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Johnson's Russia List


September 13, 1999   
This Date's Issues: 3496    

Johnson's Russia List
13 September 1999

[Note from David Johnson:
1. Edwin Dolan: The Chicago School and the Limited State.
2. Itar-Tass: Muscovites See Crime as Scourge, few Welcome Police Tax.
3. The Guardian (UK): Amelia Gentleman, Who is bombing Russia?
4. Calgary News (Canada): Eric Margolis, Kremlin caper. Ever since Soviet 
Union collapsed, Russian officials have looted store.

5. Newsweek: Gregory Vistica, 'We're in the Middle of a Cyberwar.'
Russian hackers may have pulled off what could be the most damaging breach 
ever of U.S. computer security.

6. Los Angeles Times: Robyn Dixon, A Prescription for Tragedy. Much-needed 
medical aid to Russia is mired in bureaucracy before it is burned.

7. The Russia Journal: Gregory Feifer, Acknowledging the problem a good 

8. The Times (UK): Alice Lagnado, Mistrust of Russia sparks Chechnya call 
to arms.

9. The Independent on Sunday (UK): Invasion of the rouble barons.
How the Moscow 'mafiya' gangs took a grip on London.] 


Date: Sat, 11 Sep 1999 
From: Edwin Dolan <>
Subject: The Chicago School and the Limited State

The Chicago School and the Limited State

In a recent note (JRL 3491), Oleg Pavlov attributes Russian problems, in
part, to weakness of the Russian state. He identifies this weakness with
doctrines of the Chicago School of economics. His suggestion: throw out the
"Chicago Boys," strengthen the state, and things will be better. 

Such characterizations are common in the current Who Lost Russia debate, but
they reflect a profound misunderstanding of the Chicago school in
particular, and the broader tradition of classical liberalism of which it is
a part. This tradition has grown over the centuries from the contributions
of thinkers like John Locke, Adam Smith, John Stuart Mill, Friedrich Hayek,
Milton Friedman, and many others. The last two of these spent many of their
most productive years at the University of Chicago and played major roles in
forming the eponymous "school."

To put the matter simply, the cornerstone of classical liberal political
theory is not a weak state, but rather a limited state. The state should be
limited in the sense that it should interfere minimally if at all in the
private affairs of citizens and their voluntary dealings with each other,
including their personal, cultural, and economic activities, so long as one
persons' actions do not infringe on the equal rights of others. But to
ensure conditions for life, liberty, and the pursuit of happiness, the state
must be strong in establishing and enforcing the rule of law. Attempts by
private persons to enrich themselves not through voluntary dealings with
their neighbors but through violence, force and fraud must be swiftly and
effectively thwarted by police and courts dedicated to upholding the law.

An critique of the current Russian situation from the classical liberal or
"Chicago School" point of view would focus on the state's failures in
establishing the rule of law. There are several aspects to this failure,
including, most importantly:

(1) Weakness and/or corruption of police and courts, so that laws that would
be beneficial if enforced universally are enforced capriciously or not at

(2) A proclivity on the part of the state to impose its will through decrees
and uzkazes aimed at specific cases rather than through the establishment of
legal rules that apply equally to everyone. Decrees that extend privileges
to some that are not available to all, or impose prohibitions from which
policy makers and their friends are exempt, are the very opposite of the
concept of law as envisioned by the classical liberal tradition.

(3) A tendency of the state, either as a matter of official policy or
through the corrupt actions of individual bureaucrats, to interfere with the
voluntary dealings of its citizens with one another and with citizens of
other countries.

Yes, a weak state is bad if its weakness prevents it from upholding the law.
But a strong state unconstrained by law is if anything worse. The problem of
Russian statehood today is not weakness so much as lawlessness.

For anyone interested in finding out what the Chicago School really stands
for, I recommend either Friedrich Hayek, The Constitution of Liberty, or
Milton Friedman, Capitalism and Freedom. 

Edwin G. Dolan, President
American Institute of Business and Economics
An American MBA program in Moscow


Muscovites See Crime as Scourge, few Welcome Police Tax.

MOSCOW, September 11 (Itar-Tass) - A poll has found 81.4 per cent of 
respondents to see crime as Russia's key problem. 

The telephone poll was conducted by the independent service Mneniye among 
1.040 Muscovites. 

Some 15 per cent believe crime-fighting is not a top prioroty, and six per 
cent were uncertain. 

Only 16.5 per cent said they were willing to pay an extra tax for the upkeep 
of Moscow police; 63.7 per cent did not welcome the idea, and 19.8 per cent 
were uncertain. 

Comparison shows that the proportion of those willing to pay for police was 
by far higher in previous years. 

A similar poll in 1992 found 60 per cent or respondents ready to pay a police 
tax. The figure was 40 per cent in 1994 and 27 per cent in 1996. 

Mneniye's poll asked whether respondents would go along with an extra tax to 
go into the health sector. Some 52 per cent said they were ready to pay it, 
24.8 per cent opposed the health tax and 23.1 per cent were undecided. 

Over half of those polled, or 52.7 per cent, said they did not go outdoors in 
evenings without special need, and 39.4 per cent said they did not fear going 
in the streets at night. 


The Guardian (UK)
12 September 1999
[for personal use only]
Who is bombing Russia? 
National day of mourning declared as security forces fear that Islamic 
separatists have begun a campaign of terror
Amelia Gentleman in Moscow

The mushrooming underclass of organised criminals has until recently been the 
most feared force in Russia. Now the country faces a new enemy within - 

After the deaths of 150 people in three explosions, today has been declared a 
national day of mourning. Flags will fly at half-mast and President Yeltsin 
has asked TV and radio stations to pull light-hearted programmes.

Links between the three blasts were being investigated yesterday. The first 
was in a slot-machine arcade in Moscow's smart new shopping mall, Manezh; a 
woman later died from her injuries. Initial evidence suggesting this was an 
anti-consumer protest later proved unconvincing, and investigators have yet 
to identify who was responsible.

Late last Saturday night a second explosion razed a barracks building in 
Buinaksk, in Russia's southern region of Dagestan, claiming more than 60 
victims - many of them children. Chechen-led rebels trying to establish an 
Islamic state in the Caucasus were widely believed to have been responsible.

Last Thursday the most devastating explosion to hit Moscow since the Second 
World War shattered nine storeys of an apartment block on Guryanova Street. 
Last night the death toll stood at 91, including eight children, killed as 
they slept.

Two suspects were arrested late on Friday night, and were being questioned 
yesterday by the FSB, Russia's security force. No details were released about 
them, although FSB sources suggested they might be linked to the business 
premises on the ground floor of the block.

But as it became clear that a massive 300 kilos of dynamite had exploded, it 
began to look unlikely that this was the work of feuding gangs. This left two 
alternatives: that the blast was the result of an accidental detonation of an 
illegal stockpile of explosives, or that terrorists orchestrated it.

The Moscow explosion may have been organised by Islamic rebels, who have been 
fighting Russian troops in Dagestan since the beginning of August. This was 
the theory preferred by Moscow's Mayor, Yury Luzhkov.

After their temporary defeat in Dagestan last month some rebel leaders, 
including Chechen field commander Shamil Basayev, threatened to start a 
campaign of terror throughout Russia. Newspapers in Russia yesterday 
speculated that Chechen field commander Ruslan Gelayev might have been behind 
the most recent explosion as well as the shopping mall bomb, in an attempt to 
force a government retreat from Dagestan.

Commentators have speculated that the terrorist financier Osama bin Laden may 
be helping to fund the rebels' military campaign, although no direct link 
between him and the bombings has been suggested.

The threat of Chechen terrorism has never receded since the conflict with the 
breakaway republic began in 1992, with repeated predictions that separatists 
would begin to emulate the terrorist techniques of the Palestinians and Kurds 
in their struggle for independence.

Nationalist sections of Moscow society are unashamedly suspicious of people 
from the Caucasus and many immediately held Chechens responsible for all the 
recent blasts. But Andrei Kostronin, a spokesman for the FSB, told The 
Observer that not one investigation into apparent terrorist acts in the 
capital in recent years had ever proved any Chechen involvement.

Dagestan's Islamic radicals, the Wahhabists, may also be suspected of 
organising last Thursday's devastation - which came the day after federal 
forces allegedly began bombing residential areas in the region. The Russian 
news agency Interfax reported that an anonymous caller, with a Caucasian 
accent, claimed the explosions in both Buinaksk and Moscow were a response to 
Russia's military campaign but there was no way of determining the 
authenticity of the tip-off.

Russia's main cities have seen a rise in small-scale, apparently terrorist, 
attacks in recent years. Some incidents - such as the detonation of a small 
car bomb in Red Square last November by a man who was arrested brandishing a 
portrait of Stalin - appear to be broad protests at the way Russia has 
developed since the collapse of communism. Others, like the surge in 
anti-Semitic attacks on Moscow synagogues, are driven by ultra-nationalism.

Explosives have become freely available since the disintegration of the 
Soviet army. Drastic cutbacks have left trained weapons experts unemployed 
and desperate for money. Security controls on arms depots have become much 
more lax.

Fires in arms warehouses are reported with increasing frequency - soldiers 
are said to be taking explosives to sell, then destroying the entire 
stockpile so the theft remains undetected. Police have also noted with dismay 
the appearance on the Internet of detailed bomb-making instructions in 

Conspiracy theorists were, however, toying with the idea that the bomb might 
have been planted by forces within the Kremlin keen to prolong Yeltsin's term 
of office by creating a pretext for declaring a state of emergency.

The choice of an impoverished suburban region of Moscow as a terrorist target 
seemed unlikely initially, but experts said yesterday that its location 
overlooking the banks of the Moskva river was ideal - remote, poorly policed 
and well-placed for someone to detonate an explosion by remote control from 
the other side of the river. There was a long way to go before the exact 
cause could be established, they said.

Prime Minister Vladimir Putin warned against jumping to conclusions, but 
extra security has been introduced around nuclear plants.

`If it was a terrorist attack,' Putin warned, `then we are facing a cunning, 
impudent, treacherous, bloodthirsty opponent.

`In the course of history, there have been many attempts to force Russia to 
kneel down and be intimidated, but it never worked. I am confident nobody 
will succeed this time either.' 


Calgary News (Canada)
12 September 1999
Kremlin caper
Ever since Soviet Union collapsed, Russian officials
have looted store

GENEVA -- The Clinton administration has reacted to charges of
massive corruption at the Kremlin by doing a very good imitation
of the wonderfully cynical Claude Raines in Casablanca,
discovering that gambling was taking place at Rick's Bar.

The White House piously proclaimed itself "absolutely shocked"
by charges its Russian pals had stolen billions in western aid.
What the absolutely shocked Bill Clinton and Al Gore didn't know
is old news to every Russian child from Smolensk to Sakhalin.

In recent weeks, two new scandals have cast more light on the
greatest theft in modern history. Swiss authorities are preparing a
criminal investigation of a Russian-owned firm, Mabetex, involving
money laundering and massive bribery.

According to Swiss investigators, members of President Boris
Yeltsin's entourage, known as "the family," and his two daughters
received payoffs from the $1.5 billion US renovation of the
Kremlin, an incredible ostentation worthy of stupid Czar Nicky

A Russian prosecutor estimated Mabetex had accumulated $10
million in bribes from the renovation.

Meanwhile, American investigators have charged the venerable
Bank of New York with laundering up to a whopping $5 billion
stolen by Russian officials and their gangster cronies.

And this is just the tip of the Russian iceberg. Ever since the
Soviet Union collapsed in 1991, Russian officials have been
looting their nation's treasury and hawking its resources at below
market value, pocketing huge bribes and stealing nearly all the
aid provided by the U.S., European Union, Japan, Canada and
the International Monetary Fund.

My own estimate of the mega-theft to date is a minimum $30
billion, which could well reach $100 billion or more if ever
properly investigated, which is doubtful.

Virtually every import-export deal done with Russia goes through
shell companies in Switzerland, Cyprus, the West Indies and the
U.S., where the profits are skimmed off and concealed from tax

Billions earned from exports of oil, timber, arms, furs and
minerals never touch Russia but are secreted abroad. Billions
more in western aid to Russia is instantly diverted abroad.

The White House has simply extended the time-honoured
Arkansas-style of sleazy money politics to dealing with Russia.
Washington, Europe and the IMF fork over billions each year to
the Kremlin. Yeltsin and his allies use the torrent of greenbacks to
buy loyalty from key military and security leaders, reward loyal
bureaucrats and feather their own nests.

In short, Russia is being bribed to be good -- which means
maintaining a low profile abroad, letting the U.S. have its way, and
keeping the communists down.

When a new prime minister gets uppity and tries to flex Russia's
muscles, as Yevgenny Primakov did, the Kremlin gets an angry
call from the White House, and out he goes.

When Russia's oligarchs and mobsters complained the old U.S.
$100 bill was too easy to counterfeit, Clinton ordered the treasury
to design and print a new $100 note that has become the main
currency of Russia.

Bribing enemies and paying off friends are time-honoured tools
of foreign policy.

It's far cheaper to buy your foes than to confront them militarily.
The Byzantine Empire lasted for 1,000 years this way.

But paying bribes tactfully, and knowing how to receive them
discreetly, requires sophistication and savoir faire. Stealing from
the public demands, even in Russia, a modicum of restraint.

But Russia's nouveau-riche crooks simply don't know the
meaning of the word. Their outrageous thievery, drunken-sailor
spending and utter contempt for their country and fellow citizens
will soon provoke an explosion by Russians outraged at seeing
their country raped and pillaged with the connivance of
Washington and the IMF.

America has managed to rent the Kremlin for a while, but it has
not bought Russia.

When Yeltsin and his coterie are ousted from power by
nationalists, communists, or the army, there will be a fierce
backlash against everything western.

All who favoured good relations with the West and democracy --
particularly Russia's Jews -- will be branded as traitors and
hirelings of Wall Street, just as in bad old communist days,
leaving sullen, xenophobic "mouzhiks" to once again rule Mother

What will western taxpayers have got for their $150 billion or so in
bribes? A united Germany -- a deal, to be sure. But not much
else, save a lot of Russian fat cats living in cushy exile in the
south of France.

I've heard the Cote d'Azur palace of late Congolese dictator,
Gen. Mobutu, who stole his country dry, may be bought by a
Russian "businessman."

Very fitting.


September 20, 1999
[for personal use only]
'We're in the Middle of a Cyberwar'
Russian hackers may have pulled off what could be the most damaging breach 
ever of U.S. computer security 
By Gregory Vistica 

It's being called "Moonlight Maze," an appropriately cryptic name for one of 
the most potentially damaging breaches of American computer security ever  
serious enough for the Department of Defense to order all of its civilian and 
military employees to change their computer passwords by last month, the 
first time this precaution has ever been taken en masse. The suspects: crack 
cyberspooks from the Russian Academy of Sciences, a government-supported 
organization that interacts with Russia's top military labs. The targets: 
computer systems at the Departments of Defense and Energy, military 
contractors and leading civilian universities. The haul: vast quantities of 
data that, intelligence sources familiar with the case tell NEWSWEEK, could 
include classified naval codes and information on missile-guidance systems. 
This was, Pentagon officials say flatly, "a state-sponsored Russian 
intelligence effort to get U.S. technology" as far as is known, the first 
such attempt ever by Russia. Washington has not yet protested to Moscow. But 
Deputy Secretary of Defense John Hamre, who has briefed congressional 
committees on the investigation, has told colleagues: "We're in the middle of 
a cyberwar." 

In a cyberwar, the offensive force picks the battlefield, and the other side 
may not even realize when it's under attack. Defense Department officials 
believe the intrusions, which they describe as "sophisticated, patient and 
persistent," began at a low level of access in January. Security sleuths 
spotted them almost immediately and "back-hacked" the source to computers in 
Russia. Soon, though, the attackers developed new tools that allowed them to 
enter undetected (although they sometimes left electronic traces that could 
be reconstructed later). Intelligence sources say the perpetrators even 
gained "root level" access to some systems, a depth usually restricted to a 
few administrators. After that, "we're not certain where they went," says GOP 
Rep. Curt Weldon, who has held classified hearings on Moonlight Maze. 

As a federal interagency task force begins its damage assessment, a key 
question is whether the Russians managed to jump from the unclassified 
(although non-public) systems where they made their initial penetration into 
the classified Defense Department network that contains the most sensitive 
data. Administration officials insist the "firewalls" between the networks 
would have prevented any such intrusion, but other sources aren't so sure. 
Besides, one intelligence official admitted, classified data often lurk in 
unclassified databases. With enough time and computer power, the Russians 
could sift through their mountains of pilfered information and deduce those 
secrets they didn't directly steal. That's one more thing to worry about, 
although security officials admit that they have a more pressing concern. The 
intruders haven't been spotted on the network since May 14. Have they given 
up their efforts or burrowed so deeply into the network that they can no 
longer even be traced? 


Los Angeles Times
September 12, 1999 
[for personal use only]
A Prescription for Tragedy 
Much-needed medical aid to Russia is mired in bureaucracy before it is 

ULYANOVSK, Russia--The dump at Ulyanovsk, with its population of stray dogs 
and crows and its shacks for the homeless, is a surreal locale for the final 
chapter in a frustrating tale of how some American doctors tried to help some 
Russian doctors. 
In a pit at the dump, customs officials recently burned a load of 
precious aid that Oklahoma City doctors had sent to Russia--desperately 
needed medical instruments and supplies worth up to $800,000. People who 
could have been saved will die as a result. 
A small group of local officials formally witnessed the shipment going 
up in flames. 
It was a long, difficult journey from the first good intention to the 
match that destroyed the hopes of Ulyanovsk cardiac surgeon Alexander N. 
Maltsev, who had waited almost two years for the medicine and equipment. 
The shipment left Oklahoma City in mid-1997 and traveled via Los 
Angeles, Mexico and Ireland to arrive in Ulyanovsk, 435 miles east of Moscow, 
in early 1998. It sat in customs for 18 months while Maltsev worked to cut 
red tape. One of the reasons that customs officials finally gave for burning 
the valuable cargo? The "use by" dates on medicines had expired. 
Customs authorities even sent Maltsev a bill to cover the cost of 
storing and burning the goods and a fine for failing to clear the shipment 
within two months. 
"It's just appalling. To dump it just doesn't make sense to me. I don't 
understand it," said Dr. Tad Cassidy, chief of angiography and interventional 
radiology at Integris Baptist Medical Center in Oklahoma City, one of the 
doctors who organized and sent the aid. The shipment consisted of medicine 
and devices that are difficult to find in Russia, such as single-use sterile 
catheters for heart surgery and other lifesaving operations. 
Exhausted by all the regulations, many Russians give up, but others seem 
energized by the challenge and find a way to get things done anyway. Maltsev 
is the second kind. 
"The worst thing was that the Americans tried to do everything they 
could to try to help us, and we, getting it all for free, destroyed it as if 
we didn't need it, or as if they'd sent us something harmful," said Maltsev, 
Sasha to his American friends. "I'm deeply ashamed." 

Pattern Repeated Across Russia 
This story sounds like a unique case of bureaucratic madness, but it is 
not. In the Ulyanovsk region, aid sent to an orphanage, a psychiatric 
hospital, a hospice for dying patients and a school either was destroyed, 
sent back or will be burned. International aid organizations based in Moscow 
describe a similar pattern across Russia. 
The customs service, with its ever-changing regulations and its corrupt 
officials, poses enormous obstacles for anyone trying to do business in 
Russia. Companies can pay a bribe to make their customs problems disappear, 
but charities, trying to bring in aid, don't have a budget for bribes. 
Russian officials are suspicious of nongovernmental 
organizations--partly because some notorious Russian "charities' have been 
used as fronts for tax dodgers and gangsters--and are loath to admit that 
their once-mighty country needs a handout. 
Vladimir T. Chaya, deputy governor of the communist administration in 
Ulyanovsk, said the aid wasn't needed and "offends our human dignity in this 
region. We don't have a population in rags. We don't have paupers." 
Questions about the burning of medical necessities appeared to make him 
"The noble Americans extended their hands in help, and we barbarians 
didn't understand what it was. Well, maybe someone is interested in sending 
us humanitarian aid to put us in a difficult position so we have to destroy 
it and we look like savages with rings in our noses," he said, pacing the 
carpet in his large office overlooking the town's Lenin Square and the Volga 
To fully absorb the tragedy, one must understand how the hospital system 
works in places like Ulyanovsk. People who need lifesaving operations that 
would be routine in the U.S. must find thousands of rubles to actually buy 
the instruments used in the operations. And few can pay. 
"They say, 'But doctor, where do I get the money?' And how do I answer 
that?" Maltsev said. One of his patients, who had a brain aneurysm, was 
trying to raise the $1,300 he needed for surgical equipment. It took time. 
Before he got the money, he died of a massive stroke. 
"Their medical system is a good 50 years behind ours," said the Oklahoma 
hospital's Cassidy, who visited Maltsev's hospital in the fall of 1992. "They 
don't even have adequate antibiotics. When I went there, they had their 
rubber gloves drying on the clothesline. The way they sterilized things was 
to boil them in water." 
While Maltsev was being interviewed, a call came from the hospital 
chief. Maltsev spent several minutes explaining that his team couldn't do an 
operation because it had only 30 ampuls of a particular drug and needed 40. 
Later in the day, Rosa Guryanova, 45, was in the operating theater 
waiting for Maltsev to clear a blocked digestive tract, having paid $330 for 
a balloon catheter. But doctors had already used and resterilized the 
single-use catheter several times--and during the preparations for her 
surgery, the balloon ruptured, so she had to go home without her operation. 
Maltsev and Cassidy first met early in 1992 when the Russian spent time 
in Oklahoma City. Cassidy and a group of doctors from St. Luke's Methodist 
Church in Oklahoma City made up their minds to help Maltsev's hospital. In 
1993 they sent six tons of aid, which went through Russian customs without a 
But in March 1996 the customs regulations got tougher. 
In May 1997 Cassidy, Dr. Lauranne Harris from St. Luke's and others put 
together a load of medical aid, including some items donated by medical 
companies and some free company samples, worth about $800,000. 
Harris found someone to truck it free to the local airport, where 
Southwest Airlines flew it free to Los Angeles. The shipment was taken to 
Long Beach Airport, where it spent several months waiting in a hangar until 
Volga Dnepr Airlines could collect it. Then it was flown via Mexico to 
Shannon Airport in Ireland, where it waited several more months. The aid 
arrived in Ulyanovsk early last year. 
The Americans went to great lengths to try to meet customs requirements. 
There were thousands of items, and the weight and value of each piece was 
documented. But it wasn't enough. Three times Maltsev had to go to customs to 
count every piece of equipment, a process that took eight to 10 hours. 
"They didn't have the documentation. That's all there was to it," local 
customs officer Victor N. Logachev said of the case. 
Maltsev said he couldn't bear to see the sort of equipment that lay 
almost within his grasp. "They were instruments that are so difficult to get 
here," he said, "and for lack of them we can't help our patients. 
"To us, the aid was priceless. It was absolute riches. It was as if you 
were holding something in your hands which you dreamed of all your life and 
then at once it was taken from you. I was ready to kill those customs 
Maltsev said most "use by" dates on the medicine were still good when 
the shipment arrived. 

Customs Regulations Toughened in 1996 
Customs officials claimed that Maltsev "didn't show enough interest" in 
the load--because they had once called him only to find he was in Germany. In 
fact, Maltsev was taking a course there to improve his surgical skills, paid 
for with $3,000 from the Oklahoma City doctors. 
One of the patients whose life could have been saved by the donated 
equipment is a 29-year-old man who suffered his first heart attack a year 
ago. The artery leading to his heart is now almost completely blocked. He 
doesn't have much time left. 
But Logachev, the customs official, makes no apologies for the 
destruction of the aid. 
"My opinion is, you want to do something that requires customs 
clearance, you should know the rules of the game," he said. "There are rules 
and we can't get around it and that's that." 
He conceded, however, that not one shipment of humanitarian aid has 
passed through Ulyanovsk customs without problems since the rules became more 
complex in 1996--including added requirements that significantly increased 
the documentation involved. 
"Now we await every humanitarian shipment with horror, expecting we'll 
have to destroy it," said Logachev, whose office is decked out with new 
furniture and computer equipment. "Sometimes we deal with someone from a 
church, half-illiterate, who says, 'Look, it's free, and no one has to pay 
for it and our children need it.' And we find it almost impossible to 
About 62 miles west of Ulyanovsk, in the town of Barysh, is the Regional 
Psychiatric Hospital No. 1. A German correspondent, Bettina Sengling of Stern 
magazine, visited early this year and wrote about the conditions. There were 
no mattresses, so patients slept on the floor. Many patients were extremely 
thin, and some of the female patients were naked. There was only one warm 
The article inspired a German charity, Maltese Hilfsdienst, to offer to 
renovate the entire institution. The charity even called the institution to 
check what color paint officials wanted on the walls. Details of the shipment 
were worked out. The Germans sent 70 beds and mattresses, nine showers, one 
industrial washing machine, four stoves, enough linoleum to cover all floors, 
chairs, 358 boxes of secondhand clothing, a wheelchair, paint, new toilets 
and a large cash donation. 
Sengling believes her story angered powerful officials in Ulyanovsk's 
regional administration. Apparently something frightened the hospital 
management. By the time the goods arrived, hospital officials no longer 
wanted them. Little or no effort was made to clear them through customs. In a 
phone interview, hospital director Boris T. Chikushkin admitted he didn't 
bother to go to customs to see the aid. 
"We didn't ask for any humanitarian aid. Our patients have everything 
they need. They never complain for lack of anything. So we didn't even look 
at what was in those boxes sitting in customs," he said. "Whatever it was, 
our patients didn't need it." 
The load was sent back, the transport cost charged to the donors. 
Customs regulations make it so difficult--and expensive--to steer aid 
through customs that many organizations cannot afford to do so. Items like 
toys, soaps, detergents and electrical equipment have to be certified as safe 
for use in Russia by a regional standards committee--and these safety reports 
are expensive. 
But the problem is not just a quirk of Ulyanovsk's communist 
"It's happened since the [August 1998 financial] crisis. People have 
been moved to go out and collect and send things," said Moscow-based Jenny 
Hodgson of the British group Charities Aid Foundation. "People send things 
over which promptly get destroyed." 
Muscovite Valentina Kholodova wanted to dedicate her life to 
charity--but was defeated by customs officials. Hers was a small operation, 
the Foundation of Christian Charity and Education, which distributed clothes 
and medicine sent by a German group to the needy in Moscow. 
Her charity has almost ceased to function. "It was a great pity," she 
said. "And there was only one reason, and that was customs." 
Kholodova found that she was spending most of her time going from one 
government department to another, trying to get the required documents, 
pleading with bureaucrats and paying them for their services. If she couldn't 
clear the goods within two months, she was fined. 
"Toward the end of our activities [about a year ago] there were very 
great problems with everything, including clothes," she said. "The biggest 
problem was receiving medicine. I tried everything. It was extremely 
In Moscow, the aid group Doctors Without Borders has also endured 
exhausting bureaucratic battles. "It's absolutely impossible to bring 
medicines in," director Mamar Merzouk said. "Now we are very careful about 
sending any material to Russia. They're always very suspicious of 
humanitarian organizations." 
He cited the case of a British doctor who called him for help when 
customs blocked medicine to treat homeless people at railway stations. "But 
we could do nothing," he said. "He either had to turn back or customs would 
destroy it." 
In Ulyanovsk, regional prosecutor Valery M. Machinsky was asked to 
investigate whether customs erred in burning the U.S. hospital aid. He found 
that they merely followed the regulations. But in his heart, he knows 
something is terribly wrong with the system. 
"My private view--not as a prosecutor--is that this may be intended to 
show the world that we don't need anything, that we have everything. And that 
is wrong. There was a time when we were a powerful and strong state, but now 
we are not, and many people need help. 
"And why should we deny it to them because of feelings of false pride?" 
he said. "If people want to help, why should we stop them from doing it?" 
Cassidy has an additional $100,000 in medical equipment sitting in his 
closet ready to send to his friend Sasha Maltsev. He knows the efforts of the 
doctors of Oklahoma City are helping only a tiny slice of the Russian 
population. But it seemed worthwhile--until he heard that the aid had been 
burned. Now he wonders if the effort is futile. 
Despite all the difficulties, the Oklahoma City doctors haven't given up 
on Maltsev, said Harris from St. Luke's. "When there are people like him, 
there's hope for Russia," she said. "And it makes me feel good that he's 
still trying. We're going to keep on trying too. We're not giving up." 

Sergei L. Loiko in Moscow contributed to this report. 


The Russia Journal
September 13-19, 1999
Acknowledging the problem a good start
By Gregory Feifer

On the Sept. 6 Johnson's Russia list (an e-mail news survey and forum), Oleg 
Petrov of the World Bank posted a message calling for the improvement of 
governance in Russia.

That governance, Petrov wrote, should have ethics as its foundation. It 
should build on the momentum created by global recognition of Russia's 
widespread corruption.

Although Petrov's definitions remain vague, he has struck at the heart of the 
obstacle to reforming Russia's political and economic systems.

During a seminar on transition economics at Harvard University in 1996-1997, 
Petrov was one of precious few graduate students to acknowledge the largest 
problem facing reform in Russia. The issue was the legacy of the Soviet past 
- specifically that the Soviet Union was run on principles that Westerners 
would define as corrupt.

Privatization - one of the trumpeted cures for Russia's ills - simply 
legalized de facto ownership of many of Russia's enterprises by managers who 
did not in essence change their behavior. 

Rather than work toward maximizing efficiency of enterprises they now owned 
by producing the best goods possible to sell at the highest prices possible, 
managers essentially continued to do the opposite. They produced the 
shoddiest goods possible for sale at the lowest prices so that they could 
continue to reap subsidies and get soft credits to line their own pockets.

In 1996, that realization was just sinking into the halls housing Harvard's 
economists and political scientists. But such vague notions as "corruption," 
"culture" and "behavior" still had no place among the models supporting 
so-called transition theory. 

Those schemes plotted in visionary fashion Russia's inevitable journey toward 
a point that observers hoped the country would approach. That those models 
changed monthly, each new one discrediting the previous one, signified little 
to their authors and supporters.

During a similar seminar the following year, most laughed at the mention of 
"corruption" and the notion that certain behavior had carried on not only 
from the Soviet era, but through hundreds of years of Russian history. That 
was called "Billingtonian mush" - referring to the sweeping cultural survey 
"The Icon and the Axe," written by James Billington.

But it is no accident that The Economist now writes about Russia as the 
world's greatest "kleptocracy" for the sole reason that Russians have been 
doing things along more-or-less the same lines for centuries.

As another Harvard professor, Edward Keenan, writes, Russia has more often 
than not been run by a group of political oligarchs who did things in a 
conspiratorial, collegial fashion.

Decisions were always made behind closed doors; outsiders were kept in the 
dark. The chief goal of the system was political stability - a goal achieved 
with considerable success.

During the Brezhnev era, the stability of the cadres was the political 
system's chief goal, not producing good products efficiently or striving to 
improve the quality of Soviet citizens' lives. It was also during the 
Brezhnev era that managers of Soviet enterprises came to de facto own what 
they were given to run.

The chief mistake of Russia's reformers and their Western advisers this 
decade was not what they did - the country would probably have ended up where 
it is now regardless of the speed and scope of reforms - but that they saw 
Russia as a ruin upon which to build a new capitalism. In calling Russians 
economic people capable of functioning in a market economy, they assumed that 
Russians had no previously existing economic system.

We should laud the reformers for having the will and vision to carry out 
massive changes. But we should not be surprised that Russia is indeed a 
kleptocracy - as it has been for decades. The chief difference now is that 
Soviet kleptocracy was institutionalized, whereas today's runs along informal 
networks and rules, which the state claims to battle.

What Russia needs most now is change working toward transforming the critical 
mass of its fundamental system. For whereas Russian political culture (which 
governs its economy) has been run in Mafia-style for hundreds of years - from 
the boyars to the Soviet Politburo to the so-called financial and industrial 
"oligarchs" - that does not mean the system cannot change.

Petrov's call to strive toward an understanding of ethics (the definition of 
which one assumes to run along the lines of a Rousseauian notion of a social 
contract) in governance is especially timely amid the din of accusations that 
the country is massively corrupt.

The Western press has indeed done a service to Russia by bringing the extent 
of the decay in the country's moral fiber to global attention. Some astute 
Russia observers - certainly few in Western academia's halls - have known 
that for many years. All the more reason for them to call for rallying to 
attempt sober and painful reform in Russia.

A new party of the nomenklatura, represented chiefly by Moscow Mayor Yury 
Luzhkov and former Prime Minister Yevgeny Primakov, seems likely to take 
power after presidential elections next year. Now would be a good time for 
those concerned with Russia's corruption to give support to reformers such as 
Sergei Kiriyenko, who seems genuinely interested in creating openness in 
Russia's conspiratorial way of doing things. The task may be Herculean, but 
it must begin somewhere.


The Times (UK)
13 September 1999
[for personal use only]
Mistrust of Russia sparks Chechnya call to arms 

CHECHENS have been urged by President Maskhadov to arm themselves amid
growing fears of a Russian threat to the breakaway republic. "Every village
must be turned into a fortress," he said. 

Mr Maskhadov extended the state of emergency and asked all men to mobilise
themselves after a week in which Russian troops have repeatedly pounded
suspected rebel bases west of Grozny, the capital. He claimed that 150
people had been killed and accused Russia of violating a peace agreement. 

Mr Maskhadov said Russian aircraft had bombed three villages, causing 150
casualties. An official said thousands of villagers had fled to Grozny.
According to Mr Maskhadov, the only solution would be a personal meeting
with President Yeltsin, but this looks unlikely given the lack of dialogue
since the war and Mr Maskhadov's weak position. 

In desperation, he has again turned to Aleksandr Lebed, the former general
who negotiated an end to the Chechen war. It is a measure of Moscow's
policy on Chechnya that Mr Maskhadov is again seemingly stranded. He said
that the two should meet to "avert another large-scale war". 

Russia has denied the allegations, saying it bombed only military bases and
not civilians in Chechnya. But the Grozny leadership has grounds to be
seriously worried. There are those in the Russian Army who believe that
Chechnya should be bombed since it is "Russian territory". Their reasoning
is that this is the only way to stop Shamil Basayev, the Chechen warlord,
leading the insurgents in Dagestan. 

Moreover, war in Chechnya could be politically useful for Mr Yeltsin as a
diversion from various corruption scandals affecting his administration,
and as a pretext for declaring a state of emergency in Russia should he
wish to extend his term of office beyond elections scheduled for June 2000. 

Dagestan could be used as a pretext for such action as well, but war in
Chechnya would provide a far stronger basis for Mr Yeltsin to justify
sending in troops. If he is so desperate to stay in power, a public
relations disaster such as that that accompanied the 1994-96 war in
Chechnya may not be enough to stop him. 

* Russian police have detained 15 people in their search for clues to the
explosion at a south-east Moscow apartment block that left 94 people dead
and more than 200 injured. The police round-up included a number of Chechens. 

Yuri Luzhkov, Moscow's Mayor, said that terrorists from Chechnya caused the
explosion. However, Mr Basayev, the Chechen warlord, said: "We had nothing
to do with the explosion in Moscow. We will never kill civilians. This is
not our style."


The Independent on Sunday (UK)
12 September 1999
[for personal use only]
Invasion of the rouble barons
How the Moscow 'mafiya' gangs took a grip on London 

They call it the octopus - the tentacles of Russian corruption that entwine 
businessmen, politicians, prostitutes, bankers and contractors across the 
former Soviet Union and beyond to the West. 

Last week came the sensational revelation that its tendrils had embraced even 
the President himself. A central figure in an investigation of corruption in 
the Kremlin claimed that Boris Yeltsin and his family received paybacks from 
the Swiss-based company Mabetex, involved in renovation work at government 
buildings. Earlier it emerged that Russian businessmen and officials were 
involved in a suspected international money- laundering scheme worth up to 
$15bn, including possible loans from the International Monetary Fund. 
Aeroflot revenues have gone missing; Albanian companies, too, are alleged to 
have paid bribes to the President's family. 

And there are money launderers, mafiosi, people who have fleeced state 
businesses, and on-the-make entrepreneurs right here in the heart of London. 
So big is the community of new breed Russians that there are at least 40,000 
of them living here; it could be as many as 150,000. So keen are they on the 
English way of life that their children now make up 20 per cent of the 
foreign pupils at private schools. 

Much of the source of the money funding these lifestyles is under suspicion. 
US and British investigators are trying to unravel how up to $15bn came to be 
laundered - siphoned out of Russia through banks and companies while 
disguised as to exactly where it came from. They are particularly interested 
in the Bank of New York, one of whose officials, Lucy Edwards, was recently 
fired from its London HQ at Canary Wharf. Ms Edwards worked in the Eastern 
European division of the bank and was responsible for Russian business. Her 
husband, Peter Berlin, is alleged to be the holder of five accounts at the 
bank which may have been used for laundering. 

Key to allegations about what was happening at the Bank of New York was 
Semion Mogilevich, once dubbed "The Most Dangerous Mobster in the World". Ten 
years ago, Mogilevich, a 53-year-old Ukrainian, was just a petty criminal in 
a Moscow gang. He was one of the first to realise that London would be a key 
centre for laundering the dirty money from East European rackets into clean 
money in US bank accounts. Now he deals in billions and has associates around 
the world. 

So how has this transformation taken place? In the last decade, the fall of 
Gorbachev, the break-up of the USSR and Boris Yeltsin's rise to power removed 
any restraint in the growth of organised crime and corruption. People who had 
been involved in dubious business activity in Russia - wily ex-cons, tough 
former sportsmen, embittered veterans of the Afghan conflict and young 
martial arts exponents - even occasional biker gangs - moved on to bigger 

>From 1990 the new breed of Russian entrepreneurs began to arrive in London, 
flashing huge amounts of cash, and seeking access to Western money markets 
through the City and its financial institutions. 

"London is not Berlin," explains 'Dima', one Russian businessman working in 
London. "It has the City and access to the world's banking channels. The 
mafiya wanted that, they wanted prestige and respectability. These are not 
silly boys. They do serious business, they want their money to work for them. 
They have huge resources and they want profit. If they can't do it 
themselves, they hire the best they can get. Money no object."

Not all money was the proceeds of rackets - the former Soviet Union in the 
early 1990s was a Wild West where fortunes could be made or lost overnight, 
and much was. Often brash and free-spending, the new Russians rubbed 
shoulders uncomfortably with London's small but long-established Russian 
community, consisting mainly of political emigres. While many "White 
Russians" congregated around suburban Chiswick, the wealthy new arrivals 
prefer Hampstead, Knightsbridge, or the flashier parts of Surrey. In some 
neighbourhoods, one in four houses costing over 1m went to Russian families. 
Lucy Edwards and Peter Berlin reputedly bought their luxury apartment in W1 
for 500,000 cash last year.

Antony Wardell of estate agent Knight Frank's office in Ascot, Surrey, has 
housed a dozen Russian families in properties varying from 1.5m to 4.5m. He 
finds them particularly keen on the Wentworth Estate, near Virginia Water.

"They are very discreet people," said Mr Wardell. "They tend to be into 
hi-tech industries, oil and gas, banking and even property. They favour 
anonymity and they're conscious that their countrymen have previously had 
unfavourable media coverage."

Richard Humphreys, a director of Goldschmidt & Howland, one of the biggest 
agents in north-west London, said: "When they are here, for whatever reason, 
they like to keep themselves pretty anonymous, but they do like houses that 
make a bit of a statement. The amount of marble that might appeal to a 
Russian would perhaps be a little over the top for some Western European 

Many Russians are anxious to take advantage of the British education system. 
According to the Independent Schools Information Service, Russian pupils made 
up only 3 per cent of overseas students at private schools in 1994 but the 
latest figures show that the proportion has swelled to 20 per cent. 

Not all the new money is spent in such a savoury way. "Michelle", a petite 
and attractive 24-year-old mother, was kidnapped in her Lithuanian home town 
last year after she placed an ad in a newspaper looking for work. She fell 
into the hands of a East European mafia gang specialising in trafficking 
prostitutes to London. She ended up imprisoned in a flat in Lisson Grove in 
Marylebone and forced into prostitution. Police raided the flat and others 
run by the Russian gang, dubbed "The Doctors", and found one girl as young as 

British detectives and intelligence services now closely monitor signs of 
Russian mafia activity. A variety of routes is used to get money out of 
Russia, many of them passing through London, while the offshore tax havens of 
the Channel Islands and the Isle of Man are favourites too. Putting money 
through accounts in Cyprus, Antigua and other Caribbean countries has also 
been popular. 

Since 1993 the Antiguan authorities alone have licensed at least a dozen 
Russian banks, several of which have been associated with the Russian mafia. 
Earlier this year the British Treasury warned City financial institutions 
that Antigua had watered down its money-laundering regulations. The world's 
first internet bank, the European Union Bank, was based in Antigua. Its two 
Russian founders took off with their depositors' money. 

But, by comparison, the City of London is supposed to be the epitome of 
financial rectitude. Why have British banks failed to spot money-laundering 
transactions going through their London accounts? In the early 1990s there 
were none so blind as those who didn't want to see. But money-laundering laws 
are tougher now, so astute mafia money-launderers often use "respectable" 
Russian bank accounts to disguise the dirty origins of the money.

In the vital early years of the 1990s, when the embryonic mafia could have 
been nipped in the bud, governments and law enforcement agencies across the 
world failed to heed many warnings.

Jeffrey Robinson, an expert on the Russian mafia, has warned in his latest 
book, The Merger, that the Russian mafia formed alliances with organised 
crime groups across the world. He says this has created a "wealthy cabal 
destined to become the most powerful special interest group on earth".



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