't steal tens of billions and didn't have
cheerleaders at the Washington Post and the New York Times, as well as
other editorial pages that come to mind. 

So he didn't get to be part of what Larry Summers would call an economic
"dream team" and had to hang out with cheap, treacherous Russian hookers
rather than expensive, discreet ones. 

Otherwise Martin Frankel had a lot in common with these guys. 

Although he was tagged as untrustworthy - in his case by the SEC, in
their case by the CIA - he managed to talk institutions out of a lot of
money with empty promises. 

While quite good at that trade, he wasn't able to really do anything with
the money, since he didn't know how to invest or build any institutions on
his own. 

Again, very similar to Chubais and Chernomyrdin. And both Martin and the
Russian thieves developed a taste for high living at the public's expense. 

But the stories have now diverged. 

Martin's been caught, and whatever deal is worked out by his lawyers, it
will likely not be one that guarantees a pleasant future. 

Viktor Chernomyrdin and Anatoly Chubais, on the other hand, are very
comfortably fixed. 

Chernomyrdin is one of the richest men in the country after his career as
a public servant, with a large stake in Gazprom, the biggest company in

Chubais is head of the national electric company, which gives him the
power to hand out power supplies for long deferred payment to his friends,
or collect actual money from his non-friends. 

Both are heads of political parties. 

Unfortunately the Russian public doesn't seem to want to vote for either
one - something about hating the men who have stolen their futures. 

So Summers and Gore spent a fortune to buy politicians who are unelectable. 

Now, though, the administration's favorite launderers are being put
through the spin cycle. 

Larry Summers says Russia won't get any more IMF money until it can be
determined that none of that $15 billion or so sliding through the Bank of
New York was paid in by the Fund. 

Let me save this set of investigators some time. 

None of the money was stolen directly from the IMF. Instead, the IMF's
money was put into the Central Bank of Russia, which then sold it for
rubles to the Russian banks under the control of Al and Larry's friends,
who then converted the ruble-denominated GKOs, (Treasury bills) owned by
Chubais and the others into dollars, and then sent those out of the country. 

That way, Chubais and his friends converted the high interest ruble junk
GKOs into real money. 

So in the next few months, when Larry tells you, as he truthfully can,
that the IMF money was not stolen, he is neglecting to follow the trail
just a little further to the answer he already knows. 

It won't work. 

The intelligence agencies and security services in the U.S. and elsewhere
have known about all this for a long time, and they resent politicians such
as Al Gore who say they weren't told when they were. 

So they are systematically cleaning their files on the Russian
"reformers" of references to specific wiretaps, communications intercepts
and informers and passing them on to the media, opposition legislators, and
prosecutors. The story is just starting to come out. 

The problem for Wall Street is that this scandal will make it difficult
to impossible to get any more money for the IMF or Treasury-led bailouts of
the next economies that crack. 

Most of these are in Latin America, with Argentina at the top of the list. 

That's the problem with the cheap cynicism of the administration's
foreign economic policy team - they've run out of credibility when they
will really need it. 


Business Week
September 20, 1999
[for personal use only]
What Money Laundering? (int'l edition)
Banking kingpin Smolensky pooh-poohs the allegations

Russian banking tycoon Alexander P. Smolensky has strong views on the 
investigation into alleged money laundering involving Russian mobsters and 
Bank of New York. His Soyuz Group--a conglomerate controlling giant SBS Agro 
Bank and other financial institutions in Russia, Kazakhstan, Georgia, and 
Macedonia--does business with Bank of New York. But it has not been contacted 
by investigators, Smolensky says. He spoke to correspondent Margaret Coker in 
his plush Moscow office, which overlooks the Kremlin.

Q: What do you think of the allegations that Russians laundered billions 
through the Bank of New York?
A: To call it money laundering is ridiculous. It is not money laundering, but 
money from exporters or importers who are making payments [through 
correspondent banking relationships]. Bank of New York is a clearing bank for 
Russian banks. Previously, Russia had 3,500 banks, and almost all of them are 
correspondents of [Bank of New York], so their turnover alone would be huge. 
When I opened my first account 10 years ago, I chose this bank, and now 80% 
of my turnover goes through it. There is a lot of dollar cash in Russia--from 
$10 billion to $40 billion in savings. Naturally, there is some capital 

Q: Is it easy to send money abroad?
A: No. It is very difficult to do it. An ordinary person cannot transfer 
money abroad, except for medical treatment, travel, education. These are not 
very large sums. So in most cases cash transfers must be export revenues and 
balances on import contracts. Frankly, I don't understand the big fuss. There 
is a lot of Russian money in America, and I do not think that American banks 
are terribly concerned. I don't think Swiss banks are either.

Q: Is there any control over wire transactions in Russia?
A: Not as tough as in America. But there are hard currency controls. There is 
legislation requiring return of export revenues within 180 days. Draconian 
punitive measures are levied, including penalties of up to 100% of revenue 
expropriated. We have clients who have been caught. If the revenue is not 
returned, we are obliged to report it. In any case, I think there is some 
capital flight, also due to commercial banks' negligence. There are ways 
around [controls], like a business inflating the price of an import contract. 
But this is not about laundering. It's about tax evasion.

Q: Corruption in Russia has also led to capital flight. Can something be done?
A: The absence of [normal] salaries and pensions for government officials 
breeds corruption. You have to pay bribes.... I do not trust bureaucrats. I 
do not feel secure because I am not protected by the law. All the laws are 
very vague. Our banking legislation is only about 50 pages long, while 
everywhere, including America, it is a collection of volumes where everything 
is specified. Any government official in Russia has a lot of room to 
maneuver. A lot depends on his mood.

Q: Do you think the corruption goes as far as President Boris Yeltsin and his 
family, who allegedly used credit cards supplied by a company renovating the 
A: The talk about the President and his family using credit cards is 
delirium. The President does not have the opportunities I have to be on his 
own. He is a statesman. All his needs are covered from the budget. There is 
no need for him to pay for anything with a credit card. The same is true for 
his family.

Q: Is there anyone in Russia clean enough to fight corruption?
A: Newborn babies, but they have no power.


U.S. cites local religious freedom curbs in Russia

WASHINGTON, Sept 9 (Reuters) - The United States said on Thursday that 
despite promises by Russia's federal government that it would ensure 
religious freedom, a complex 1997 law was allowing increasing restrictions on 
religion at the local level. 

The first annual report of religious freedom worldwide released by the U.S. 
State Department said President Boris Yeltsin and other Russian leaders 
repeatedly had stated that the law would be applied in a liberal, tolerant 

And it added: ``To date no religious organisation has ceased operations as a 
result of the law.'' 

But the report said that restrictions were applied at a local level in 

``The vagueness of the law and regulations, the contradictions between 
federal and local law, and varying interpretations furnish regional officials 
with a pretext to restrict the activities of religious minorities,'' it said. 

The 1997 law was enacted in response to concerns among many Russians, in 
particular nationalists and some in the Russian Orthodox Church, that a 1990 
religious freedom law following the collapse of Soviet communism was too 

That law, which forbade government interference in religion and set up simple 
registration procedures, was seen by critics to have opened the way to 
well-financed foreign missionaries and what they called ``nontraditional'' 
religious groups. 

The State Department report called the 1997 law ``restrictive and potentially 
discriminatory,'' and said it had ``raised questions about the government's 
commitment to international agreements honouring freedom of religion.'' 

The report said Yeltsin and leaders in his government had ``taken a flexible 
approach to implementation of some of the law's most negative aspects and 
have shown some willingness to intervene with local authorities in defence of 
religious rights.'' 

It said the most worrying aspect of the law was its provision limiting the 
rights of groups existing in Russia for less than 15 years. Although three 
sets of guidelines were issued in 1998, the report said key points still were 

And it said that since 1994, 30 of 89 regional governments in Russia had 
``passed restrictive laws and decrees intended to restrict the activities of 
religious groups.'' 


Bradley Stresses Independent Appeal
September 9, 1999

ST. LOUIS, Mo. (AP) - It's a whispered fear among Democratic activists, 
seemingly supported by early polls: Republican front-runner George W. Bush
could trounce Vice President Al Gore. In steps Bill Bradley. 

The former New Jersey senator on Thursday emphasized his appeal among 
independents and Republicans, contending that makes him the more electable 
Democrat in a general election campaign. 

In a news conference, Bradley also took his most direct shot yet at the 
Clinton administration's ``misdirected and ineffective'' U.S.-Russia policy, 
in which Gore has played a uniquely active role. That foreign policy is under 
increasing scrutiny as investigators sort through allegations of money 
laundering and corruption in the American-subsidized Russian government. 

The United States under Clinton-Gore, Bradley said, ``became more 
missionaries for international capitalism than we became the undisputed giant 
of the world, acting out of our own national interest.'' ....

Identifying four nations that would be a priority of his own foreign policy 
because of their ``overriding importance'' to American interests, Bradley 
counted the European continent as a single country, along with Japan, China 
and Russia. 

``Those are the only four countries that have the technological capability to 
threaten the United States,'' Bradley said. 



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