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Johnson's Russia List
14 September 1999
[Note from David Johnson:
1. Moscow Times: Brian Whitmore and Simon Saradzhyan, Moscow Awash in
2. Reuters: US has worked to combat Russia corruption-Talbott.
3. LOS ANGELES TIMES: Janine Wedel, HOW THE CHUBAIS CLAN, HARVARD FED
4. New York Times: Fritz Ermarth, A Scandal, Then a Charade.
5. USA Today: Jack Kelley and Douglas Stanglin, Bond scam has 'strong'
6. Reuters: Text of Yeltsin address on Moscow bombings.
7. New York Times: Eleanor Randolph, Old Roots for a New Corruption.
8. Washington Post: Michel Camdessus, Long Climb Out of a Black Hole.]
September 14, 1999
Moscow Awash in Explosion Theories
By Brian Whitmore and Simon Saradzhyan
President Boris Yeltsin said Monday that "terror has declared war on the
Russian people," and vowed to fight back.
But even as Yeltsin and other officials denounced the third major bombing in
two weeks in the capital and ordered new security measures, uncomfortable
questions remained about exactly where the terrorism was coming from.
"The criminals have thrown down a sinister challenge," Yeltsin said in a
televised address. "They are trying to demoralize the authorities, to act
covertly like wild beasts who sneak out at night to kill sleeping people
without acknowledging their responsibility.
"But we already know who is behind the blasts; the name of the criminal is
Prime Minister Vladimir Putin compared those behind the explosions to "rabid
"It is difficult even to call them animals. If they are animals, then they
are rabid," Putin said in televised remarks in Auckland, New Zealand, where
he had been attending an economic summit. Putin cut short his trip and
returned to Moscow.
But who are the terrorists? With Russian forces in the North Caucasus trying
to put down stubbornly resilient Islamic militants in Dagestan, many
politicians and news media are pointing to the volatile region to find the
alleged culprits. Many said the source was breakaway Chechnya, where Moscow
fought a bloody war in 1994-96 that ended with Russian troops being driven
But with Chechen guerrilla commander Shamil Basayev denying responsibility
for the recent rash of bombings - and with Moscow's political battles heating
up as December parliamentary elections approach - other, even more sinister
explanations are emerging.
Monday's blast was the third major explosion in Moscow since Aug. 31, when a
bomb ripped through a video arcade in the Manezh shopping center next to the
Kremlin, fatally injuring one person and injuring 40 others. On Wednesday, a
bomb destroyed an apartment block on Ulitsa Guryanova in southeastern Moscow,
killing 94 and injuring 249.
Moscow Mayor Yury Luzhkov and Interior Minister Vladimir Rushailo, the
nation's top police official, said Monday that "Chechen terrorists" were
behind the bombings.
"The source of this terrorism we are naming as Chechen bandits,'' said
Luzhkov, standing amid the ruins of Monday's bombing, pledging to deport all
suspicious outsiders from the capital.
Rushailo specifically named Chechen commanders Basayev and Khattab, who only
uses one name, as the culprits. "What happened in Moscow was done by Khattab
and Basayev and their people. There is no doubt about it," Rushailo said on
Yeltsin and Putin were more circumspect, saying only that Russia was under
assault from still undefined terrorist forces.
Meanwhile, speculation that the Kremlin may seek to declare a state of
emergency in the wake of the recent terrorist bombings was widespread on
Monday. But Alexander Kotenkov, Yeltsin's representative in the State Duma,
parliament's lower house, said that in the absence of a law spelling out what
emergency rule entails, such a move would be difficult.
Duma Speaker Gennady Seleznyov said that parliament would take up an
emergency rule law soon. In the meantime, Seleznyov said an anti-terrorism
law passed in July could be invoked. The law allows for setting up a
counter-terrorist command authorized to beef up security checks and place
some curbs on civil liberties.
On Monday, the Novaya Gazeta newspaper reported, citing unidentified sources,
that a Chechen-led terrorist group - composed mostly of ethnic Slavs - was
behind the blasts. In a front-page article titled "We know who carried out
this bloody raid," journalist Vyacheslav Izmailov wrote that Khattab and
Basayev promised to pay participants in the bombing campaign up to $50,000
At a press conference in Grozny, Basayev denied any links with the Moscow
apartment blasts, or with one in Buinaksk in Dagestan that killed 64 on Sept.
3. Other leaders of the Islamic uprising in Dagestan, and of Chechnya's
government, also issued denials.
"The Chechen people and government are not behind the Moscow explosions. We
express our condolences to the wounded and over the dead, but we are not
responsible for these acts," Chechnya's State Secretary Hussein Akhmadov said
Sirazhdin Ramazanov, self-styled prime minister of the Islamic militants
fighting in Dagestan, in a statement released through the rebels' Internet
site also denied involvement and blamed the explosions on battles among
Moscow's political clans.
"The purpose of these acts of terror is to solve internal political problems
connected with the unprecedented power struggle in Moscow," Ramazanov was
quoted as saying.
A spokesman for the FSB, the successor to the KGB, denied Russian law
enforcement bodies were involved in the blast, accusing the rebels of trying
to "shift the blame."
One U.S. terrorism specialist said if Chechens were behind the bombing, it
would be out of the ordinary for them not to take responsibility.
"It is very unusual to have terrorism without claims of responsibility," said
Nicholas Berry, a political science professor and terrorism expert at Ursinus
College in Pennsylvania. "Terrorists seek to show their opponents what they
are capable of and show their supporters that they are strong."
Some politicians and news media have connected the bombings to battles among
political groups in the capital as elections approach. Monday's edition of
the Moskovsky Komsomolets newspaper, which went to press before the latest
explosion, claimed that Russia's security services may have been behind last
week's explosion - and were preparing another one.
"Did the security services prepare the explosion?" read the headline. The
article asked: "For whose benefit and to what ends was such a terrorist
attack carried out?" The newspaper said that whoever was behind the bombings
seeks "the complete destabilization of the situation in the country."
For months, Moscow has been rife with rumors that the Kremlin would provoke
some sort of crisis to use as a pretext for canceling elections, perhaps by
invoking the constitution's provision for a state of emergency.
After last Thursday's blast, Communist lawmaker Viktor Ilyukhin strongly
implied that the Kremlin was behind the bombings, saying they were aimed at
fanning hysteria to discredit Luzhkov, who is mistrusted by the presidential
entourage. The ambitious mayor's Fatherland political movement is expected to
make a strong showing in parliamentary and presidential elections.
And on Monday, flamboyant nationalist lawmaker Vladimir Zhirinovsky got even
more specific, blaming Kremlin-connected business tycoon Boris Berezovsky and
Krasnoyarsk Governor - and Berezovsky ally - Alexander Lebed. Zhirinovsky
called for both Berezovsky's and Lebed's arrests, adding that until this
happens, "provocations in the country will continue."
Berezovsky has been described in news media speculation as fearing a Luzhkov
presidency, which might result in a settling of political scores through
redistribution of privatized government enterprises or criminal prosecutions.
US has worked to combat Russia corruption-Talbott
By Carol Giacomo
WASHINGTON, Sept 13 (Reuters) - U.S. Deputy Secretary of State Strobe Talbott
said on Monday the Clinton administration had long known about the corruption
problem in Russia and has worked diligently to combat it.
In an interview with Reuters, Talbott also predicted that Russia can overcome
this debilitating problem -- which U.S. President Bill Clinton has warned
could "eat the heart out of Russian society" -- if it continues on the road
"Those of us working on Russia and the new independent states have been
acutely aware of crime and corruption as a big and very damaging and even
dangerous problem all along," in part because Russians "complained about it
and told us about it," he said.
Although corruption in Russia is now making headlines, the administration for
years has sought to prevent such activity by putting conditions on U.S. and
international funding and encouraging programs promoting transparency, the
rule of law, and a realistic and effective system of tax collection, he said.
In addition, the commission overseen by Vice President Al Gore and a
succession of Russian prime ministers has a subgroup on crime and corruption
precisely "because of our awareness of this problem and our desire to do
something about it," he said.
KEY ARCHITECT OF POLICY
Talbott, a key architect of U.S. policy toward Russia, defended the
administration's approach in the face of a new wave of criticism following
allegations that billions of dollars in Russian funds have been laundered
through the Bank of New York <<A HREF="aol://4785:BK">BK.N</A>>.
The money-laundering charges, under investigation by U.S. and British
authorities, have revived questions about whether the administration "lost"
Russia and put too much faith in Russian President Boris Yeltsin, who has
denied reports he is linked to current scandals.
Talbott refused to discuss details of the probe but he dismissed the idea of
the United States "losing" Russia, asserting: "It strikes me as a profoundly
"Nobody's lost Russia. Russia is still there. The Russian people are working
at the job of deciding what kind of country they are going to be in the next
century," he said.
"We have some influence over that. It's probably not decisive but it's
certainly more than negligible," he added.
He reiterated the long-standing U.S. argument that Russia "isn't for anybody
to lose but the Russians themselves."
DEMOCRACY WILL CONQUER CORRUPTION
Talbott also argued that "Russia will conquer this (corruption) difficulty
If the next presidential and parliamentary elections "continue on schedule
and continue to be free and fair, the Russian people over time will have a
chance to change the nature and priorities of their leaders in a way that
puts increasing emphasis on the struggle against corruption," he said.
If not, "the Russian people are going to be the losers," he said.
Talbott said corruption was endemic to the old Soviet system, so the problem
"didn't begin with the coming of democracy to Russia" when communism fell in
Also, "it would be a great mistake to see this as exclusively a Russian
problem," he said, noting that the problem exists throughout the
post-communist world and in other areas where political transitions are in
process, like Africa.
Talbott declined to say if the United States would support a cutoff of
funding to Russia because of the corruption.
But the administration would continue to use the International
Monetary Fund and other institutions to back "genuine reform and
transformation in the right direction in Russia," he said.
He also pledged Washington would do "absolutely everything necessary to
protect and preserve the integrity" of institutions like the IMF.
As for Russia's next presidential election, in which Yeltsin is expected to
be replaced by the country's second democratically elected leader, Talbott
said the United States would back no candidate but "support the process ...
an open free fair contest for political power at the ballot box."
He said he did not believe the corruption scandal would cause a "quantum"
change in U.S.-Russian relations and did not expect this to be the last
problem to confront the two countries.
But he said he was "cautiously positive" that Russian democracy has proven
remarkably resilient, despite naysayers, and while the Russian Communist
Party remains a major political factor, other political groups have asserted
U.S. Secretary of State Madeleine Albright is expected to discuss corruption
and other issues in a major speech on Russia on Thursday at the Carnegie
Endowment for International Peace.
LOS ANGELES TIMES
September 12, 1999
[for personal use only]
HOW THE CHUBAIS CLAN, HARVARD FED CORRUPTION
by Janine R. Wedel (firstname.lastname@example.org)
Janine R. Wedel, associate professor at the Graduate School of Public and
International Affairs at the University of Pittsburgh, is the author of
Collision and Collusion: The Strange Case of Western Aid to Eastern Europe.
As more becomes known about Western participation in the laundering of
Russian money, the Washington establishment likely will try to hide behind
stories of faraway organized crime and distance itself from any culpability.
But U.S. policy toward Russia has contributed to that country's sorry
conditions. Russian "reformers," including many under investigation for
allegedly laundering billions of dollars through the Bank of New York, have
long been embraced by the Clinton administration and international
financial institutions. Among them are current and former members of
Russian President Boris N. Yeltsin's government, to which the West pinned
its hopes for a new relationship with Moscow and entrusted hundreds of
millions of dollars in aid. For years, despite accounts of massive capital
flight, money laundering and Russians buying up the French Riviera, the
money kept flowing. Yet, no Russian dollar can be deposited in a Western
bank account without the knowledge and participation of a Western
institution. As former Russian prime minister Viktor S. Chernomyrdin, who
is accused of corruption, recently asked: "What has suddenly made them
[the Americans] wake up?"
Among those under investigation in the West for money laundering is
longtime Yeltsin aide Anatoly B. Chubais, the chief architect of Russia's
economic reforms. While under investigation in Russia for matters ranging
from suspect banking deals to bribery, Chubais and his clique of political
and financial powerbrokers, known as the "Chubais Clan," were the darlings
of the U.S. Treasury and international financial institutions. With
Treasury Secretary Lawrence H. Summers the key architect of U.S. economic
policy toward Russia since 1993, the administration gave the Chubais Clan
much control over hundreds of million of dollars in aid.
The Clan worked closely with the Harvard Institute for International
Development, whose Russia project was headed by economist Andrei Shleifer,
Summers's co-author and protege. Citing "foreign policy considerations,"
Clinton administration policymakers largely bypassed the usual public
bidding for foreign aid contracts. Harvard principals with ties to the
Chubais Clan were given "substantial control of the U.S. assistance
program," according to a 1996 report by the U.S. General Accounting Office.
Since 1997, Shleifer and another Harvard principal have been under
investigation by the U.S. Justice Department for misuse of funds.
The Harvard Institute, together with the Chubais "dream team," as Summers
called it, presided over Russia's economic "reforms," many of them
U.S.-funded, including privatization. But the reforms were more about
wealth confiscation than wealth creation. The first stage of
privatization, which had substantial input from U.S.-paid Harvard advisers,
fostered the concentration of property in a few Russian hands and opened
the door to widespread corruption.
Then Chubais approved the "loans-for-shares" program, which was
masterminded by his associate, Vladimir O. Potanin, a onetime deputy prime
minister for economic affairs who also is named in the current
money-laundering investigations. It was under this scheme that insider
deals and coziness between government and Russia's oligarchs became
crystallized for all to see. But the Clinton administration continued its
support for its favored "reformers."
In the name of privatization, loans-for-shares transferred control of many
of Russia's prime assets for token sums to seven preselected bank chiefs.
Potanin, chairman of one of them, the powerful Unexim bank, since 1993,
paid rock-bottom prices for shares in some of the nation's crown jewels.
He also enabled the Harvard Management Company, the university's endowment
fund, to participate in loans-for-shares auctions and get in on two of
Unexim's best deals, despite the fact that foreigner investors were
supposed to be excluded under auction rules.
Another "reformer" was Konstantin Kagalovsky, an old friend of the Chubais
Clan, and husband of Natasha Kagalovsky, who was suspended by the Bank of
New York in the money- laundering scandal. In charge of incoming foreign
aid in 1991, Kagalovsky was sent to Washington to be Russia's first liaison
to the International Monetary Fund. After serving in the post from 1992 to
1995, he returned to Russia in time to participate in the loans for shares
scam. As deputy head of Menatep bank, Kagalovsky presided over the
"auction" of Yukos, a large oil company. As it turned out, Menatep
acquired the company in the auction, a deal that the Chubais group clearly
Besides failing to achieve viable economic reform, the Chubais-Harvard
partnership undermined democratic and state institutions. With U.S.
support, it operated through executive decree, circumventing the Duma, the
democratically elected parliament. The partnership also ran a network of
aid-funded "private" organizations, some of which usurped state functions.
For example, the Russian Privatization Center negotiated loans with the IMF
on behalf of the Russian state, bypassed the Duma and contributed to the
Chubais Clan's political and financial base. It attracted some $4 billion
in Western aid, according to its CEO, which the Chamber of Accounts,
Russia's rough equivalent of the GAO, said "was not spent as designated."
In 1996, the GAO also had objections. It found that U.S. oversight over
Harvard was "lax," and, following allegations in 1997 that Shleifer and
another Harvard manager used their positions and inside knowledge as
advisers to profit from investments in Russia, the U.S. government
cancelled the last $14-million award earmarked for Harvard.
Did the Russians do all this alone? Clearly, the administration
consistently backed a small group of self-interested insiders by giving
them the "dream team" seal of approval and a blank check in the form of
billions of dollars in Western aid and loans, while neglecting the
development of a legal and regulatory backbone for Russia's nascent market
economy. In 1996 Chubais was placed on Harvard's (U.S.- assistance-funded)
payroll. Even his admission, after the Russian economic crash last August,
that he had "conned" from the IMF its most recent $4.8-billion installment,
the details of the deal having been worked out with Summers, brought
administration officials to Chubais's defense. As we now know, the IMF
money disappeared in short order.
Still, Chubais has remained an administration favorite son. In
Washington this past May, Chubais, now chairman of Russia's electricity
monopoly, was received by U.S. officials, including Summers, then-Treasury
Secretary Robert E. Rubin, Secretary of State Madeleine K. Albright,
Undersecretary of State Strobe Talbott and National Security Adviser Samuel
R. Berger, as well as by top officials of the IMF and World Bank.
Were these officials and politicians oblivious to the "clan-state"
developing in Russia, in which property was concentrating in a very small
circle and owners were chosen by government officials? Were they totally
unaware that billions of dollars were being looted from Russia and
channeled through Western banks? Both the U.S. and the Russian
intelligence communities have been monitoring these developments since the
early 1990s. As the American press reported last fall, CIA studies
detailing capital flight and corruption of Russians with whom
administration officials were cozy at best were ignored.
As information trickles out about capital flight and money laundering, it
will be easy to point fingers at "corrupt" Russians, to replace the image
of the "evil empire" with that of Russian gangsters. It will be crucial to
scrutinize with equal fervor the officials and institutions on the Western
side that enabled, indeed may have even encouraged, the misdeeds.
New York Times
September 12, 1999
[for personal use only]
A Scandal, Then a Charade
By FRITZ W. ERMARTH (email@example.com)
Fritz W. Ermarth was a senior officer of the Central Intelligence Agency who
retired in October 1998. He served on the National Security Council staff
under Presidents Carter and Reagan.
WASHINGTON -- Responding to the scandal over alleged Russian
money laundering, the Clinton Administration has offered two
basic defenses of its Russia policy: 1) that it has long known about crime
and corruption (Deputy Secretary of State Strobe Talbott), and 2) that we
must stay engaged with Russia for our national security (Samuel Berger,
national security adviser). Both of these statements are true. So what is
wrong with this picture?
Of course the Administration has been aware of the crime and corruption
and has known that this has been much more than mafia-type activity. It
has known that "reform" was the entrenchment of a kleptocracy in which
corrupt officials ally with a very few business magnates to send wealth out
of the country.
It has been crony capitalism without much capitalism. But the
Administration wrote off the top-to-bottom corruption of what it proclaimed
as Russian reform. It also discouraged candid intelligence and diplomatic
reports about it, as former officials are now revealing.
This silence protected our policy, especially International Monetary Fund
No audience has found this more offensive than have the Russians
themselves, for they, along with anyone who bothered to read their press,
knew the truth. In Washington a few months ago, Georgi Arbatov, the old
warhorse of Soviet propaganda, recalled President Clinton's saying in
Moscow last September that if the Russians continued down the path of
reform, they would get more international support (that is, I.M.F. and other
Given the plundering and impoverishment that "the path of reform" has
meant, Mr. Arbatov asked, how could Russians not suspect that the
United States was deliberately conniving in the wrecking of their country?
For once, after decades of sparring over cold war issues, I had to tell Mr.
Arbatov that I agreed with him fully.
So why this charade on our part? The Administration implies in public and
pleads explicitly in private that we had to support the Yeltsin regime,
despite the corruption and the murderous Chechen war, because we
needed its cooperation on security issues from arms control to
proliferation to the Balkans. These are important interests. And valuable
things have been achieved, like dismantlement of Russian strategic
missiles and improved security at some nuclear sites. No nukes have got
loose yet, so far as we know.
But we have to ask: is our overall security relationship with Russia in
better shape today than it was in 1993? The answer is clearly no.
Diplomatic relations are testy. Arms control is frozen. The danger that
nuclear and other weapons might leak out of Russia is hardly diminished.
Russian elites are more interested in undermining American superpower
status than in cooperation.
Worst of all, we have largely lost the admiration and respect of the
Russian people that we had six years ago, because of the perversity of
the reforms we have been applauding.
Was this "bargain" worth it, especially since it jeopardized our long-term
goal in Russia, its development of real democracy and capitalism?
Think how the Administration's "defense" must look to Russians: you
support the regime's corruption of our country on the inside so it supports
you in your humiliation of our country on the outside. One could not
concoct a better propaganda line for Russia's extreme nationalists.
This defense will not wash. We had other options: a more critical stance
toward the regime, tighter conditions on lending, and, above all, more
honesty. Because Russia spans 10 time zones, possesses thousands of
nuclear weapons and could influence the fate of democracy in the next
century, Mr. Talbott and Mr. Berger are right: we must remain engaged
with Russia. But not their way.
with Russia. But not their way.
13 September 1999
[for personal use only]
Bond scam has 'strong' Kremlin ties
By Jack Kelley and Douglas Stanglin, USA TODAY
LONDON - U.S., British and Russian investigators have told USA TODAY there is
"strong evidence" that 780 Russian officials used a bond-selling scheme to
transfer billions of dollars out of the country last year, beginning just 72
hours after the International Monetary Fund (IMF) deposited a $4.8 billion
loan into Russia's Central Bank.
The list includes high-ranking current and former officials such as former
deputy prime minister Anatoly Chubais, architect of Russia's privatization
after the 1991 fall of communism, and former foreign minister Andrei Kozyrev.
Both deny any wrongdoing.
The accusations are part of a probe by U.S., British and Russian officials
into whether Kremlin authorities and the Russian mafia may have directed up
to $15 billion, including as much as $10 billion that came to Russia via IMF
loans in recent years, out of the country through the Bank of New York and
other financial institutions.
The Bank of New York has not been accused of any wrongdoing and is
cooperating with the investigation. It has dismissed two of its employees,
one for "gross misconduct;" the other for refusing to cooperate with the
bank's internal probe.
Investigators have called the case the largest probe of possible money
laundering in U.S. history. They repeatedly use the words "mind-boggling" and
"astounding" to describe the amounts of money that may be involved.
The case, and the controversy surrounding it, has caught the attention of
Sunday at the Asia-Pacific Economic Cooperation summit in Auckland, New
Zealand, President Clinton warned Russia's new prime minister, Vladimir
Putin, that growing corruption in Moscow could "eat the heart out of Russian
society" if it continues unchecked.
The Clinton administration has already said it will not support any more IMF
credits for Russia until there has been an adequate accounting of the money
that has already been lent. The 182-nation IMF has lent Russia more than $20
billion since 1992.
Meanwhile, Vice President Gore has been criticized by Republicans for
pressing the IMF earlier this decade to be less stringent in its accounting
of its money to Russia. Gore has said the Clinton administration always
pushed to stabilize Russia .
On Capitol Hill, the furor is also growing, The House Banking Committee has
said it wants to hold hearings this month into how U.S. banks could have been
used. Sen. John Kerry, D-Mass., has asked Senate Banking Committee Chairman
Phil Gramm, R-Texas, to hold hearings as well.
In Moscow, talk of the case fills the Kremlin's corridors. Government
officials, eager to show that they want to stop any money laundering, are
sending their own investigators to the United States this week to discuss the
case with U.S. officials.
But other Russian officials have gone into hiding or simply stopped answering
their phones. Two, including a former government minister, have changed their
phone numbers twice in the last week.
A major focus of the investigation involves IMF funds allocated to Russia on
July 20, 1998. The funds were intended to prop up the Russian ruble and
provide the Russian government with money to meet some critical budget
priorities, such as paying back wages to miners, IMF officials said.
But the money doesn't appear to have been used for its intended purpose.
'Pocket the difference'
USA TODAY has interviewed more than a dozen U.S., British and Russian
officials involved in the investigation, current and former IMF officials,
and experts on Russian organized crime and financial markets. Based on
thousands of pages of bank records those officials have examined, recordings
of hundreds of wiretaps they have listened to and dozens of interviews they
have conducted, here is what U.S., British and Russian investigators believe
• On July 20, 1998, the IMF deposited $4.8 billion in Russia's Central Bank.
• About that time, Russian banks, some under the control of government
officials, were tipped off to the Kremlin's plan to devalue the ruble.
• The banks and government officials, who had purchased high-interest,
short-term treasury notes issued by the government and known as GKOs, began
selling them before the devaluation would drastically reduce their value.
• The banks took their ruble proceeds from the sales of the notes - including
the proceeds earned by the government officials - and exchanged them for
dollars from Russia's Central Bank. Some of the dollars in the Central Bank's
reserves were from that IMF deposit.
• The banks then transferred the dollars to overseas banks.
• On Aug. 17, 1998, the ruble collapsed, leaving the GKOs held by the Central
Bank nearly worthless. Meanwhile, the IMF money was effectively gone.
"These people were tipped off, (they) speculated, cashed out and pocketed the
difference," a U.S. investigator said. "It was not an accident."
Since the IMF funds, as is standard practice, were directly deposited into a
general account at the Russian Central Bank and mingled with existing
currency, it is impossible to distinguish IMF funds from other dollars.
Still, a senior IMF official in Washington said he had "no doubt" that IMF
money was effectively transferred out.
"Most certainly, IMF money was involved," the official said. "Everyone knows
it. There is no doubt."
"How or why should we think otherwise?" added a former IMF official familiar
with the transactions. "There are a lot of crooks out there." The officials
requested anonymity for fear of jeopardizing their positions.
While exact figures are difficult to determine, a U.S. investigator and
former IMF officials said that the Central Bank's hard currency reserves
stood at roughly $13 billion in late July, before the injection of $4.8
billion in IMF money. After the outflow of capital and later the collapse of
the ruble, the account was once again at around $13 billion. "All the IMF
money was gone," the investigator said.
An internal IMF memo, written three days after the deposit of IMF monies,
alerted fund officials that "large outflows of money" had been tracked
leaving Russia. The memo, reviewed by USA TODAY, also warned that the IMF
monies might have been improperly used.
On Aug. 17, 1998, the Russian ruble collapsed, causing the value of the GKOs
to plummet. Investigators believe 780 officials used insider knowledge to
cash out before the collapse.
"The IMF money was never intended to finance a pyramid scam," a former senior
IMF official said. "I fear there are other scams out there just waiting to be
Still, the IMF's public position is that it has no evidence at this point
that IMF monies were used improperly. "We want information. We want to
investigate," IMF spokesman Tom Dawson said from Washington. "We take these
matters very seriously."
In any case, Dawson said that the sale of dollars by the Russian Central Bank
to buttress the value of the ruble on the foreign exchange is a legitimate
use of IMF monies. He also said an audit of the July 1998 IMF loan by
PricewaterhouseCoopers on August 10 this year showed no irregularities.
But a forensic auditor involved in the PricewaterhouseCoopers report said
Russian officials refused to turn over many requested documents such as
balance sheets and account statements. The final audit was based only upon
information provided by the Russian government. Critics of IMF policies
toward Russia have argued that it should have insisted on better oversight of
its allocated funds.
List of 780 names
The Russian officials under investigation were identified after a lengthy
probe by Russia's prosecutor general, with assistance from U.S. and British
investigators. The probe involved the monitoring of bank transactions and
wiretaps. The list of 780 names, reviewed by USA TODAY, was verified by U.S.
Both Chubais, who was instrumental in winning the $4.8 billion IMF loan, and
Kozyrev denied engaging in any illegal activities.
"The accusations are lies," said Chubais' aide, Leonid Gozman, from Moscow.
"Mr. Chubais never bought any GKOs while in the Russian government. He bought
them after he left but did not use inside information or connections to make
any profits. In fact, he lost money."
"I have done nothing illegal," Kozyrev said from Moscow. "These allegations
are a waste of time and shouldn't be printed."
As part of the probe, investigators obtained more than 3,500 pages of records
from the Bank of New York showing that "several billions" of dollars were
transferred out of Russia just days after the IMF monies were allocated and
before the ruble crash took place.
Money flowed into at least 20 accounts at the London office of the Bank of
New York, investigators said. It was then transferred to small banks in the
Isle of Man in the Irish Sea, the island of Antigua in the Caribbean and
several other locations, they added.
The Kremlin list, which includes everyone from ministers to administrative
clerks, was compiled from information seized from a Central Bank database by
Russian Prosecutor General Yuri Skuratov. The list was printed on computer
paper. It contains names and dates of when officials purchased and sold GKOs,
the value of the GKOs before the ruble was devalued, when they were sold and
to whom, which banks were involved, and the last known locations of the
President Boris Yeltsin suspended Skuratov last April after Russian
television broadcast a videotape of a man resembling Skuratov in bed with two
Skuratov has charged that Yeltsin tried to oust him for exposing Kremlin
corruption. He remains in his position at the insistence of the Russian
Yeltsin's attempt to dismiss Skuratov came at the same time the Kremlin had
learned that he was investigating allegations that a Swiss design firm,
called Mabetex, gave kickbacks to the Yeltsin family in exchange for $300
million in contracts to renovate the Kremlin.
In the last two weeks, Yeltsin has also dismissed three other Russian
investigators looking into government corruption. One of them, Georgy
Chuglasov, was in charge of the Mabetex investigation.
"Everyone in the Kremlin, and probably in Washington, too, are running scared
of this case," Skuratov said in Moscow. "It goes all the way to the top of
the Kremlin hierarchy. It's bigger, and more scandalous, than anyone
Text of Yeltsin address on Moscow bombings
MOSCOW, Sept 13 (Reuters) - President Boris Yeltsin urged Russians on Monday
to remain calm after a Moscow apartment block blast killed at least 45
people. He vowed a tough, swift response. Following is the text of his
televised address to the nation (translation by Reuters, about 350 words):
Today, a day of mourning, a new disaster hit us. There has been another
explosion with more victims. Another night-time blast in Moscow. Terrorism
has declared war on us, the people of Russia.
I have given already the necessary orders. An anti-terrorist operations
headquarters has started working with Interior Minister (Vladimir) Rushailo
as its head. He will coordinate the actions of the Interior Ministry and
other security bodies.
We are living amid a dangerous spread of terrorism and that demands the
uniting of all forces in society and the state to repel this internal enemy.
This enemy does not have a conscience, shows no sorrow and is without honour.
It has no face, nationality or belief. Let me stress -- no nationality, no
The struggle with terrorism cannot remain merely the business of police and
special services. The situation makes us face the tough need to show
willpower and unite our forces. Power should be consolidated in the face of
this terrible threat.
Federal and regional bodies should work as a united body. The government,
parliament and president's administration should work as a well-coordinated
I am paying a special attention to repelling terrorist attacks in Moscow. We
understand how difficult it is now for the Moscow city authorities, for
(mayor) Yuri Mikhailovich Luzhkov. I will give him all the help and support
he needs in these difficult days.
Respected citizens, I deeply mourn for those who have died and express my
condolences to their relatives and friends. Our pain is immeasurable but I
ask all of you to be self-controlled.
The main aim of the bandits is to scare people and spread panic. I am sure
they will not live to see this. The best response to the terrorists will be
your vigilance and calm.
Today it depends on each of you how effective the fight with this evil will
be. The authorities will reply to the bandits' challenge in an adequate,
tough, swift and decisive way.
New York Times
September 13, 1999
Old Roots for a New Corruption
By ELEANOR RANDOLPH
Russians are full of ancient admonitions about how to survive in their
proud and difficult country. One maxim that has served entirely too well
through many decades and many forms of government suggests that "if you
are turned away at the front door, try knocking at the back with a
ruble." Unfortunately, such advice still works as well today as it did
over a century ago.
Any Russian parent, for example, tries hard to keep a son out of the
army, where hazing, disease and ragged equipment add to the normal
hazards of war. In Moscow, which finds very few 18-year-olds healthy
enough to serve, the cost of an official exemption for illness is $3,000 to
$5,000, depending on the doctor.
To get a new phone in Russia often requires a cash-laden handshake. A
bank loan, a government document, almost any transaction demands a little
something extra. A driver's license costs a few hundred dollars on the
street, although I know a Russian woman who told her husband that even
with his newly purchased license, he could not drive a car until he
actually learned how.
While the West focuses on the possibility of scandal at the highest levels
of the Russian Government, most Russians would acknowledge that any
influence-buying in the Kremlin is simply a more expensive version of
their own everyday price of existence. Moreover, such lawlessness, on a
petty or grander scale, is not new to Russia. Corruption in the czarist
days helped the Communists bring down the Government over 80 years ago,
and Communist corruption -- a state secret -- helped erode the Soviet
Union from within. Now, the important question is how today's corruption
will affect this latest Russian experiment with democracy and a form of
capitalism that still appears stuck in its robber-baron stage.
"It was a lawless state before, and it was a society completely alienated
from its Government. What we have now is not very different, except that
nobody is afraid of the Government anymore. The Government is weak now,
and it is easier to steal from," explains Masha Lipman, one of Moscow's
top political analysts.
What is different, as Ms. Lipman quickly points out, is that she can
complain openly about any scandal brewing within the Kremlin walls. Her
colleagues at the news magazine Itogi can investigate the president; they
can reprint critical articles about corruption from Western news
organizations without fear of the secret police or Siberia. This is new in
Russia. This is better.
What is also different since the Soviet Union expired eight years ago is
the elections. The Soviets held elaborately fake votes -- with one
candidate per government position. Now, a far messier and more democratic
system is being born, with elections looming for the Duma in December and
president next year.
This progress sometimes gets overlooked by the Western media, ever ready
with instant labels. Russia is a mafia paradise, they conclude, a
full-fledged bandit state, its opportunity for reform and enlightenment
lost forever under a sludge of bribery and scandal. The television
interviewer Charlie Rose suggested recently that if Russia were a movie,
it would be called "Apocalypse Soon."
" 'Apocalypse Not,' " counters Strobe Talbott, Deputy Secretary of State.
Mr. Talbott, who spends a lot of his time trying to lift the American
political gloom about Russia, sees elections as the way out of Russia's
lawless state. If Russians do not respect the laws, do not like the way
their officials are conducting the nation's business, they can change the
officeholders. There is reason for hope for a law-based society in Russia,
he concludes, "as long as there are freely contested elections." This
transformation, even Mr. Talbott agrees, is going to take a very long time.
It will also take a public will in Russia to push for such changes in the
political system. Reform is not something that advisers from Harvard can
magically create in Moscow, and the Russians will have to figure out how
to elect politicians who will serve a larger public interest. Until then,
Russian laws are as weak as paper, and much of what Westerners label
lawlessness, Russians call survival.
13 September 1999
[for personal use only]
Long Climb Out of a Black Hole
By Michel Camdessus
The writer is managing director of the International Monetary Fund.
In recent weeks, Russia's difficult road to economic reform has become a
deeply emotive issue in world capitals. Allegations of money laundering have
set in train angry recriminations about the strategy chosen by the
international community to help Russia emerge from the nightmare of the
But before political passions get the better of us, it is crucial that cooler
heads prevail. The International Monetary Fund, as the agent of policy
decisions made by its 182 member countries, has been at the center of the
effort to assist the Russian people. From that vantage point, the IMF has
witnessed, and learned from, the mistakes and the successes of the past
And there have been successes. Russia has achieved a certain level of
economic stability -- including overcoming the threat of hyperinflation and
putting in place reforms that are the foundation of a modern market economy.
These are significant achievements.
There also have been setbacks. Growth has been disappointing, the pace of
institutional reform has left much to be desired and living standards for
most Russians have fallen since Communist times. But these shortcomings
represent not so much the failure of reform as the effects of 70 years of
central planning and the incomplete implementation of reform policies --
itself a result of a lack of domestic political consensus on reform.
These problems also have been exaggerated at times. For example, some news
reports in recent weeks have alleged that substantial sums of IMF aid have
been siphoned out of Russia through a money-laundering scheme at the Bank of
New York. The IMF takes these claims seriously and is trying both to
ascertain their basis and to strengthen even further the safeguards on the
use of its funds. However, we should note that so far no evidence has been
found to support the allegation that IMF funds have been diverted from their
For the future, even stronger safeguards have been in place for some time to
ensure that IMF funds cannot be misused. Under the 17-month, $4.5 billion
lending program approved on July 28, all IMF money disbursed to Russia will
be held at the IMF. Repayments to the fund from earlier loans to Russia will
be made from that account.
Those arrangements are a response to the FIMACO episode, in which the Russian
central bank hid from the IMF its use of an offshore subsidiary to handle
some of its foreign reserves. That affair, which did not involve money
laundering, has been extensively examined at the IMF's insistence by the
accounting firm of PricewaterhouseCoopers. The Russian authorities now
understand that any future efforts to hide the true level of foreign reserves
from creditors can result in loan suspension.
The IMF, through the routine process of monitoring its lending programs, is
scrutinizing the Russian authorities' policy implementation. If the fund's
executive board concludes that Russia is failing to meet program commitments,
it will consider suspending further disbursements, as it has done on several
occasions in the past.
At the same time, we must address two overriding issues: whether engagement
is better than isolation, and whether there is reason to hope that economic
reform will succeed in Russia and other countries facing the same painful
On the question of engagement, there can be no doubt that the world is better
served by constructive dialogue between former enemies. The most impressive
outcome of our engagement with Russia is that despite all the difficulties,
Russia has tried to stay engaged with the international community and to
become part of the global economy. If the international community had walked
away from Russia in the past year, Moscow would not have taken steps to
repair its damaged relations with creditors. The government probably would
not have rejected calls for greater intervention in the economy. It would
have had a much harder time maintaining open markets, and Russia likely would
not have stayed at the negotiating table to hammer out new agreements with
the IMF and the World Bank.
As for progress in reforms, it is clear that Russia's economic situation is
not a lost cause, as some critics would suggest. There is evidence of
economic revival and reason to believe that output this year will be above
last year's level.
Certainly the situation is improved from a year ago, when Moscow's default on
its foreign debts sent the ruble into a tailspin, unnerved global financial
markets and caused the Russian economy nearly to grind to a halt.
Despite the political instability in Moscow, the authorities have put in
place economic policies that have mitigated the downturn. Budget and monetary
policies have been restrained and have kept inflation in check. Factory
production is rebounding, and many domestic manufacturers are taking
advantage of last year's devaluation to replace imports. Cash payments again
are replacing barter.
These are not insignificant achievements, and one hopes they are a harbinger
of further progress as Russia continues to assimilate the lessons of its
policy errors. Foremost among these is the blow to the country's credibility
from the debt default. In recent months, important steps have been taken to
repair that damage as the authorities engage in constructive talks with their
There is no question that there have been lessons to learn on all sides as
the IMF and its member countries have tried to assist Russia through the
transition to a market economy. Politicians and economists alike have
underestimated the enormous obstacles, and some of those obstacles
unfortunately reveal the worst failings, especially the staggering corruption
that drains off so many resources.
The transition from the black hole of the Soviet command economy will take
years, and progress will not be linear. Our -- the outside world's --
assistance must be determined by improvements that can realistically be
achieved, not by too-distant goals. But any potential achievements will fade
into impossibilities if we walk away from Russia. The loss of confidence and
turning inward that would result from abandoning the Russian people are in
the interests of neither Russia nor the rest of the world.